TaxTMI 
TaxTMI 
2002 (5) TMI 163
X X X X Extracts X X X X
X X X X Extracts X X X X
....aterials as regards the sale price of the processed fabrics. 2.2The appellants were served with a show cause notice on 15-6-96 alleging that during the processing of the fabrics there was a shrinkage loss of 4%, which was liable to be included in the assessable value of the processed fabrics. Accordingly the notice called upon the appellant to show cause against the proposed demand of duty and imposition of penalty. 2.3The appellants' main contention before the Commissioner was that when the duty has been paid on the selling price of the processed fabrics at the hands of the sender of the raw material, there was no occasion to go to the costing factor. In fact it was their submission that the price declared by the traders was inclusive of their profit and as such they have paid higher quantum of duty. Various other submissions on the point of limitation as also on the quantification of the demand were also raised. 2.4The Commissioner vide his impugned order dt. 10-10-2000 did not find favour with the appellants' submissions and confirmed the demand of duty, as proposed in the notice and also levied penalty of Rs. 25,00,000/-. The said order is impugned before us. 3.Shri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fabrics had not taken into account the shrinkage loss while working out the cost of grey fabrics. Even no statement was recorded from any of the suppliers of the grey fabrics. (c) As has been found by the Commissioner on getting the records examined by the Departmental officers (last paragraph at page 5 of the order), the suppliers of grey fabrics were determining their selling prices by including their profits. The said suppliers could never work out their profits without taking into account the shrinkage loss. (d) It is submitted that in the aforesaid circumstances there can be absolutely no scope to make any assumption as if the cost of grey fabrics included for fixing the selling prices of processed fabrics in the hands of the outside parties did not take into account the shrinkage loss. The purported finding of the Commissioner in this regard is wholly without any basis or material and has been given on totally unfounded assumptions and presumptions and on mere surmises and conjectures. 4.Shri Bagaria draws our attention to the clarificatory judgments of the Hon'ble Supreme Court in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor's expenses, costs and charges plus profit, but it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alue arrived at by taking into account the cost factors, the ratio of the Hon'ble Supreme Court's clarificatory decision in the case of Ujagar Prints, referred supra, clearly applies. Accordingly we set aside the impugned order on this ground itself and allow the appeal. 9.Inasmuch as the appeal has been allowed on the main ground of adoption of selling price of trader as the assessable value we are not passing any orders on the other issues of the demand being time barred or on the appellants arguments of wrong quantification of demand. Sd/- (Archana Wadhwa) Member (J) [Contra10. per : K. K. Bhatia, Member (T)]. - The Commissioner has observed in his order that by not taking the element of shrinkage of the grey fabrics into account, the appellants have not paid duty on the value of the actual quantity of grey cloth, gone into the manufacture of each sq. metre of processed fabrics which constitutes the intrinsic value as held by the Hon'ble Apex Court. The appellants are contesting that the duty is paid on the sale price of the processed fabrics which includes profit element of supplier of grey fabric....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essor is selling the goods. The conclusion arrived at by the learned Member (J) in her above order is entirely based on the facts that the appellants have been paying duty on their selling price declared by the supplier of the grey fabrics; that when the cost of the grey fabrics per metre has been taken into account by the trader and when the profits have been arrived at by him after taking the various factors into consideration, it cannot be said that the said shrinkage has not been taken into account by him while arriving at the profit. I do not agree with this view. I would observe that the price at which the processed fabrics are sold by the raw material supplier is not relevant to the issue. It is the price at which the job worker i.e. the appellant is selling the goods, is relevant for the purpose of duty and that must be the intrinsic value of the grey cloth plus value of the job work done plus the manufacturing profits and manufacturing expenses as mandated by the Hon'ble Supreme Court. Since admittedly the duty is not paid as per this formula, the appellants must pay the duty including the element of shrinkage of grey fabrics. However, they would be entitled to the abateme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luation since the loss of material due to 4% to 5% of shrinkage during the processing was not being taken into consideration while valuing the processed fabrics. A demand of short levy of excise duty to the extent of Rs. 46,90,896/- was raised under Section 11A(1) read with Rule 9(2) along with proposal for imposition of penalty under Section 173Q. Under the impugned order the Commissioner confirmed the demand of duty and imposed a penalty of Rupees Twenty five lakhs. Aggrieved by the above the assessee has filed the present appeal. The Commissioner has taken the view that the assessee has not taken the intrinsic value of the processed fabric as required in the judgment of the Supreme Court in the case of Ujagar Prints - 1987 (27) E.L.T. 567 and 1988 (38) E.L.T. 535. The value of the grey cloth required for the manufacture of each meter of processed fabrics is to be taken into account in addition to the job charges and job worker's profit element. The assessee has taken into account only the value of each metre of grey cloth for each metre of processed fabrics ignoring the fact that there was a shrinkage in the course of processing. The Commissioner has given an illustration as to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all on the higher side and there is no under valuation. It is further contended that the Departmental authorities were well aware of the method of valuation followed by the assessee and therefore there is no justification in invoking longer period of limitation alleging suppression with intent to evade duty on the part of the assessee. 17.The learned Member (Judicial) accepted the contention put forward by the assessee on the issue of under valuation. It was held that inasmuch as the assessable value has been arrived at on the basis of the declaration of the selling price by the supplier of grey cloth which has not been found to be incorrect, the ratio of the clarificatory order of the Supreme Court in Ujagar Prints - 1989 (39) E.L.T. 493 would clearly apply to the facts of the case and therefore, the impugned order has to be set aside. The learned Member (Judicial) did not express any view on the issue of limitation and wrong quantification of the demand. On the other hand, the learned Member (Technical) took the view that all the three decisions of the Supreme Court in Ujagar Prints' case are to the effect that it is the intrinsic value of the grey fabric that has to be taken ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p for consideration of a Bench of two Judges of the Supreme Court in 1987 (27) E.L.T. 567 were - whether the process of bleaching, dyeing, printing,(1) mercerizing etc. carried on by a processor on job work basis in respect of grey fabrics and man-made fabrics belonging to the customer and entrusted him for processing amount to 'manufacture' within the meaning of the Central Excises & Salt Act as it stood prior to its amendment by the Central Excises and Salt and Additional Duty of Excise (Amendment) Act, 1980 so as to levy of excise duty on the processed fabrics and whether, in any event, after the Amendment Act, these processes amount to manufacture and excise duty is leviable on the processed fabrics. If the processed fabrics are assessable to excise duty what(2) is the value on the basis of which they are liable to be assessed. After discussing the two issues in the light of the earlier decision of the Supreme Court in Empire Industries Ltd. v. U.O.I. - 1985 (20) E.L.T. 179 (S.C.) the Bench referred the petitions and appeals to a Larger Bench of 5 Judges. 20.The matter was heard by the Larger Bench and the judgment is the one reported in 1988 (38) E.L.T. 535, The La....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the job work done plus manufacturing profit and expenses. That would be correct assessable value." In Para 2 of the order it was further observed as follows :- "If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit." The contention of the assessee which was found favour with the Member (Judicial) is that in view of the above observation of the Supreme Court the assessable value of the processed grey fabrics leaving his factory shall be computed on the basis of the declaration given to the processor by the trader regarding his selling price and that when such a declaration is given, it is not open to....