Full Judgment
2. The respondent M/s. Bhilwara Processors Ltd. are engaged in the processing of woollen fabrics and manmade fabrics for various parties including M/s. BSL Ltd., Mandpam, Bhilwara on job work basis. The assessable value of processed fabrics was determined on cost construction method taking the landed cost of the raw material (grey fabrics) and the processing charges. For this purpose the processor filed price declarations in which the cost of raw material i.e. woven fabrics (grey fabrics) was taken as per the declarations filed by M/s.
BSL Ltd. The grey fabrics were being manufactured by M/s. BSL Ltd. in their weaving division from yarn manufactured in their own spinning unit at Bhilwara and from yarn purchased from outside also. Since the value of varieties of yarn manufactured and consumed captively in the manufacture of grey fabrics by M/s. BSL Ltd. was arrived at by the cost construction method and as BSL Ltd. could not furnish complete information regarding the cost of consumption during the period from 1-4-95 to 12-12-95, the same were assessed provisionally. On finalisation of the assessable value of the yarn, it was found that they had cleared the yarn on a value lower than the value as their prices were revised on higher side. The Revenue took the view consequently the assessable value of grey fabric manufactured out of these yarns which were subsequently processed by the respondents herein also needed to be increased. It was alleged that since in the declarations it was not mentioned that the assessable value has been computed on the basis of the provisional value of the yarn, both respondent-processor as well as M/s. BSL Ltd. wilfully misdeclared the information in the declarations filed by them for clearance of processed fabrics with intent to evade payment of duty. The original authority took the view that the cost of grey fabrics sent for processing should have been revised upwards consequent to the revision in the assessable value of the yarn from which such grey fabrics were manufactured by the supplier of the grey fabrics to the processing units. The Commissioner (Appeals), on the other hand relying on the decision of this Tribunal in Sangam Processors held that the Excise authorities cannot go beyond the declared value. It was also held that there was no material that the processors were aware of the fact of provisional assessment relating to yarn used in the manufacture of grey fabrics. Therefore, they could not have disclosed this fact in the declaration under Notification No. 27/92.
3. It is contended before us on behalf of the Revenue that since the grey fabric was sent for processing on job work basis, the valuation for the purpose of payment of duty on the processed fabric at the hands of the processor was on the costing basis in accordance with the principles laid down by the Supreme Court in the case of Ujagar Prints.
The cost of grey fabric for this purpose was composed of element of cost of yarn, weaving charges etc. Therefore, there is no doubt that the actual cost of yarn was to be the element for arriving at the cost of grey fabric. The price declarations were filed by the processor containing the authorisation from M/s. BSL Ltd. as well as undertaking to discharge all liabilities under the Act. Therefore, it was the responsibility of the processor to ensure that the value for the purpose of payment of duty on the processed fabrics was correctly determined. M/s. BSL Ltd. has also the responsibility to ensure that the cost was correctly declared to M/s. BPL. According to the learned DR the decision of the Supreme Court in Ujagar Prints would in no way stand against the Revenue enquiring into the real cost of the grey fabric. The observations contained in the decision of this Tribunal in Sangam Processors to the contra has to be reconsidered.
4. On the other hand, the learned Counsel appearing on behalf of the respondent submits that on going by the decision of the Supreme Court in Ujagar Prints as well as the decision of this Tribunal in Sangam Processors, the value declared by M/s. BSL Ltd. should have been accepted by the Revenue and no further enquiry should have been made into it.
5. We will first refer to the clarificatory order of the Hon'ble Supreme Court in Ujagar Prints Etc. Etc. v. Union of India and Ors.-1989 Ujagar Prints. Etc.
Etc. v. Union of India & Others - 1988 (38) E.L.T. 535 (S.C.). It will be advantageous to quote the entire order which reads as follows :- "In respect of the civil miscellaneous petition for clarification of this Court's judgement dated 4th November, 1988, it is made clear that the assessable value of the processed fabric would be the value of the grey-cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses whatever these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric. The factory gate here means 'deemed' factory gate as if the processed fabric was sold by the processor.
In order to explain the position it is made clear by the following illustration : if the value of the grey-cloth in the hands of the processor is Rs. 20/-and the value of the job work done is Rs. 5/- and the manufacturing profit and expenses for the processing be Rs. 5, then in such a case the value would be Rs. 30/-, being the value of the grey-cloth plus the value of the job work done plus manufacturing profit and expenses that would be the correct assessable value.
2. 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. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person 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 authorized 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 is not necessary to include the trader's profit who gets the fabrics processed, because those would be post-manufacturing profits." From the 1st paragraph of the order it is clear that the assessable value has to be found out by adding to the value of grey cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses. This would be taken as the price at the 'deemed' factory gate as if the processed fabric was sold by the processor. Value of the grey cloth is the essential component of the deemed price. The dispute that has arisen in the present case is whether the department is debarred from going into the correctness of the value of the grey cloth declared by M/s. BSL Ltd. We do not find any reference in the order of the Supreme Court to a declaration by the trader (in the present case is M/s. BSL Ltd.) as to the value of grey fabric. On the other hand, reference is made to a declaration regarding the selling price of the processed goods in the market. Paragraph 2 of the order refers to the trader's selling price in market. It is then clarified that declared price would be taken by the excise authorities as the assessable value of the processed fabric provided that, price thus declared would include only the deemed price at which the processed fabric would leave the processor factory plus his profit. Thus, we find that there is no observation in the decision of the Supreme Court that the Revenue cannot go behind the value of the grey cloth declared by the trader (in the present case M/s. BSL Ltd.).
On the other hand, in order to comply with the directions contained in the 1st paragraph of the order it is essential that the value of grey cloth in the hands of the processor is to be correctly computed since it forms the important component of the assessable value of the processed fabric which gives the deemed factory gate of the processor.
6. In Sangam Processors it is seen from the statement of facts in para 1 that the traders, namely, Sangam India Ltd. & M/s. Sangam Suitings were declaring the value of grey fabrics sent to Sangam Processors (Bhilwara). But in paragraph 3 the reference is made to declaration of the selling price of the trader. However, if it is the selling price of the trader that is declared, the Excise authorities need accept it as the assessable value of the processed fabric if it includes only the deemed price of the processed fabric at the deemed factory gate of the processor's plus his profit. In order to find out the deemed price at which the processed fabric would leave the processor's factory it is necessary to examine the value of the grey fabric. We do not find any justification from the decision of the Supreme Court to support the view that whatever be the value of grey fabric declared by the trader who entrusts grey fabric for processing should be accepted as correct.
The facts of the present case would clearly show how such a view would lead to undervaluation of the grey fabric and as a result the processed fabric. A job worker cannot escape the liability to pay duty on correct valuation of the grey fabric in view of the undertaking given by them under Notification No. 27/92-C.E. (N.T.). We are, therefore, of the view that the Commissioner (Appeals) has erred in allowing the appeal only for the reason that the Revenue cannot go behind the declaration given by M/s. BSL Ltd. regarding the value of grey fabric. We, therefore, set aside the impugned order including imposition of penalty and remand the matter to the Commissioner (Appeals) for fresh consideration in the light of the observations contained in the order.
7. The appellants are engaged in the manufacture of fabrics on job work basis. During inspection of the godown and processing unit of the appellant, officers of the department found that the weight of grey fabrics per metre was in excess of the weight declared by the assessee in their respective price declaration filed under Rule 173C read with Notification No. 27/92-C.E. (N.T.), dated 9-10-92. In accordance with the provisions of above notification traders/weavers who got their fabrics processed from the assessee were filing authorisation in favour of the assessee. The assessee was filing a price declaration under Rule 173C along with the break up of the cost elements of the price at which such goods were sold by such traders/weavers after processing. The duty was paid on the value determined on the basis of the cost elements furnished in the cost sheet enclosed with the price declarations in accordance with the principles laid down in Ujagar Prints v. UOl read with Rule 7 of the Valuation Rules, 1975. Show cause notices were issued on the ground that the assessee was guilty of misdeclaring the assessable value resulting in short-payment of Central Excise duty. The allegation was that the assessee misdeclared the assessable value of processed man-made fabric by misdeclaring the weight of grey fabric per metre in their respective price declarations filed by them under Rule 173C with an intent to evade payment of Central Excise duty. The Joint Commissioner confirmed the demands under the show cause notices. He held that on physical verification in respect of 20 samples the actual weight of grey fabric per metre was in excess of the weight declared by the assessee/trader. It was, therefore, held that the assessee by misdeclaring the weight of the grey fabric per metre was liable for short payment of excise duty. The above order was set aside by the Commissioner (Appeals) holding that the issue raised in the appeal was squarely covered by the decision of this Tribunal in Sangam Processors (Bhilwara) Ltd. v. CCE, Jaipur - 2000 (122) E.L.T. 45. The penalty imposed on the second appellant was also set aside.
8. We are afraid that the Commissioner (Appeals) has committed a grave error in holding that the issue raised in this appeal before him is covered by the decision in Sangam Processors (Bhilwara) Ltd. In the earlier decision issue involved was one relating to the binding nature of the declaration made by the trader regarding the selling price of the processed fabric in the market. In the present appeal we are concerned with the declaration regarding the weight per metre made by the processor/trader. It cannot be contended that any variation in the weight per metre would not make variation in the assessable value of the grey fabric which in turn would modify the deemed price of the processed fabric at the time of deemed clearance from the factory gate of the processor which is relevant for arriving at the assessable value as per the decision of the Supreme Court in Ujagar Prints. We, therefore, set aside the impugned order and direct the Commissioner (Appeals) to consider the appeal on merits in the light of the observations contained in the order.