Full Judgment
The cords are assessed by the department under Tariff Item 68 and no objection has been taken thereto by the respondent company herein.
2. The respondent company after crossing clearance value of Rs. 12 lakhs applied for L-4 licence and after crossing clearances worth Rs. 15 lakhs started paying Central Excise duty. The jurisdictional Superintendent, however, noted that the respondents had not taken into account the raw material value in computing the exemption limit for the purpose of notification 89/79, dated 1-3-1979. It was noticed that the estimated sale value of such goods cleared by the respondent company on job basis was Rs. 92,663/-. Had that been included in computing the clearances under notification 89/79, the respondent company would have exceeded the limit of Rs. 1.5 lakhs in November 1979 itself (instead of December 1979). Hence the Superintendent issued a show cause-cum-demand notice dated 13-11-1980 and directed the respondents 'to show cause as to why the duty of Rs. 3,551.20 on the aforesaid account should not be recovered from them Under Rule 10(l)(a) read with Rule 173-3. The respondent company, however, contended in reply to the show cause notice that they have been exempted from payment of Central Excise duty under Tariff Item No. 68 upto Rs. 15 lakhs and the job work done by them was within Rs. 15 lakhs. There was no justification of adding the value of the material supplied by their customers since they had only to pay the duty on the job done under Tariff Item 68. In support of their contention the respondent company relied upon trade notice 218/75,dated 3-12-1975 and notification no. 119/75, dated 30-4-197.5.
3. It would thus be observed that the short point in issue here is whether the full value of the goods manufactured by them on job basis is to be taken for the purpose of computing the exemption limit of clearances in terms of notification 89/79 or whether the value to the extent of job charges only collected by the respondent company in respect of such goods is to be taken into account for the purpose of such computation of exemption limit.
In deciding the above short point the lower authorities have gone into another incidental question whether the benefit of notification 119/75 was applicable to the manufacture of mainscords from PVC wires received as raw materials by the respondent company. This question in our view is not necessary to be gone into in deciding the issue referred to earlier. Question whether the benefit of notification no. 119/75 is available to the main cords manufactured by the respondent company is not an issue in the show cause notice dated 13-11-1980 copy available on record. In view of this factual position in the instant case it is not necessary for us to go into the controversy whether the benefit of notification 119/75 should be made available to the mains cords or not and therefore, a series of citations relied upon by the respondent company such as (i) Anup Engg. Co. v. Union of India and Ors, [1978 (2) ELT J 523], (ii) Madura Coats Ltd, v. Collector of Central Excise [1980 (6) ELT J 582], (iii) Collector of Central Excise v. Madura Coats [1982 (10) ELT J 129] and (iv) Nobel Paints v. Union of India [1985 (19) ELT 80] are not relevant to the issue, although it may be pointed out that the 5 Member Bench of the Tribunal in the case of National Organic Chemical Industries Ltd., Bombay v. Collector of Central Excise, Bombay [1985 (21) ELT 252 (Trib.) has held that "to enable a person to claim the benefit of Notification 119/75 he will have to receive an article from the customer and subject the same to a manufacturing process, in the way of a process incidental or ancillary to the completion of manufactured product, and return the said article to the customer, recovering from the customer charges for such activity only. This interpretation of the notification would also satisfy the requirement that the job worker will have to return to the customer that article which he had received from the customer for subjecting it to the necessary manufacturing process." In delivering this judgment the Larger Bench of the Tribunal has taken into account the various Court judgments of different High Courts including a few mentioned supra relied upon by the respondent company herein.
On the essential question involved in this case i.e. the computation of exemption limit in terms of Notification 89/79 the respondent company has relied on the judgment of Bombay High Court in the case of Narendra Engg. Works v. Union of India [1981 (8) ELT 859]. In this judgment Division Bench of Bombay High Court, relying on Supreme Court's observation in Voltas case that the real value of the goods is the manufacturing cost and the manufacturing profit has held that "the cost incurred by the petitioners in manufacturing the rods does not include the cost of the raw material. We do not see how the Excise authorities can justify in the face of the Voltas judgment, taking the value of the raw material into account in computing the value of the processed rods for the purpose of determining the petitioners' claim to exemption under 1979 notification." Learned lower appellate authority has accepted the plea of the appellant company (respondent company herein) before him.
The appellant-Collector has now stated in the grounds of appeal filed by him that this judgment of the Bombay High Court has been stayed by the Supreme Court on appeal filed by the department.
5. We have considered the pleas advanced on both sides on the aforesaid issue involved in this case. We observe that this issue is no longer res-integra in view of Supreme Court's judgment in the case of Empire Industries Ltd. v. Union of India [1985 (20) ELT 179 SC]. In that case before the Supreme Court question of valuation of processed fabrics on receipt of grey fabrics by textile processors on job basis was involved. Hon'ble Supreme Court has made the following observation on this question :- "When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processors, whether on their own account or on job charges, the value for the purposes of assessment Under Section 4 of the Central Excises Act will not be the processing charges alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing." Notification 89/79 is an independent notification and it stipulates that clearances of excisable goods under Item 68 beyond the value of Rs. 15 lakhs would be liable to 4% rate of duty upto the value of Rs. 30 lakhs in a financial year. Since the value has not been defined in the notification, value for this purpose has to be in accordance with Section 4 of the Act because the value in the instant caso in terms of notification 89/79 is for the purpose of assessment which term would include application of an exemption notification (notification 89/79 in the instant case). In view of the foregoing discussion the appeal of the department is allowed and the contentions of the respondents in their written submissions dated 11-6-1987 are rejected.
6. Accordingly, the impugned order is set aside which allowing the appeal of the department.