Tara Industries Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. these two appeals raise a common question. the method of valuation of goods produced on job work basis.2. the appellants manufacture 'wool tops' on job work basis out of raw wool received from parties for whom the job work is undertaken. they worked out the assessable value (for central excise purposes) of wool tops as the aggregate of the cost of raw material and their job work charges and paid duty on the basis of such assessable value. under the impugned order, differential duty has been demanded on the basis that the goods should have been valued under rule 8 of the central excise valuation rules, 2000 which came into force w.e.f. 1-7-2000. we read that rule : "rule 8. where the excisable goods are not sold by the assessee but are used for consumption or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen per cent of the cost of production or manufacture of such goods".a perusal of the above rule makes it clear that it relates to valuation of "excisable goods not sold by the assessee but are used for consumption or on his behalf in the production or manufacture of other articles". this is clearly not the case here. the goods are not being captively consumed by the assessee himself or on his behalf by somebody else. there could be no argument that this rule has any relevance to the present case. learned counsel for the appellants has also pointed out that the valuation carried out under the impugned orders is contrary to the clarification issued by the central board of excise and customs vide circular no. 619/10/2002-cx., dated 19-2-2002. paras 2 and 3 of the circular read as under : "2. the matter has been examined by the board. it is observed that the system of getting goods manufactured on job work basis is not new. under the provisions of the earlier section 4 and the rules made thereunder the matter has been finally decided by the apex court in the case of ujagar prints ltd, [1989 (39) e.l.t. 493 (s.c.)] and the case of pawan biscuits co. pvt. ltd. [2000 (120) e.l.t. 24 (s.c.)]. it was clearly held that in respect of goods manufactured on job work basis, assessable value would be the job charges (including the profit of the job worker if not already included in the job charges) plus the cost of the materials used in the manufacture of the item (including the costs of the materials supplied free of cost to the job worker). the assessable value in such cases will not include the profit or the expenses like advertisement and publicity, overheads etc.) incurred by the buyer (or the supplier of the raw materials), where the dealing between the two are on principal-to-principal basis. the mere fact that the buyer is supplying some raw materials free of cost to the job worker, will not be sufficient ground to contend that the dealings between the two are not at arms length. goods manufactured on job work were earlier assessed under the residuary rule 7 of the erstwhile valuation rules of 1975 read with rule 6(b) read with the apex court decisions referred to above. 3. under the new valuation provisions, introduced with effect from 1-7-2000, there is no departure from the principles laid down by the apex court in the above two decisions, in respect of goods manufactured on job work basis. in other words manufactured on job work basis after 1-7-2000 will continue to be valued in the same manner as they were being valued before 1-7-2000. in other words, after 1-7-2000, in respect of goods manufactured on job work basis, valuation would be governed by rule 11 of the new valuation rules of 2000 read with rule 6 read with the above two decisions of the apex court." 3. it is clear from the above two paras of the circular that goods produced on job work basis are required to be valued according to the rule laid down by the apex court's judgment in the case of ujagar prints ltd. - [1989 (39) e.l.t. 493 (s.c.)] even after 1-7-2000. the original valuation and payment of duty took place according to the principle of valuation approved by the apex court. the impugned orders are contrary to the specific provisions of valuation rules as well as clarification issued by the central board of excise and customs. they are required to be set aside. we do so and allow the appeals. in view of our disposing of the appeals themselves, stay petitions do not survive.

Judgment:
1. These two appeals raise a common question. The method of valuation of goods produced on job work basis.

2. The appellants manufacture 'Wool Tops' on job work basis out of raw wool received from parties for whom the job work is undertaken. They worked out the assessable value (for Central Excise purposes) of wool tops as the aggregate of the cost of raw material and their job work charges and paid duty on the basis of such assessable value. Under the impugned order, differential duty has been demanded on the basis that the goods should have been valued under Rule 8 of the Central Excise Valuation Rules, 2000 which came into force w.e.f. 1-7-2000. We read that Rule : "Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen per cent of the cost of production or manufacture of such goods".

A perusal of the above Rule makes it clear that it relates to valuation of "excisable goods not sold by the assessee but are used for consumption or on his behalf in the production or manufacture of other articles". This is clearly not the case here. The goods are not being captively consumed by the assessee himself or on his behalf by somebody else. There could be no argument that this rule has any relevance to the present case. Learned Counsel for the appellants has also pointed out that the valuation carried out under the impugned orders is contrary to the clarification issued by the Central Board of Excise and Customs vide Circular No. 619/10/2002-CX., dated 19-2-2002. Paras 2 and 3 of the Circular read as under : "2. The matter has been examined by the Board. It is observed that the system of getting goods manufactured on job work basis is not new. Under the provisions of the earlier Section 4 and the Rules made thereunder the matter has been finally decided by the Apex Court in the case of Ujagar Prints Ltd, [1989 (39) E.L.T. 493 (S.C.)] and the case of Pawan Biscuits Co. Pvt. Ltd. [2000 (120) E.L.T. 24 (S.C.)]. It was clearly held that in respect of goods manufactured on job work basis, assessable value would be the job charges (including the profit of the job worker if not already included in the job charges) plus the cost of the materials used in the manufacture of the item (including the costs of the materials supplied free of cost to the job worker). The assessable value in such cases will not include the profit or the expenses like advertisement and publicity, overheads etc.) incurred by the buyer (or the supplier of the raw materials), where the dealing between the two are on principal-to-principal basis. The mere fact that the buyer is supplying some raw materials free of cost to the job worker, will not be sufficient ground to contend that the dealings between the two are not at arms length. Goods manufactured on job work were earlier assessed under the residuary Rule 7 of the erstwhile Valuation Rules of 1975 read with Rule 6(b) read with the Apex Court decisions referred to above.

3. Under the new valuation provisions, introduced with effect from 1-7-2000, there is no departure from the principles laid down by the Apex Court in the above two decisions, in respect of goods manufactured on job work basis. In other words manufactured on job work basis after 1-7-2000 will continue to be valued in the same manner as they were being valued before 1-7-2000. In other words, after 1-7-2000, in respect of goods manufactured on job work basis, valuation would be governed by Rule 11 of the new Valuation Rules of 2000 read with Rule 6 read with the above two decisions of the Apex Court." 3. It is clear from the above two paras of the Circular that goods produced on job work basis are required to be valued according to the rule laid down by the Apex Court's judgment in the case of Ujagar Prints Ltd. - [1989 (39) E.L.T. 493 (S.C.)] even after 1-7-2000. The original valuation and payment of duty took place according to the principle of valuation approved by the Apex Court. The impugned orders are contrary to the specific provisions of valuation rules as well as clarification issued by the Central Board of Excise and Customs. They are required to be set aside. We do so and allow the appeals. In view of our disposing of the appeals themselves, stay petitions do not survive.