CESTAT quashes Excise Duty Demand, Rules Job Work Valuation Must Exclude Principal’s Consumption [Read Order]
The Tribunal ruled that Rule 11 of the Valuation Rules, read with Section 4(1) of the Act, would apply, making the cost-plus methodology the correct approach
![CESTAT quashes Excise Duty Demand, Rules Job Work Valuation Must Exclude Principal’s Consumption [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/05/CESTAT-CESTAT-Quashes-Excise-Duty-Demand-taxscan.jpg "CESTAT quashes Excise Duty Demand, Rules Job Work Valuation Must Exclude Principal’s Consumption [Read Order]")
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has set aside excise duty demands against Smith Enterprises, ruling that valuation for goods manufactured on a job work basis must exclude cases where the final product is consumed by the principal manufacturer and not sold in the open market. The Tribunal held that Rule 8 of the Central Excise Valuation Rules,...
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has set aside excise duty demands against Smith Enterprises, ruling that valuation for goods manufactured on a job work basis must exclude cases where the final product is consumed by the principal manufacturer and not sold in the open market. The Tribunal held that Rule 8 of the Central Excise Valuation Rules, 2000, was wrongly applied, and the proper basis for valuation should be the cost of materials plus processing charges.
The appellant, Smith Enterprises, Puducherry, manufactured HDPE plastic caps on job work basis using raw materials supplied by Marico Ltd. After surpassing the SSI exemption threshold in September 2013, the appellant continued paying excise duty based on the transaction value comprising raw material cost and conversion charges. The Department, however, issued two show cause notices for the periods April 2013 to March 2014 and April 2014 to December 2014, proposing to re-determine the assessable value by invoking Rule 10A(iii) read with Rule 8 of the Valuation Rules. The authorities confirmed demands of Rs. 4.38 lakh and Rs. 3.34 lakh, respectively, under Section 11A of the Central Excise Act, 1944, which were upheld in part by the Commissioner (Appeals).
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In defence, the appellant contended that Rule 8 is applicable only when the job-worked goods are consumed by the job worker himself or on his behalf. Since the goods were supplied to Marico Ltd. and used in their factory to pack coconut oil, it was argued that the transaction did not meet the criteria under Rule 8. The appellant relied on the Supreme Court’s rulings in Ujjagar Prints (1989) and Pawan Biscuits (2000), which held that the assessable value for job work is to be based on cost of materials and job work charges. The appellant also pointed to the Tribunal’s earlier ruling in their own case (2018), which had quashed a similar demand.
The Bench, comprising Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao, found that the department’s invocation of Rule 8 was not sustainable. It held that Marico Ltd.’s consumption of the caps did not constitute consumption “on behalf of” the appellant, which is the threshold under Rule 8.
The Tribunal ruled that Rule 11 of the Valuation Rules, read with Section 4(1) of the Act, would apply, making the cost-plus methodology the correct approach.
The Tribunal concluded that the impugned orders lacked legal sustainability and allowed the appeals with consequential relief. The decision was pronounced on 8 January 2025.
To Read the full text of the Order CLICK HERE
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