Cost of Parts Supplied by Principal Manufacturer not Part of Job Worker’s Assessable Value: CESTAT [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ),Ahmedabad Bench, delivered a significant ruling, holding that assessable value of Job Work excludes costs of parts supplied by the principal manufacturer in the case involving Electronic Instrumentation and Control (Appellant) and the Commissioner of Central Excise and Service Tax, Ahmedabad (Respondent).

The appellant, a job worker, manufactured excisable goods using components and parts supplied by the principal manufacturer along with their own inputs. The principal manufacturer availed of CENVAT credit for the inputs they supplied and cleared the final products upon payment of duty. The dispute arose over whether the value of these supplied parts should be included in the assessable value of the goods manufactured by the job worker.

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) cited the landmark judgment of the Supreme Court in International Auto Limited vs. Commissioner of Central Excise, Bihar (2005), which established that the cost of parts supplied by the principal manufacturer should not be included in the job worker’s assessable value since the principal manufacturer clears the final product on payment of duty.

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Subsequent rulings, such as those in Menon & Menon Limited (2015) and Amco Batteries Limited (2003), reinforced this position.

The Modvat (Modified Value Added Tax) scheme allowed the principal manufacturer to adjust the credit for the duty paid on inputs supplied to job workers. Consequently, the intermediate product manufacturer (job worker) is not liable for the duty on these inputs.

The Tribunal ruled that the cost of parts supplied by the principal manufacturer is not includible in the assessable value of the goods manufactured by the job worker. The demand raised against the appellant was found unsustainable and was thus set aside.

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This judgment provides clarity for job workers and principal manufacturers regarding the valuation of excisable goods. It reiterated the importance of following Modvat/CENVAT credit provisions and ensuring that the supply chain remains compliant without unnecessary tax burdens.

In the ruling, the CESTAT Bench of Judicial Member Ramesh Nair and Technical Member C L Mahar held that parts supplied by a principal manufacturer are excluded from the assessable value of goods produced by job workers.

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