Cost of Parts Supplied by Principal Manufacturer Excluded from Job Worker’s Assessable Value: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that the cost of parts supplied by the principal manufacturer is excluded from the job worker’s assessable value citing the principal manufacturer clears the final products on payment of duty.

Electronic Instrumentation and Control, the appellant is a job worker engaged in the manufacturing of excisable goods using a combination of its own components and inputs supplied by the principal manufacturer.

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The Revenue issued a demand for excise duty stating that the value of materials supplied by the principal manufacturer should be included in the assessable value of the goods manufactured by the job worker. The department relied on the Supreme Court’s judgment in Ujagar Prints Ltd. (1989) to justify the demand.

On appeal, the Commissioner (Appeals) upheld the demand. Aggrieved by the Commissioner’s order, the appellant approached the CESTAT arguing that the cost of these supplied inputs should not be included in the assessable value of the job-worked goods.

The appellant’s counsel relied on several Supreme Court judgments, including International Auto Ltd. vs. Commissioner of Central Excise, Bihar (2005) which held that the cost of free inputs supplied by the principal manufacturer is not includible in the assessable value of job-worked goods.

The revenue countered that the cost of all materials used in the manufacture of goods must be included in the assessable value and that the lower authorities rightly relied on the judgment of Ujagar Prints Ltd. to uphold the demand.

The two-member bench comprising Ramesh Nair ( Judicial Member ) and C.L. Mahar ( Technical Member ) found that the case was factually identical to International Auto Ltd., where the Supreme Court ruled that the principal manufacturer (who cleared the final product on payment of duty) is responsible for including the cost of all inputs in the assessable value. The job worker is not liable for the duty on inputs supplied free of cost by the principal manufacturer.

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The tribunal observed that the Modvat scheme allows the principal manufacturer to take credit for duty paid on inputs supplied to the job worker and for duty paid on the intermediate goods at the time of clearing the final product. So, the tribunal held that the demand against the appellant was unsustainable.

The tribunal set aside the impugned order and ruled that the cost of parts supplied by the principal manufacturer is not includible in the assessable value of goods manufactured by the job worker. The appellant’s appeal was allowed.

To Read the full text of the Order CLICK HERE

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