Rules 10 & 8 of CEV Rules Do Not Apply when Job-Worked Goods are Returned to Principal Manufacturer and Consumed in Further Manufacture: CESTAT [Read Order]
Where job-worked goods are returned to the principal manufacturer supplying raw material and are consumed in further manufacture, Rules 10 and 8 of the Central Excise Valuation Rules, 2000 do not apply, and the issue stands decided in favour of the appellant.
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the provisions of Rule 10A(iii) read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (“CEVR”) are not attracted where goods manufactured on job work basis are returned to the principal manufacturer and consumed in further manufacture.
The bench ruled that “where the finished products manufactured on job work basis, were sent back to principal-manufacturer providing raw material and consumed by the principal-manufacturer for further manufacture of final product, Rules 10 and 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 are not applicable and the question framed by us is answered in favour of the Appellant.”
The appellants, M/s. Smith Enterprises and M/s. E-Mox Device Company had been manufacturing HDPE plastic caps on a job-work basis for M/s. Marico Ltd. using raw materials supplied by the latter.
The Department alleged undervaluation by contending that valuation should have been done in terms of Rule 10A(iii) read with Rule 8 of the CEVR, i.e., at 110% of cost of production, and raised demands along with interest. While the Commissioner (Appeals) upheld the duty demands, the matter reached the Tribunal.
The appellants argued that Rule 8, which applies only when excisable goods are captively consumed by the assessee or on its behalf, had no application since the job-worked goods were returned to Marico and used in its factory for further manufacture.
They relied on the Supreme Court rulings in Ujagar Prints (1989) and Pawan Biscuits (2000), which clarified that in job work cases, assessable value is to be computed on cost of materials plus job charges.
The Revenue countered that the appellants failed to apply Rule 10A correctly and had suppressed valuation with intent to evade duty.
The two member bench comprising Mr. Vasa Seshagiri Rao (Technical Member) and Mr. P. Dinesha (Judicial Member) observed that the legislative intent of Rule 10A was to capture value in cases where job-worked goods were directly sold or transferred for sale.
Where such goods are merely returned to the principal manufacturer for captive consumption in further manufacture, Rule 8 does not apply since the consumption is not “by the assessee or on his behalf.” Instead, Rule 11 should be applied, and valuation must follow the cost-of-materials-plus-processing principle laid down in Ujagar Prints.
The Tribunal stated that denial of this settled position would amount to treating job-workers and principal manufacturers as a single entity, which the law does not envisage. Since Marico consumed the caps in its own manufacture, not on behalf of the job workers, the demand raised by Revenue was unsustainable.
The tribunal held that the impugned orders in appeal cannot sustain insofar as the duty demand which is challenged in these appeals is concerned. Accordingly, the demand was set aside.
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