Assessable value - Goods Manufactured on Job - work - scope of Rule 10A – Board Clarifies
It has been brought to the notice of the Board that some manufacturers of Motor Vehicles are getting complete Motor Vehicles manufactured by sending the Chassis of the Motor Vehicles to independent body builders for building the body as per the design/specification of the manufacturer. The practice followed is that the Chassis is transferred to the Body builder on payment of appropriate Central Excise duty on stock transfer basis and is not sold to them. The body builder avails the Cenvat Credit of the duty paid on the chassis and clears the same on payment of duty to the Depot/Sales Office/Distributer of the Motor Vehicle manufacturer. The duty is discharged by the body builder on the assessable value comprising the value of Chassis and the job charges. The Depot/Sales office of the MV manufacturer sells the vehicles at a higher price than the price on which duty has been paid. Similar practice may be prevailing in respect of other commodities also.
Board clarifies
++ Rule 10A (ii) of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 stipulates that where the excisable goods are produced or manufactured by a job-worker, on behalf of a principal manufacturer, then in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker, and where the principal manufacturer and buyer of the goods are not related, and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time.
++ The assessable value for the purpose of charging Central Excise duty, in the cases where the Job-worker transfers the excisable goods to the Depot/Sale office/Distributer and/or any other sale point of the principal manufacturer, shall be the transaction value on which goods are sold by the principal manufacturer from such a place.
++ Accordingly, after the insertion of Rule 10 A, the practice of discharging the duty on cost construction method by the body builder is not legally correct.
++ It is, therefore, clarified that wherever goods are manufactured by a person on job work basis on behalf of a principal, then value for the purpose of payment of excise duty may be determined in terms of the provisions of Rule 10 A of the Central Excise Valuation (Determination of price of Excisable goods) Rules, 2000 subject to fulfilment of the requirements of the said rule.
Board wants the Chief Commissioners to verify the practice followed in their zones for body builders of motor vehicles and/or other commodities, which are manufactured on job work basis to ensure that duty is paid correctly as per Rule 10A wherever required.
What's New? Tribunal has already decided the issue.
The Board's view is nothing new. The Tribunal has already endorsed this view in appeals filed by motor majors like Audi, Tata motors, Eicher Motor etc,. in 2009-TIOL-1289-CESTAT-DEL.
Now can it be said that the job worker is manufacturing the chassis on behalf of the principal manufacturer? Is he not manufacturing it for the Principal manufacturer? This issue was raised before the Tribunal, but Tribunal brushed it aside and observed,
The explanation clearly states that the person engaged in the manufacture of production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him would be a job worker. In other words, the person who manufactures or produces the goods for or on behalf of the principal manufacturer is a job worker.
There was a similar controversy in Service Tax. ‘Production of goods on behalf of the client' was taxable under BAS. This was amended to ‘Production or processing of goods for, or on behalf of the client' and the Tribunal in , held, It was only with effect from 16.6.2005 that such activities undertaken by a person for another was brought under BAS. As rightly argued by the learned counsel for the appellants, during the material period, which is prior to 16.6.2005, the appellants had engaged in certain activities which could be described as processing of goods for its customers. By virtue of the language of the entry, during the material period, unless a person was engaged by another for processing the goods entrusted by a third person such activity would no be exigible to service tax.
Board seems to be unaware of the Tribunal decision supporting its view (otherwise it would have referred to the decision). But this controversy of FOR or ON BEHALF OF, is certainly going to haunt us for some time and the Board should have amended the Rules to add for, in Rule 10A instead of giving clarifications merely stating the obvious.
CBEC Circular No. 902/22/2009-CX; Dated October 20 2009