What is job work under Rule 10A ? CESTAT sets aside demand on contract manufacturing under Rule 10A
RULE 10A was inserted in the Central Excise Valuation (Determination of price of excisable goods) Rules 2000, with effect from 1.4.2007. With this amendment, everyone thought that the Supreme Court's historic decision in Ujagar Prints case, which ruled the field for nearly two decades on the valuation of goods manufactured by a job worker, has lost its relevance. During the Ujagar period, the value for goods manufactured on job work basis was the cost of the materials plus the job work charges paid by the principal manufacturer. Thus, irrespective of the price at which these goods were sold for the first time in the market by the principal manufacturer, the duty was payable only on the raw material cost plus the job charges. Thus, it became a wiser proposition to get the goods manufactured on job work, and pay less duty. After a long wait, perhaps the Government in its wisdom decided to put an end to this and brought Rule 10A . After this new rule, the value of the goods manufactured on job work would be the value at which the goods are sold by the principal manufacturer, but not merely the cost of the raw material plus the job charges.
In a recent case that came up before the Bangalore Bench, the department wanted duty under Rule 10A and the assessee contested that the activity undertaken by them is only manufacture of goods under a sale agreement with the client on principal to principal basis which cannot be called as job work to attract the provisions of Rule 10A . In this case, the appellant assessee “purchased” the raw material from the vendors specified by the buyer, and “sold” the finished goods to the buyer by arriving at the price on the basis of the cost of the material plus marginal profit.
It was a thumping victory for the appellant at the Tribunal and the demand was set aside.
It appears we are back in Ujagar era. Only a little care has to be taken while drafting agreement. Instead of you supplying the inputs and goods to the job worker, ask him to buy from the specified vendor and settle the accounts later.
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