CX - Valuation - Job-worked goods consumed by principal manufacturer and not sold - Rules 10A (i) or (ii) or Rule 8 of Valuation Rules not applicable - SC dismisses Revenue Appeals
IN Advance Surfactants India Ltd Vs Commissioner of Central Excise - , the facts were:
The appellants were manufacturing chemicals on job work basis for M/s Hindustan Unilever Ltd (HUL). The appellants used to receive Linear Alkyl Benzene (LAB) from M/s. HUL. The appellants used to manufacture Linear Alkyl Benzene Sulphuric Acid (LABSA) in their factory and send the same back to M/s. HUL. M/s. HUL consume the said LABSA in their factory for the manufacture of Soaps and Detergents. The appellants were discharging the Central Excise Duty on LABSA manufactured by them, based on cost of manufacturing, which included cost of raw materials, processing charges and profit margin. M/s. HUL was supplying the LAB and the appellants were consuming other chemicals for the manufacturing of LABSA. The Central Excise authorities were of the view that the appellants being a job worker, w.e.f . 01.04.2007, by virtue of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000, were required to value the goods cleared by them to M/s. HUL under the said rule. The appellants contested the show-cause notices before the adjudicating authority mainly on the ground that Rule 10A will not be applicable in their case and provisions of Rule 8 of the said Rules cannot be brought into play for valuation of LABSA. The adjudicating authority did not accept the contentions raised by the appellant and by the impugned orders, confirmed the demands.
The Tribunal observed that provisions of Rule 10A can be brought into play only when there is a situation where excisable goods are produced or manufactured by a job worker on behalf of a person and cleared to the buyer of the principal and/or cleared to a depot or a consignment agent. The intention of the Legislature was to capture the tax on the goods, on the value of the said goods when cleared to the ultimate consumers. Provisions of rule 10A (iii) gets attracted which talks about a situation where 10A (i) or (ii) does not apply. The said provision (iii) very clearly mandates that in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable shall mutatis mutandis apply for determination of value of the excisable goods. This would indicate that the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has to be gone through serially. It is not the Revenue's case that provisions of Rule 3,4,5,6 and 7 would also apply in this case. Revenue is of the view that provisions of Rule 8 will apply.
["RULE 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the values shall be [one hundred and ten per cent] of the cost of production or manufacture of such goods."]
The Tribunal observed, it is undisputed that LABSA is manufactured by job worker and cleared to HUL for further consumption and the said LABSA is the intermediate product required by HUL, which is manufactured or produced by the appellant as a job worker. The key words in Rule 8 that needs to be interpreted are 'consumption by an assessee or on his behalf ' for applying the said Rule for arriving at valuation or determination of goods. In the case in hand, it is very clear and not disputed that the appellant is not consuming the said LABSA nor is it consumed on his behalf by HUL. The provisions of Rule 8 will not get attracted in this case.
Tribunal referred to a clarification given by the Board that where the goods manufactured by a job worker are used for captive consumption by the principal manufacturer, in such cases their value would be determined in terms of clause (iii) of Rule 10A read mutatis mutandis with Rule 8 of the Valuation Rules which provides for taking of 110% of the cost of production of the goods and observed, "The views expressed in the Circular are inconsistent with the provisions of Rule 8. The provisions of Rule 8 can be brought into play only if there is consumption of the goods by himself or on behalf of an assessee. Since the said clarification is against the mandate of the said Rule 8 of Central Excise Valuation (Determination of Prices of Excisable Goods) Rules, the said clarification is untenable and has to be held as such."
But then how the value has to be determined?
The Tribunal observed,
"By elimination of Rule 2 to 10 as they may not apply in a situation like in this case provisions of Rule 11 will apply and Revenue has to take the recourse to provisions of Rule 11 which talks about using reasonable means consistent with the principles and general provisions of these rules read with sub-section (1) of section 4 of Central Excise Act. 1944. Keeping this in mind, we find that the ratio laid down by the Hon'ble Supreme Court in the case of Ujagar Prints and followed by various other decisions of this Tribunal and accepted by Revenue in their various Circulars will squarely apply i.e. to ascertain the assessable value on the cost of materials plus processing charges. In our view, the appellants have been correctly valuating their products by adopting this method ".
A similar order was passed by the CESTAT in 2012-TIOL-23-CESTAT-AHM.
Revenue went in appeal to the Supreme Court in both the cases (Commissioners think alike) and the Supreme Court last week dismissed both the appeals. The Supreme Court observed, "In these appeals, no substantial question of law arises for our consideration. The same are dismissed accordingly."
(See )