1998 (2) TMI 532 - AT - Central Excise

Summary

Issues: Valuation of goods under Central Excise (Valuation) Rules based on job work agreement; Comparison of goods for assessable value determination; Interpretation of Rule 6(b)(i) and Rule 6(b)(ii) of Valuation Rules.

Analysis:

Issue 1: Valuation of goods under Central Excise (Valuation) Rules based on job work agreement
The case involved a small scale industry firm that had an agreement with a company for the manufacture and sale of 'Horlicks' brand biscuits. Initially, the firm declared prices based on raw materials and job charges. Subsequently, a revised agreement shifted the responsibility of supplying raw materials to the company. The dispute arose regarding the correct valuation of goods, with the firm claiming valuation based on raw material cost and job charges, while the Revenue insisted on using the wholesale selling price of the company. The Commissioner (Appeals) upheld the Revenue's valuation method. The Tribunal analyzed the terms of the agreement and concluded that the firm's declared value based on raw materials and job charges was the correct assessable value, in line with the Supreme Court's principles on job work basis valuation.

Issue 2: Comparison of goods for assessable value determination
The Revenue argued that the goods manufactured by the firm were comparable to those sold by the company in the wholesale market, justifying the use of Rule 6(b)(i) for valuation. However, the Tribunal disagreed, stating that identical goods cannot be compared in the valuation process. The Tribunal referenced previous judgments and highlighted that Rule 6(b) should not apply when goods are manufactured on job work basis and returned to the raw material supplier. The Tribunal emphasized that the relationship between the firm and the company did not indicate a principal-agent dynamic, supporting the firm's valuation method based on raw materials and job charges.

Issue 3: Interpretation of Rule 6(b)(i) and Rule 6(b)(ii) of Valuation Rules
The Tribunal examined the application of Rule 6(b)(i) and Rule 6(b)(ii) in determining the assessable value of goods. It noted that Rule 6(b) should not be used when goods are manufactured on a job work basis and returned to the raw material supplier. The Tribunal emphasized the Supreme Court's guidance on job work basis valuation and concluded that the firm's declared value based on raw materials and job charges aligned with the principles set forth in the Ujagar Prints case. The Tribunal set aside the Commissioner (Appeals) order and allowed the firm's appeal, determining the correct assessable value as per the firm's declared value methodology.