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2010 (9) TMI 329 - AT - Central Excise


Issues Involved:
1. Eligibility for exemption from payment of duty on PTY manufactured on job work basis.
2. Demand for differential duty on grounds of under-valuation.
3. Penalty and interest imposition on the appellants.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption from Payment of Duty:
The primary issue was whether Shri Hari was eligible for exemption from payment of duty for PTY manufactured on behalf of the suppliers of raw materials on a job work basis. The relevant notifications and rules were scrutinized, particularly Notification No. 214/86-CE and Rule 4(5)(a) of the Cenvat Credit Rules. The Commissioner had argued that the job worker could not claim exemption from payment of duty, as the manufacture of PTY out of POY was excluded from the purview of job work under Notification No. 214/86.

The Tribunal, however, referred to multiple precedents:
- Mukesh Industries Limited v. Commissioner of Central Excise, Ahmedabad: It was held that duty demand cannot be sustained against the job worker if the inputs are returned to the principal manufacturer after completion of job work.
- Akash Fashion Prints (P) Limited: The Tribunal noted that if goods are processed following Rule 4(5) of CER, 2004, duty cannot be demanded from the job worker.
- Sunflag Filaments Limited: The Tribunal held that receipt of goods for job work, even if it amounts to manufacture, is permissible under Rule 4(5)(a) of Central Excise Rules.

Following these precedents, the Tribunal concluded that duty demand from job workers could not be sustained, adhering to the principle of judicial discipline.

2. Demand for Differential Duty on Grounds of Under-Valuation:
The Commissioner had confirmed a duty demand of Rs. 2,57,318/- and education cess on the ground that notional profit must be added to the assessable value for goods cleared for job work. The valuation was to be done in terms of Rule 9 read with Rule 8 of the Central Excise Valuation Rules, 2000, which mandates that the value shall be 110% of the cost of production.

Shri Hari argued that they did not sell the goods to Rapier but received duty-paid POY for conversion on a labor job basis, and that job charges included their profit. They contended that the addition of 10% notional profit was contrary to law and CBEC circulars. The Tribunal noted that there was no evidence to show that Rapier was a related person or that there was under-valuation. The show cause notice lacked detailed consideration of the relationship between the parties and the nature of the transaction.

3. Penalty and Interest Imposition:
Given the Tribunal's finding that no duty was liable to be paid, the question of penalty did not arise. The impugned order of the Commissioner was set aside, and all appeals were allowed.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned order of the Commissioner. It was concluded that:
- Duty demand from job workers could not be sustained.
- There was no sufficient evidence to support the demand for differential duty on grounds of under-valuation.
- Consequently, no penalties were applicable.

 

 

 

 

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