2013 (8) TMI 152 - AT - Central Excise

Assessable value in case of job-worker - Respondents acted as job-workers for M/s KODAC India Ltd, Chennai ( KODAC for short), for manufacture of Unexposed Cinematography Colour Polyester Positive Films. The raw material was supplied by KODAC and KODAC also paid job-work charges to the respondent - KODAC furnished a cost construction certificate w.e.f 19-09-2000 showing an assessable value of Rs. 5.69 per linear meter of the film after deducting a loss of 0.27 per liner meter toward loss incurred by M/s KODAC and respondent was paying duty based on assessable value of Rs. 5.69 per meter Revenue is of the view that excise duty should be paid on the cost of manufacture of the film by respondent and not based on the selling price of KODAC which involves a loss of Rs. 0.27 per linear meter Held that - Relying upon the decision of the Apex court in the case of Ujagar Prints Etc Vs. UOI 1989 (1) TMI 124 SUPREME COURT OF INDIA , it is held that for determining the assessable value in the hands of job-worker only the value of the raw materials plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. Just as traders profit cannot form part of the assessable value traders loss cannot result in reduction in assessable value of the goods in the hands of the job-worker - Further the Apex Court in the case of Fiat India Ltd 2012 (8) TMI 791 - SUPREME COURT did not find it proper to give deduction from cost of manufacture incurred by the actual who incurs cost of material and does the manufacturing activity by himself. So allowing deduction towards loss of the person supplying raw material to determine assessable value in the hands of the person undertaking manufacturing activity is not warranted Appeal allowed Decided in favor of Revenue.

Summary

Issues:
Determining assessable value of goods in the hands of a job-worker based on manufacturing cost or selling price of the principal manufacturer.

Analysis:
1. The case involved the Respondents acting as job-workers for a company, manufacturing films based on raw materials supplied by the principal manufacturer. The issue was whether excise duty should be paid based on the manufacturing cost of the film by the job-worker or the selling price of the principal manufacturer, which included a loss. The lower authorities interpreted Notification 36/2001-CE (NT) to mean that duty should be paid based on the selling price of the principal manufacturer, not considering the loss incurred. Revenue appealed this decision.

2. The Revenue argued that the assessable value should be determined based on the manufacturing cost, citing the Ujagar Prints case, which emphasized including manufacturing expenses and profit, but not post-manufacturing profits or expenses. They contended that the Central Excise Valuation Rules did not alter this principle. The Revenue sought to reverse the lower authorities' decision and demanded confirmation of the demand without allowing any deduction for the loss incurred by the principal manufacturer.

3. The Respondent's advocate countered that when the actual selling price by the principal manufacturer is known, there is no need to consider the manufacturing cost. They argued that the Ujagar Prints case applies only when the sale price is not ascertainable, and referred to a Tribunal decision supporting their stance. They highlighted the introduction of Rule 10A in 2007, which clarified the assessable value in the hands of a job-worker as the price at which the principal manufacturer sells to independent buyers.

4. The Tribunal reviewed the Notification 36/2001-CE (NT) and noted that it did not specify the method for determining the value of goods in the hands of a job-worker. The Tribunal acknowledged the lack of clarity in the Central Excise Valuation Rules before 2007 and the subsequent introduction of Rule 10A. Relying on the Ujagar Prints case, the Tribunal held that duty was payable by the Respondent without allowing any deduction for the loss incurred, confirming the demand for differential duty. No penalty was imposed due to the legal nature of the dispute.

5. Ultimately, the Revenue's appeal was allowed, and the Respondent's cross objection was rejected, with the Tribunal upholding the duty payment without deduction for the loss incurred by the principal manufacturer. The judgment was pronounced on 19-07-2013.