2007 (11) TMI 19 - SC - Central Excise

Tribunal has upheld valuation u/s 6(b)(ii) of C.E.(V) Rules 1975 on cost method finding the lease agreement genuine SC uphold the tribunal decision stating that department may apply different method of valuation but ultimately the goal is to ascertain correct/estimated assessable value

Summary

Issues:
1. Determination of the real manufacturer in textile processing.
2. Application of best judgment assessment in Central Excise valuation rules.
3. Examination of valuation methods under Central Excise Act.

Issue 1: Determination of the real manufacturer:
The main issue in this case was whether a company was the real manufacturer carrying out textile processing, and if the Department was correct in invoking best judgment assessment. The company in question had a process house where fabric was processed on job work basis. The Department raised concerns about the arrangement, claiming differential duty due to a lease agreement. The tribunal found the lease agreement genuine, supporting the company's use of the cost method under the Central Excise Valuation Rules. The Supreme Court, even if assuming the tribunal erred, declined to interfere, proceeding on the basis that the company was the real manufacturer.

Issue 2: Application of best judgment assessment:
The Department questioned the valuation method used by the company, arguing for the comparable goods method. However, the Supreme Court noted the value addition between unsorted and sorted fabrics, emphasizing that the Department overlooked this aspect. The company claimed abatement for the value addition, which was not considered by the Department. Despite the Court giving time for assessment, the issue of abatement was not resolved by the Commissioner. The Court concluded that valuation involves some guesswork and different methods exist to converge on a common value. It emphasized the need for convergence in valuation methods and dismissed the appeals by the Department.

Issue 3: Examination of valuation methods:
Valuation under the Central Excise Act involves determining the actual realization, which forms the basis of assessable value. Different methods like the comparable goods method, cost method, and best judgment assessment are prescribed to converge on a common valuation. The Court highlighted the importance of convergence in valuation methods to avoid wide variations in results. It stressed that while different valuation methods can be applied, they must ultimately lead to a consistent estimated ad valorem value for assessable value.

In conclusion, the Supreme Court dismissed the civil appeals filed by the Department, emphasizing the need for convergence in valuation methods and the consideration of value addition in determining assessable value under the Central Excise Act.