2016 (4) TMI 58 - AT - Central Excise

Valuation of the goods manufactured on job-work basis - sale at processor s factory-gate needs to be loaded with the trader s profit and discharge excise duty or otherwise - Held that - The assessable value should be the value worked out based on the cost of the material and the job-work charges. The Revenue s claim that the respondent had collected over and above the job-charges in the form of cutting, checking and packing of the processed fabrics is without any evidence and there is nothing on record to indicate that these charges were not included in the job-work charges which were being paid by the said Risha to the respondent. The goods at which the processing house sells the goods must be the value of the grey cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor s expenses, costs and charge plus profit, but it is not necessary to include the trader s profits who gets the fabrics processed, because those would be post-manufacturing profits. We also find that the first appellate authority has correctly enunciated the law as to the activity of job-work as to how it should be understood and the valuation of the said goods to be done. - Decided against revenue

Summary

Issues Involved:
1. Valuation of goods manufactured on job-work basis.
2. Inclusion of trader's profit and other costs in the assessable value.
3. Invocation of the extended period for demand.

Detailed Analysis:

1. Valuation of Goods Manufactured on Job-Work Basis:
The central issue in this case is whether the valuation of goods manufactured on a job-work basis should include the trader's profit and other costs incurred for activities like cutting, packing, etc., when the goods are cleared from the processor's factory gate directly to the buyers. The respondent, a job-worker, was discharging duty liability based on the cost of grey fabrics plus processing charges. The adjudicating authority had confirmed the demands raised with interest and imposed penalties, but the first appellate authority, relying on the Supreme Court judgment in Ujagar Prints, held that the cost on which duty liability has to be discharged cannot include the trader's profit.

2. Inclusion of Trader's Profit and Other Costs in the Assessable Value:
The Revenue argued that the assessable value should include the trader's profit and the costs for activities like cutting, packing, etc., as the goods were sold from the processor's factory gate. The Departmental Representative contended that the value should be worked out based on the sale value of the processed fabrics, including the profit of the trader, Risha. However, the first appellate authority, following Ujagar Prints, clarified that the assessable value should be the value of the grey cloth in the hands of the processor plus the value of the job work done, including manufacturing profit and expenses, but not the trader's post-manufacturing profits.

3. Invocation of the Extended Period for Demand:
The Revenue also argued that the respondent had willfully suppressed the fact of Risha's non-existence at the declared address and had not included certain costs in the assessable value, justifying the invocation of the extended period for demand. However, the respondent's counsel argued that the extended period should not be invoked as the respondent had filed various declarations with the authorities, and there was no suppression of facts. The Tribunal found no merit in the Revenue's submissions, noting that the respondent had filed the required declarations and there was no earlier challenge by the department.

Conclusion:
The Tribunal upheld the first appellate authority's order, which correctly followed the Supreme Court's judgment in Ujagar Prints. The assessable value should be based on the cost of grey fabrics plus job-work charges, excluding the trader's profit. The Tribunal found no evidence that the respondent collected additional charges for cutting, checking, and packing, and thus, the Revenue's appeal was rejected. The Tribunal also agreed that the extended period for demand was not applicable in this case, as the respondent had complied with the declaration requirements. The appeal of the Revenue was dismissed, and the impugned order was upheld as correct and legal.