2016 (6) TMI 1018 - AT - Central Excise

Valuation - Job work - Department took the view that since the goods were cleared to the work sites where the appellant had undertaken the Supply and Apply contracts, there is no sale involved in these clearances, therefore the valuations adopted should have been under Rule 11 of the said Valuation Rules. - Hence the value could be arrived by deducting the expenses incurred on application of paints (labour charges) from the contract price. Held that - The value adopted by the appellants under Rule 8 of the Central Excise (Determination of price of Excisable goods) Rules, 2000 was not in order and that since the application of paint contains labour costs, the assessable value is to be determined under Rule 11 only after deduction of the value of labour component from the total value for supply and apply. With regard to the appellant s other contention that there is a profit component for the apply portion, for reasons discussed supra, we uphold the lower authority s conclusion that since the sale of product viz- paint is linked to the application part of the paint at the customer s site, the application is in relation to the goods and therefore, except the value of the labour component for application no other component can be deductible from the sale value for arriving at assessable value. Demand alongwith interest confirmed - penalty u.s 11AC waived - Decided partly in favor of assessee.

Summary

Issues:
Valuation of excisable goods under Central Excise Tariff Act, 1985 for paints and enamels used in Supply and Apply contracts; Applicability of Rule 8 and Rule 11 of Central Excise Valuation Rules, 2000; Interpretation of Board's Circular No. 643/34/2002-CX; Assessment of assessable value for central excise duty; Imposition of interest and penalty under section 11 AC of the Central Excise Act, 1944.

Analysis:
The case involved the appellant, a manufacturer of paints and enamels, who undertook job work of painting through Supply and Apply contracts. The Department contended that the valuation adopted by the appellant under Rule 8 of the Central Excise Valuation Rules was incorrect, as the goods were cleared to work sites under contracts, implying a sale. The Department demanded differential duty, leading to appeals by the appellant.

The crux of the dispute revolved around whether Rule 8 or Rule 11 of the Valuation Rules should be followed for assessing the value of excisable goods. Rule 8 applies when goods are used for consumption in the production of other articles, while Rule 11 is used when the value cannot be determined by other rules. The Tribunal noted that the paints cleared by the appellant were not used for captive consumption in manufacturing other articles, but were sold under the Supply part of the contracts. The Apply part involved only labour charges.

The appellant argued that the goods were not offered for sale but consumed for contract execution, hence Rule 8 should apply. However, the Tribunal held that since the sale of paint was linked to its application at the customer's site, the application was in relation to the goods, and only the labour component could be deducted from the sale value for assessing the value. The Tribunal found the Department's valuation under Rule 11 appropriate.

Regarding penalties imposed under section 11 AC of the Central Excise Act, the Tribunal found no suppression of methodology by the appellant and set aside the penalties, considering it an interpretational dispute without intentional wrongdoing. Consequently, the demands of duty and interest were upheld, but the penalties were revoked in both appeals.

In conclusion, the Tribunal partially allowed the appeals, confirming the duty demands and interest liability while setting aside the penalties imposed under section 11 AC of the Central Excise Act, 1944.