2016 (12) TMI 768 - AT - Central Excise

Valuation - inclusion of notional interest on the deposits given to job workers - levy of duty - emergence of waste cotton in the course of manufacture - Held that - It cannot be said that both parties to the contract had no knowledge of emergence of waste while fixing the job charges. It was well within their knowledge. This being one of the material fact value of the scrap generated is necessarily to be added to the assessable value of the job worked goods - On this count appellant fails to succeed. The second issue raised by appellant is that notional interest charges on the deposit received from the principal manufacturer has been computed by the authority below and added that to the assessable value, which is uncalled for and unwarranted since that has not influenced assessable value. Ld. DR at this stage points out that the advance was not on earnest money deposit but both parties agreed for utilisation of such deposit for capital expenditure to upgrade/renovate the machinery used for production of good and maintain quality of output manufactured for the principal manufacturer - Materials on record reveal that the financial assistance given by the principal manufacturer to the job worker appellant was to serve the above object. Therefore, the notional interest on the deposit has been rightly computed by the authority and added to the assessable value. The last count of the argument is that the amount received on account of fulfilment of hank yarn obligation is not includible in the assessable value. But Revenue has found out that the same is in relation to manufacture only. Authority below rightly adjudicated that the said receipt is includible in the assessable value. In absence of any cogent reason stated to disturb the findings of the authority, that part is confirmed. When order of the adjudicating authority does not bring out appellant s contumacious conduct to cause evasion and in all issues question of law was involved, there shall be no penalty. Appeal disposed off - decided partly in favor of appellant.

Issues:
1. Liability of waste cotton in the course of manufacture
2. Inclusion of notional interest charges in assessable value
3. Inclusion of amount received for hank yarn obligation in assessable value
4. Differential job work cost suffered duty
5. Penalty levied for confusion in determinations

Analysis:

Issue 1:
The judgment addresses the liability of waste cotton in the course of manufacture. The argument put forth by the appellant that waste cotton should not be liable to duty is countered by the fact that the waste arose in the hands of the job worker as per the contract conditions. The knowledge of the waste generation was known to both parties, and it was a material fact that needed to be considered in the assessable value of the job worked goods. Thus, the appellant fails to succeed on this count.

Issue 2:
Regarding the inclusion of notional interest charges in the assessable value, the appellant contests that it was unwarranted as it did not influence the assessable value. However, it was revealed from the materials on record that the financial assistance given by the principal manufacturer to the job worker was for specific purposes related to capital expenditure and machinery upgrade. Therefore, the computation of notional interest on the deposit and its addition to the assessable value was deemed appropriate.

Issue 3:
The judgment also deals with the inclusion of the amount received for hank yarn obligation in the assessable value. The appellant argued against its inclusion, but the Revenue found that the receipt was related to manufacture, leading to the authority rightly adjudicating that it should be part of the assessable value. Without any substantial reason to disturb this finding, it was confirmed.

Issue 4:
Concerning the differential job work cost that suffered duty, the appellant referred to a previous decision by the appellate authority. As the direction was given in that regard with proper reasoning, there was no interference necessary in this matter.

Issue 5:
The final contention of the appellant was the unwarranted penalty levied due to confusion in determinations of assessable value and taxability. The judgment states that when there is no evidence of contumacious conduct by the appellant causing evasion, and all issues involved questions of law, the penalty was deemed unnecessary and may be waived.

In conclusion, the appeal was allowed partly based on the analysis and decisions made on each of the issues raised during the proceedings.

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