2018 (8) TMI 1505 - AT - Central Excise

Valuation - inclusion of cost of the materials supplied to them free of cost in assessable value - Held that - In the instant case, the raw materials have been received free of cost under Rule 57F (4) challans. After the process, the appellants are sending back the goods to the supplier should, after completing the manufacture of the final product is clearing the same on payment of duty - This Bench in the case of Kailash Auto Builders 2004 (9) TMI 216 - CESTAT, BANGALORE held that if by mistake the job worker had paid the duty on the raw materials used by him that should not be a reason for the Department to demand duty from him on the entire value of goods, hence, the demand cannot be sustained - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether duty is payable on goods supplied back to the principal manufacturer after job work?
2. Whether the value adopted by the assessee reflects the true intrinsic value of the goods?
3. Whether the job worker is required to include the value of inputs received in the final product?

Analysis:

Issue 1:
The appellant, a manufacturer of rubber and plastic processing machinery, received duty-free inputs from the principal manufacturer under Rule 57F(4) of Central Excise Rules, 1944. After completing job work, the appellant supplied back the goods to the principal manufacturer on payment of duty. The Department contended that since the appellants opted to pay duty, they should discharge duty on the value of goods supplied free of cost by the principal manufacturer. A show-cause notice was issued demanding Central Excise duty and proposing a penalty. The Commissioner (A) held that the transactions between the appellants and the principal manufacturer involved a sale, requiring valuation under Central Excise Rules.

Issue 2:
The appellant argued that they followed the job work procedure under Rule 57F(3) and (4) of Central Excise Rules and cited relevant case laws to support their position. They claimed that the duty paid on inputs sent free of cost was revenue neutral as it was available as credit. Additionally, they contended that the demand was time-barred. The Tribunal found that the case laws submitted by the appellants supported their position. Specifically, the Tribunal cited precedents to establish that the duty demand could not be sustained based on the circumstances of the case.

Issue 3:
The Department relied on a Supreme Court decision to argue that the job worker should include the value of inputs received in the final product. However, the Tribunal found that the case law cited by the appellants distinguished the circumstances of the current case from the precedent cited by the Department. The Tribunal concluded that since the raw materials were received free of cost and the final product was cleared on payment of duty, the demand for duty on the entire value of goods could not be sustained.

In conclusion, the Tribunal allowed the appeal, emphasizing that the duty demand could not be upheld based on the facts and legal principles presented during the proceedings.