2019 (1) TMI 562 - AT - Central Excise

Valuation - inclusion of value of scrap retained by the appellant arising out of job work in assessable value - Appellant s contention is that the job work charge already includes the value of such scrap and hence duty cannot be demanded twice on scrap value - CENVAT Credit - inputs are being used in dutiable as well as exempted goods - non-maintenance of separate records - rule 6 of CCR, 2004. Held that - The deduction of scrap value has been made by M/s Suzlon from job charges only after arriving at assessable value. It is only if the conversion charged gets reduced on account of retention of scrap that the value of scrap/ waste has to be included in assessable value which is not the case here. Apart from above, it is also a fact that the scrap retained by the Appellant was also cleared by them on payment of duty. If the value of scrap is deducted from the value of raw material and added to the job charges, the assessable value would remain same - as the Appellant has already included the scrap cost in job work charges and hence there is no reason to include the scrap value again in assessable value. The job work charges are not reduced by the value of scrap neither there is any evidence to allege so - duty demand not sustainable. Demand has also been made on the ground that cenvat of raw material is also to be added to the assessable value - Held that - There is no reason to demand duty on value equal to cenvat amount of raw material. Valuation - Held that - The quantum of scrap and value of same has been adopted in show cause notices on the basis of average of entire production of all products irrespective of fact that the products are of different design/ specification products/ towers etc. - as the scrap generation can vary as per the product, hence the valuation method adopted by the revenue is not sustainable. Hence no demand can be made on such basis. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the value of scrap retained by the appellant arising out of job work should have been included in the assessable value of exempted goods.
2. Whether the cenvat amount of raw material should be added to the assessable value.

Detailed Analysis:
1. The case involved the appellant engaged in manufacturing telecommunication towers and windmill parts, facing show cause notices for various issues, including duty payment on goods cleared to mobile service providers and job work activity on windmill parts. The appellant was accused of availing cenvat credit on raw materials, not maintaining separate accounts, and not properly calculating the value for the purpose of 10% reversal under rule 6(3)(b) of the Cenvat Credit Rules, 2004. The impugned order confirmed demands and penalties, which were upheld by the Appellate Commissioner, leading to the present appeals. The main contention was the inclusion of scrap value in the assessable value of exempted goods and the addition of cenvat credit value to the assessable value.

2. The appellant argued that the job work charges already included the value of scrap, citing an agreement clause with M/s Suzlon and a CA certificate to support this claim. They referenced relevant case laws to assert that the scrap value, already forming part of job work charges, should not be added again to the assessable value. The appellant also challenged the demand made on adding the cenvat amount of raw material to the assessable value, relying on legal precedents that credit amount should not be included in the assessable value. They further contended that the valuation method adopted by the revenue, based on the average of entire production, was not sustainable as scrap generation varies per product.

In conclusion, the Appellate Tribunal held that the demand to include the scrap value in the assessable value of exempted goods was not justified, as the job work charges already encompassed the scrap value. The tribunal referenced previous judgments to support this stance. Additionally, the tribunal ruled that there was no basis to demand duty on the cenvat amount of raw material and criticized the revenue's valuation method based on the average of entire production. Consequently, the impugned orders were set aside, and the appeals were allowed with consequential reliefs.