2019 (2) TMI 1165 - AT - Central Excise

Valuation - processed fabric - inclusion of the shrinkage factor @ 4.2% while determining the assessable value - Held that - From the referred paras of the order of adjudicating authority the fallacy in reasoning adopted is quite evident - If the scheme as laid down by the trade Notice No 65/2002 read with Trade Notice No 46/2002 is read in proper perspective then it can be seen that scheme of valuation as per the said two trade notices and trade notice of 31.03.2003 are identical. From the perusal of the said trade notice, it is quite evident that what is being clarified and determined there in is the assessable value of processed fabric. If that be so the assessable value, so determined should be multiplied by the quantity of processed fabric cleared to arrive at the total assessable value and duty determined thereon. From Annexure B, to the show cause notice, it is quite evident that duty has been not demanded by enhancing the assessable value of the processed fabric, but is demanded on the value of grey fabric by increasing the quantity of grey fabric. There is no dispute about the fact that duty has been paid by the appellants after determining the assessable value as per trade notice of 31.03.2003. When the total quantum of the grey fabric received has been taken into account while determining the landed cost of grey fabric then the shrinkage factor is part of the total value, and there cannot be further addition to the same. The Adjudicating authority have fallen in error to the extent of addition of the shrinkage factor over and above the landed cost of grey fabric as received by the appellants - demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Confirmation of differential duty demands.
2. Inclusion of shrinkage factor in the assessable value of processed fabric.
3. Validity of reliance on Trade Notices for valuation.
4. Scope of adjudication beyond the show cause notice.

Issue-wise Detailed Analysis:

1. Confirmation of Differential Duty Demands:
The appeal was directed against the confirmation of differential duty demands raised in various Show Cause Notices (SCNs) for different periods between April 2003 and July 2004. The Commissioner (Appeals) upheld the adjudicating authority's order confirming the duty demands, appropriating amounts already paid, and directing the payment of differential amounts. The total confirmed demands were based on the inclusion of a 4.2% shrinkage factor in the assessable value of processed fabric.

2. Inclusion of Shrinkage Factor in the Assessable Value of Processed Fabric:
The appellants were job workers processing man-made fabrics and were accused of not including the shrinkage factor while determining the assessable value. The appellants argued that the valuation should be done as per Trade Notice No. 14/CEX/Textile/(1)/03 dated 31.03.2003, which specified that the duty should be worked out based on the price of inputs plus actual job charges. They contended that the shrinkage factor was already included in the value of the processed fabric, as the value was determined based on the quantum and value of the grey fabric received. The adjudicating authority, however, confirmed the demand by adding the actual shrinkage, which was in excess of 4.2%, thus traveling beyond the scope of the show cause notice.

3. Validity of Reliance on Trade Notices for Valuation:
The appellants argued that the lower authorities erroneously relied on an earlier Trade Notice issued before 31.03.2003, contrary to the CBEC Circular No. 703/19/2003-CX, which was binding on the departmental authorities. They cited various Supreme Court judgments supporting the binding nature of CBEC circulars. The Commissioner (Appeals) dismissed the appeal on the ground that the Trade Notice 14/CEX/2003/MII dated 31.03.2003 had not abrogated the previous trade notices. The tribunal, however, found that the adjudicating authority's reasoning was flawed as the Trade Notice 46/2002 only provided for determining the landed cost of grey fabric and did not mandate enhancing the quantity of grey fabric received by the shrinkage factor.

4. Scope of Adjudication Beyond the Show Cause Notice:
The appellants contended that the adjudicating authority's order traveled beyond the scope of the show cause notice, which was for adding a 4.2% shrinkage allowance, whereas the adjudicating authority confirmed the demand by adding the actual shrinkage. The tribunal observed that the method adopted by the department by increasing 4.2% shrinkage in the quantity of received grey fabrics was wrong and that the demand should have been calculated based on the landed cost of grey fabric received as per the Trade Notice dated 31.03.2003.

Conclusion:
The tribunal concluded that the Commissioner (Appeals) and the adjudicating authority erred in adding the "shrinkage factor" over and above the landed cost of grey fabric received by the appellants. The appeal filed by the appellants was allowed, and the orders of the lower authorities were set aside. The tribunal emphasized that the valuation should be done as per the Trade Notice dated 31.03.2003, without additional shrinkage factor, aligning with the appellants' arguments and the Supreme Court's precedents.

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