2019 (8) TMI 956 - AT - Central Excise

Valuation - related party transaction - job-work - processed fabrics was sold by the job-worker to the principal manufacturer who, in certain cases, sold them to other buyers and, in certain other cases, retained them for manufacture of garments for which the processed fabrics were again sent to M/s Just Textiles Ltd. - deemed exercise of option - applicability of rule 9 of the Central Excise (Determination of Price of Excisable Goods) Rules 2000. HELD THAT - There is no prescription of form for exercise of option which would create said person for undertaking the discharge of duty liability. Moreover, deemed exercise of option cannot be a ground for procedural infringements. Having accepted the duty liability discharged by the job-worker , it is not open to the central excise authorities to take an entirely different stand to fasten liability for the same duty paid goods on the principal manufacturer. Under rule 12B of Central Excise Rules, 2002, the said person can only be one or the other and, if the stand of the lower authority is accepted, there is an inherent contradiction in the demand; implied in the proposal for demand of differential duty is the acceptance of the validity of partial liability already discharged by the job-worker with the principal manufacturer called upon to pay only that portion arising from application of the provisions in the rules of valuation pertaining to sale to unrelated person - In view of this contradictory stand adopted by the original authority, and sustained in the order of the first appellate authority, rule 12B of Central Excise Rules, 2002 has been completely and totally mis-interpreted - the deemed exercise of option is upheld and the duty liability limited to such as already been discharged by M/s Just Textiles Pvt Ltd. Valuation - goods cleared by M/s Just Export Pvt Ltd to M/s Just Textiles Ltd for further manufacturing - HELD THAT - Once the duty liability has been discharged on the goods as a finished product and no new product comes into existence in the hands of M/s Just Exports Pvt Ltd, the transfer thereof to M/s Just Textiles Ltd for manufacture of other garments cannot be subject to duty liability under Central Excise Act, 1944. On the garments manufactured by the latter, there is no evidence that this has been done on job-work basis - the scope for fastening duty liability on M/s Just Exports Pvt Ltd for such production effected by M/s Just Textiles Ltd does find the sanction of law. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Duty liability on 'job-work' undertaken by a company.
2. Interpretation of Rule 12B of Central Excise Rules, 2002 regarding duty liability.
3. Valuation of goods sold to related and unrelated parties.
4. Discharge of duty liability by the 'job-worker' and principal manufacturer.
5. Duty liability on goods transferred for further manufacturing.

Analysis:

1. The case involved a dispute regarding duty liability on 'job-work' undertaken by M/s Just Exports for M/s Just Textiles. The central excise authorities alleged that the principal manufacturer was liable to pay duties of excise under Rule 12B of Central Excise Rules, 2002 as the 'job-worker' failed to exercise the option provided in the rule.

2. The interpretation of Rule 12B was crucial in determining the duty liability. The authorities argued that M/s Just Exports should be considered the 'said person' under the rule, while the appellants contended that the duty liability had been correctly discharged by the 'job-worker' and misinterpretation of the rule led to the demand for differential duty.

3. The valuation of goods sold to related and unrelated parties was also contested. The appellants relied on previous tribunal decisions to support their argument that the duty liability should be based on the value at the end of the job worker's premises, as per Rule 12B and relevant circulars.

4. The judgment emphasized the importance of the deemed exercise of option under Rule 12B and limited the duty liability to what had already been discharged by M/s Just Textiles. It highlighted the contradiction in the demand for additional duty when the 'job-worker' had already paid a portion of the duty.

5. Regarding the duty liability on goods transferred for further manufacturing, the court ruled that once duty had been discharged on the finished product, no new duty liability arose when the goods were transferred for further processing by another party, unless evidence of 'job-work' basis was provided.

In conclusion, the tribunal set aside the impugned order and allowed the appeals based on the misinterpretation of Rule 12B, the deemed exercise of option, and the absence of duty liability on goods transferred for further manufacturing without evidence of 'job-work' basis.