2019 (12) TMI 636 - AT - Central Excise

Method of Valuation - Job-work - clearance of set-top-boxes - applicability of rule 6 or rule 10A of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 - Interpretation of statute - definition of job-worker was intended to be interpreted for application of rule 10A of Central Excise Valuation (Determination of Price of Excise Goods) Rules, 2000. HELD THAT - The issue of valuation of goods in the hands of job-worker is one which is vexed the Tribunal and central excise authorities for long. It is obvious that in situations of the manufacture having been contracted out to specialists the declared value is not necessarily the base for determining the duty liability. The decisions, pertaining to job-workers and their excisability, and subsequently, the assessments, were rendered for the period before the Central Excise Tariff Act, 1985 came into force - The blurring of distinction between job-worker and principal manufacturer , except for determination of commercial equation, reduced the valuation issues in the hands of principal manufacturer to conformity with place of removal . The belated interpolation of rule 10A in the said Rules also points out to the same want of definition. In effect, a job-worker works on raw materials supplied by the principal manufacturer and is denied an option to sell the goods that emerge thereby and, in that context, the liability fastened on to someone, other than the manufacturer, on the basis of contract of price. It is seen from the records that on a former occasion when the taxability of set-top-boxes and non-inclusion of the value of material supplied therewith, rule 6 of the said Rules was held to be appropriate in accordance with rule 10A - The job-worker has been held to be a manufacturer on behalf of principal-manufacturer and the supply of inputs for goods by either the principal-manufacturer or any other person authorized by him, to suffice as job-worker . The definition of job-worker , as incorporated in the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 would not cover the transactions, as well as the activities, that characteristic occur in the present dispute - Resort to rule 10A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is, therefore, not legal and proper. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of central excise duties from M/s Jabil Circuit India Pvt Ltd.
2. Imposition of penalties under section 11AC of the Central Excise Act, 1944.
3. Interpretation and application of rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
4. Miscellaneous application for change of cause title.

Issue-wise Detailed Analysis:

1. Demand of Central Excise Duties:
The central excise authorities demanded duties from M/s Jabil Circuit India Pvt Ltd for the period from 1st April 2007 to 23rd January 2008. The authorities argued that M/s Jabil Circuit India Pvt Ltd, as a job-worker, should have computed the excise duty based on rule 10A instead of rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The officials highlighted that the manufacturing and clearance of set-top boxes were done on behalf of M/s Tecnicolor India Pvt Ltd, who sold the goods exclusively to M/s Tata Sky Limited without further processing. The tribunal analyzed the arrangement between the parties and concluded that the pre-arranged scheme indicated no free choice for the appellant, thus supporting the demand for duties under rule 10A.

2. Imposition of Penalties:
Penalties were imposed on M/s Jabil Circuit India Pvt Ltd under section 11AC of the Central Excise Act, 1944, and on M/s Tecnicolor India Pvt Ltd under rule 26 of the Central Excise Rules, 2002. The tribunal examined the contractual obligations and the nature of the transactions. It was argued that the raw materials were procured by the appellant and not supplied directly by M/s Tecnicolor India Pvt Ltd, thus challenging the applicability of rule 10A. The tribunal considered previous judicial decisions and concluded that the penalties were not justified as the transactions did not fit the definition of job-work under rule 10A.

3. Interpretation and Application of Rule 10A:
The core issue was whether the definition of 'job-worker' under rule 10A was applicable. The tribunal noted that rule 10A applies when excisable goods are produced by a job-worker on behalf of a principal manufacturer using inputs supplied by the latter. The tribunal found that the raw materials were procured by the appellant from vendors approved by M/s Tecnicolor India Pvt Ltd, but the payments were made directly by the appellant. The tribunal referenced several cases, including Innocorp Ltd and Coromandel Paints Ltd, to support the view that short-listing vendors by the principal manufacturer does not constitute supply of goods by the principal. Hence, rule 10A was deemed inapplicable.

4. Miscellaneous Application for Change of Cause Title:
The tribunal allowed the miscellaneous application for the change of cause title from M/s Thomson Holdings (India) Pvt Ltd to M/s Tecnicolor India Pvt Ltd, reflecting the company's name change.

Conclusion:
The tribunal concluded that the definition of 'job-worker' under rule 10A did not cover the transactions in the present dispute. Consequently, the demand for duties and the imposition of penalties based on rule 10A were not legal and proper. The appeals were allowed, and the impugned order was set aside.

Order Pronounced:
The order was pronounced in the open court on 08/11/2019.