2020 (3) TMI 907 - AT - Central Excise

Valuation - crank cases - job-work - captive consumption - applicability of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 read with Rule 10A ibid - demand of short paid duty alongwith interest and penalty - extended period of limitation - HELD THAT - There was no scope for treating the appellant as an agent of M/s. M M in any respect and for any purpose whatsoever. It is also made clear that M/s. M M has agreed to purchase the components from the appellant and further, it has also an insurance clause requiring insuring of premises as well as the equipment with premia being paid by the appellant - There is no dispute that the appellant has in fact discharged the duties before supplying the goods in question to M/s. M M which is based on the purchase price, as given in the respective agreements. This indicates that the goods in question have been manufactured by the appellant at a cost and thereafter, cleared on payment of duty. It is not the case here by the Revenue that the manufacturer, i.e., the appellant, is only getting the job work charges which should have been the case if it is a job work simpliciter; nor has the Revenue established that the goods manufactured by the appellant are supplied free of cost to M/s. M M. Any amount of supervision per se, may not be sufficient to treat the assessee-appellant as a job worker - there are no merit in the impugned orders on the merits as well as on the principles of consistency and consequently, the same are set aside. Extended period of limitation - HELD THAT - Revenue was aware of the method adopted by the assessee since the Revenue itself had conducted periodical audits from 2011 onwards, documents evidencing which, are also part of the Paper Compilation - there is no scope at all for the Revenue to allege suppression, fraud, etc., to invoke the larger period of limitation. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Nature of the agreement between the appellant and M/s. M & M.
2. Applicability of Rule 8 and Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
3. Determination of assessable value for duty calculation.
4. Allegation of suppression, fraud, etc., to invoke the larger period of limitation.
5. Consistency with previous rulings and decisions.

Issue-wise Detailed Analysis:

1. Nature of the Agreement:
The primary issue revolves around the nature of the agreement between the appellant, a manufacturer of crank cases, and M/s. M & M. The appellant contended that the manufacturing was on a principal-to-principal basis, not on a job work basis. Despite M/s. M & M supplying raw materials and machinery, the appellant maintained that the manufacturing activity was independent, and the labor was not supplied by M/s. M & M. The agreement dated 01.09.1998 was cited to highlight that the appellant was not an agent of M/s. M & M. The Tribunal agreed with this view, noting that there was no scope for treating the appellant as an agent of M/s. M & M in any respect and that the appellant had discharged duties based on the purchase price given in the agreements.

2. Applicability of Rule 8 and Rule 10A:
The Revenue assumed that the goods manufactured for M/s. M & M were captively consumed and thus, the assessable value should be determined under Rule 8 read with Rule 10A, including an additional 10% of the production cost. The appellant denied this applicability, arguing that the negotiated price was at arm's length and relied on several decisions, including the case of Joint Secretary to Govt. of India Vs. M/s. Food Specialties Ltd. The Tribunal noted that Rule 10A applies when goods are produced by a job worker on behalf of a principal manufacturer and cleared to the buyer of the principal or to a depot. However, in this case, the goods were not sold by the principal manufacturer at the time of removal from the job worker's factory, nor were they transferred to another place for sale. Hence, Rule 10A (i) and (ii) did not apply, and Rule 10A (iii) was also not applicable as the appellant was not a job worker in the conventional sense.

3. Determination of Assessable Value:
The Tribunal referred to the decision of the Ahmedabad Bench in M/s. Rolastar Pvt. Ltd. Vs. Commissioner of Central Excise, Daman, which clarified that Rule 8 applies only when goods are used for consumption by the manufacturer himself or on his behalf. The Tribunal found that the appellant had correctly valued their products by adopting the method of cost of materials plus processing charges, as laid down by the Hon'ble Supreme Court in Ujagar Prints and other decisions. The Tribunal emphasized that the goods were manufactured by the appellant at a cost and cleared on payment of duty, indicating compliance with the appropriate valuation method.

4. Allegation of Suppression, Fraud, etc.:
The Revenue alleged suppression and fraud to invoke the larger period of limitation. However, the Tribunal noted that the Revenue was aware of the method adopted by the appellant since periodical audits had been conducted from 2011 onwards. The documents evidencing these audits were part of the record. Therefore, the Tribunal concluded that there was no scope for the Revenue to allege suppression or fraud, and the larger period of limitation could not be invoked.

5. Consistency with Previous Rulings and Decisions:
The Tribunal highlighted that for subsequent periods, similar demands of valuation had been set aside by the First Appellate Authority, and the Revenue had accepted those orders. This consistency in rulings further supported the appellant's case. The Tribunal also referred to the decision in Commissioner of C.Ex., Ahmedabad Vs. M/s. Palco Metals Ltd., which upheld the method of valuation adopted by the appellant and was affirmed by the Hon'ble Supreme Court.

Conclusion:
The Tribunal found no merit in the impugned orders on both merits and principles of consistency, setting them aside. The appeals were allowed with consequential benefits, and the Tribunal concurred that there was no basis for the Revenue to allege suppression or fraud, thus allowing the appeals on the grounds of limitation as well. The operative part of the order was pronounced in open court.

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