2003 (11) TMI 117 - AT - Central Excise

Valuation of goods for assessment including proceeds of sale of scrap - applicability of Rule 6(b) of Central Excise Valuation Rules to job work manufacturing, deduction of scrap in cost of manufacture for job workers - HELD THAT - The job worker may decide to reduce his job charges or profit in order to gain a long term commercial advantage by pleasing a customer from whom he expects to receive large orders. But such consideration would be equally true in case of job worker where a reduction in price is given as discount for the same reason. Therefore, insofar as setting off the proceeds of sale of scrap against cost of manufacture is concerned, we do not see that the position would be any different in the case of a job worker than it would be in the case of a manufacturer making goods of his own account. This is in fact the conclusion of the decision of the Tribunal in Hindustan Engineering 2002 (5) TMI 99 - CEGAT, KOLKATA , although it has been arrived at by a very different process of reasoning. The decision in General Engineering Ltd. v. C.C.E. 1999 (1) TMI 337 - CEGAT, NEW DELHI holding that in a situation identical to the one before us, the selling price of the raw material is not to be deducted in arriving at the cost of manufacture does not advance any reasoning in support of its conclusion except to say that the sale price of the scrap generated by the job worker would have depressed the job charges for the fabrication for the final product. That is no doubt true. However, if on that reasoning such a charge is to be included, it would follow that it would have to be deducted from the cost of the raw material. If, that is not done such a charge is in fact included twice over. It is included once as an additional consideration. The refusal to deduct it as contributing to the reduction of the raw material cost would result in it being once again included. That the reported decision does not indicate that this point was raised before the Tribunal which obviously then could not have considered it. The same position applies with regard to Jay Engineering Works 1996 (12) TMI 206 - CEGAT, MADRAS . This decision proceeds merely on the basis that the price of the scrap retained by the job worker constitute additional consideration by him without considering if we may say so, the other end of the transaction, the valuation of the raw material. Both these decisions have to be distinguished. The appeal is accordingly allowed and the impugned order set aside.

Summary

Issues involved: Valuation of goods for assessment including proceeds of sale of scrap, applicability of Rule 6(b) of Central Excise Valuation Rules to job work manufacturing, deduction of scrap in cost of manufacture for job workers.

Summary:
The case involved Lloyds Steels Inds. Ltd. selling waste scrap arising from cold rolling and hardening of steel coils supplied by Tata Iron and Steel Co. The dispute arose when the department proposed including the proceeds of scrap sale in the value for assessment. The appellant argued that the price received for scrap should not be part of the assessment value, citing relevant legal precedents and accounting principles.

The departmental representative contended that Rule 6(b) of the Valuation Rules does not apply to job work manufacturing, emphasizing the difference in treatment between manufacturers and job workers. However, the Tribunal found that the principles governing cost determination should be consistent regardless of the manufacturing entity, relying on the Supreme Court's clarificatory order in Ujagar Prints.

The Tribunal concluded that the cost of manufacture for job workers should include the value of raw material, processing charges, and profit, similar to the cost calculation for manufacturers. It highlighted that including the proceeds of scrap sale in the assessment value for job workers would lead to double counting and an illogical cost calculation.

In analyzing previous decisions, the Tribunal found that the reasoning supporting the exclusion of scrap sale proceeds from cost calculation was valid, and the appeal was allowed, setting aside the impugned order.