2009 (5) TMI 426 - AT - Central Excise

Valuation- firms, are registered manufacturer of excisable goods i.e. motor vehicles and they are engaged in fabricating and mounting the bodies of buses and trucks on the chassis manufactured by M/s. Eicher Motors Limited as well as M/s. Tata Motors Limited. The body building activity is being carried out by the said firms on the automobile chassis supplied free of cost by the manufacturers namely M/s. Eicher Motors Limited and M/s. Tata Motors Limited and for the purpose of body building activity, the raw materials are also procured by the said firms from the vendors identified by the manufacturers of automobile chassis. The manufacturers of automobile chassis had been discharging duty liability on the value arrived at in accordance with the provisions of Section 4(1)(a) of Central Excise Act, 1944 hereinafter called as the said Act as revealed from the invoices and challans issued by them but do not charge sales tax at a time the chassis are delivered to the said firms. The said firms avail Cenvat credit in relation to the duty paid on the chassis by the automobile chassis manufacturers and undertake the fabrication and mounting activity. The said firms pay the duty as per the provisions of Rule 11(8) of the said Rules, worked out on the basis of fabrication and mounting on the chassis supplied free of cost by the manufacturer of chassis. Show Cause Notice issued on the grounds that the vehicle were being manufactured by the same firms on job work basis and as soon as the excisable goods were cleared from their premises as the vehicles, the same are to be assessed in terms of Rule 10A of the said Rules. Held that- In the facts and circumstances of the case, it is apparent that the said firms had cleared the goods in relation to the body fabricating and mounting on the chassis which were supplied to the said firms free of cost by the manufacturer of chassis. Being so, the activity for the purpose of valuation would squarely fall under Rule 10A and not under Rule 6, therefore, do not find any illegality in the impugned order as far as the demand of duty and interest payable thereon from the appellants. But no penalty can be imposed. The appeals partly succeed.

Issues Involved:
1. Applicability of Rule 10A vs. Rule 6 of the Central Excise Valuation Rules, 2000.
2. Definition and scope of "job work" under Rule 10A.
3. Interpretation of the term "on behalf of" in Rule 10A.
4. Validity of the demand for duty and interest.
5. Justification for the imposition of penalty.

Detailed Analysis:

1. Applicability of Rule 10A vs. Rule 6 of the Central Excise Valuation Rules, 2000
The core issue was whether the goods cleared by the two firms should be assessed under Rule 10A or Rule 6 of the Central Excise Valuation Rules, 2000. The firms argued that their activities did not constitute "job work" and thus should not fall under Rule 10A. The Tribunal, however, found that the firms were engaged in the manufacture of goods from inputs supplied by the principal manufacturers, thereby fitting the definition of job work under Rule 10A.

2. Definition and Scope of "Job Work" under Rule 10A
The Tribunal examined the definition of "job work" as provided in Rule 10A and the explanation therein. Rule 10A defines a job worker as a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, using inputs supplied by the principal manufacturer or an authorized person. The Tribunal concluded that the firms' activities, which involved fabricating and mounting bodies on chassis supplied free of cost by the principal manufacturers, fell squarely within this definition.

3. Interpretation of the Term "On Behalf Of" in Rule 10A
The firms contended that the term "on behalf of" implied representation to a third party, arguing that their activities were not on behalf of the principal manufacturers. The Tribunal rejected this interpretation, clarifying that the term "on behalf of" referred to the relationship between the job worker and the principal manufacturer, not any third party. The Tribunal emphasized that the rule's explanation clearly indicated that the job worker manufactures goods for the principal manufacturer, thus fitting the context of Rule 10A.

4. Validity of the Demand for Duty and Interest
The Tribunal upheld the demand for duty and interest, finding no illegality in the impugned order. The firms had cleared goods by fabricating and mounting bodies on chassis supplied by the principal manufacturers, and thus, the activity was correctly assessed under Rule 10A. The Tribunal dismissed the firms' challenge to the demand for duty and interest.

5. Justification for the Imposition of Penalty
The Tribunal found merit in the firms' argument against the imposition of penalties. Given that the issue involved the interpretation of legal provisions and the firms had relied on a Supreme Court decision (Prestige Engineering (India) Ltd.) to claim benefits under Rule 6, the Tribunal concluded that there was no justification for imposing penalties. The impugned order did not consider this aspect, and thus, the Tribunal allowed the appeals to the extent that they challenged the imposition of penalties.

Conclusion
The appeals were partly allowed, with the Tribunal setting aside the penalties but upholding the demand for duty and interest. The Tribunal's decision clarified the scope and application of Rule 10A, emphasizing that the firms' activities constituted job work and should be assessed accordingly.

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