2009 (3) TMI 444 - AT - Central Excise

Valuation- Limitation-- the appellants receive raw materials from WIL, then they undertake the conversion of billets, slabs, blooms of iron/MS into rim bars/sections falling under sub-heading 7216.10. The rim bars/sections so manufactured are cleared by the appellants on payment of appropriate duty. The short point involved is whether the value of the scrap obtained by the appellants while doing the job work is to be included in the assessable value of the goods manufactured by them. This is the main issue. The revenue has proceeded against the appellants on the ground that they had not included the said value and therefore, duty as per the Show Cause Notice has been confirmed for the period from 31-1-2002 to 31-8-2005.There is also a question of limitation has been involved. In the light of the various decisions held that- if the intermediary product are not liable to duty at the hand of the job worker, then the question of adding the value of scrap does not arise at all. Thus the value of scrap need not be included in the assessable value of the products manufactured by the appellant. On the question of limitation, held that- whatever duty is paid by the appellant is taken as credit by M/s. WIL. Definitely, there is revenue neutrality and this has a bearing on the question of invoking the longer period, because whatever duty is borne by the appellant will in turn be passed as cenvat credit to M/s. WIL. In these circumstances also, the longer period cannot be invoked thus allow the appeal with consequential relief.

Issues Involved:
1. Correct valuation of goods done on a job work basis.
2. Inclusion of the value of scrap in the assessable value.
3. Invocation of the longer period for demand.
4. Revenue neutrality.

Issue-wise Detailed Analysis:

1. Correct Valuation of Goods Done on Job Work Basis:
The appellants undertook the conversion of billets, slabs, and blooms of iron/MS into rim bars/sections for M/s. Wheels India Limited (WIL). The primary issue was whether the value of the scrap generated during this process should be included in the assessable value of the goods manufactured. The appellants contended that the value of the entire quantity of raw materials supplied by WIL, including the scrap, was already accounted for in the assessable value. They argued that including the value of the scrap again would result in double counting.

2. Inclusion of the Value of Scrap in the Assessable Value:
The appellants cited several precedents to support their argument that the value of scrap should not be included again. They referenced the Tribunal's decision in Mahindra Ugine Steel Co. Ltd. v. CCE and the Supreme Court's decision in International Auto Limited, which held that the value of scrap need not be included if it is already accounted for in the value of raw materials. The Tribunal also noted that in the case of International Auto Limited, the Supreme Court had ruled that the job worker is not liable to pay duty on the intermediate product when duty is paid on the final product. The Tribunal concluded that the value of the scrap need not be included in the assessable value of the products manufactured by the appellant.

3. Invocation of the Longer Period for Demand:
The Show Cause Notice was issued on 25-5-2006, covering the period from 31-1-2002 to 31-8-2005. The appellants argued that there was no suppression of facts as they had kept the department informed of all relevant details, including the terms and conditions of the conversion work. They contended that the longer period could not be invoked as the department had all the necessary information and could have issued the notice within the standard period. The Tribunal agreed, noting that the documents relied upon by the department were submitted by the appellants and that proper scrutiny could have led to an earlier notice. Therefore, the longer period was not applicable.

4. Revenue Neutrality:
The appellants argued that the duty paid by them on the excisable goods would be available as Cenvat credit for WIL, resulting in revenue neutrality. They cited several decisions, including ABB Ltd. v. Commissioner of Service Tax and Jameshedpur Beverages v. Commissioner of Central Excise, to support their claim that in situations leading to revenue neutrality, the longer period could not be invoked. The Tribunal agreed, noting that the duty paid by the appellants would indeed be passed as Cenvat credit to WIL, thus confirming the revenue neutrality and further supporting the non-applicability of the longer period.

Conclusion:
The Tribunal allowed the appeal, concluding that the value of the scrap need not be included in the assessable value of the products manufactured by the appellant. It also held that the longer period for demand was not applicable due to the absence of suppression of facts and the revenue-neutral nature of the transactions. The appeal was allowed with consequential relief.

← Previous Next →