2025 (1) TMI 422 - AT - Central Excise

Method of valuation of job-worked goods - it appeared that the value adopted by the Appellants by considering the cost of materials plus conversion cost, was not in accordance with Rule 10A (iii) read with Rule 8 of Central Excise Valuation Rules, 2000 (CEVR) resulting in short payment of duty - HELD THAT - The Appellants have manufactured HDPE Plastic Caps on job work basis and have paid duty on the assessable value worked out by taking into account the cost of materials plus conversion cost. The principal manufacturer (M/s. Marico) used the caps for fitment onto bottles, in its factory, for filling coconut oil. The department therefore contends that after 01.04.2007 the valuation should be done applying Rule 10A(iii) r/w Rule 8 of Central Excise Valuation Rules which applies when goods are not sold. The appellant does not captively consume the goods nor does M/s. Marico consume it on behalf of appellant. The very same issue has been considered by this Tribunal in the Appellants case 2018 (2) TMI 139 - CESTAT CHENNAI following the judgement in the case of M/s. Advance Surfactants India Ltd. Vs CCE, Mangalore 2011 (3) TMI 1380 - CESTAT, BANGALORE , where it was held that ' it is undisputed that LABSA is manufactured by job worker and cleared to HUL for further consumption and the said LABSA is the intermediate product required by HUL which is manufactured or produced by the appellant as a job worker. The key words in Rule 8 that needs to be interpreted are consumption by an assessee or on his behalf for applying the said Rule for arriving at valuation or determination of goods. In the case in hand, it is very clear and not disputed that the appellant is not consuming the said LABSA nor is it consumed on his behalf by HUL. In our considered view, the provisions of Rule 8 will not get attracted in this case.' Conclusion - Rule 8 of the CEVR applies only when goods are consumed by the assessee or on their behalf, and that valuation should be based on the cost of materials plus job work charges when these conditions are not met. The demand confirmed is not legally sustainable and requires to be set aside - Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this judgment is whether the value to be adopted for job-worked goods was in accordance with Rule 10A(iii) read with Rule 8 of the Central Excise Valuation Rules, 2000 (CEVR).

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The relevant legal framework involves Rule 10A and Rule 8 of the Central Excise Valuation Rules, 2000. Rule 10A addresses the valuation of goods manufactured by a job worker on behalf of a principal manufacturer. Specifically, Rule 10A(iii) applies when the goods are not sold by the principal manufacturer at the time of removal from the job worker's factory. Rule 8 pertains to the valuation of goods not sold but used for consumption by the assessee or on their behalf.

Significant precedents cited include the Supreme Court decisions in Ujjagar Prints and M/s. Pawan Biscuits Ltd., as well as Tribunal decisions in M/s. Advance Surfactants India Ltd. Vs. CCE, Mangalore and Rolastar Pvt. Ltd. Vs. CCE, Daman.

Court's interpretation and reasoning:

The court analyzed whether Rule 10A(iii) and Rule 8 were applicable to the valuation of HDPE Plastic Caps manufactured by the Appellants on a job work basis. It was determined that Rule 10A(iii) was not applicable because the goods were not consumed by the principal manufacturer on behalf of the Appellants. The court emphasized that Rule 8 requires that the goods be consumed by the assessee or on their behalf, which was not the case here.

Key evidence and findings:

The Appellants manufactured HDPE Plastic Caps using materials supplied by M/s. Marico Ltd. and paid duty based on the cost of materials plus conversion cost. The department contended that the valuation should have been done using Rule 10A(iii) read with Rule 8, as the goods were not sold. However, the court found that the caps were not consumed by the Appellants or on their behalf, thus Rule 8 was not applicable.

Application of law to facts:

The court applied the legal principles from the cited precedents, particularly the Supreme Court's guidance in Ujjagar Prints, which supports valuing goods based on the cost of materials plus job work charges. The court concluded that the Appellants correctly valued their products using this method, as Rule 10A(iii) and Rule 8 did not apply.

Treatment of competing arguments:

The Appellants argued that the assessable value should be based on the cost of manufacture and job work charges, as supported by prior decisions and CBEC Circulars. The Department argued for the application of Rule 10A(iii) and Rule 8, asserting that the Appellants had not adopted the correct valuation method. The court sided with the Appellants, finding that the Department's reliance on Rule 10A(iii) and Rule 8 was misplaced.

Conclusions:

The court concluded that the demand for differential duty was not legally sustainable, as the valuation method used by the Appellants was appropriate. The impugned orders were set aside, and the appeals were allowed.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The key words in Rule 8 that needs to be interpreted are 'consumption by an assessee or on his behalf' for applying the said Rule for arriving at valuation or determination of goods. In the case in hand, it is very clear and not disputed that the appellant is not consuming the said LABSA nor is it consumed on his behalf by HUL. In our considered view, the provisions of Rule 8 will not get attracted in this case."

Core principles established:

The judgment reaffirms the principle that Rule 8 of the CEVR applies only when goods are consumed by the assessee or on their behalf, and that valuation should be based on the cost of materials plus job work charges when these conditions are not met.

Final determinations on each issue:

The court determined that the Appellants' valuation method was correct, and the demands for differential duty were not legally sustainable. The impugned orders were set aside, and the appeals were allowed with consequential relief as per the law.

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