2015 (5) TMI 25 - HC - Central Excise

Valuation - Job work - Legality and validity of Rule 10A of The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Imposition of penalty - Held that - Rule 10A (i), comes into play when the excisable goods are sold by the principal manufacturer for delivery at the time of removal of the goods from the factory of the job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale. Since the goods are sold by the principal manufacturer for delivery at the time of removal of the goods from the factory of the job-worker and the other condition being fulfilled the value of the excisable goods is taken to be the transaction value of the said goods sold by the principal manufacturer. Clause (ii) deals with a situation where the goods are not sold by the principal manufacturer at the time of removal of the goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of the job-worker. The Legislature had to evolve some measure or mode of computation and calculation and, therefore, inserted Rule 10A. The object and purpose of introducing or inserting it is apparent if one peruses the proviso and explanation to Rule 10A. The proviso clarifies that the cost of transport, if any, from the premises wherefrom the goods are sold to the place of delivery shall not be included in the value of the excisable goods. The explanation denotes as to how the term job-worker has to be understood and throughout this rule by the Legislature. If the job-worker means a person engaged in the manufacture or production of goods on behalf of the principal manufacturer from any inputs or goods supplied by the said principal manufacturer or by any person authorised by him, then, it is clear that the job-work or the effort which has been taken by the job-worker for and on behalf of the principal manufacturer enables the principal manufacturer to sell the completed product or finished goods. It cannot be, therefore, that the Legislature must only take the price which parties like the petitioners charge for the job-work to M/s. Tata Motors Limited. It would be also clear from a reading of Rule 11 and the preceding rules that a combined or conjoint reading of these rules would enable us to conclude that it is only in cases covered by Rule 10A clauses (i) and (ii) that the value of the excisable goods is measured or computed at the transaction value of the goods sold by the principal manufacturer. In cases which are not covered by clause (i) or clause (ii) of Rule 10A, all the provisions of the foregoing rules viz. rules earlier to Rule 10A wherever applicable shall mutatis mutandis apply for determination of the value of excisable goods. Therefore, Rule 10A is a rule enabling determination of the value of excisable goods and hence cannot be read as a stand-alone or isolated provision. It would have to be read together and harmoniously with other rules so also sections 3 and 4 of the Central Excise Act, 1944. So read, there is neither any merit in the challenge to the validity and legality nor is it necessary to read the Rule down or restrict its application as prayed for by the petitioners before us. Rule which is termed as invalid and ultra vires the parent Act is incorporated and inserted in the Central Excise Valuation (Determination of Price of Excisable Goods) Amendment Rules, 2007. These rules, therefore, would not receive an interpretation and as strict as required to be placed on the charging sections. The learned author has also pointed out that the nature of the tax imposed by a statute has to be determined by examining the pith and substance of the statute and by paying more attention to the charging section than to the basis or machinery adopted for assessment and collection of tax for the nature of tax is different from the measure of tax. Thus, there are three components of a taxing statute viz. subject of tax, person liable to pay the tax and the rate at which the tax is levied. We do not find that while valuing excisable goods for purposes of charging the duty of excise in the case of job-worker by taking into consideration the transaction value of the goods sold by the principal manufacturer, the rule in any way travels beyond the Act or alters the character or nature of the tax or duty. The argument that measure provided by Rule 10A is beyond the subject since it ceases to have nexus with the essential character of levy rejected. - We have established sufficiently in the foregoing paragraphs the nexus that Rule 10A has with the essential character of levy. In these circumstances, we do not think that the arguments based on this essential submission and elaborated in writing can be accepted by us. We are also not sustaining the legality and validity of Rule 10A on any notion of Revenue leakage. However, we are mindful of the fact that every arrangement devised by the parties like the petitioners and M/s. Tata Motors Limited could not be presumed to be genuine. It could be, in a given case, a device to avoid payment of excise duty in terms of the rate set out in the schedule. Therefore, to plug the loopholes and to discourage such arrangements as would be not conducive to the recovery of the duty that a comprehensive and complete mode has been prescribed by the Rules. We cannot find any fault with the Rule if this is also one of the object sought to be achieved. Petitioners and in the given facts and circumstances can urge that they have not manufactured the goods on behalf of another person or that their relationship with M/s. Tata Motors Limited is on principal to principal basis. The argument on relationship can be advanced in future cases by the petitioners SRP 87/91 irrespective of the conclusions that we have reached on the legality and validity of Rule 10A. Insofar as order dated 30th November, 2012 passed by the Tribunal is concerned, that clearly proceeds on the applicability of Rule 10A to the transactions and dealings noted therein. Therefore, it would be open for the petitioner to urge in other and future cases that the relationship being not covered by Rule 10A it has no applicability. In other words, they can urge that Rule 10A cannot be invoked or has been erroneously and incorrectly invoked and applied to a given transaction and case. All such contentions and based on the judgments which have been relied upon by Mr. Sridharan can be canvassed. If the Rule is read in its entirety with the proviso and the explanation, then we are sure that the applicability of Rule 10A is a matter which can be independently dealt with and depending on the facts and circumstances in each case. Therefore, it is not possible to lay down a general rule as to when can the process be said to be a jobwork and undertaken on behalf of a person named as principal manufacturer from any inputs or goods supplied by him or by any other person authorised by him. The contentions on the applicability of Rule 10A thus can be canvassed irrespective of Rule 10A being upheld by us. - Writ petition dismissed - However, levy of penalties set aside - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
2. Whether Rule 10A travels beyond sections 3 and 4 read with section 37 of the Central Excise Act, 1944.
3. Violation of Article 14 and 19(1)(g) of the Constitution of India by Rule 10A.
4. Challenge to the Circular dated 20th October 2009 and the final order dated 30th November 2012 by the Customs, Excise and Service Tax Appellate Tribunal.
5. Applicability of Rule 10A to the petitioners' transactions.
6. Relationship between the petitioners and the principal manufacturer, M/s. Tata Motors Limited.

Detailed Analysis:

1. Legality and Validity of Rule 10A:
The primary challenge was the legality and validity of Rule 10A of the Central Excise Valuation Rules, 2000, which the petitioners argued was ultra vires, beyond the legislative competence of the Parliament, and not covered under the Union List. The court held that Rule 10A was within the legislative competence of the Parliament and did not travel beyond the parent Act. The court emphasized that excise duty is a duty on manufacture and production, and the measure of tax can be based on the price at which the principal manufacturer sells the product. The court rejected the argument that Rule 10A alters the character of the tax or duty.

2. Rule 10A and Sections 3 and 4 of the Central Excise Act, 1944:
The petitioners contended that Rule 10A travels beyond sections 3 and 4 of the Central Excise Act, 1944. The court clarified that Rule 10A is a machinery provision for determining the value of excisable goods and must be read harmoniously with sections 3 and 4. The court noted that the rule was introduced to address situations where excisable goods are produced by a job-worker on behalf of a principal manufacturer and that it provides a valid basis for assessing the measure of the levy.

3. Violation of Article 14 and 19(1)(g) of the Constitution of India:
The petitioners argued that Rule 10A violated Articles 14 and 19(1)(g) of the Constitution of India. The court held that Rule 10A does not restrict the fundamental right to carry on business and is not discriminatory. The rule was found to be a reasonable measure to determine the value of excisable goods for the purpose of charging duty, and it maintains a rational connection with the levy.

4. Challenge to the Circular and Tribunal's Order:
The petitioners sought to quash the Circular dated 20th October 2009 and the final order dated 30th November 2012 by the Customs, Excise and Service Tax Appellate Tribunal. The court upheld the validity of Rule 10A and, consequently, the Circular and the Tribunal's order. The court found that the petitioners' activities fell within the scope of Rule 10A and that the rule was correctly applied.

5. Applicability of Rule 10A to Petitioners' Transactions:
The petitioners argued that their transactions with M/s. Tata Motors Limited should not be covered by Rule 10A as they were not job-workers. The court held that the petitioners' activities of building bodies on chassis supplied by M/s. Tata Motors Limited constituted job-work within the meaning of Rule 10A. The court emphasized that the relationship between the petitioners and the principal manufacturer was relevant for the application of Rule 10A.

6. Relationship Between Petitioners and Principal Manufacturer:
The petitioners contended that their relationship with M/s. Tata Motors Limited was on a principal-to-principal basis and not that of principal and agent. The court noted that the applicability of Rule 10A depends on the facts and circumstances of each case and that the petitioners' relationship with M/s. Tata Motors Limited could be examined in future cases. The court did not conclusively determine the nature of the relationship but allowed the petitioners to raise this issue in appropriate forums.

Conclusion:
The court upheld the validity of Rule 10A, finding it within the legislative competence of the Parliament and consistent with sections 3 and 4 of the Central Excise Act, 1944. The court rejected the petitioners' arguments of violation of constitutional rights and confirmed the applicability of Rule 10A to the petitioners' transactions. The court discharged the rule in each writ petition and dismissed them, with no order as to costs. However, penalties imposed on the petitioners and their directors or officers were set aside.