2016 (12) TMI 392 - AT - Central Excise

Valuation - job work - inter-connected undertakings - rule 8 of Central Excise Valuation Rules 2000 - Held that - valuation of goods manufactured on job-work under Rule 8 can only be done in a case where the goods are used for captive consumption within the factory or if it is used by other company on their behalf. In the present case, the goods manufactured on job-work by the appellant is neither used by themselves for captive consumption whereas the same is used by other company i.e. M/s Unique Sugar Mills Limited and use by M/s Unique Sugar Mill is not on behalf of the appellant. Therefore, the ingredient of Rule 8 does not exist in the transaction of the present case. Therefore the valuation done by the appellant i.e. cost of raw material job charges including profit of the job-worker is correct - appeal allowed - decided in favor of appellant-assessee.

Issues Involved:

1. Whether the appellant and the raw material supplier are "related persons" under Section 4(3)(b) of the Central Excise Act, 1944.
2. Whether the valuation of the goods should be done under Rule 8 of the Central Excise Valuation Rules, 2000.
3. Applicability of the valuation method prescribed in the Ujagar Prints case.

Issue-wise Detailed Analysis:

1. Relationship Between Appellant and Raw Material Supplier:

The appellant is a job-worker for a group company, M/s Unique Sugar Limited. The department issued a show cause notice asserting that the Directors of both companies are related persons, having mutual business interests, thus making the companies interconnected units as per Section 4(3)(b) of the Central Excise Act, 1944. The department argued that this relationship necessitates valuation under Rule 8 of Central Excise Valuation Rules, 2000. The appellant countered that being interconnected undertakings alone does not make them related persons for valuation under Section 4. The Tribunal referred to the Handy Wires Pvt Ltd. case and other precedents, concluding that interconnected undertakings do not automatically qualify as related persons without satisfying the specific criteria under sub-clauses (ii), (iii), or (iv) of Section 4(3)(b).

2. Valuation Under Rule 8 of Central Excise Valuation Rules, 2000:

The department contended that since the companies are interconnected, valuation should be done under Rule 8, which stipulates that the value should be 115% of the cost of manufactured goods. The appellant argued that Rule 8 applies only when goods are used for captive consumption or on behalf of the manufacturer, which was not the case here. The Tribunal examined the provisions and clarified that Rule 8 is not applicable as the goods were not used for captive consumption by the appellant but were utilized by M/s Unique Sugar Mills Limited independently. The Tribunal emphasized that Rule 9, which deals with transactions through related persons, does not apply here as the companies do not fall under the specific relationships outlined in sub-clauses (ii), (iii), or (iv) of Section 4(3)(b).

3. Valuation Method Prescribed in Ujagar Prints Case:

The appellant followed the valuation method from the Ujagar Prints case, which involves calculating the value based on the cost of raw materials plus job-work charges, including the job-worker's profit. The Tribunal upheld this method, noting that it aligns with the Supreme Court's directive in Ujagar Prints. The Tribunal found that the valuation method used by the appellant was correct and that the department's demand for differential duty based on Rule 8 was unfounded.

Conclusion:

The Tribunal concluded that the interconnected undertakings of the appellant and the raw material supplier do not qualify as related persons under Section 4(3)(b) of the Central Excise Act, 1944. Consequently, Rule 8 of the Central Excise Valuation Rules, 2000, does not apply. The valuation method based on the Ujagar Prints case was deemed appropriate. The impugned order was set aside, and the appeal was allowed.

← Previous Next →