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2018 (4) TMI 219 - AT - Central ExciseValuation - Includability - job-worker - appellant receives certain materials free of cost under delivery challan which they use for the process and clear the goods to L&T on payment of duty - Held that - the appellants have received raw material from its customers under Rule 57F(4) and Rule 57AC(5)(a)-challans. The customers supplying the raw material have availed the CENVAT credit on such material and supplied the said material free of cost to the appellant for carrying out further processing of the raw material for manufacture of final product. Identical issue decided in the case of Vako Seals Pvt. Ltd. Versus Commissioner of Central Excise, Mumbai 2016 (6) TMI 467 - CESTAT MUMBAI , where it was held that value of machine bodies supplied by the principle manufacturer need not to be added or same should not be levied with excise duty. Appeal allowed - decided in favor of apppellant.
Issues:
- Appeal against order upholding demand of Central Excise duty on free supplied items used in processing. - Interpretation of Central Excise Valuation Rules and judicial precedents regarding valuation of job worked goods. - Application of Rule 6 of Central Excise Valuation Rules, 2000. - Consideration of CENVAT credit on raw materials supplied free of cost. - Comparison of conflicting decisions on liability to pay duty on inputs supplied by final product manufacturer. Analysis: 1. Appeal Against Demand of Central Excise Duty: The appeal was filed against an order upholding the demand of Central Excise duty on free supplied items used in processing. The appellant, a job worker for a company, received materials free of cost but did not pay duty on them while clearing goods to the principal company. A show-cause notice was issued, and the Additional Commissioner confirmed the duty demand based on Central Excise Valuation Rules and judicial precedents. 2. Interpretation of Central Excise Valuation Rules: The appellant argued that the impugned order contradicted binding judicial precedent. They contended that the value of job worked goods should not include the cost of free supplied materials. The appellant relied on Rule 57F(4) and Rule 57AC(5)(a) regarding challans for raw material received. They also cited the apex court's decision in International Auto Ltd. vs. CCE, Bihar, stating that the job worker is not liable to pay duty on inputs supplied by the final product manufacturer. 3. Application of Rule 6 of Central Excise Valuation Rules: The Commissioner(Appeals) held that the transaction between the appellant and the raw material supplier falls under Rule 6 of the Valuation Rules. The appellant disagreed, arguing that the duty was payable by the customer/supplier of the raw material, not the job worker. The appellant had paid duty on the finished goods under a mistaken belief regarding the extent of duty payable. 4. Consideration of CENVAT Credit on Raw Materials: The customers supplying raw materials had availed CENVAT credit on the materials and provided them free of cost to the appellant for further processing. The Tribunal found that the decisions relied upon by the appellant supported their position that they were not liable to pay duty on the raw materials supplied free of cost. 5. Comparison of Conflicting Decisions: The learned AR defended the impugned order, citing Rule 6 and relevant judicial decisions. However, after considering both parties' submissions and the material on record, the Tribunal found that the decisions relied upon by the appellant were more applicable to the case at hand. The Tribunal set aside the impugned order, allowing the appeal of the appellant. In conclusion, the Tribunal ruled in favor of the appellant, holding that the impugned order demanding Central Excise duty on free supplied items used in processing was not sustainable in law. The decision was based on the interpretation of Central Excise Valuation Rules, the application of relevant judicial precedents, and the distinction between the liabilities of the job worker and the raw material supplier.
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