2019 (3) TMI 548 - AT - Central Excise

Method of Valuation - clearance of the fully built vehicle by the appellant-assessee to M/s Tata Motors Ltd, the supplier of the inputs to appellant-assessee - job-worker-principal relationship - Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Held that - It is not in dispute by either side that appellant-assessee is a job worker and the clearances are not at arm s length in the manner that clearances effected to their authorized dealers are. According to appellant-assessee, the adoption of the price at which goods are sold to authorized dealers is the most apt in terms of section 4 of Central Excise Act, 1944. The appellant-assessee, being a job worker, is liable to duty on the value of the goods transferred for the purposes of undertaking job-work and the job-work charges recovered from the principal. On the job-work charges, there is no dispute. The cycle of commercial activity in the impugned transaction involves transfer of the chassis to the appellant-assessee, discharge of duty liability by the principal manufacturer, transfer of the finished goods to the depots of the principal manufacturer after discharge of duty liability by the job-worker and final clearance thereafter. Till the delivery of the goods to the ultimate buyer of built-up vehicles , the valuation for the purpose of determination of duties of central excise is the cost of manufacture. The price at which goods are cleared by M/s Tata Motors Ltd to their authorized dealers includes, other than the cost of manufacture, the cost of transportation and the profit component. The adoption of this price for determining the duty liability in the hands of the principal manufacturer is not in any way prejudicial to Revenue and, therefore, cannot be a cause of grievance to the tax authorities. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged short-payment of duties by concealing the correct assessable value on transfer of 'chassis'.
2. Inclusion of discounts, cess, and freight in the assessable value.
3. Determination of the appropriate rule for valuation of goods cleared by job-workers.
4. Validity of penalties imposed under various sections of the Central Excise Act, 1944 and Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Alleged Short-Payment of Duties:
M/s Hyva (India) Ltd, a manufacturer of ‘bus bodies’ on behalf of owners of ‘chassis’, including M/s Tata Motors Ltd, was accused by the jurisdictional central excise authorities of short-paying duties by concealing the correct assessable value on the transfer of the ‘chassis’ from M/s Tata Motors Ltd. The Commissioner of Central Excise, Bangalore-I confirmed a demand of ?92,83,656 for the period between October 2003 and October 2006 and ?35,51,452 for the period between November 2006 and March 2007 under section 11A of the Central Excise Act, 1944, along with applicable interest under section 11AB, besides imposing penalties.

2. Inclusion of Discounts, Cess, and Freight in Assessable Value:
The central excise authorities alleged that the value excluded for the computation of duty liability included a discount, cess under the Automobile Cess Act, 1984, and freight incurred in transporting the ‘chassis’ to the appellant’s premises. The authorities argued that the relationship between the appellant and M/s Tata Motors Ltd was that of principal and job-worker, and the application of rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 mandates the additional consideration flowing directly or indirectly from the buyer to the assessee to be added back for computation of the assessable value. The tribunal found that the revenue's insistence on including these elements for duty computation was contrary to legal provisions and could not be sustained.

3. Determination of Appropriate Rule for Valuation:
The tribunal discussed various precedents, including Ispat Industries Ltd v. Commissioner of Central Excise, Raigad, and Commissioner of Central Excise & Customs v. MDS Switchgear Ltd, to determine the appropriate rule for valuation. It was noted that the cost of manufacture should be the base for computation of duty liability when goods are transferred for further processing. The tribunal concluded that the value at which goods were cleared by the principal to the job-worker should be computed under rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and any re-determination of this value by the adjudicating authority was erroneous.

4. Validity of Penalties Imposed:
The tribunal examined the penalties imposed under section 11AC of the Central Excise Act, 1944, and rules 25 and 27 of the Central Excise Rules, 2002. It was found that the adjudicating authority had erred in its approach, particularly in adding back the freight and cess. The tribunal concluded that the cycle of commercial activity involved in the transaction did not justify the penalties imposed. Consequently, the tribunal set aside the demand for duties of central excise, along with interest and penalties, and allowed the appeals.

Conclusion:
The tribunal concluded that the adjudicating authority had erred in its assessment and valuation approach. The demands for duties, interest, and penalties were set aside, and the appeals were allowed. The decision emphasized the importance of adhering to established valuation rules and legal precedents in determining duty liabilities.