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TMI Blog2022 (2) TMI 1068X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Rule has no bearing on the valuation of the goods cleared by the job worker.The issue before this Bench is to see whether the appellants were required to include the value of the scrap in the assessable value of the goods cleared by them after manufacture on job work basis on behalf of their principal manufacturers. The impugned orders have arrived at the assessable value correctly and that the sale proceedings of the scrap are required to be included in the assessable of the goods cleared by the appellant-job worker. The appellants have also taken the plea that whatever duty they would have paid, the principal manufacturers or the other buyers would have availed CENVAT credit and therefore to that extent the issue is revenue neutral. We find that this submission is far fetched and cannot be considered in a case where the payment of duty is by someone and availment of credit would be by somebody else. Such an averment would defeat the very scheme of CENVAT Credit and therefore, cannot be accepted. The impugned orders fail to take into account burning losses during the process of rolling and in their case the actual scrap available is only 4.25% as against the assumption of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f products manufactured and cleared by them on job work basis, as alleged in the various impugned show-cause notices, requires to be included in the assessable value in terms of Central Excise Valuation Rules, 2000. Quantification of scrap shall be on actual basis taking into account the burning losses, if any, as claimed by the appellants - demands shall be restricted to the normal period only as may be applicable during the relevant period of respective appeal - penalties imposed are set aside. Appeal allowed in part. X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied is scrap as per purchase orders; the price of such scrap of such quantity is includable in the assessable value. Various Show Cause Notices were issued to the different units of the appellants seeking to demand of duty and impose penalty; show case notices did also propose penalties on various officials of the company. The SCNs were confirmed by Commissioner of Customs and Central Excise, Nagpur, vide Order No 2/2009/C dated 13.05.2009. Show Cause Notices confirmed by lower authorities were also confirmed by Commissioner (Appeals) Nagpur, vide orders No. PVR/240-243/2012 dated 30-11-2012; No. PVR/176,177/2013 dated 15-03-2013; PVR/278,281/2013 dated 24-05- 2013; No.773/2013 dated 22-08-2013; No. 827/ 2013 dated 12-9-2013 and No 892,893,894/2013 dated 22-10-2013. Hence, the following appeals are filed. Sr. No. Appeal No. Name of the Appellant Impugned Order No. & date Period in dispute Duty demand (Rs.) Penalty u/s 11AC 1 E/914/2009 Sanvijay Rolling & Engineering Limited OIO No 02/2009/C 13.05.2009 November 2003 to March 2008 68,80,566 68,80,566 2 E/85928/2013 -Do- OIA No PVR/240 TO 243/NGP/2012 30.11.2012 July 2004 to March 2009 44,30,024 44,30,024 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in respect of category-II and Category-III, that no part of the demand is sustainable; in terms of Rule 4(5)(a) of the Cenvat Credit Rules, the manufacturer of final product can take credit on inputs received in its factory and send the inputs to the job worker for the manufacture of intermediate product and receive the intermediate product for using the same in the manufacture of the final product; in such a situation, the job worker who manufactures the intermediate product is not liable to pay any duty on the intermediate product manufactured out of the raw material supplied to him; since the appellants could have followed the alternate procedure under Rule 4(5)(a); the Appellants could have manufactured the finished product out of the raw material supplied on job work basis and return the same to raw material supplier without payment of duty under the aforesaid rule; in such a situation, question of demanding differential duty would not arise. Apex Court in the case of International Auto Limited2005 (183) ELT 239 (SC), in a matter involving similar proceedings, set aside the demand by observing that it is the Modvat of such final product which would have to be included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the demand of duty is an exercise in futility as held in CCE Vs Special Steel - 2015 (329) ELT 449 (T) (affirmed by Supreme Court at 2016 (334) ELT A123 (SC) and Sanvijay Rolling Vs CCE - 2018 (11) GSTL 344 (Bom.). He further submits that the demand has been computed on the entire difference between the weight of raw material supplied by the raw material supplier and weight of finished goods to be cleared to the raw material supplier as per the purchase order; in other words, the demand has not been computed on the actual scrap arising in the process of manufacturing; in the case of appellants, there is approximately burning loss of 4.25% department has not taken into account the process loss and burning loss while assuming that the entire difference is towards the scrap; department had raised this issue in the similarly placed manufacturers like VinarIspat, Shilpa Re-rollers, however, giving benefit of burning loss. He submits thatthe scrap sale price is to be deducted to arrive at the conversion cost, when the raw material cost takes into account the gross weight of the raw material. The appellants had taken into account the price of the gross weight of the raw material without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ened any provision and therefore, imposition of penalty under Rule 25 is also not sustainable; since demand is not sustainable and therefore interest is also not payable. 5. Learned Authorised Representative for the department reiterates the findings of OIOs and relies on the following cases. (i). Jay Engineering Works Ltd1997 (93) ELT 492 (Tri) (ii). General Engineering Works 2007 (212) ELT295 (S.C) (iii).Thermax Babcock & Wilcox Ltd 2018 (364) ELT945 (Tri. - LB) (iv). Ankur Packaging Pvt. Ltd 2015 (320) ELT482 (Tri. - Mumbai) 6. Learned counsel for the appellants submits, in rebuttal of the submissions of Authorised Representative, that the department placed reliance on the judgment of Supreme Court in the case of General Engineering; however, Supreme Court delivered this decision vide order dated 10.3.2005 reported 2007 (212) ELT 295 (SC); Tribunal followed the same in the judgements cited by AR; subsequently, Hon'ble Supreme Court delivered the judgment of International Auto on 17.3.2005 reported 2005 (183) ELT 239 (SC); moreover, the judgment in General Engineering Works did not deal with the implication of Rule 4(5)); CESTAT in the case of P.R. Rolling Mills consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The main contentions of the appellants are that assessable value was worked out on the principle of cost accounting and there was no need to include the cost of scrap; they have considered the assessable value in the case of orders for conversion including 10% profit in addition to the job charges; 10% of profit added by the appellants was more than the value of the scrap and therefore, no case is made towards addition of the value of the same; no duty was payable as the principal manufacturers had always an option to avail the procedure under rule 4(5)(a); the issue is revenue neutral; audit teams have visited the appellants premises from time to time and hence, extended period cannot be invoked and penalties cannot be levied. The appellants mainly rely upon the judgment of Supreme Court in the case of International Auto (supra) and CESTAT judgment in the case of PR Rolling Mills. Whereas the department mainly relies on the judgment of Supreme Court in the case of General Engineering (supra) and that of Tribunal in the case of Thermax Babcock and Wilcox Ltd. (supra). 7.1 It will be beneficial to see as to how the learned adjudicating authority has dealt with the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the quantity in the form of scrap would be retained by the job worker; clearly the sale value of the scrap at the hands of the job worker was an additional consideration. 7.2 At this juncture it would be beneficial to refer to the decision of the apex court in case of General Engineering works, we find that Hon'ble Apex Court has held as under: "6. The burden of proving that the price is so depressed would be on the Revenue. But one of the methods of proving it would be through the contract between the parties itself. In this case the contract is on record. The contract provides as follows : - "The prices quoted are based on the free supply of Rails by you at our works, Bharatpur, Western Railway, Rajasthan. The tonnage for Rails will be 5% more than the net requirement of Rails required for different items of Switches, 5% being the manufacturing wastage." ........................... "The total requirement of Rails for different items would be forwarded to you within ten days of receipt of your formal order. Manufacturing wastage of 5% has been considered and therefore this wastage will not be separately accounted for and shall not be returned. Any surplus materials rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion arises, at this stage, of considering value of raw material in this scrap/waste and there is no double calculation of value of raw material. As a second commodity has come into existence, the excise paid on the second commodity has no relevance in working out the value of the first commodity, i.e. points and crossings. The decision in Hindustan Engineering & Industries Limited's case (supra) will therefore stand overruled. 7.3 Tribunal in the case of Ankur Packaging Limited: 2015 (320) ELT 482 (Tri.-Mum.) held that : "5. The respondent paid the Excise duty on the realized value against sale of the scrap retained by them, which was generated during the course of processing of job work goods. It is undisputed fact that for the purpose of job work the respondent has received free of cost raw material from the principal. After processing finished goods, it was returned to the principal. However, the scrap generated during the course of manufacture in the job work basis has been retained by the respondent. The said scrap was sold in the market by the respondent and realized value. For the purpose of job work, the respondent is paid particular job work charges by the principal. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by the Tribunal. 7. Accordingly, on the principles laid down in General Engineering Works case, we set aside the impugned judgment and allow the Appeal. The Order of the adjudicating authority dated 7th October, 2002 gets restored. There shall be no order as to costs." 6. From the above judgment, it is clear that if the scrap is retained by the job worker and sale of the same will affect the conversion charges towards job work, the same should be included in the assessable value of the job work goods. We agree with the submission made by ld. AR that though the ld. Commissioner (Appeals) heavily relied on judgment of [2007 (211) E.L.T. 73 (Tri.-Mum.)] (sic) Mahindra Ugine Steel Co. Ltd. but subsequently said Tribunal judgment was set aside and matter was remanded back to the Tribunal. The impugned order of the ld. Commissioner, based on the judgment which does not exist presently, cannot be sustained. From the facts, our observation is that against overall activity of job work, the respondent job worker is getting the consideration in two forms, one job work charges and second realized value of scrap sale. In other words total sum of both these element will form the total co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the stipulated period he shall be liable to reverse the Cenvat credit availed on such inputs. The rule is confined to the scope of Cenvat credit but has no relation with manufacture, manufacturer and payment of duty on the manufactured goods." In view of the above, we find that the alternate plea of the appellants that the principal manufacturers could have availed the procedure under Rule 4(5)(a) of CENVAT Credit Rules, 2004 is not relevant to the present case on the facts. Any procedure under any statute requires to be followed and only then the benefits that accrue consequentially would be available. When the principal manufacturers of the appellant-job worker have not followed the procedure, any plea on the same would be only hypothetical. Moreover, as held by the Tribunal in the case of Thermax Babcock & Wilcox Limited has clarified that the applicability or otherwise of the said Rule has no bearing on the valuation of the goods cleared by the job worker.The issue before this Bench is to see whether the appellants were required to include the value of the scrap in the assessable value of the goods cleared by them after manufacture on job work basis on behalf of their prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is acceptable. As per the valuation provisions under Central Excise and the ratio of the judgments as discussed above stipulate that the value of scrap sold has to be taken into account as the same represents additional consideration flowing into thehands of thejob worker from theprincipal manufacturer. Neither the Rules nor the judicial pronouncements mention about a notional value of any scrap retained by the appellants and about the includability of burning losses. Essential element that requires to be considered as additional consideration and thus, includable in the assessable value is the value / sale proceeds of scrap. Burning losses, if any, cannot be considered by any stretch of imagination as additional consideration in the hands of appellants, though it may constitute an amount of wastage or loss for the principal manufacturer. Therefore, we are of the considered opinion that the inclusion of additional consideration should be restricted to the actual scrap generated and sold by the appellants. For the computation of the same, the issue needs to go back to the Commissioner, who shall recalculate the demand including only the value of actual scrap generated and sold by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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