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PJ/CASE LAW/2015-16/2672

Applicability of Rule 8 of the Central Excise(Valuation Rules),2002 or Rule 11 thereof would apply in arriving at the valuation of the goods.
Case:- COMMISSIONER OF CENTRAL EX., PUNE Versus MAHINDRA UGINE STEEL CO. LTD.

Citation:- 2015(318)E.L.T.592(S.C.)

Brief case:- The respondent is engaged in the manufacture of motor vehicle parts from the raw material supplied by the customers of the goods on labour charges basis. In essence, thus, the respondent undertakes the job work. After the manufacturing of the motor vehicle parts, the same are supplied to the customers who had places the orders for the job work. The customers to whom the motor vehicle parts are supplied are used by those customers in the manufacture of motor vehicles on which full excise duty is paid. While arriving at the value of the motor vehicle on which the duty is to be paid, the cost of such motor vehicle parts is included. Therefore, to this extent it is not in dispute that ultimately the manufacturer of the motor vehicle pays the Excise duty on the motor vehicle parts which are manufactured by the respondent on undertaking the aforesaid job work.

Appellant’s contention:- As per the appellant/Department Rule 8 is applicable and therefore, the value has to be 115% of the cost of production. Rule 8 reads as under:
RULE 8: Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen percent of the cost of production or manufacture of such goods.”
Learned Counsel for the appellant, however, referred to Rule 9 and submitted that the proviso to the said Rule would attract the applicability of Rule 8 in the present case. In order to appreciate this argument, the following note of Rule 9 was reproduced:
“Rule 9: When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub clause (ii),(iii) or (iv)of clause (b) of sub section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers(not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail:
Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in Rule 8.”

Respondent’s contention:- As per the Respondent’s contention in order to attract these rules, first requirement is that the assessee sells the excisable goods to or through a person who is related in the manner stated in S.4(3)(b) of the Act. There are four eventualities provided in sub-clause(i) to (iv) which such a person can be related. However Rule 9 mentions relationship that is visualized in subclauses (ii) to (iv) only and excludes clause(i). Thus, this Rule would be applicable only in those cases that assessee is related in the manner specified in either of sub-clause (ii),(iii) or(iv) of clause (b) of sub section (3) of section 4 of the Act and not in those cases where the person is related in the manner as stated in clause (i) thereof. In those cases where Rule 9 is applicable, for the purpose of valuation, normal transaction value at which such goods are sold by the related person, is to be taken as the value of the goods. Proviso becomes applicable only when goods are not sold by the related person at all and used or consumed for home production. As there is no sale transaction by the related person, question of value thereof will not be available and therefore, to arrive at the value in such a situation one has to fall back on Rule 8.

Reasoning of judgement:- If main Rule 9 is not attracted, question of applicability of proviso thereto does not arise. Once the conclusion is arrived that Rule 8 is not applicable, it is Rule 11 only which becomes applicable as that is residuary provision for arriving at the value of any excisable goods which are not determined under any other rule.

Decision:-The appeal is dismissed.

Comment:- The crux of the case is that Rule 8 is applicable where the excisable goods are not sold by the assessee but are used for consumption by him. And where main Rule 9 is not attracted, question of applicability of proviso does not arise. Rule 11 is the residuary provision for arriving at the value of any excisable goods which are not determined under any Rule.

Submitted by:- somya jain
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