Valuation of goods manufactured by job worker and cleared to principal manufacturer for further consumption- Whether rule 10A or rule 8 applicable?

PJ/Case Laws/2011-12/1227

Case: M/s Advance Surfactants India Ltd versus Commissioner of Central Excise, Mangalore
Citation: 2011-TIOL-757-CESTAT-BANG
Issue:- Valuation of goods manufactured by job worker & cleared to Principal manufacturer for further consumption – Whether Rule 10A (i) /(ii) or Rule 8 be applicable?
Brief Facts:- Appellants were manufacturing on job work basis chemicals for M/s Hindustan Unilever Ltd. They used to receive Linear Alkyl Benzene (LAB) from M/s. HUL. The appellants used to manufacture Linear Alkyl Benzene Sulphuric Acid (LABSA) in their factory and send the same back to M/s. HUL. M/s. HUL was consuming the said LABSA in their factory for the manufacture of Soaps and Detergents. Appellant were discharging Central Excise Duty on LABSA manufactured by them, based on cost of manufacturing which included cost of raw materials, processing charges and profit margin. M/s. HUL was supplying the LAB and the appellants were consuming other chemicals for the manufacturing of LABSA.
The Excise authorities were of the view that appellant were required to value the goods cleared by them to M/s. HUL under the said rule. Show-cause notices were issued.
Appellants replied that Rule 10A will not be applicable in their case and provisions of Rule 8 of the said Rules cannot be brought into play for valuation of LABSA. The Adjudicating Authority did not accept appellant’s contentions and confirmed the demands. Aggrieved, appellants preferred appeals before the Commissioner (Appeals).
Commissioner (Appeals) was of the view that provisions of Rule 8 r/w Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules will come into play and the appellants are required to discharge duty liability based upon the cost of production plus 10% as provided in Rule 8 of the said Rules.
Hence, Appellant filed appeal before the Tribunal.
Appellant’s Contention:- Appellant submitted that they are manufacturing LABSA on job work basis for M/s. HUL. The said LABSA was cleared from the factory premises on payment of appropriate duty and was consumed by M/s. HUL for manufacturing of soaps and detergents.
It is their submission that valuation of goods of job workers should be determined according to the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules. Prior to introduction of provisions of Rule 10A in the Valuation Rules, the appellants were following the same procedure of valuating their product LABSA. The valuation adopted by the appellant was the cost of material consumed for manufacturing of LABSA, processing charges, as has been laid down by the Supreme Court in the case of Ujagar Prints and followed in various decisions like Pawan Biscuits Co. (Pvt.) Ltd. Vs. CCE, Patna [2000 (120) ELT 24 (SC)].
Appellant drew attention to the provisions of Rule 10A and submit that Rule 10A will be applicable only when the goods are cleared from the job workers' premises directly to the market or to the depot or consignment agent of the principal, from where the goods are sold.
Appellant submitted that in the case in hand, both the things are absent. It is his submission that provisions of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 will also not apply as the goods, which are cleared by the appellant, are consumed by M/s. HUL for the manufacture of their final products.
Appellant submitted that Rule 8 will apply only when excisable goods are consumed by himself or on his behalf for production or manufacture of other articles.
Appellant drew attention to Circular issued by the Board vide No. 902/22/2009-CX dated 20th October 2009 in respect of clarification of assessable value in an identical situation.
Appellant submitted that the said explanation is discussing about a situation where the goods, after being job worked are cleared to depot, consignment agent or to the purchaser directly.
Appellant submitted that the judgment of this Tribunal in the case of Tara Industries Ltd. Vs. CCE, Chandigarh [2003 (161) ELT 758 (Tri.-Del.)] and in the case of Mahindra Ugine Steel Co. Ltd. Vs. CCE. Pune-I [2003 (156) ELT 618 (Tri.-Mumbai) will be applicable in this case.
Appellant also submitted that the CBEC, on 31.03.2010, issued another clarification addressed to the Chief Commissioners of Central Excise, wherein determination of the value of the goods manufactured by job worker was discussed. Appellant submitted that even this letter is of no use to the Revenue.
Respondent’s Contention: Revenue submitted that after insertion of Rule 10A to the said Rules, the valuation should be decided on that basis for the products manufactured by a job worker It is his submission that there is no denial by the assessee that he is the job worker of HUL.
Respondent emphasised that by reading sub-rule (iii) of Rule 10A, application of Rules 1 to 10 will be only applicable and it excludes the scope of invoking provisions of Rule 11.
It is their submission that the most appropriate rule that could be invoked for the purposes of valuation of LABSA would be Rule 8. Respondent submitted that the above view is supported by the judgment of this Bench in the case of Commissioner of Central Excise Vs. Ultrapack as reported in 2010 (251) ELT 413 (Tri.-Bang.) and Board's Circular dated 31 03.2010.
Respondent submitted that the decisions relied upon by the appellant that in respect of Ujagar Prints andPawan Biscuits were situations covering the period upto July 2007 when Rule 10A was not in existence.
Reasoning of the Judgment:The Tribunal noted that the appellant had been valuing LABSA cleared from factory premises, based upon the cost of material plus processing charges prior to 01.04.2007 when the provisions of Rule 10A were inserted into the Central Excise Valuation Rules, 2000. That the said LABSA was returned back to M/s HUL for further consumption in their factory premises for manufacturing of soaps and detergents. It is nobody's case that LABSA consumed by HUL is on behalf of the appellant-job worker.
Rule 10A was perused by the Tribunal and it was stated that provisions of Rule 10A can be brought into play only when there is a situation where excisable goods are produced or manufactured by a job worker on behalf of a person and cleared to the buyer of the principal and/or cleared to a depot or a consignment agent. The intention of the Legislature was to capture the tax on the goods, on the value of the said goods when cleared to the ultimate consumers. It was noted that in appellant’s case, provisions of Rule 10A (i) and (ii) did no arise. Provisions of Rule 10A (iii) provided that clearly in a case not covered under clause (i) or (ii), the provisions of the foregoing rules, wherever applicable will apply mutatis mutandis for determining he value. Thus, the provisions of Valuaion Rules, 2000 are to be followed sequentially.
It is not the Revenue's case that provisions of Rule 3,4,5,6 and 7 would also apply in this case. Revenue is of the view that provisions of Rule 8 will apply.
From Rule 8, Tribunal held that the said Rules will come into play only when the goods are used for consumption by the assessee or on his behalf, in the production or manufacture of other articles, in such a case the value shall be 110% of the cost of production or manufacture of such goods. If this rule needs to be applied in the case, then it is to be on record that LABSA is a product of the appellant herein and is consumed by HUL on appellant's behalf or the said products are consumed by some other job worker of the appellant, in his factory for further manufacturing of goods.
In the absence of any such situation, the Tribunal is of the view that provisions of Rule 8 will not come into play. It was noted that the LABSA is the intermediate product required by HUL which is manufactured or produced by the appellant as a job worker.
In the case in hand, it is very clear and not disputed that the appellant is not consuming the said LABSA nor is it consumed on his behalf by HUL. In view of the Tribunal, the provisions of Rule 8 will not get attracted in this case.
It can be seen that the clarification issued by the CBEC vide F. No. 6/15/2009-CXI dated 31.03.2010 seems to be untenable in view of the foregoing reasons The views expressed in the Circular are inconsistent with the provisions of Rule 8. Since the said clarification is against the mandate of the said Rule 8 of Central Excise Valuation (Determination of Prices of Excisable Goods) Rules, the said clarification is untenable and has to be held as such. The Tribunal noted that its view was confirmed in the case of Tara Industries Ltd.
On the issue of determination of value has to be done as provided under Rule 10A(iii). By elimination of Rule 2 to 10 as they may not apply in a situation like in this case, I was held by the Tribunal that provisions of Rule 11 will apply and Revenue has to take the recourse to provisions of Rule 11 which talks about using reasonable means consistent with the principles and general provisions of these rules read with sub-section (1) of section 4 of Central Excise Act. 1944. Keeping this in mind, the Tribunal finds that the ratio laid down by the Hon'ble Supreme Court in the case of Ujagar Prints and followed by various other decisions of this Tribunal and accepted by Revenue in their various Circulars will squarely apply i.e. to ascertain the assessable value on the cost of materials plus processing charges. It was considered that the appellants have been correctly valuating their products by adopting this method.
The Tribunal finds that the judgment relied upon by the respondent of this Bench in the case of Ultrapack is on a different set of facts. It can be seen that in that case, Rule 8 was invoked because it was undisputed that repacking was done on behalf of Reckitt Benckiser India Ltd which would clearly attract the provisions of Rule 8. The situation in the current appeal is totally different which has been already set out. In view of this, the decision of this bench in the case of Ultrapack will not be applicable. Impugned Order set aside.
Decision:Appeal allowed.
Comment:- This decision has drawn great conclusion and provisions of Rule 10A of Valuation rules will not apply and the valuation is to be done on cost of material plus processing charges. This was held by Apex Court also in case of Ujagar prints. But everyone was doing valuation under Rule 10A after its introduction.

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PJ/Case Laws/2011-12/1227

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