Value addition due to processing carried out by job worker subsequent to the clearance of the goods is not includible in assessable value.

Case:-MAHINDRA & MAHINDRA LTD. VERSUSCOMMR. OF C. EX. & CUS., NASHIK

Citation:- 2015 (321) E.L.T. 513 (Tri. - Mumbai)

Brief Facts:-Heard both sides. Appellant filed this appeal against the impugned order whereby the demand of duty has been confirmed and penalty under Rule 25 of Central Excise Rules, 2002 is also imposed. The brief facts of the case are that the appellants are engaged in the manufacture of motor vehicles i.e. Jeep and motor vehicle’s parts falling under Chapter 87 of the Central Excise Tariff Act, 1985. The appellants received a supply order in the present case from various Police departments of different States for supply of Bullet Proof Jeep. The appellants cleared base vehicle on payment of appropriate duty to the job-worker where the process of bullet-proofing was undertaken. From there the Bullet Proof Jeep was cleared to the Police department. The Revenue is demanding duty after adding the bullet-proofing charges to the assessable value of the Jeep on the ground that the order received for Bullet Proof Jeep and the appellants supplied the same.

Appellants Contention-The appellants relied upon the decision of the Tribunal in the appellants’ own case i.e. Commissioner of Central Excise, Nashik v. Mahindra & Mahindra Ltd. reported in 2010 (262) E.L.T. 366 (Tri.-Mum.) = (2010-TIOL-29-CESTAT-MUM) where the demand was made in respect of Bullet Proof Jeep supplied to J&K Police. The adjudicating authority confirmed the demand. On an appeal filed by the appellants, the Commissioner (Appeals) set aside the demand. The Revenue filed appeal before the Tribunal and the same was dismissed. The contention is that as on the same issue in the appellants’ own case, the decision is in their favour, therefore, the present impugned order is not sustainable.

Respondents Contention:-The Revenue heavily relied upon the Hon’ble Supreme Court’s decision in the case of Siddhartha Tubes Ltd. v. Commissioner of Central Excise, Indore - 2006 (193) E.L.T. 6 (S.C.) to submit that as there is a value addition to the base vehicle, therefore, the appellants are liable to pay the duty after taking into consideration the cost of value of bullet-proofing. The Revenue also submitted that as the appellants received the order of Bullet Proof Jeep and supplied the vehicle as per the order, therefore, the duty is to be paid on the Bullet Proof Jeep and not on the base vehicle. It is also submitted that when the base vehicle is supplied to job-worker, the responsibility of supply of Bullet Proof Jeep to the police departments remained with M/s. Mahindra & Mahindra Ltd. Hence the demand is rightly made.

Reasoning of Judgement:-The Tribunal find that in the appellants own case where the Bullet Proof Jeep was supplied to J&K Police and the process of bullet proofing was undertaken by the job-worker, the Tribunal after relying upon the Board’s Circular No. 139/08/2000-CX, dated 4-1-2001 whereby the Revenue obtained the opinion of the Law Ministry in respect of the ratio of the decision of Hon’ble Supreme Court in the case of Siddharth Tubes Ltd. (supra) and it has been clarified that the judgment of Siddharth Tubes Ltd. does not enable the department to charge duty on value addition outside the factory of clearance on account of certain processes not amounting to manufacture of manufactured goods in a separate/other unit of the same group or by any independent job worker. The Tribunal has held as under in the case of the appellant i.e. CC Nasik v. Mahindra & Mahindra (supra) tribunal have considered the rival submissions and relevant records. The moot point is what is the transaction value in this case. Department’s contention is that since MML is a single entity and order is placed on one of their divisions, the value to be adopted is for the vehicle supplied to the customer and not the value of the base vehicle removed from the respondent. It would be appropriate to consider the relevant legal provisions and consider this submission. Factory as defined under Section 2(e) of the Act means :-
“Factory” means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on”.
Rule 174 of erstwhile Central Excise Rules, 1944 and Rule 9 of Central Excise Rules, 2002 required every manufacturer to be registered and C.B.E. & C. is empowered to specify conditions and limitations. The Board vide Notification No. 35/2001-C.E. (N.T.), dated 26-6-2001 as amended has prescribed conditions. According to the notification, if a registered person has more than one premises, he shall obtain separate registration certificate for each premises. The fact that each premises should have a registration emerges from the provisions of Sec. 4 of the Act which requires determination of value at the place of removal. Naturally, place of removal has to be one place. What follows from the provisions relating to registration is that each factory or premises of a manufacturer is required to be registered except those who are covered by exemption. In terms of the legal provisions discussed above, it is quite clear that goods have to be assessed at the place of removal and if the value cannot be determined under main provisions of Section 4(1)(a) of the Act, rules for valuation have to be resorted. A hypothetical example makes the position clear. Let us take an assessee who has 4 divisions in different parts of the country, each making plastic granules, plastic films, plastic bags and printed bags. For the finished product of one division, the finished product of another division is the raw material. If a purchase order is placed on the division for printed plastic bag, question arises whether the division clearing the granule can be asked to pay duty on the value of printed bags or any of other two divisions can be asked to do so. If the product undergoes a process which does not amount to manufacture, department cannot demand duty including cost of each process just because the unit making raw material belongs to the same company. Legal provisions remain the same irrespective of who takes up the process. If there is no sale or if value cannot be determined under Sec. 4(1)(a) value has to be determined under Sec. 4(1)(b).They also find that Commissioner(Appeals) in her order has considered this aspect in detail before setting aside the order. Her observations relevant are reproduced below for better appreciation:-
“15. Now the question as to under these types of transaction and circumstances, whether the value of processing carried out by the independent contractor can be included in the assessable value of the goods cleared, without carrying out such process from the appellants’ premises. In this regard the appellants have referred to the C.B.E. & C. Circular No. 139/08/2000-CX, dated 4-1-2001 on the subject, in which while dealing with similar circumstances, the Board has clarified as under :-
In view of the Supreme Court judgment in the case of M/s. Siddharth Tubes Ltd. [2000 (115) E.L.T. 32 (S.C.)] and in J.G. case [1998 (97) E.L.T. 5 (S.C.)] Ministry of Law was requested to advise as regards to duty liability on value addition where the duty paid goods are cleared to other units for carrying further processes not amounting to manufacture and the other unit belongs to same group or is that of the job workers who merely processes the goods without owning them and collects job charges and return or cleared the goods on behalf of the supplier of the goods. The Law Ministry has advised that the judgment of the Siddharth Tubes Ltd. does not enable the department to charge duty on value addition outside the factory of clearance on account of certain processes not amounting to manufacture of manufactured goods in a separate/other unit of the same group or by any independent job worker.
The advise of the Ministry of Law has been accepted by the Board.
Now as per the above clarification, the duty cannot be charged on the value addition carried out outside the factory of clearances on account of certain processes not amounting to manufacture of manufactured goods by an independent job worker. And, they are inclined to agree with the appellants’ contention that the above clarification squarely applies in their case where the bare vehicles were cleared from their factory on payment of duty and the value addition on account of bullet proofing was carried out by the independent job worker viz. M/s. Metaltech Motor Bodies, in the premises of the job worker. Almost an identical issue relating to the place of removal after the amendment came up before the two member Bench headed by the President of the Tribunal, in Castrol India Ltd. v. C.C.E, New Delhi - 2000 (118) E.L.T. 35 (Tribunal) = 2000 (41) RLT 652 (CEGAT). In that case blended lubricating oil was removed from the place of manufacture in bulk in tankers to the depots/packing place from where oil was sold after repacking in smaller quantities. The cost of packing done at the depot/packing place was sought to included in assessable value even after amendment of Section 4, effective from 28-9-1996, but the same was disallowed by the Tribunal and it was observed as under :-
“In the case of removal of goods from the depot the time of removal shall be the time at which such goods were cleared from the factory as per definition of ‘time of removal’ provided by sub-clause(b)(a) to clause (iv) of Section 4 of the Act”.
The same view had also been taken by the Western Bench of the Tribunal in Sarita Chemicals Ltd. v. C.C.E., Mumbai IV - 2000 (119) E.L.T. 394 (Tribunal) = 1999 (34) RLT 573 (CEGAT)”.It is seen from the aforesaid observations of the Tribunal that the goods should be assessed in the condition in which the same are cleared from the factory and the value addition on account of the processing carried out by the job worker subsequent to the clearance of the goods should not be taken into account.” We find ourselves in complete agreement with the conclusion of Commissioner (Appeals). The Board’s circular cited by her shows that C.B.E. & C. had consulted Law Ministry and had reached the same conclusion. Decisions cited by Commissioner (Appeals), Board’s circular and the analysis of legal provisions show that Commissioner (Appeals)’ order has to be upheld. We find no merit in the appeal and dismiss the same. The ratio of the above decision is fully applicable to the present case. We find no reason to take a different view. In view of the above decision, the impugned order is set aside and the appeal is allowed.

Decision:- Appeal allowed.

Comment:- The gist of the case is that value addition on account of processing carried out by job worker subsequent to the clearance of the goods is not includible in the assessable valueaccording to Section 4 of Central Excise Act, 1944 and C.B.E. & C.’s Circular No. 139/08/2000-CX, dt 4-1-2001.It was held that when the base vehicles were cleared from factory on payment of duty and value addition was done outside the factory of clearance on account of bullet proofing process which did not amount to manufacture and the process was carried out by independent job worker in their premises, such charges thereof are not includible in the assessable value of base vehicle.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2865

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