By TIOL News Service

MUMBAI, JUNE 20, 2014 : THIS is an appeal filed by the assessee against the order passed by the Commr.(A) upholding the confirmation of demand of differential CE duty of Rs.1.75 lakhs along with penalty and interest.

The short facts are that the appellant is a manufacturer of paper and paper boards. The paper is cleared from the factory both in reel form as also in sheet form.

In respect of paper for which orders were received for supply in sheet form, the appellant cleared the paper in reel form to the job-worker for cutting of paper reels into paper sheets. They discharged excise duty liability on a lower value as applicable to reels. After undertaking the job work, the goods were sold form the job workers' premises to the ultimate buyers at a higher price as applicable for the sheets.

The department was of the view that in respect of such clearances of paper reels, the duty liability should have been discharged on the price at which sheets were sold to the ultimate buyers. And so the duty stands confirmed.

It is the contention of the appellant that since cutting of reels into sheets does not amount to "manufacture" and the goods were cleared from the factory in reel form, therefore, discharge of duty liability considering the form in which the paper was cleared and on the value in reels form is appropriate and in accordance with law. It is also submitted that previously also the Tribunal had granted unconditional stay in respect of such clearance.

The Revenue representative submitted that the appellant knew that the paper was required to be delivered to the buyers in sheet form and, therefore, they had sent it to the job worker and thereafter sold it from the job worker's premises by issuing invoices. Simply put, the appellant themselves had raised invoices at a higher value and so they ought to have discharged the duty liability involved on the sale value of goods.

The Bench observed -

++ There is no dispute about the fact the order for supply/sale was paper in sheet form. If the appellant had cleared the paper from their factory in sheet form, they would have been required to discharge the duty liability at the price at which the paper sheets were sold.

++ Merely because the paper was initially cleared to the job-workers for conversion from reels into sheets and thereafter supplied/sold to the buyers, why should the duty liability be discharged on a lower value?

++ If such a view is taken, it will be possible to easily shift the penultimate process of manufacture to a job worker and evade excise duty on the value addition which has significant ramifications.

++ Further, manufacture includes any process incidental or ancillary to the completion of a manufactured product and cutting of paper from reels into sheets is a process incidental or ancillary to the completion of the paper sheet.

++ As per Rule 10A of the Central Excise Valuation Rules, when goods are sent for job-work and the job-worked goods are sold from the job workers premises, duty liability has to be discharged on the sale price of the job-worked goods charged by the principal manufacturer.

++ This change in the Valuation Rules came with effect from 1 st March 2007. Therefore, the stay orders pertaining to the previous period are not relevant or applicable as there is a change in the legal position. Therefore, the department's claim for discharge of duty on the price at which the goods were ultimately sold to the buyers had merits.

++ In view of the above, we are of the view that the appellant has not made out a prima facie case for grant of stay.

In fine, the Bench directed the appellant to make pre-deposit of the entire duty demanded and report compliance for obtaining stay.

In passing : Rule 10A is effective from 01.04.2007 and hopefully the SCN must have had a mention or two about this rule…

(See 2014-TIOL-1070-CESTAT-MUM)