CX - Valuation - If scrap is retained by job worker, sale of same will affect conversion charges towards job work and hence same should be included in assessable value of job work goods - Revenue appeal allowed: CESTAT
By TIOL News Service
MUMBAI, MAR 13, 2015: REVENUE is in appeal against the order passed by the CCE(A) allowing the appeal of the respondent assessee with consequential relief.
The facts:
On visit by the CE Officers to the respondents' factory, it was observed that the value to the extent of scrap generated during the manufacturing process has to be added back to the assessable value of the goods manufactured on the job work basis since sale proceeds of such goods was allowed to be retained by the respondents. It was the contention of the department that the value of job work gets reduced to the extent of scrap value allowed to be retained on its sale.
The respondent paid the differential duty amounting to Rs.1,13,759/- alongwith the interest of Rs.30,620/- without any protest.
Later, they realized that they were not supposed to pay excise duty on the value of the scrap and, therefore, filed refund claim for the amount of duty and interest paid by them.
This was rejected by the original authority but the Commissioner(A) allowed the appeal and so the Revenue is before the CESTAT. This appeal was filed in the year 2005.
After a decade, the matter was heard by the CESTAT.
The AR justified the action by the department by reiterating the allegations levelled. It is also submitted that the decision in Mahindra Ugine Steel Co. Ltd. - 2003-TIOL-181-CESTAT-MUM relied by the Commissioner (Appeals) has been set aside by the Supreme Court and the matter was remanded to the Tribunal for rehearing and in this view of the matter the decision does not exist and hence reliance on the same is incorrect.
The respondent assessee submitted that valuation of job worked goods was strictly done in accordance with the principle laid down by the Supreme Court in the case of Ujagar Prints; that the value was computed by taking total cost of raw material supplied by principal and job charges actually received from the principal; that cost of the job work goods was arrived by following the cost accounting principles as required under CAS 4, wherein the realizable value of scrap was reduced. Moreover, the sale value of the scrap also suffered excise duty, therefore, the element which has already suffered duty cannot be levied duty twice. Reliance is placed on the following decisions:
(a) Lloyds Industries Limited - 2005-TIOL-188-SC-CX
(b) Cadbury (I) Ltd. - 2006-TIOL-88-SC-CX
(c) Amar Bitumen & Allied Products Pvt. Ltd. - 2006-TIOL-96-SC-CX-LB
(d) Tata Engineering and Locomotives Co. Ltd. - 2003-TIOL-15-SC-CX
(e) Birla Corporation Ltd. - 2005-TIOL-99-SC-CX
The Bench agreed with the submission of AR that the Tribunal decision in Mahindra Ugine Steel Co. Ltd. does not exist at present since the order was set aside by the apex court and the matter was remanded.
While relying on the apex court decision in Lloyds Steel Industries Ltd., the CESTAT observed -
++ 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 (on payment of duty) and realized value. For the purpose of job work, the respondent is paid particular job work charges by the principal.
++ We agree that as per the principle laid down by the Hon'ble High Court in Ujjagar print and various other judgments, the valuation of job work goods should be done by taking the cost of raw material plus job charges. However, in any valuation, if there is any extra consideration flowing to the manufacturer, the same should be added in the assessable value of the goods. In the present case the respondent is getting job work charges plus realized value against sale of scrap. Therefore both the elements should be added in the cost of raw material and total sum of cost of raw material plus job charges plus realized value of scrap sale, shall be the correct assessable value.
++ We are of the view that method of costing according to the CAS4 will apply only when the goods is sold by the owner of the goods whereas in the present case the goods is not owned by the job worker but it is owned by the principal. For this reason, realized value of the scrap is additional consideration flowing to the job worker towards the overall job work activity.
++ 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 elements will form the total consideration received by the respondent towards job work. Therefore the sale value of scrap is includible in the assessable value of job work goods. Therefore, differential excise duty and interest thereupon paid by the respondent is correct and legal and the question of refund of said amount does not arise .
Holding that the order of the Commissioner (Appeals) is not sustainable, the same was set aside and the Revenue appeal was allowed.
Win in passing : Also see -2007-TIOL-1225-CESTAT-MUM.
(See 2015-TIOL-472-CESTAT-MUM)
