CX - Job work - Detaining part of LDPE received from customer and replacing same by locally purchased cheaper LLDPE - difference in value is nothing but additional consideration and is required to be added in AV of final product Polyfilm: CESTAT
By TIOL News Service
MUMBAI, JULY 09, 2015: THE appellants are manufacturing polyfilm by using LDPE and LLDPE granules. They are receiving such granules from their customers M/s. Warna Sahakari Dudh Utpadak Sangh in the ratio of 80:20 by weight. However, while manufacturing such films they are using LDPE and LLDPE in the ratio of 50:50. Inasmuch as the appellant is detaining a part of the LDPE received from their customer and replacing the same by locally purchased LLDPE.
The case of the department is that the difference in the value of the two items i.e. LDPE and LLDPE is nothing but additional consideration and, therefore, the same is required to be added in the valuation of the final product i.e. polyfilm. Further, if the said additional consideration is added in the value of the goods manufactured during the period 1997-98, the turnover of the appellant exceeds Rs 3 crore and benefit of Notification No. 38/97-CE dated 27/06/1997 and Notification No. 9/98-CE dated 02/06/1998 will not be available to the appellant during the subsequent period i.e. 1998-99.
Before the Tribunal, the appellant submitted that the Revenue had taken the value of LDPE prevailing during the period January to March, 1998 while they have requested for taking into consideration the average value prevailing for the whole financial year;that if the value of LLDPE for the whole year is considered then their turnover will be less than Rs 3 crore and they will be eligible for exemption; that extended period of limitation cannot be invoked.
The AR submitted that the value of the goods being cleared is for the period from 01/01/1998 to 31/03/1998 and, therefore, there is no reason for considering average value of LLDPE for the whole FY 01/04/1997 to 31/03/1998. Moreover, the fact that the appellant was replacing the LDPE received from its customer by a cheaper material i.e., LLDPE, was suppressed from the department and, therefore, in this case, both suppression of fact as also willful mis-statement is involved.
The Bench observed -
++ It is not in dispute that the appellant was receiving 80% by weight LDPE and 20% by weight LLDPE. However, while manufacturing the goods they were using 50% of LDPE and 50% of LLDPE. The additional LLDPE required was purchased from the local market and the excess quantity of LDPE received was detained by the appellant. Since the prices of LDPE and LLDPE are different and LDPE is comparatively costly material the difference in value has to be taken as additional consideration and hence will form part of the job-work. Accordingly, we hold that the difference in price of LDPE and LLDPE is required to be added for computation of the assessable value.
As regards the submission of the appellant that the average value of LLDPE for the whole financial year i.e. from 01/04/1997 to 31/03/1998 should be taken into account, the CESTAT agreed with the Revenue contention and held - When the disputed period is 01/01/1998 to 31/03/1998 there is no reason to taken into account the value of LLDPE for the earlier or subsequent period. Either the appellant has to provide one-to-one co-relation of each consignment used in the manufacture of the goods or the average value during the period of three months required to be added. Since on-to-one co-relation of the value are not available, we order that the method adopted by the Revenue is correct and accordingly the value computed as also the turnover for the year 1997-98 is correct and the appellant will not be eligible for the benefit of Notification No. 9/98-CE dated 02/06/1998 for the subsequent period i.e. 1998-99.
In the matter of invoking the extended period of limitation, the Tribunal observed - "The appellant have not declared that they are replacing the LDPE received from their customer by LLDPE, which is a cheaper material and it was only during investigation the same could be found out. We, therefore, hold that extended period of limitation has been correctly invoked and penalty under Section 11AC is correctly imposed."
In fine, the appeal was dismissed.
(See 2015-TIOL-1371-CESTAT-MUM)
