[Order per : M.V. Ravindran, Member (J)]. - These two stay petitions are filed for the waiver of pre-deposit of the amounts confirmed by the adjudicating authority as differential duty. The said amounts have been confirmed by the adjudicating authority on the ground that the appellant herein is liable to pay the differential duty, as they have not adopted proper method for valuating the final products manufactured and cleared by them. Since the issue involved in both these stay petitions and appeals are same, they are being disposed off by a common order. After hearing both sides for some time on the stay petitions, we find that the appeals themselves could be disposed off as the issue lies in a narrow compass. In view of this, we allow the stay petitions filed and take up the appeals for disposal.

2. The relevant fact that arise for consideration are the appellants herein were manufacturing on job work basis chemicals for M/s. Hindustan Unilever Ltd. (HUL for short). The appellants herein used to receive Linear Alkyl Benzene (LAB for short) from M/s. HUL. The appellants used to manufacture Linear Alkyl Benzene Sulphuric Acid (LABSA for short) in their factory and send the same back to M/s. HUL. M/s. HUL consume the said LABSA in their factory for the manufacture of Soaps and Detergents. The appellant herein were discharging the Central Excise Duty on LABSA manufactured by them, based on cost of manufacturing which included cost of raw materials, processing charges and profit margin. It is also on record that M/s. HUL was supplying the LAB and the appellants were consuming other chemicals for the manufacturing of LABSA. The Central Excise authorities were of the view that the appellant being a job worker, w.e.f. 1-4-2007, by virtue of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, were required to value the goods cleared by them to M/s. HUL under the said rule. Coming to such a conclusion, show-cause notices were issued. The appellants contested the show-cause notices before the adjudicating authority mainly on the ground 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 the contentions raised by the appellant and by the impugned orders, confirmed the demands. Aggrieved by such orders, the appellants preferred appeals before the learned Commissioner (Appeals). The learned Commissioner (Appeals), after considering the grounds of appeal and the submissions made before him during the personal hearing, also 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 the duty liability based upon the cost of production plus 10% as provided in Rule 8 of the said Rules. Hence, these appeals.

3. The learned Counsel appearing on behalf of the appellant would submit that there is no dispute that the appellants are manufacturing LABSA on job work basis for M/s. HUL. He would submit that the said LABSA was cleared from the factory premises on payment of appropriate duty and the said LABSA was consumed by M/s. HUL for manufacturing of soaps and detergents. It is his submission that the valuation of the goods of the job workers should be determined according to the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules. He would submit that prior to introduction of provisions of Rule 10A in the Valuation Rules, the appellants were following the same procedure of valuating their product LABSA. It is his submission that 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 Hon’ble Supreme Court in the case of Ujagar Prints and followed in various decisions like Pawan Biscuits Co. (Pvt.) Ltd. v. CCE, Patna [ (S.C.)] case. He would draw our 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. He would submit 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. He would submit that Rule 8 will apply only when the excisable goods are consumed by himself or on his behalf for production or manufacture of other articles. He would also draw our attention to the Circular issued by the Central Board of Excise & Customs vide No. 902/22/2009-CX., dated 20th October 2009 in respect of clarification of assessable value in an identical situation. He would submit 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. He would submit that the judgment of this Tribunal in the case of Tara Industries Ltd. v. CCE, Chandigarh [ (Tri.-Del.)] and in the case of Mahindra Ugine Steel Co. Ltd. v. CCE, Pune-I [ (Tri. - Mumbai)] will be applicable in this case. He would also submit that the C.B.E.C., on 31-3-2010, issued another clarification addressed to the Chief Commissioners of Central Excise, Chandigarh Zone, wherein determination of the value of the goods manufactured by job worker was discussed. He would submit that even this letter is of no use to the Revenue.

4. The learned SDR on the other hand, submits that after the 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. He would emphasise 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 his submission that the most appropriate rule that could be invoked for the purposes of valuation of LABSA would be Rule 8. He would submit that the above view is supported by the judgment of this Bench in the case of Commissioner of Central Excise v. Ultrapack as reported in (Tri. - Bang.) and Board’s Circular dated 31-3-2010. He would submit that the decisions relied upon by the appellant that in respect of Ujagar Prints and Pawan Biscuits were situations covering the period upto July 2007 when Rule 10A was not in existence.

5. We have considered the submissions made at length by both sides and perused the records.

6. The undisputed fact in these cases is the appellant herein is a job worker manufacturing LABSA for M/s. HUL. It is also undisputed that HUL gives LAB and the appellant uses other consumables in the manufacture of LABSA. It is also undisputed that the appellant has been valuing the said LABSA cleared from factory premises, based upon the cost of material plus processing charges prior to 1-4-2007 when the provisions of Rule 10A were inserted into the Central Excise Valuation Rules, 2000. It is also undisputed that the said LABSA is 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 herein.

7. On these factual matrix we need to appreciate the provisions under Rule 10A, which is reproduced herein under :-

“RULE 10A. Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then, -

(i)      in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer;

(ii)     in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker;

(iii)    in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods :

Provided that the cost of transportation, if any, from the premises wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods.

Explanation. - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him.”

7.1 It can be seen from the above reproduced provisions 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. In the case in hand, we find that provisions of Rule 10A(i) and (ii) does not arise as has been recorded by us in the earlier paragraphs. Provisions of rule 10A(iii) gets attracted which talks about a situation where 10A(i) or (ii) does not apply. The said provision (iii) very clearly mandate that in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable shall mutatis and mutandis apply for determination of value of the excisable goods. This would indicate that the provisions of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has to be gone through serially. It is not the Revenue’s case that provisions of Rules 3, 4, 5, 6 and 7 would also apply in this case. Revenue is of the view that provisions of Rule 8 will apply. In order to understand the Revenue’s case, we reproduce the provisions of Rule 8.

“RULE 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be [one hundred and ten per cent] of the cost of production or manufacture of such goods.”

7.2 It can be seen from the above reproduced Rule that this 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, we are of the view that provisions of Rule 8 will not come into play. As already reproduced herein above, it is undisputed that LABSA is manufactured by job worker and cleared to HUL for further consumption and the said LABSA is the intermediate product required by HUL which is manufactured or produced by the appellant as a job worker. The key words in Rule 8 that needs to be interpreted are ‘consumption by an assessee or on his behalf’ for applying the said Rule for arriving at valuation or determination of goods. 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 our considered view, the provisions of Rule 8 will not get attracted in this case.

8. At this juncture, we find that a clarification which has been issued by the Ministry of Finance dated 31-3-2010 needs to be addressed to. We reproduce the said clarification.

F. No. 6/15/2009 -CX. I

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs

New Delhi, the 31st March, 2010

To,

The Chief Commissioner of Central Excise,

Chandigarh Zone,

Chandigarh

Sir,

Sub. :- Issue regarding valuation where goods are cleared by a job worker for captive consumption by the principal manufacturer - Reg

Please refer to your letter C.No. 39-Zone 14-Tech.-2009/3187 dated 24-7-2009 on the above subject.

2. The issue has been examined by the Board. It is noticed that Rule 10A of the Central Excise (Valuation) Rules, 2000, which was introduced from 1-4-2007, is a self contained scheme for the goods manufactured by a job worker. The general principle which has been followed for determining the value in such cases is that the value, at which the principal manufacturer sells the goods, after it is received from the job worker, is considered as the assessable value. Following the said general principle, it is felt that where the goods manufactured by a job worker are used for captive consumption by the principal manufacturer, in such cases their value would be determined in terms of clause (iii) of Rule 10A read mutatis mutandis with Rule 8 of the Valuation Rules which provides for taking of 110% of the cost of production of the goods.

Copy to :-All Chief Commissioners of Central Excise and Central Excise & Customs.

8.1 It can be seen that the clarification issued by the C.B.E.C. seems to be untenable in view of the foregoing reasons. The views expressed in the Circular are inconsistent with the provisions of Rule 8. The provisions of Rule 8 can be brought into play only if there is consumption of the goods by himself or on behalf of an assessee. 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.

9. We find that our above view has been confirmed by the bench in the Tara Industries Ltd. case (supra). We may reproduce the said ratio.

“2. The appellants manufacture ‘Wool Tops’ on job work basis out of raw wool received from parties for whom the job work is undertaken. They worked out the assessable value (for Central Excise purposes) of wool tops as the aggregate of the cost of raw material and their job work charges and paid duty on the basis of such assessable value. Under the impugned order, differential duty has been demanded on the basis that the goods should have been valued under Rule 8 of the Central Excise Valuation Rules, 2000 which came into force w.e.f. 1-7-2000. We read that Rule :

“Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen per cent of the cost of production or manufacture of such goods”.

A perusal of the above Rule makes it clear that it relates to valuation of “excisable goods not sold by the assessee but are used for consumption or on his behalf in the production or manufacture of other articles”. This is clearly not the case here. The goods are not being captively consumed by the assessee himself or on his behalf by somebody else. There could be no argument that this rule has any relevane to the present case. Learned counsel for the appellants has also pointed out that the valuation carried out under the impugned orders is contrary to the clarification issued by the Central Board of Excise and Customs vide Circular No. 619/10/2002-CX., dated 19-2-2002. Paras 2 and 3 of the Circular read as under :

“2. The matter has been examined by the Board. It is observed that the system of getting goods manufactured on job work basis is not new. Under the provisions of the earlier Section 4 and the Rules made thereunder the matter has been finally decided by the Apex Court in the case of Ujagar Prints Ltd. [ (S.C.)] and the case of Pawan Biscuits Co. Pvt. Ltd. [ (S.C.)]. It was clearly held that in respect of goods manufactured on job work basis, assessable value would be the job charges (including the profit of the job worker if not already included in the job charges) plus the cost of the materials used in the manufacture of the item (including the costs of the materials supplied free of cost to the job worker). The assessable value in such cases will not include the profit or the expenses like advertisement and publicity, overheads etc.) incurred by the buyer (or the supplier of the raw materials), where the dealing between the two are on principal-to-principal basis. The mere fact that the buyer is supplying some raw materials free of cost to the job worker, will not be sufficient ground to contend that the dealings between the two are not at arms length. Goods manufactured on job work were earlier assessed under the residuary Rule 7 of the erstwhile Valuation Rules of 1975 read with Rule 6(b) read with the Apex Court decisions referred to above.

3. Under the new valuation provisions, introduced with effect from 1-7-2000, there is no departure from the principles laid down by the Apex Court in the above two decisions, in respect of goods manufactured on job work basis. In other words goods manufactured on job work basis after 1-7-2000 will continue to be valued in the same manner as they were being valued before 1-7-2000. In other words, after 1-7-2000, in respect of goods manufactured on job work basis, valuation would be governed by Rule 11 of the new Valuation Rules of 2000 read with Rule 6 read with the above two decisions of the Apex Court.”

3. It is clear from the above two paras of the Circular that goods produced on job work basis are required to be valued according to the rule laid down by the Apex Court’s judgment in the case of Ujagar Prints Ltd. [ (S.C.)] even after 1-7-2000. The original valuation and payment of duty took place according to the principle of valuation approved by the Apex Court. The impugned orders are contrary to the specific provisions of valuation rules as well as clarification issued by the Central Board of Excise and Customs. They are required to be set aside. We do so and allow the appeals. In view of our disposing of the appeals themselves, stay petitions do not survive.”

10. In yet another case, this Tribunal has very clearly held that provisions of Rule 8 not applicable to a situation of job worker. The said ratio of the judgment is reproduced as under :-

“4. Rule 8 of the Valuation Rules reads “Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen per cent of the cost of production or manufacture of such goods.” For the provision of this rule to apply, therefore, two requirements are to be fulfilled. The first is that the excisable goods that the assessee manufactures are not sold by him. The second is that they must be “used for consumption” either by him or on his behalf in the production of manufacture of other articles. While the first condition is fulfilled, that there is no sale by the assessee, the second that the goods are manufactured by the assessee are used or, as the rule says, “consumed” by the assessee or on his behalf in the production of manufacture of other articles clearly will not apply. The goods that were used by the appellant in the production of finished goods were not those that were manufactured by the supplier of the raw material. The Circular of the Board 619/10/2002-CX., dated 19-2-2002 reported in 2002 (140) E.L.T. T28 provides that goods manufactured on job work would have to be valued in terms of Rule 11 read with Rule 6 of the Valuation Rules “read with” the judgment of the Supreme Court in Ujagar Prints Ltd. - and Pawan Biscuits Co. Pvt. Ltd. - . In Ujagar Prints, the Supreme Court said that value for assessment of the goods manufactured by a job worker will consist of the total of the cost of raw material, manufacturing cost and the manufacturing profit. Rule 11 is residuary rule determining the value. In other words, the value of such goods manufactured on job work will be governed by the ratio of the judgment of the Supreme Court in Ujagar Prints.”

11. That still leaves us with a question of how the 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 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, we find 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. In our view, the appellants have been correctly valuating their products by adopting this method.

12. We find that the judgment relied upon by the learned SDR of this Bench in the case of Ultrapack is on a different set of facts i.e. in that case, the ‘Ultramarine blue’ was sent in bulk form by M/s. Reckitt Benckiser India Ltd. and the said product was repacked by the assessee, for Reckitt Benckiser India Ltd. and hence it was held that Rule 8 will be applicable. 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 before us is totally different which has been set out by us in the earlier paragraphs. In view of this, the decision of this bench in the case of Ultrapack will not be applicable.

13. In the facts and circumstances of the case, in view of the foregoing, we are of the considered view that the impugned orders are unsustainable and are liable to be set aside and we do so. Impugned orders set aside and appeals allowed.

(Pronounced in open Court on 30-3-2011)