[Order per : M.V. Ravindran, Member (J)]. - All these four appeals are arising out of Orders-in-Appeal No. AKP/137-138/DMN/VALSAD/2009-2010, dated 23-11-2009. Since all the appeals raise a common issue and is in respect of the very same assessee and their employee, we dispose of the said appeals by a common order.

2. The relevant facts that arise for consideration are the appellants herein cleared finished products (hallow profiles) manufactured on job work basis, back to their principal who had given the raw material for doing such job work, paying duty, on cost of production of the raw material plus job charges. Revenue Authorities were of the view that provisions of Rule 10(a) of the Central Excise (Valuation) Rules, 2000, effective from 1-4-2007 will apply to this case and the appellant should have discharged the duty liability as a job worker on the basis of 110% of cost of production as per Rule 8 read with sub-rule (iii) of Rule 10(a) of the Valuation Rules, as the principal who had received the hallow profiles, had captively consumed the same and there was no sale. Coming to such a conclusion, show cause notice was issued for demand of differential duty payable by the assessee. The adjudicating authority confirmed the differential duty demand along with interest and also imposed equivalent penalty and penalty on the individual. Aggrieved by such orders, appellants preferred an appeal before the learned Commissioner (Appeals). Learned Commissioner (Appeals) did not agree with the contentions raised by the appellant and upheld the Orders-in-Original. Hence these appeals.

3. Learned advocate appearing on behalf of the appellant would take us through the Orders-in-Appeal, show cause notice and the adjudicating authority’s order. It is his submission that the appellant company herein is a job worker and does fabrication/job work on raw material supplied by the customer as per the purchase orders. It is his submission that the appellant has construed the value of the job worked goods, on the basis of C.B.E. & C. Circular dated 19-2-2002 i.e. the cost of raw materials supplied by customers and job charges including profit of the job worker. It is the submission that the provisions of Rule 10(a) of the Central Excise (Valuation) Rules, 2000 will not apply to this case. For this purpose, he would rely upon the decision of the coordinate Bench in the case of Advance Surfactants India Ltd. v. C.C.E., Mangalore [2011-TIOL-757-CESTAT-BANG. = (Tri.-Bang.)], and in the case of Hitesh Kumar Patel v. C.C.E., Mumbai [ (Tri.-Ahmd.)] and the decision of this very same Bench in the case of C.C.E., Ahmedabad v. Palco Metals Ltd. - Final Order No. A/754/WZB/AHD/2011, dated 28-4-2011 [ (T.)].

4. Learned DR reiterated the findings of the learned Commissioner (Appeals).

5. On careful consideration of the submissions made by both the sides, we find that the issue to be decided in this case is the manner of valuation of the goods; manufactured by the appellant company on job work basis for principal manufacturer and sent back to principal manufacturer after completion of job work, and which is further consumed captively by the principal-manufacturer for the manufacture of final products; a fact undisputed.

6. On this factual matrix, we find that the Revenue has been propagating that provisions of Rule 10(a) of the Central Excise Valuation Rules will be applicable in this case, which in our considered opinion is incorrect for more than one reason. Firstly, the provisions of Rule 10(a) will apply only to the job worker who completes the job work and puts the finished goods into the market as directed by the principal-manufacturer or sends it to the depot of the principal manufacturer for further sales. In the case in hand, it is undisputed that the job worked hallow profiles are dispatched to the principal-manufacturer and consumed in the further manufacturing of final products. Secondly, provisions of Rule 8 of the Central Excise Valuation Rules will not also apply in this case for the simple reason as the said provisions only discuss about the captive consumption of the goods by the manufacturer himself or on his behalf.

7. We find that an identical issue in the case of Advance Surfactants India Ltd. (supra) came up before the coordinate Bench of the Tribunal in Bangalore, wherein I was one of the Member and the Bench took the following view.

“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 Rule 3, 4, 4, 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 values 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/L5/2009-CXI

India

New Delhi

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

(Madan Mohan)

Under Secretary (CX.I)

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 I 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 relevance 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.) = 2002-TIOL-03-S.C.-CX.)] and the case of Pawan Biscuits Co. Pvt. Ltd [ (S.C.) = (2002-TIOL-04-S.C.-CX.)]. 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.) = (2002-TIOL-03-SC-CX.)] 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 Rules 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/s 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 or the raw material. The circular of the Board 619/10/2002-CX., dated 19-2-2002 reported in 2002 (140) E.L.T. T2B provides that goods manufactured on job work would have to be valued in terms of Rule 17 read with Rule 6 of the valuation Rules, read with the judgment of the Supreme Court in Ujagar Prints Ltd. - = (2002-TIOL-SC-CX) and Pawan Biscuits Co. Pvt. Ltd. - = (2002-TIOL-SC-CX). 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.”

8. We find that in an identical situation, this Bench of the Tribunal in the case of Palco Metals Ltd. in Final Order No. A/754/WZB/AHD/2011, dated 28-4-11 [ (Tri.)] took a view which is reproduced as under :

7. Admittedly, the goods were manufactured by the appellant though out of the raw material supplied by M/s. Sai Flipped Coil Pvt. Limited , the liability to pay duty on the said goods was on the appellant and not on M/s. Sai Flipped Coil Pvt. Limited. Since the goods were not sold by the appellant to M/s. Sai Flipped Coil Pvt. Limited, the sale value of the same were not available. The Hon’ble Supreme Court in the case of Ujagar Prints have clearly laid down that in such a scenario the value of the final products leaving the factory of the job worker would be the cost of the raw material and the processing charges, which include the profit made by the job worker. There is no dispute that the appellant adopted the said procedure to arrive at the assessable value.

8. Revenue’s stand that since the person to whom the goods were transferred i.e. M/s. Sai Flipped Coil Pvt. Limited was not selling the goods but was utilizing the same, the assessable value should have been arrived at in the hands of the present appellant at the rate of 110% of the cost of the goods. We reproduce the Rule 8 of the Valuation Rules, 2000 as under :-

“Where the excisable goods are not sold by the assessee but are used for consumption by him or 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”

As is clear from the above, Rule 8 is applicable to the assessee who manufactures the goods and uses the same captively either by himself or on his behalf. The said Rule would have been applicable if M/s. Sai Flipped Coil Pvt. Limited would have manufactured the goods themselves and then used the same captively. In the present case the appellant is an independent manufacturer who had manufactured the goods out of the raw material supplied by M/s. Sai Flipped Coil Pvt. Limited, instead of using its own raw material. He is not the manufacturer and is further consuming the goods captively for his own manufacturing activities. The fact, whether the person who has sent the raw material and to whom the final products stand cleared by the job worker has used the same captively or has sold the same in market, would not change the situation, so as to not to apply the principles laid down by the Hon’ble Supreme Court in the case of Ujagar Prints for the purpose of arriving at the assessable value.

9. The above reproduced ratios squarely cover the issue in favour of appellants. In view of the foregoing, we are of the considered view that the impugned orders are liable to be set aside and we do so. The impugned orders are set aside and the appeals are allowed.

(Operative portion of the order pronounced in open court on conclusion of hearing)