Custom, Excise & Service Tax Tribunal
Smith Enterprises vs Pondicherry on 8 January, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Excise Appeal Nos. 40704 to 40705 of 2017
(Arising out of Order-in-Appeal Nos. 513&514/2016(CXA-II) dated 30.12.2016 passed by
Commissioner of Central Excise (Appeals), No. 26/1, Mahatma Gandhi Marg, Nungambakkam,
Chennai - 600 034)
M/s. Smith Enterprises ...Appellant
A-3, 8th Cross, Pipdic Industrial Estate,
Mettupalayam, Thattanchavady,
Puducherry - 605 009.
Versus
Commissioner of GST and Central Excise ...Respondent
Puducherry Commissionerate,
No. 1, Goubert Avenue,
Pondicherry - 605 001.
APPEARANCE:
For the Appellant : Shri G. Krishnamoorthy, Advocate
For the Respondent : Smt. O.M. Reena, Authorised Representative
CORAM:
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
HON'BLE MR. AJAYAN T.V., MEMBER (JUDICIAL)
FINAL ORDER Nos. 40047-40048 / 2025
DATE OF HEARING : 17.12.2024
DATE OF DECISION : 08.01.2025
Order :- Per Mr. VASA SESHAGIRI RAO
Excise Appeals Nos. E/40704 &40705/2017 have been filed by
M/s. Smith Enterprises, Puducherry (hereinafter referred to as 'Appellants)
directed against the impugned Orders-in-Appeal No. 513 &514/2016 dated
30.12.2016 passed by Commissioner of Central Excise (Appeals-II), Chennai
who have upheld the demands confirmed while setting aside the penalties
imposed in Orders-in-Original No. 01/2016 dated 28.03.2016 and No.
02/2016 dated 31.03.2016.
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2. Brief facts of the Appeals are that, the Appellants, manufactured
HDPE Plastic Caps on job work basis, out of the raw materials supplied by
M/s. Marico Ltd. and discharged duty at full rate w.e.f. 24.09.2013 beyond
the threshold limit of SSI exemption. Upon verification by the department, it
appeared that the value adopted by the Appellants by considering the cost of
materials plus conversion cost, was not in accordance with Rule 10A (iii)
read with Rule 8 of Central Excise Valuation Rules, 2000 (CEVR)resulting in
short payment of duty. Hence, Show Cause Notices No. 30&31/2015 both
dated 01.07.2015 were issued to the Appellant for the periods April 2013 to
March 2014 and April 2014 to December 2014 respectively, proposing to re-
determine the value and demand differential duties of Rs.4,38,514/- and
Rs.3,34,457/- under Section 11A of the Central Excise Act, 1944 (Act) along
with applicable interest and to impose penalty under Section 11AC of the
ACT. The Adjudicating Authority vide Orders-in-Original No. 1/2016 dated
28.03.2016 and 02/2016 dated 31.03.2016, confirmed the demands and
imposed penalties under Section 11AC(b) of the ACT/ Rule 27 of Central
Excise Rules, 2002(Rules) respectively. Being aggrieved, the Appellant
preferred appeals before the Commissioner (Appeals-II) who vide the
impugned order upheld the Orders-in-Original in so far as demands were
concerned but set aside the penalties imposed by the lower authority.
Hence, the Appellants have come before this forum.
3. The Grounds of Appeal filed by the Appellant have been
specified below:
i. It was submitted that Rule 8 of CEVR could not be applied when
the Appellant had not captively consumed the goods as it was
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the principal manufacturer who gets such goods manufactured
on his behalf by the Appellant.
ii. It was averred that the assessable value in respect of job work
was to be determined based on the cost of manufacture of the
goods and job work charges in view of the decisions in the case
of Ujjagar Prints [1989 (39) ELT 493 (SC)] and M/s. Pawan
Biscuits Ltd. [2000 (120) ELT 24 (SC)] which was also clarified
by CBEC in Circular No.619/10/2002-CX dated 19.02.2002.
iii. It was submitted that the impugned order had erred in relying
on CBEC Circular F.No. 6/15/2009-CX dated 31.03.2010 wherein
it was clarified that the assessable value would be determined in
terms of sub-rule (iii) of Rule 10A read with Rule 8 of CEVR by
adopting 110% of Cost of production of the goods as assessable
value, where the goods manufactured by a job worker was
captively consumed by the principal manufacturer. It was
pointed out that the said Circular was analysed and examined by
the Hon'ble Tribunal in the case of M/s. Advance Surfactants
India Ltd. Vs. CCE, Mangalore [2011 (274) ELT 261 (Tri.-Bang.)]
and it was held that the said clarification was against the
mandate of Rule 8 of CEVR and hence untenable. The above
decision of the Tribunal was followed in Rolastar Pvt. Ltd. Vs.
CCE, Daman [2012 (276) ELT 87 (Tri.-Ahmd.)] and Indian
Extrusion Vs. CCE, Mumbai [2012 (283) ELT 209 (Tr.i-Mum)].
iv. The Appellant also pointed out the reliance placed in the
impugned order on the decisions in the case of M/s. Shivani
Detergent Pvt. Ltd. Vs. CCE, Delhi [2013 (296) ELT 88 (Tri.-Del.)
and Hyva (India) Pvt. Ltd. Vs. Union of India [2015 (327) ELT 41
(Bom.)] was misplaced.
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4. The Ld. Counsel Shri G. Krishna Moorthy representing the
Appellant reiterated the averments in the grounds of appeal and further
submitted that in similar circumstances in the Appellants own case for prior
period the Hon'ble CESTAT Chennai has set aside the demand in Final Order
No. 40293-40297/2018 dated 02.02.2018 [2018 (2) TMI 139 (Tri.-Chennai)]
and prayed for setting aside the impugned order. Further reliance was also
placed on the ratio of the Apex Court's decision in the case of CCE Vs. Aqua
Pet Industries [2013-TIOL-07-SC-CX].
5. The Ld. Authorised Representative Smt. O.M. Reena,
representing the Department affirmed the findings of the Lower Appellate
Authority and submitted that the Appellant had not adopted correct
valuation in terms of Rule 10A (iii) read with Rule 8 of CEVR,2000 and
therefore Appellant was liable to pay differential duty. It was pointed out
that the Appellant had contravened the provisions of CEVR with an intent to
evade duty payment and hence the demands confirmed are sustainable.
Hence it was prayed for dismissal of the appeals filed by the Appellant.
6. We have carefully considered the submissions made by both the
sides and also evidences available on records.
7. The only issue which arise for decision in these appeals is
whether the value to be adopted for job worked goods was in terms of Rule
10A (iii) read with Rule 8 of CEVR, 2000?
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8. We find that the Appellants have manufactured HDPE Plastic
Caps on job work basis and have paid duty on the assessable value worked
out by taking into account the cost of materials plus conversion cost. The
principal manufacturer (M/s. Marico) used the caps for fitment onto bottles,
in its factory, for filling coconut oil. The department therefore contends that
after 01.04.2007 the valuation should be done applying Rule 10A(iii) r/w
Rule 8 of Central Excise Valuation Rules which applies when goods are not
sold. The appellant does not captively consume the goods nor does M/s.
Marico consume it on behalf of appellant. The very same issue has been
considered by this Tribunal in the Appellants case vide Final Order No.
40293-40297/2018 dated 02.02.2018 following the judgement in the case of
M/s. Advance Surfactants India Ltd. Vs CCE, Mangalore [2011 (274) ELT 261
(Tri.-Bang.)], the extracts of which has been reproduced below: -
"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 :
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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.
.
.
.
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 7 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."
We find that the above decision of the Tribunal was followed in subsequent judgements delivered by the Tribunal in the case of Rolastar Pvt. Ltd. Vs. CCE, Daman [2012 (276) ELT 87 (Tri.-Ahmd.)] which was affirmed by the Hon'ble Supreme Court in [2013 (298) E.L.T. A186 (S.C.)] wherein it was held that "In these appeals, no substantial question of law arises for our consideration. The same are dismissed accordingly."
The Appellate Tribunal in its impugned order had held that finished product (hollow profiles) manufactured on job work basis were sent back to principal- manufacturer providing raw material and consumed by the principal- manufacturer for further manufacture of final product. Rules 10 and 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 not applicable."
10. After appreciating the facts and following judicial precedents, we are of the considered opinion that the demand confirmed is not legally sustainable and requires to be set aside. Ordered accordingly.
811. In the result, the impugned Orders-in-Appeal Nos. 513 &514/2016 dated 30.12.2016 are set aside. The appeals are allowed with consequential relief, if any, as per the law.
(Order pronounced in open court on 08.01.2025)
Sd/- Sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
MK