Hello everyone …greeting of
the day. This is my first ever article in my life so kindly be patient in
reading it and give your feedback/suggestions. During early days of my career I
had a chance to work on Excise Duty advisory. Here I would like to share my
learnings on valuation of Excisable goods which were manufactured by a job
worker or contract manufacturer.
A job work transaction
triggers Excise Duty liability if the process involves manufacture. The
consequent question that arises is how to determine assessable value of the
goods involved.
The various provisions that linger
in one’s mind are Rule 10 A 0r Rule 8 or Rule 11 of the Central Excise Valuation
Rules 2000.
I take this opportunity to
portray my views on this issue
ü
Rule
10 A is applicable when the manufactured goods are sold by the principal
manufacturer either from the premises of job worker or from a place other than
job worker’s premises.
ü
Rule
8 is applicable when the manufactured goods are captively consumed by the manufacturer
or any other person on his behalf.
ü
If
Rule 10 A or Rule 8 of Central Excise Valuation Rules does not apply then
recourse can be made to Rule 11.Rule 11 can be used only if the valuation cannot
be made by using any of the Central Excise valuation Rules 2000.Rule 11
prescribes that valuation shall be made by using reasonable means consistent
with the principles and general provisions of the Valuation Rules read with
subsection (1) of Section 4 of the Central Excise Act, 1944.
In the above background above I
would like to like to drive the attention of the reader on the following situations:
|
Situation
1: Manufactured goods are cleared for sale from Job worker’s premises or from a
place other than Job worker’s premises
ü
The
above situation squarely falls within the ambit of Rule 10 A of Central Excise Valuation
Rules 2000 and there shall be no room for divergent interpretations.
Situation
2: Manufactured goods are captively consumed by the supplier of raw material
(i.e. principal manufacturer) or any other person on his behalf
ü
Rule
1o A does not apply since the manufactured goods are not cleared for sale either
from job worker premises or from any other place
ü
Hence
the above situation squarely falls within the ambit of Rule 8 of Central Excise
Valuation Rules 2000
Situation
3: Goods manufactured by “Job worker 1(JB 1)” are sent by principal
manufacturer (i.e. supplier of raw material) to “Job worker 2” (on a principal
to principal basis) in connection with further manufacture
of finished goods
Principal manufacturer(PM)
|
Job Worker 2 (JB
2)
(
|
Sent Raw Material
Job Worker 1 (JB
1)
|
JB
2 to PM
In
this situation there are two possibilities:
(i)
Manufactured goods directly sent to “Job
worker 2”
(ii)
Manufactured goods were first
received in premises of raw material
supplier (i.e. Principal manufacturer)and sent to “Job worker 2”
Now
for the purpose of valuation of goods manufactured by “Job worker 1”
ü
Rule 10 A does not apply since the
manufactured goods were sold neither
from “job worker 1” premises nor from any other place
ü
Rule
8 of Central Excise Valuation Rules does not apply as the manufacturer in this
case is “job worker 1” not the supplier of raw material
ü
However
one may take a view that “Job worker
2 ” in the present case would come within the meaning of the word “any other person on behalf of
manufacturer” as given under Rule 8 of
the Central Excise Valuation Rules, 2000.
Here
“Job worker 2” is not an agent of manufacturer i.e. “Job worker 1” and the
contract to further manufacture the finished goods is only between the “Job
worker 2” & supplier of raw material. Therefore “Job worker 2” does not
come within the meaning of any other person on behalf of manufacturer
Drawing analogy from the above it can be
viewed that Rule 8 of the Central Excise Rules does not apply.
Therefore recourse is made to the
judgment of Tribunal in case of Indian
Extrusions Vs CCEx Mumbai (2012-TIOL-553-CESTAT-MUM)where in the
Tribunal has reiterated the Supreme Court judgment in the case of Ujagar prints Vs Union India 2002-TIOL-03-SC-CX
wherein the apex Court held
that on applying Rule 11 the assessable
value has to be determined on the cost of raw materials cost plus job charges
collected.
On applying the ratio of the Apex court
to the situation 3 one can safely
conclude that the assessable value in present case of cost of raw material
supplied to “job worker 2” plus job work charges paid to “job worker 2.”
However the assessable value in (ii)
above is cost of raw material supplied
to “job worker 2” plus job work charges paid to “job worker 2” plus over heads
incurred up to premises of supplier of raw material (i.e. principal
manufacturer).Since the place of removal is premises of principal manufacturer,
all costs incurred up to that point should be included in the assessable value.
Moreover, assessable value would be MRP
Less abatement if the goods are liableto payment of duty under MRP provisions
i.e. section 4A of Central Excise Act 1944.
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