K.K. Agarwal, Member (T)
1. The dispute in the present appeal relates to valuation of goods manufactured by the appellant on job work basis out of the raw materials supplied by M/s TISCO. The brief facts of the case are that the appellant has entered into contract with M/s TISCO for conversion of steel blooms/billets supplied by M/s TISCO into rounds/bars and after such conversion return the same to M/s TISCO. The yield from the raw material to final product was considered as 87% in the case of double rolling and 91% in the case of single rolling. M/s TISCO has allowed the appellant to retain the scrap at their end. The conversion charges ranged from Rs. 4,000/- per MT to Rs. 5,500/- per MT depending upon the nature and quality of the material received from M/s TISCO. In addition to the same the appellants was also receiving documentation charges Rs. 10/- per MT from M/s TISCO.
2. During the course of scrutiny it was found that the appellant was paying duty at the price declared by M/s TISCO which was much less than the cost of the raw material + conversion charges and the cost of scrap retained by the appellant, M/s TISCO were submitting two sets of price, one indicating the actual cost of raw material of blooms/billets and the other price at which duty should be paid by the appellants. Since the goods were being returned back to M/s TISCO as stock transfer, there was no sale of the goods and accordingly the value was to be arrived as per the then Rule 7 of the Central Excise Valuation Rules, 1975 and the appellants were required to file price declaration under Rule 173C(1). The appellant however did not file any price declaration and paid duty at a price which was much less than the cost of raw material + conversion charges etc. They were therefore issued two show cause notices for the period January 1996 to February 2000 and March 2000 to November 2000 demanding duty amounting to Rs. 79,29,777/- in respect of the clearances affected during the period. The price was arrived at on the basis of cost of raw material + conversion charges + documentation charges to Rs. 10/-per MT. The same was confirmed alongwith interest by the Commissioner, who also imposed penalty of Rs. 78,48,652/- under Section 11AC of the Central Excise Act, 1944 and Rs. 17,00,000/- under Rule 173Q of the Central Excise Rules, 1944.
3. Learned advocate for the appellants submitted that the appellants were paying duty at the price declared by M/s TISCO and the same was inconformity with the law laid down by the Apex Court in the case of Ujagar Prints v. Union of India reported at 1989 (39) E.L.T. 493 (S.C.). In this case the Apex Court has clearly held that if the trader would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit. It was submitted that in their case also the appellants have cleared the goods at the sale price declared by M/s TISCO and therefore this was inconformity with the decision of the Apex Court in Ujagar Prints case. It was submitted that the above principle has been followed by the Tribunal in the case of Sangam Processors (Bhilwara) Ltd. v. Commissioner of Central Excise, Jaipur and Loharu Steal Industries Ltd. v. Commissioner of Central Excise, Bangalore wherein it has been clearly held that when the trader gives value as his selling price of the processed fabric, that price given by the trader must be accepted by the job worker for the purpose of payment of duty. The excise authorities cannot go beyond that declared value.
4. Reference was also invited to the circular issued by the Board vide Circular No. 21/8/9CX dated 14th October 1996 wherein it was clarified that in those cases where after processing the goods are not returned but sold by the independent processor itself, then the assessable value will depend upon the sale price at the "place of removal" from where the goods are sold. It was submitted that since in this case the goods were removed from the factory to M/s TISCO it has to be considered as deemed sale and therefore the price which M/s TISCO has declared should be considered as the assessable value.
5. In the alternate it was submitted that the demand is time barred as they have been filing RT 12 return declaring the assessable value and the fact that they were paying duty at the price declared by M/s TISCO and not on the cost of raw material plus job charges was in the knowledge of the department in as much as this matter was raised by the Jurisdictional Superintendent vide his letter dated 15.12.1995 wherein he has referred to the two sets of price being declared by M/s TISCO and further CERA audit has in its audit report in February 1947 referred to the incorrect method of arriving at the assessable value as the same was lower than the cost of raw material. In view of this demand was time barred. They were under the bonafide belief that the goods were required to be assessed at the value as declared by N/s TISCO as per decision in the Sangam Processor's case and the other cases.
6. Reference was also invited to the decision of Commissioner of Central Excise, Indore v. S. Kumars Ltd. wherein it was held that the decision of Ujagar Prints will be applicable in all those cases, where the goods are manufactured on job work basis except in the cases where the job worker is a related person. It was submitted that the law has been clarified only by the above decision and earlier they were guided by the Tribunal decision in Sangam Processor's case and therefore the matter should be considered as that of bonafide mistake and accordingly extended period cannot be invoked.
7. Lastly it was submitted that if he plea regarding non-maintainability of demand on merits as well as time bar is not accepted, the computation of the duty has not been correctly done as the cost of raw material has been increased on the basis of 91% or 87% as the case may be of the yield which is incorrect as the cost of the raw material cannot go if certain wastages and scrap arise in the process of manufacture. He however agreed that the cost of scrap allowed to be retained by the appellants needs to be included in the assessable value.
8. Learned D.R. however submits that as per the Ujagar Prints decision, in case of goods manufactured on job work basis the assessable value is required to be determined on the basis of landed cost of raw material + job work charges including the profit of the job worker and other expenses and since the appellant in the present case has manufactured the goods on job work basis, price should have been determined on the basis cost of raw material + job charges + other expenses recovered from supplier and not on the prices declared by M/s TISCO and therefore the demand cannot be faulted with. The appellants have never disclosed that the assessable value was less than the cost of raw material and reference to the Superintendent's letter goes in favour of the department as the appellants have in their reply misstated that the duty was being paid on a higher price when actually they were paying duty at a lower price.
9. We have considered the submissions. We find that the appellants case is squarely covered by the decision of the Supreme Court in the case of Ujagar Prints (cited supra). The relevant portion of the Supreme Court decision has also been reproduced in the Sangam Processor's case cited by the appellants which reads as under:
If the trader, who entrusts cotton or man-made fabrics to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the include only the price or deemed price at which the processed fabric would leave the processors factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorized a gives to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor's expenses, costs and charges plus profit, but it is not necessary to include the trader's profits who gets the fabric processed, because those would be post-manufacturing profits.
10. The apex court has very clearly held that the price at which the traders sells the goods must be the value of the grey cloth or fabric plus the value of the job work done plus the manufacturing profit; and the manufacturing expenses. The Tribunal in the case of Sangam Processors and other have only held that if the cost of grey fabric (raw material) in incorrectly given by the trader which is not in the knowledge of the job worker, the job worker cannot be held liable for the incorrect declaration of price by the trader. In the present case the correct price of the raw material was being intimated by M/s TISCO as they were giving two sets of prices and therefore the appellants cannot take a stand that the duty was to be paid by some arbitrary price declared by M/s TISCO. We further note that Larger Bench of the Tribunal has in the case of Commissioner of Central Excise, Jaipur v. Bhilwara Processors Ltd. 2002 (146) E.L.T. 155 (Tri.-LB) held that in case of fabrics processed on job work the assessable value is to be arrived at by adding. Value of raw material in the hands of the processor plus the value of job work plus manufacturing profit and manufacturing expenses. Value of grey cloth is essential component of the deemed price and it is to be correctly computed. Tribunal has held that there is no observation in the clarificatory order of the Supreme Court in Ujagar Prints v. Union of India 1989 (39) E.L.T. 493 (S.C.) that the revenue cannot go behind the value of grey cloth declared by the trader. It has overruled the decision in the case of Sangam Processors. We therefore hold that the duty has been correctly demanded on the basis of the value of raw material plus job charges plus documentation charges as a miscellaneous expenses.
11. We also do not accept the plea of time bar as the appellants have not filed the price list as required and in spite of having two sets of price from M/s TISCO were wrongly declaring the incorrect price and in reply to the Superintendent letter regarding existence of two prices have misstated that the duty was being paid at a higher price. As regards the matter being pointed out CERA in 1997, the appellants were asked by Bench to produce all correspondence with department regarding the objection for which they sought time but later expressed their inability to do so. We are also not convinced by the plea of bonafide belief as the law was laid down by the Supreme Court in 1989 in Ujagar Print's case and was followed through out and the decisions in the case of M/s Sangam Processors has been twisted by the appellants. Even otherwise this decision was delivered in 2000, whereas demand is for year 1996 to 2000 and therefore they could not have been guided by it. The Board's circular referred to by them is also very categorical that in case the goods are manufactured on job work basis and returned to the supplier, the assessable value is to be determined on the basis of formula prescribed in the Ujagar case. The plea of time bar is therefore rejected.
12. As regards computation of demand we are in agreement with the plea of the appellant that the cost of raw material cannot be enhanced on account of wastage and cannot be determined on the basis of 91% yield or 87% yield as the case may be. If 100 tonne of billets produced 91 tonne of rounds and 9 tonne of scrap or waste including burning losses, it cannot be said that the cost of raw material for 91 MT should be increased by 9%. All that is required to be done is to take the value of billets/blooms as the case may be plus conversion charges plus value realised by the job worker in respect of the scrap generated during the course of conversion and allowed to be retained by M/s TISCO and the documentation charges paid by M/s TISCO. The demand of duty is therefore required to be re-worked out and the matter is accordingly remanded to Commissioner to re-work out to duty in the matter suggested now. As regards penalty, we find that same is excessive and accordingly reduce the penalty imposed under Section 11AC from Rs. 78,48,652/- to Rs. 10 Lakhs and penalty under Rule 173Q from Rs. 17,00,000/- to Rs. 5 00,000/- only.
13. Appeal is disposed of in above terms.
(Pronounced in Court)