valuation job work, Central Excise

[JYOTI DEORA]

sir,

My client is putting order to me on following manner.he is not registered manufacturer but procure the raw material and forwarding to me,

on the based of his design and drawing final product comes in existence, he will paying us labour charges (sub contracting charges), please suggest me valuation in this regards.

example;-

1) raw material Rs 1000/-

2) transportation is arranging by customer. ₹ 100/-

3) Insurance in scope of job worker. ₹ 50/-

4) sub contracting charges ₹ 10 (labour charges)

5) excise 12.36% and applicable VAT.

6) After existence of final product, we will have to dispatches as per place suggested by customer, please not in depot, but same will be used for own.

In such situation please guide me which value is applicable for billing during the time of clearance.

Posts / Replies

[Naveed S]

In your case, Rule 10A (i) of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 will be applicable.

Cost of raw materials, insurance and subcontracting charges plus profit of the principal manufacturer is be added to the value for payment of duty.

Hence, the price that is required to be charged for payment of duty at time of clearance from job worker premises shall be the transaction value/ price at which such goods has been sold by the principal buyer to the unrelated buyer which shall include RM + Ins. + Labour + Profit of the principal manufacturer.

[Pradeep Khatri]

Dear Jyoti,

Please go through the appended Rule in this regard. After referring point no. 6 meticulously, of your query, in our opinion sub rule (ii) or (iii) of the Rule 10A may be applicable.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000

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.

[JYOTI DEORA]

Sir,

first of thanx both of you for giving guide line. please further clarify the following points.

we had facing the problem in dept.audit, they have issue a show cause notice saying that as per ujjager prints decision. 10% addition is required they are mention in show cause notice that refer the rules 10a along with rules 8, if principal manufacturer using the final product as captive consumption in such case 10% addition is require, still matter is pending with the CESTAT.

in such condition to avoid the more litigation from dept. we need clarification that 10% is required to add for the purpose of discharge the excise duty.with the calculationis suggested by NAVEED SIR,

please suggest.

[Pradeep Khatri]

Dear Jyoti,

The Hon'ble Tribunal is last fact finding agency. However, we are mentioning here relevant circular and judgment for your kind perusal.

In the Circular No. 65/2002/30-09-2002 issued by Commissioner of C.E. Mumbai -IV, it was clarified that question of adding any further amount towards profit (of 15% - now 10% w.e.f. 05-08-2003) does not arise. If there is shrinkage of gray fabrics, value of raw material will be suitably enhanced on basis of 'Shrinkage factor'.

In CCE v. Samarth Acid Products 2006 (196) ELT 235 (CESTAT), It has been confirmed that further addition of 15% (now 10%) is not necessary.

Please go through the above, check the facts and if required, you may pay the duty after due calculation and addition of aspects as mentioned by Mr. Naveed. However, it is necessary to include processor's (jobworkers) expense and profit but not the trader's profit, who gets the goods manufactured as held in CCE v Pharmasia Ltd- (1996) 13 RLT 1 (CEGAT).

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Naveed S]

Rule 10A (i) and (ii) of Valuation rules can be made applicable provided the Principal manufacturer is also registered with the excise department.

[JYOTI DEORA]

Naveed sir,

material supplier is not registered in excise .

[Naveed S]

Yes, i know it, thats why i said that rule 10a(i) and (ii) are not applicable in your case.

The only way out is to recover the differential duty amount from the material supplier; provided there is a written contract that he shall be liable for any other duty arising thereof.

[phani raju konidena]

My dear Jyoti Deora,

In your case both of the Valuation Rules 10A or 8 are not attracted because you are not selling the job worked goods to any of the places i.e. depot/commission agents of the principal raw material supplier or the said goods are not captively consumed on behalf of you for further manufacture as decided by the apex court in the case of CCE Vs. Advance Surfactants India Ltd., and Rolaster Pvt.Ltd.. In your case, the valuation is on the basis of Ujagar Prints case i.e. Raw material cost plus landed cost and job work charges only. Please go through the settled law and argue accordingly.