1. The brief facts of the case are that the appellants had received CR coils/sheets for conversion into Electrical stampings and Laminations on job work basis. They discharged duty on aggregate value of total landed cost of raw materials including inward freight charges. However, based on contract between them and with other customers the conversion cost was determined as inclusive of fabrication cost, tool Amortization cost and packing charges as reduced by value of scrap. The department took the view that during the period 2004-05 the appellants had retained scrap value of Rs. 24,30,687/- which value was required to be added to the assessable value. Hence a SCN dated 14.07.2009 was issued to them proposing demand of an amount of Rs. 3,96,687/- with interest thereon and imposition of penalties on various provisions. On adjudication, these proposals were confirmed and on appeal the Commissioner (Appeals) vide impugned order dated 28.09.2010 upheld the order of the original authority. Hence this appeal.
2. Today when the matter came up for hearing, Ld. Advocate, Ms. D. Naveena submits that as per Rule 6 of the Valuation Rules which was in force during the material period, the value of the raw materials used in the production only has to be taken into consideration and not the value of scrap that may arise. The value of the scrap was collected by the principals from the job worker by reducing the job charges only. Hence the value of scrap cannot be deducted from the labour charges. She submits that the judgment of the Hon'ble Supreme Court in the case of General Engineering Works Vs. CCE, Jaipur 2007 (212) ELT 295 (S.C.) prima facie is against them, however, the said judgment pertains to a period prior to 01.07.2000 for the earlier Valuation Rules when Rule 6 did not have the Explanation which was later introduced. She further submits that on similar issue for other another group company, vide OIA No. 69/2006 dated 26.03.2006 the Commissioner (Appeals) had allowed the appeal of Raaja Magnetics Ltd., on identical facts. Hence, the issue in their case can be said to be hit by limitation, since for the group company similar issue had been decided in their favour. She further submits that suppression of facts cannot be alleged since they were under the bona fide belief that the said charges in respect of scrap retained are not required to be added in the assessable value. She relies upon Tribunal decision in the case of P.R. Rolling Mills Pvt. Ltd. Vs. CCE, Tirupathi : 2010 (249) ELT 232 (Tri.-Bang.), which had distinguished the judgment of the Hon'ble Supreme Court in the case of General Engineering Works (supra). She also submits that the P.R. Rolling Mills Pvt. Ltd. decision was upheld and consequently confirmed by the Hon'ble Supreme Court.
3.1 On the other hand, Ld. AR supports the impugned order. He submits that the ratio laid down by the Hon'ble Apex Court in General Engineering Works judgment is very clear and the reduction of job charges to the extent of value of the scrap retained by them is an amount which has to be included in the assessable value in such cases.
3.2 On the plea of limitation, Ld. AR submits that the decision relied upon by the Ld. Advocate does not pertain to the present appellant but only to a group company situated in Bangalore with different Central Excise Registration number and hence this decision cannot taken as a ground for bona fide belief for non inclusion of scrap value in the assessable value.
4. Heard both sides and have gone through the facts.
5.1 The Supreme Court in the case of General Engineering Works (supra) had laid down the following ratio in respect of a situation where waste and scrap arising out of manufacturing process were not retained by the job work but sold of by them:
5. It must be clarified that the value of scrap would be included in the value of the points and crossings only in case where it is shown that the conversion charges get depressed by the fact that the processor is allowed to keep and sell the scrap. Thus in the example given above, it would have to be shown that the conversion charges are Rs. 450/- because Rs. 50/- is earned from the sale of scrap. If the conversion charges are not depressed or if the scrap/waste is returned then, their value will not get added.
6. The burden of proving that the price is so depressed would be on the Revenue. But one of the methods of proving it would be through the contract between the parties itself. In this case the contract is on record. The contract provides as follows:-
The prices quoted are based on the free supply of Rails by you at our works, Bharatpur, Western Railway, Rajasthan. The tonnage for Rails will be 5% more than the net requirement of Rails required for different items of Switches, 5% being the manufacturing wastage.
The total requirement of Rails for different items would be forwarded to you within ten days of receipt of your formal order. Manufacturing wastage of 5% has been considered and therefore this wastage will not be separately accounted for and shall not be returned. Any surplus materials received from you against the contract, will be returned to you and dispatched to the destination as advised by you, F.O.R. Our word.
7. Thus, the contract clearly indicates that the price (conversion charges) have been worked out on the basis that 5% wastage would be available to the Appellants. This indicates that the price has been affected by the sale of scrap. In this view, we are in agreement with the view of the Tribunal that in computing the value of points and crossings the value of scrap sold has to be taken into account.
8. Reliance was placed upon the case of Hindustan Engineering & Industries Limited v. CCE, Calcutta-I reported in : 2002 (144) E.L.T. 418 (Tri. - Kolkata). In this case CEGAT has held that the value of scrap is not to be included in working out the value of points and crossings. CEGAT has so held on the basis that in working out the value of points and crossings, the entire value of the raw material supplied was taken into consideration and also that excise was being paid on the scrap which had been sold. CEGAT has so opined even though an earlier decision of CEGAT in the case of Jay Engineering Works Limited v. Commissioner of C. Ex. Hyderabad reported in : 1997 (93) E.L.T. 492 (Tribunal) had been brought to its attention. In our view, CEGAT has gone completely wrong in Hindustan Engineering & Industries Limiteds case (supra). It must be remembered that the element of raw material is a separate element from the element of conversion charges. The value of the entire raw material used has to be taken into consideration. The element of profit/conversion charges has to be added to the element of value of raw material used. The element of job work charges being separate element from the value of raw material, If it is shown that the job work charges/conversion changes get reduced then the value of scrap has got to be included in the value of the conversion charges. Similarly, even if excise is paid on scrap it would have no bearing on the working out of the value of the points and crossings. What is left is scrap/waste. It is known and is being sold as such. In such a case the value is determined on the price realized. Further, as per the Judgment of this Court in the case of Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd. reported in : (2002) 3 SCC 547, the value of the scrap will be worked out on cum-duty basis. Thus no question arises, at this stage, of considering value of raw material in this scrap/waste and there is no double calculation of value of raw material. As a second commodity has come into existence, the excise paid on the second commodity has no relevance in working out the value of the first commodity, i.e. points and crossings. The decision in Hindustan Engineering & Industries Limiteds case (supra) will therefore stand overruled.
5.2 The Ld. Advocate has contended that the above judgment has been made in respect of the old Valuation Rules, which were in force prior to 01.07.2000, will not be applicable to their case. We are unable to appreciate this contention. True, Rule 6 of the Valuation Rules introduced on 01.07.2000 has amplified the earlier Rule 6 and as also added an Explanation thereto, however, even in the new Rules, there is no provision for non-inclusion of value of scrap where job worker has retained the scrap or sold it of. It is also not the case that the entire value of landed cost plus rate charges plus job work charges have been fully included in the value on which duty has been paid by the appellant. There definitely is a depression in the value adopted by the appellant proportionate to the value of the scrap. Although Ld. Advocate submits that this reduction is not on account of reduction in value of material but only on reduction in job charges, however, the end effect is the same. Accordingly, the ratio laid down by the Apex Court in the case of General Engineering Works (supra) will definitely apply to the facts of the present case also. The Tribunal decision in the ca
Please Login To View The Full Judgment!
se of P.R. Rolling Mills Pvt. Ltd. will also not help the case of appellant since as per the facts therein, there was no depression of assessable value due to retention of scrap by job worker. On merits therefore we do not find any case for the appellants. 5.3 Coming to the plea of limitation, Ld. Advocate relying on Campco Chocolate Factory Vs. CCE, Mangalore : 2010 (258) ELT 272 (Tri.-Bang.), contends that the decision taken on similar issue in respect of their group company led to them having a bona fide belief that the value of the scrap is not required to be added to the assessable value. However, this contention will not help their case. Ld. AR is correct in pointing out that the said decision pertains not to the appellants themselves but to another company in their group, situated in another city and having a different Central Excise Registration number. Hence, the appellants plea on limitation which also fail. 6. In the circumstances, the appeal for which reason the appeal is dismissed.