Case: Commissioner of C. Ex Vs. Mahindra Ugine Steel Company Ltd

A.K. Sikri, J. 1. The appellant/Revenue is in appeal and the challenge is to the final order dated 18.6.2003 passed by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), West Zonal at Mumbai. Before the CEGAT, the respondent herein had preferred an appeal against the demand in respect of excise duty which appeal has been allowed by the CEGAT and excise demand is quashed. 2. The respondent is engaged in the manufacture of motor vehicle parts from the raw material supplied by the customers of the goods on labour charges basis. In essence, thus, the respondent undertakes the job work. After the manufacturing of the motor vehicle parts, the same are supplied to the customers who had placed the orders for the job work. The customers to whom the motor vehicle parts are supplied are used by those customers in the manufacture of motor vehicles on which full excise duty is paid. While arriving at the value of the motor vehicle on which the duty is to be paid, the cost of such motor vehicle parts is included. Therefore, to this extent it is not in dispute that ultimately the manufacturer of the motor vehicle pays the excise duty on the motor vehicle parts which are manufactured by the respondent on undertaking the aforesaid job work. 3. The question before us, in the present appeal, is as to whether Rule 8 of the Central Excise (Valuation) Rules, 2000 (hereinafter referred to as the Rules) or Rule 11 thereof would apply in arriving at the valuation of the goods at the end of the respondent/assessee. As per the appellant/Department Rule 8 is applicable and therefore the value has to be 115% of the cost of production. Rule 8 reads as under: “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 fifteen per cent of the cost of production or manufacture of such goods.” 4. On the face of it Rule 8 will have no application to the facts of the present case. It is rightly pointed out by the CEGAT that for the applicability of this Rule two requirements are to be fulfilled. The first is that the excisable goods that the assessee manufactures are not sold by him and the second requirement is that these goods must be used for consumption either by him or on his behalf in the production or manufacture of other articles. In the present case, first condition is undoubtedly satisfied as the goods are not sold by the respondent. However, second condition is not at all met or fulfilled inasmuch as the goods are not used by the assessee for consumption either by him or on his behalf in the production or manufacture of other articles. As stated above, these goods are supplied to the manufacturer of the motor vehicles.5. Learned counsel for the appellant, however, referred to Rule 9 and submitted that the proviso to the said Rule would attract the applicability of Rule 8 in the present case. In order to appreciate this argument, we take note of Rule 9 which is reproduced below: “RULE 9: When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail:Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in rule8.” In order to attract this rule, first requirement is that the assessee sells the excisable goods to or through a person who is related in the manner stated in S.4(3)(b) of the Act. There are four eventualities provided in sub-clause (i) to (iv) which such a person can be related. Sec.4(3)(b): persons shall be deemed to be “related” if—(i) they are inter-connected undertakings;(ii) they are relatives;(iii) amongst them the buyer is a relative and distributor of the assessee, or a sub-distributor of such distributor; or(iv) they are so associated that they have interest, directly or indirectly, in the business of each other. However Rule 9 mentions relationship that is visualised in sub-clauses (ii) to (iv) only and excludes clause (i). 6. Thus, this Rule would be applicable only in those cases that assessee is related in the manner specified in either of sub-clause (ii),(iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act and not in those cases where the person is related in the manner as stated in clause (i) thereof. In those cases where Rule 9 is applicable, for the purpose of valuation, normal transaction value at which such goods are sold by the related person, is to be taken as the value of the goods. Proviso becomes applicable only when goods are not sold by the related person at all and used or consumed for home production. As there is no sale transaction by the related person, question of value thereof will not be available and therefore, to arrive at the value in such a situation one has to fall back on Rule 8. 7. However, if main Rule 9 is not attracted, question of applicability of proviso thereto does not arise. 8. In the present case what we found is that a specific finding is arrived at by the Assistant Commissioner himself that the respondent who has manufactured goods on job work basis for M/s. Mahindra and Mahindra is treated as related to Mahindra and Mahindra in terms of Section 4(3)(b)(i) of the Act. The Commissioner in this behalf stated as under in his order: “I find that assessee have manufactured goods on job work basis for M/s. Mahindra & Mahindra and others. M/s. Mahindra & Mahindra are the related persons in terms of Section 4(3)(b)(1) a fact which the assessee has also admitted and others i.e. M/s. Ashok Leyland, M/s. Ameja & M/s. PSSL are not related.” 9. Such a relationship is excluded from Rule 9 as sub-clause (i) is conspicuously absent therefrom. On this ground alone proviso to the Rule 9 shall not be attracted at all. Therefore, from whatever angle the matter is looked with, Rule 8 would not apply here. 10. Once we come to the conclusion that Rule 8 is not applicable in the case of the respondent, it is Rule 11 only which becomes applicable as that is residuary provision for arriving at the value of any excisable goods which are not determined under any other rule. 11.

Decision reasoning: 0[ds]Thus, this Rule would be applicable only in those cases that assessee is related in the manner specified in either of(ii),(iii) or (iv) of clause (b) of(3) of Section 4 of the Act and not in those cases where the person is related in the manner as stated in clause (i) thereof. In those cases where Rule 9 is applicable, for the purpose of valuation, normal transaction value at which such goods are sold by the related person, is to be taken as the value of the goods. Proviso becomes applicable only when goods are not sold by the related person at all and used or consumed for home production. As there is no sale transaction by the related person, question of value thereof will not be available and therefore, to arrive at the value in such a situation one has to fall back on Rule 8.However, if main Rule 9 is not attracted, question of applicability of proviso thereto does not arise.In the present case what we found is that a specific finding is arrived at by the Assistant Commissioner himself that the respondent who has manufactured goods on job work basis for M/s. Mahindra and Mahindra is treated as related to Mahindra and Mahindra in terms of Section 4(3)(b)(i) of the Act.Such a relationship is excluded from Rule 9 as(i) is conspicuously absent therefrom. On this ground alone proviso to the Rule 9 shall not be attracted at all. Therefore, from whatever angle the matter is looked with, Rule 8 would not apply here.Once we come to the conclusion that Rule 8 is not applicable in the case of the respondent, it is Rule 11 only which becomes applicable as that is residuary provision for arriving at the value of any excisable goods which are not determined under any other rule.