Valuation of Job Work under Central Excise

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.

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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

a. 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.

b. Rule 8 is applicable when the manufactured goods are captively consumed by the manufacturer or any other person on his behalf.

c. 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

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

a. 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
b. 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

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”

Rule 10 A does not apply since the manufactured goods were sold neither from “job worker 1” premises nor from any other place. 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

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 liable to payment of duty under MRP provisions i.e. section 4A of Central Excise Act 1944.