ORDER
R.K. Abichandani, J. (President)
1. In these appeals, the appellants have challenged the order of the Commissioner by which demand of Rs. 6,93,87,731/- is confirmed against the appellant Bhagirath Coach and Metal Fabricators Pvt. Ltd. with a penalty of the like amount imposed on it with an order to pay interest on the duty amount and penalties of Rs. 1 crore (one crore) and Rs. 5 lacs (five lacs) have been imposed under Rule 26 of the Central Excise Rules, 2004, on the appellant Eicher Motors Ltd. and Mr. Ashok Sharma, Director of Bhagirath Coach and Metal Fabricators Pvt. Ltd.
2. The questions arising in these appeals center around interpretation and application of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The appellant Bhagirath Coach and Metal Fabricators Pvt. Ltd. is engaged in the manufacturing and clearing of complete body built motor vehicles on-job work basis for the automobile manufacturer, who is the appellant Eicher Motors Ltd. The job work is done by fabricating and mounding the bodies of bus and truck on chassis supplied by Eicher Motors Ltd. after making payment of duty on the chassis. Bhagirath Coach and Metal Fabricators Pvt. Ltd. also received some raw material for use in the fabrication and mounting of the bodies of the vehicle on account of Eicher Motors Ltd. and was availing the cenvat credit of the duty paid on the chassis as well as on such directly received raw material.
3. The question involved is, as to on what basis the final product, i.e., the motor vehicle on which job work was done by Bhagirath Coach and Metal Fabricators Pvt. Ltd. should be valued. According to the Revenue, for the purpose of valuing the final product, the value of the input, such as chassis as in the present case, would the value worked out under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, while according to the assessee, the actual cost of the input, namely chassis, was required to be taken into account and not the artificially worked out value under Rule 8 of the said rules.
4. The learned Counsel for the appellants has placed reliance on the decision of this Tribunal in Bilwara Processors Ltd. v. Commissioner of Central Excise, Jaipur-II reported in 2004 (178) ELT 185(Tri.-Del.), in paragraph 6 of which it has been held as under:
6. We have perused the records and have considered the submissions made by both sides. We find merit in the appellants’ submission that assessable value for processed fabric is to be arrived by adding the processing charges and processing profit to the cost of the grey fabric supplied. This position is clear from the observation of the Apex Court in the case of Pawan Biscuits Co. (Pvt.) Ltd. ‘the cost of raw material supplied by Britannia will have to be included in addition to the appellants manufacturing costs and profit of raw material’. (Emphasis supplied). Treating Central Excise assessable value as equivalent to cost of goods evidently creates problems. In many cases like MRP or tariff value based valuation or Rule 8 Valuation, assessable value is a normal value and does not reflect cost of the item. Such a notional valuation would not be appropriate in determining the cost of an item. In these circumstances, we are of the view that the issue raised in the appeal is covered in favour of the appellant by the aforesaid decisions of the Apex Court. Duty demand and penalty imposed under the impugned order are not sustainable. The impugned order is therefore, set aside and the appeal is allowed with consequential relief, if any, to the appellants.
The learned Counsel for the appellant also relied on the circular No. 619/10/2002-CX. dated 19.2.2002, issued by the Government of India pointing out from paragraph 3 thereof, that under the new valuation provisions introduced will effect from 1.7 2000, there was no departure from the principles laid down by the Apex Court in Ujagar Prints Etc. Etc. v. Union of India and Ors. reported in 1989(39) ELT 493(SC) and Pawan Biscuits Co.(Pvt.) Ltd. v. Collector of Central Excise, Patna, .
4.1 The Supreme Court in Ujagar Prints had clarified that the assessable value of the processed fabric would be the value of the grey cloth in the hands of the processor, pins the value of the job work done, plus manufacturing profit and manufacturing expenses whatever else these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric. The ratio of Ujagar Prints was reiterated in Pawan Biscuits Co. (Pvt.) Ltd., as can be seen from paragraph 16 of the judgment in Pawan Biscuits Co. (Pvt.) Ltd. (supra).
5. Under Section 4(b)(1) of the Central Excise Act, 1944, it is provided that in any case where the excisable goods are not sold by the assessee, their value was required to be determined in such manner, as may be prescribed by the rules. In the present case, the job worker did not sell the final product and, therefore, valuation was required to be done under Section 4(1)(b), as prescribed under the rules.
5.1 Under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, which came into force from 1.7.2000, Rule 3 lays down that the value of any excisable goods shall for the purpose of Clause (b) of Sub-section (1) of Section 4 of the Act be determined in accordance with these rules. Rule 2(c) defines the words “value” so as to mean the value referred to in Section 4 of the Central Excise Act. Rule 8 of the said Rules, around which the controversy centers, reads as follows:
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.
(emphasis added).
6. Prima facie, it would appear, on the plain reading or Rule 8, that when one uses the inputs which are used in the production or manufacture of other articles, their value is required to be worked out as per the formulae laid down thereunder, and this would enure for the purposes of Section 4(1)(b) of the Act for working out the assessable value of the motor vehicles manufactured on job-work basis. When the job worker receives the inputs, those inputs have to be valued as per Rule 8 and that statutory valuation would reflect for all purposes whenever the question of ascertaining the value of inputs arises. It will be noticed that even in Ujagar Prints, the Hon’ble the Supreme has clearly laid down that it is the value of such inputs in the hands of the processor, which is required to be taken into account. The value of such inputs in the hands of the job-worker would be the value worked out under Rule 8, and on which admittedly the duty was paid by Eicher Motors Ltd. while sending the chassis to Bhagirath Coach and Metal Fabricators Pvt. Ltd. for the job work. The value on which the goods were received by the job worker can constitute the basis for working out the value of the final product, which again, since it was not sold by the job worker, attracted the provisions of Section 4(1)(b) of the Act read with the said rules including Rule 11. We are, therefore, unable to subscribe to the opinion expressed in Bhilwara Processors Ltd. (supra) and it appears to us that if the actual cost method of the input is to be followed de hors the provisions of Rule 8, it would result in fortuitous and unintended benefit to the job-worker who takes the cenvat credit of the duty which was paid on such inputs on the basis of the valuation done under Rule 8.
7. Having regard to the importance of the issue involved, the matter deserves to be referred to the Larger Bench on the following issues:
(1) Whether the value of the excisable goods used for manufacture of other article, which is required to be worked out under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, read with Rule 2(c) thereof which are made for the purpose of Section 4(1)(b) of the Central Excise Act, 1944, will be considered to be the value of such inputs, while assessing the value of such other article manufactured by the job worker?
(2) Whether in arriving at the assessable value of the product manufactured by a job worker, the actual cost of the inputs supplied by the principal should be taken into account or the value of the inputs, as worked out under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 should be taken into account?
8. Having regard to the importance of the issues involved, in our view, all these appeals are required to be referred to the Larger Bench for final disposal. The Registry may accordingly place the papers before the President for constitution of a Larger Bench.
[Dictated and pronounced in the open Court].