K. Sankararaman, Member (T)
1. Appellant had filed ten price lists during the months of September and October 1993 for declaration of assessable value of LPG cylinders manufactured on job work basis with the materials provided by customers Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd., and Bharat Petroleum Corporation Ltd., wherein the Modvat credit availed in respect of the inputs had not been included. Show Cause Notice was issued by the Assistant Collector VI Division, Bangalore asking the appellant to show cause why the amount of Modvat credit availed on inputs should not be added to the value claimed for approval and why the differential duty of Rs. 1,71,178.86 for the clearances effected in September and October 1993 should not be demanded under Section 11A of Central Excise Act and why penalty should not be imposed under Rule 173Q of Central Excise [Rules]. Appellant resisted the notice but the Asstt. Collector overruled the objections and passed his order-in-original dated 28-3-1994 holding that the Modvat credit taken on the inputs should be added to the assessable value and demanding duty amount of Rs. 1,71,178.86. The order was challenged before the Collector of Central Excise (Appeals), Bangalore who however upheld the order of the Assistant Collector’s order. The present Appeal challenges the order-in-appeal.
2. The only point pressed by Shri Rajesh Chander Kumar, learned Counsel for the appellant was that the issue is covered by decision of the Larger Bench of the Tribunal in Dai-Ichi Karkaria Ltd. v. CCE, Pune, 1996 (81) E.L.T. 676. It was held by the Tribunal in the said decision that Modvat credit availed by a manufacturer is not includible in the assessable value of the final product under Section 4(1)(b) of the Central Excise Act, and Rule 6(b)(ii) of the Central Excise (Valuation) Rules.
3. In reply, Shri Rama Rao, Departmental Representative stated that subsequent to the Tribunal decision in the Dai-Ichi Karkaria case, Hon’ble Supreme Court has held in CCE, Bangalore v. Mysore Paper Mills Ltd. 1997 (20) RLT 709 that it is only the duty payable on the packed goods which will have to be deducted from the wholesale price of the packed goods and that without any special rule or notification to that effect, the duty already paid on the packing material cannot be deducted and the value of the wrapping paper along with the duty paid thereon will have to be included in the value of the wrapped goods which are to be cleared. In view of this decision he submitted that the duty paid on the inputs cannot be excluded from the cost of the inputs for arriving at the assessable value of the final product. He pleaded for the dismissal of the appeal.
4. We have considered the submissions and perused the record. In view of the contention raised by the Departmental Representative that the Supreme Court decision cited by him would have the effect of overruling the Tribunal decision in the Dai-Ichi Karkaria case, we have gone through the Supreme Court judgment. We find that the plea of the assessee in that case for the exclusion of the duty paid on the wrapping paper used for wrapping other varieties of paper from the assessable value of the wrapped paper which was cleared on payment of duty was rejected on the ground that if the manufacturer has utilised duty paid wrapping paper for packing the goods before delivery no deduction of the duty paid on the wrapping paper used for packing can be allowed under Section 4(4)(d)(ii), and that it is only the duty payable on the packed goods that will have to be deducted from the wholesale price of the goods. Thus, the issue decided was the excludibility in terms of Section 4(4)(d)(ii) of the Act which covered the duty payable on the final product and not the duty paid on the input material. The final product in the said Mysore Paper Mills case were sold by them and value was determinable under Section 4(1) (a) of the Act. There is no reference to any claim for the exclusion of the duty paid on the inputs from the assessable value of the wrapped paper (the final product) on the ground that credit of duty paid on the wrapping paper was being availed of.
5. The present case involves the determination of assessable value of goods produced by a manufacturer on job work basis using inputs produced by the customer. It is a case falling under Section 4(1) (b) read with Rule 6(b)(ii) of the Valuation Rules. The customers of the appellant had insisted on the appellant excluding the element of duty paid on the inputs while taking their cost required for arriving at the assessable value of the final product by adding the cost of manufacture and the profit and accordingly the appellant had taken the ex-duty value of the inputs. There was no claim in this case for exclusion of the amount of duty paid on the inputs from the assessable value of the final product, on the strength of Section 4(4)(d)(ii). This case is covered by the Tribunal decision in the Dai-Ichi Karkaria case as correctly pleaded by the learned Counsel for the appellant. In that case, for arriving at the finding that duty paid on inputs in regard to which Modvat credit is availed of by a manufacturer is not includible in the assessable value of the final product under Section 4(1)(b) of the Act and Rule 6(b)(ii) of the Valuation Rules, the Tribunal took note of the following :
(i) The speech of the Finance Minister delivered on 28-2-1996 (sic) (1986 Budget speech) regarding the purpose of the Modvat scheme. He mentioned that the vexatious problem of taxation of inputs and cascading effect of such taxation on the value of the final product could be solved by extending the system of proforma credit. It was stated that the Modvat scheme allowed the manufacturer to obtain instant and complete reimbursement of the excise duty paid on the components and raw materials.
(ii) The statement of the Central Board of Excise and Customs that the Modvat scheme would help to avoid repeated payment of duty on some materials and to that extent reduce the total product and the cost of that product by reducing the financing cost to the extent of low outlay of capital on consequent to relief in input duty. The scheme envisaged avoidance of payment of duty on earlier duty paid:
6. The Dai-Ichi Karkaria decision related to valuation of goods captively consumed by a manufacturer and the excludibility of duty paid on such inputs in arriving at its cost for determination of the assessable value of the final product made therefrom. The determination of such value was done on the basis of Section 4(1)(b) of the Act read with Valuation Rule 6(b)(ii). The same approach would equally apply to a case of the present type involving valuation of goods manufactured on job work basis. Here also, the same provisions come into play.
7. We accordingly follow that Larger Bench decision in the Dai-Ichi Karkaria case and set aside the impugned order. The appeal is allowed.