IN Central Excise, there is a concept called manufacture of goods by a job worker. The job worker also being a manufacturer is liable to pay Central Excise duty, unless exempted. The valuation of job worked goods witnessed many legal battles, with the law finally settled to the extent that the value for payment of duty would be the cost of the raw material plus the job work charges. (Ujagar Prints case)

However, the taxman realised that many big companies are avoiding central excise duty by getting the goods manufactured on job work and selling them in the market with their brand name and the huge margins of the principal manufacturers were escaping duty.

Thus, a new rule was born in the year 2007. Rule 10 A has been inserted in the Central Excise Valuation (Determination of the Price of Excisable goods) Rules with effect from 1.4.2007. As per this rule the value at which the principal manufacturer sells his goods will be the basis for determining the transaction value for payment of central excise duty by the job worker.

For the purpose of this Rule, Job worker has been defined as

Job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him.

In addition to the above job work method, there is also another concept widely prevalent in the trade. It is called contract manufacturing . Unlike in job work , the contract manufacturers do not get the raw material from the principal manufacturers, but purchase them from the market adhering to the specification of the principal. Sometimes, the vendors are also approved by the principal. The principal buys the finished goods from the contract manufacturer, and sells them with his margin, sometimes affixing his brand name, including the product literature, directions for use etc. (affixing brand name / MRP amounts to manufacture in only specified cases).

In this type of business model, Rule 10A cannot be invoked as the contract manufacturer is not a job worker as defined under rule 10A inasmuch as the raw materials are not “supplied” by the principal. But, though technically not covered under Rule 10 A, this is also a fit case to bring the trading margins of the principal as the principle remains the same in both the job worker model and the contract manufacturer model. Ultimately, in both the cases, it boils down to “you make goods for me and I will sell them”.

The Government should carefully watch different models of the trade and update themselves; otherwise, when they believe that one hole is closed, others will open.

Maybe one more good reason to come out with GST soon.

Cutting and slitting of steel sheets does not amount to manufacture - Supreme Court reiterates

AN identical issue came up for consideration of this Court in Rajpurohit's case - (2008-TIOL-200-SC-CX). Referring to circulars Nos. 584/21/2001-CX dated 7th September, 2001 and 811/8/2005-CX dated 2nd March, 2005, the Court opined that the process of slitting and cutting of steel sheets does not amount to manufacture. Following this decision, the Supreme Court reiterated that the process does not amount to manufacture.

See 2010-TIOL-44-SC-CX

Yet another Disobedient Assistant Commissioner - Cost Imposed

“THIS is a case which shows as to how the Central Excise Department can harass a manufacturer in the payment of rebate and thereafter in the payment of statutory interest on the delayed payment of rebate .”, observed the Delhi High Court in a recent case.

This is another case, where the Assistant Commissioner chose to sit in judgement over an order passed by his superior officer – the Commissioner (Appeals).

The Commissioner (Appeals) had passed an order granting interest on delayed refunds and the Department had not appealed against the order of the Commissioner (Appeals). So his order had attained finality – except for the Assistant Commissioner, who had merely to comply with the directions given by the Commissioner (Appeals) and was to merely carry out a ministerial function of computing the interest and making payment thereof. However, the Assistant Commissioner took it upon himself to examine the case as per his own understanding and, has gone to the extent of overreaching the orders of his superior authority, that is, the Commissioner (Appeals). Once the Commissioner (Appeals) had clearly directed the grant of refund along with the statutory interest thereon, the Assistant Commissioner was left with no power to go behind that order.

But that is not how Departmental officers function – they have no respect for their superior officers, (even to the Board), the judiciary or THE LAW. But they expect their subordinates and the assessees to respect them!

Supreme Court in the case of Union of India v. Kamlakshi Finance Corporation Ltd - 2002-TIOL-484-SC-CX-LB had observed:-

“The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.”

In the present case the High Court observed, “ the healthy rule that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities has been given a go-by by the Assistant Commissioner in rejecting the interest claim ” and the High Court imposed a cost of Rs. 10,000 on the Department.

We hope the Delhi Chief Commissioner will ensure that interest will be paid along with the cost of Rs.10,000/- instead of attacking the Delhi High Court as the Lucknow CC did in a recent case.

We would request NACEN to train all officers that they should obey all the orders of their superior officers and the only option available to them if they do not agree with the orders is to appeal and get a stay, but till then, you cannot create chaos.

Any officer found disobeying the judicial orders of his superiors or courts should immediately be suspended and then relegated to a lower category. No explanation on why he disobeyed the order should be accepted. If the fact is proved that he has disobeyed, he should be punished. Then, and then alone, our delinquent officers will be more obedient and all that is required is to sacrifice a few hard core disobedient ones and the rest will fall in line. The Department will not do it and this job will ultimately be done by the superior courts. You dismiss a few disobedient officers – the rest will be more than obedient. This kind of harsh action is badly required to avoid the chaos created by the BABU whose job is to run the government, not ruin it!

We will bring you the High Court order on Monday.

Import of Tyres - Radials - Free

THE DGFT has made import of Radials under EXIM code 4011 20 10 - New pneumatic tyres, of rubber - Of a kind used on motor cars (including station wagons and racing cars), free. This was earlier under the restricted category.

DGFT NOTIFICATION NO. 47/2009-14, Dated: May 26, 2010

Project Imports - Certificates

THE DGFT has amended Paragraph (e) of Form 1-A  and Para 2 (e) of Form I-B of Appendix 22C and Paragraph (e) of Appendix 27 to stipulate for a certificate that;

supply of goods under the contract made to mega power project in India is under the procedure of ICB or requisite quantum of power has been tied up through tariff based competitive bidding or project has been awarded through tariff based competitive bidding in accordance with the provisions of paragraph 8.2 and 8.4.4(iv) of FTP, and the import content of the order is Rs …………… …(Figures and words).”

DGFT Public Notice  NO. 67/2009-14, Dated: May 25, 2010

Jurisprudentiol – Monday's cases

Income Tax

Speculative transaction - Can units of UTI be deemed to be shares and their transactions of sale and purchase be termed as speculative transaction within meaning of Sec 73 - NO, says High Court

THE issue in this case is whether the  units of UTI can be deemed to be shares by virtue of the provisions of section 32(3) of the UTI Act, and accordingly their transactions of sale and purchase can be termed as speculative transaction within the meaning of Section 73 of Income Tax Act. And the High Court's answer is NO.

Customs

Eligibility of Notification No. 21/2002-Cus – Parts of drill ship immersed in sea and impossible to be retrieved and re-exported – Revenue cannot expect importer to perform an impossible task - No merit in Revenue appeal: High Court

THE importer, a sub-contractor, imported a drill ship valued at Rs. 148.92 crores meant for oil well drilling operations at PY3 Oil Field by availing exemption under Customs Notification No. 21/2002-Cus dated 01.03.2002. After performance of drilling work, the drill ship was re-exported. However, a part of the drill ship viz., blow out preventer and its accessories sheared off and drowned in the sea which became irretrievable.

See our columns Monday for the judgements

Until Monday with more DDT

Have a nice Weekend.

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