Charge duty at final sale price: Panel

EXIM MATTERS

A sub-group constituted by the Central Board of Excise & Customs (CBEC) to study the provisions of job-work has recommended amending the central excise valuations laws in a manner that the duty can be charged on the price at which the principal sells the goods. The group was headed by Chief Commissioner of Central Excise and Customs S Dutt Majumdar.

The sub-group has tried to address the problem that the value of goods manufactured by the job-worker includes the value of goods, the processing charges and the job-worker's profit but not the trader's selling/marketing expenses or profit. If its recommendations are accepted, the principal's selling/marketing expenses and profit will also get included and taxed.

The transaction-value concept introduced in 2000 entails excise duty on not only the manufacturing expenses but also on the costs that go to make the goods marketable, such as publicity, marketing and selling organisation's expenses, storage, outward handling, servicing, warranty, and commission.

The sub-group says the Supreme Court judgments in the case of Pawan Biscuits Company Pvt Ltd and Ujagar Prints in respect of valuation of goods by job-workers will not be strictly applicable to valuation treatment of goods manufactured through job-work under the new Section 4 of the Central Excise Act, 1944, as the new law effective from 2000 is based on the transaction-value concept.

It further says that in case the goods are manufactured on a job-work basis, rule 6 of valuation rules (dealing with situations where the buyer supplies certain goods) is not applicable.

However, the situations pertaining to goods manufactured on a job-work basis are more akin to situations covered by Rule 7 (dealing with goods transferred to depot etc from where the goods are sold) and Rule 8 (dealing with captive consumption) of the valuation rules, 2000.

The CBEC circulars 619/10/2002-CX dated 19.02.2002 and 643/34/2002-CX dated 1.7.2002, that endorsed the principles enunciated in the Ujagar Prints and Pawan Biscuits judgments even after the new valuation law came into force need to be revisited, says the sub-group.

The sub-group recommends that the definition of manufacturer in Section 2 (f) of the Central Excise Act, 1994, should be so amended as to make it explicit that the principal manufacturer and the job-worker are both covered by the definition of "manufacturer."

The second major amendment recommended by the sub-group seeks to expand the list of related persons given in Section 4 (3) (b) of the Act so as to include the person on whose account the goods are manufactured by the job-worker, thus making the raw material supplier and the job-worker related parties for the purpose of the valuation law.

The third recommendation of the sub-group is to insert new Rue 8A in the valuation rules, incorporating the principles laid down in Rule 7 and 8 as specifically applicable to goods manufactured by a job-worker.

If the government accepts the recommendations of the sub-group, many big companies, especially multinational corporations in the consumer goods segment, who get their products manufactured by the smaller companies on a job-work basis and avoid duty on their selling/marketing expenses or profits will not be able to do so, as the job-worked goods will suffer duty on the basis of the price at which they are sold.

tncr@sify.com