UNION OF INDIA Vs. NARENDRA ENGINEERING WORKS

JUDGEMENT

(1.) The respondents are engaged in processing forgings supplied to them into connecting rods of different sizes as per the requirement of the suppliersby job work. After the raw material in the form of connecting rod forgings is received by the respondents the following process is applied on those forgings, namely, (1 Boring; (2 Notching; (3 Facing; (4 Gunmetal bush processing for small ends; (5 Fine boring (cutting etc. ) ; and (6 Oil hole drilling. The raw material after having undertaken all the above processes emerges as a finished product known as connecting rods. The question is regarding assessment of duty payable on these connecting rods.

(2.) There is no dispute that the respondents are a small-scale industry. They, by job work, manufacture connecting rods for diesel engines and tractors. They claim exemption under notification dated 1/3/1979. For claiming that exemption certain conditions set out in the notification have to be satisfied, one of them being that the value of the unit should not exceed rs 10 lakhs and the value of the goods should not exceed Rs. 15 lakhs. It appears that the assessees wrote a letter to the Assistant Collector on 24-8- 1979 staling that the Jurisdictional Superintendent of central Excise had informed them that in the computation of value limit to determine the duty liability as contemplated by the notifications, the value of raw materials plus the job charges had to be determined under Section 4 of the central Excises and Salt Act, 1944. The assessees contended that the mode of computation of value indicated by the Jurisdictional Superintendent of central Excise had no support in law. They, therefore, desired to know whether the stand taken by the Jurisdictional Superintendent had the Board's concurrence. In reply to the said letter the Assistant Collector, by his letter dated 7/9/1979 informed that the decision of the Superintendent is correct as per law. After the receipt of this letter, the respondents filed a writ petition in the High court of judicature at Bombay, being Writ Petition No. 3075 of 1979, which was disposed of by a division bench on 6/11/1981. The division bench gave the following direction:

(3.) We have heard the learned counsel for the parties and we deem it necessary to make it clear that since the respondents had approached the high court directly, the machinery under the central Excises and Salt Act had not been set into motion and, therefore, there is no decision of the excise authorities on the question whether the respondents satisfied the conditions for exemption. Since there is no adjudication by the authorities on the issue raised in the writ petition, the High court also felt constrained to direct the authorities to determine whether the assessee is entitled to exemption under the said notification. It seems clear to us in the backdrop of the above facts that since no exercise was undertaken by the Excise authorities under the statute, the question of computation of value for thepurposes of payment of excise duty in cases where the job work results in processing forgings supplied by the suppliers converting themselves into connecting rods of different sizes, the exercise will have to be undertaken by the authorities under the statute. The facts in the instant case are clear, namely, that the assessees engage in job work by processing forgings supplied to them into connecting rods of different sizes, In such a situation, how the value is to be determined will be the subject-matter before the authorities under the statute. They will have to determine the value as per the law settled by this court by different decisions rendered in this behalf. We would, therefore, only modify the order of the High court by saying that the authorities may determine the value as per the law as explained by this Court and thereafter consider the question of application of the exemption notification dated 1/3/1979.