Rule 10A Valuation Can’t Apply to Job-Worked Goods Used in Works Contracts: CESTAT

The Allahabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that goods manufactured on a job-work basis and subsequently used in the execution of a works contract cannot be treated as “sold” goods for the purposes of Rule 10A of the Central Excise Valuation Rules. The bench of P.K. Choudhary (Judicial Member) and Rajeev Tandon (Technical Member) consequently set aside the penalty imposed upon a contractor and ruled that the Revenue failed to establish any conspiracy or involvement in alleged under-valuation of excisable goods. The dispute arose from a show cause notice dated 21 April 2014 seeking recovery of ₹14.72 lakh towards alleged short payment of Central Excise duty for the period April 2012 to March 2013. The department alleged under-valuation of goods manufactured and supplied on a job-work basis. The proceedings originated from audit objections raised during scrutiny of records of the principal noticee, a company engaged in manufacturing pre-fabricated steel structures. According to the Revenue, fabricated steel structures had been manufactured and supplied under a job-work arrangement and excise duty had been discharged only on the basis of raw material value plus job-work charges. The department alleged violation of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, asserting that the valuation method adopted resulted in under-payment of duty. The contractor challenged both the allegation of under-valuation and the penalty imposed under Rule 26(1) of the Central Excise Rules. It argued that there was no material evidence suggesting collusion or planning between it and the manufacturer to evade duty. The contractor maintained that the allegation of a nexus had been made merely on assumptions without factual substantiation. During the proceedings, it was explained that the contractor had received a contract from IIT Delhi for construction of a lecture theatre-cum-laboratory complex. The work included civil construction as well as installation of electrical fittings, fire alarm systems, fire-fighting arrangements and related infrastructure. Certain structural steel items required for execution of this works contract had been fabricated through the job-worker. The contractor contended that Rule 10A(2) of the Valuation Rules applies only where goods manufactured on a job-work basis are not sold immediately but are transferred elsewhere for subsequent sale. In the present matter, the fabricated structures were never sold but were instead directly used in execution of the works contract. Since the goods were tailor-made for a specific project and were consumed during execution of contractual obligations, they could not be equated with goods transferred in the ordinary course of trade or business. The Tribunal accepted this argument and observed that the contractor was not a manufacturer or principal manufacturer but rather a service provider executing a works contract. The Bench noted that the fabricated items had been procured under proper Central Excise invoices and subsequently consumed in the project work. It also found no evidence supporting the department's allegation that the contractor had participated in any pre-planned arrangement to suppress duty liability. The Bench emphasized that Rule 10A applies when one manufacturer gets manufacturing activities carried out through a job-worker and subsequently sells those goods. It held that a civil contractor obtaining goods manufactured for use in a works contract does not fall within this framework. Goods used in execution of works contracts cannot automatically be regarded as goods sold in the ordinary course of business. Examining the definition of “sale” under Section 2(h) of the Central Excise Act, the Tribunal observed that sale requires transfer of possession in the ordinary course of trade or business for consideration. Mere utilization of goods in performance of a works contract does not satisfy that requirement. The Tribunal strongly criticized the department’s allegation of conspiracy, observing that there was “not a shred of evidence” supporting such claims and that the accusation amounted to a “rudderless-baseless allegation.” It held that once the contractor received goods under proper excise invoices, there was no reason to suspect any under-valuation by the manufacturer. Accordingly, CESTAT concluded that the Revenue had failed to establish grounds for penalty under Rule 26 and set aside the order against the contractor, allowing the appeal. Case Details Case Title: M/s. B.L. Kashyap & Sons Ltd. Versus Commissioner, CGST & CE, Noida-II Commissionerate Citation: JURISHOUR-1422-CES-2026(ALL) Case No.: Excise Appeal No.70197 of 2016 Date: 22.05.2026 Counsel For Appellant: Jatin Mahajan, Advocate Counsel For Respondent: Santosh, Authorized Representative Click Here To Read Order Read More: Supreme Court Upholds Conviction in 1983 Bihar Mass Violence Case, Says Every Member of Unlawful Assembly Liable Under Section 149 IPC

Rule 10A Valuation Can’t Apply to Job-Worked Goods Used in Works Contracts: CESTAT

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