CESTAT Sets Aside ₹1.52 Crore Excise Demand, Rejects Arbitrary Profit Loading in Job Work Valuation

April 2, 2026 : The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside an excise duty demand of ₹1.52 crore against M/s. General Commodities Pvt. Ltd., holding that valuation of goods manufactured through job work cannot be based on arbitrary assumptions such as uniform profit loading without legal or evidentiary support.

In its Final Order dated 02.04.2026, the Tribunal ruled that where goods are sold on a principal-to-principal basis and the price is the sole consideration, the declared transaction value must be accepted under the statutory framework.

Background

The appellant, engaged in export of coffee and spices, had imported plastic granules duty-free under the Target Plus Scheme. These inputs were used to manufacture PP fabrics, HDPE fabrics, liners, and plastic bags, largely through job workers. After processing, a significant portion of the finished goods was sold directly to the job workers on payment of duty based on declared transaction value.

The Department initiated proceedings alleging undervaluation and rejected the declared value under Section 4(1)(a) of the Central Excise Act, 1944. It proceeded to re-determine the assessable value under Section 4(1)(b) read with Rule 11 of the Central Excise Valuation Rules, 2000, adding a profit margin of 41.48% to the cost of production derived under CAS-4 standards.

Tribunal’s Findings

The Tribunal found that the Department’s approach lacked legal and factual basis. It noted that no specific comparable transactions were cited to justify the addition of a 41.48% profit margin. The Bench categorically held that merely loading cost of production with such a margin, without supporting evidence, is unsustainable.

It further rejected the methodology adopted by the Department of taking the lowest purchase price and highest selling price to derive profit margins, observing that such an approach is neither supported by valuation law nor recognized accounting principles.

Applicability of Rule 10A(i)

Crucially, the Tribunal held that valuation in job work scenarios is specifically governed by Rule 10A(i) of the Central Excise Valuation Rules, 2000. Under this provision, where:

• goods are sold by the principal manufacturer at the time of removal from the job worker’s premises,
• the buyer is not related, and
• price is the sole consideration,

the transaction value must be accepted.

The Bench emphasized that there is no prohibition in law on selling finished goods to job workers and that such transactions remain valid so long as they are at arm’s length.

CAS-4 and Profit Margin

The Tribunal also took note of the CAS-4 certificates submitted by the appellant, observing that these were sufficient to demonstrate that the pricing was reasonable and not manipulated. It held that the Department’s addition of a flat 41.48% margin, without identifying any concrete benchmark or comparable instance, was arbitrary and legally untenable.

Conclusion

Setting aside the Order-in-Original dated 30.12.2011, the Tribunal allowed the appeal with consequential relief, reaffirming that valuation under excise law must be grounded in statutory provisions and supported by evidence rather than assumptions.

Case Title: M/s. General Commodities Pvt. Ltd. v. Commissioner of Central Excise and Service Tax, Bangalore
Case No.: Central Excise Appeal No. 531 of 2012
Coram: Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member)