The judgment establishes the importance of convergence of different valuation methods and the application of the rule of convergence to ascertain the estimated ad valorem value in the context of Central Excise valuation.

ORDER

1. This batch of civil appeals filed by the Department is directed against the judgment and order dated 4-4-2001 passed by CEGAT, New Delhi in Appeals Nos. FJ489-498/2000-A.

2. The main issue which arose for determination before the Tribunal was whether Rajasthan Spinning and Weaving Mills Ltd. (RSWML) was the real manufacturer who carried out textile processing from its process house at Mordi and if so whether the Department was right in invoking best-judgment assessment in terms of Rule 7 of the Central Excise (Valuation) Rules, 1975 ("the 1975 Rules", for short).

3. RSWML are the manufacturers of yam and fabric. It had set up a process house at Mordi in 1994-1995. The process house was set up for processing their fabric. The woven fabric manufactured at their weaving unit . was processed on job-work basis by Mordi Processing House. This was with effect from 29-3-1995. On 16-6- I 995 the said process house was let out by RSWML to Bhilwara Spinners Limited (BSL). Later on the lease agreement between RSWML and BSL stood terminated and the process house was leased out to Purvi Fabrics & Textures Limited (PFTL).

4. The above arrangement was doubted by the Department. Therefore, the Department issued show-cause notice dated 22-9-1998 claiming differential duty from RSWML for the period from 16-6-1995 to 20-2-1996 principally on the ground that the real manufacturer was RSWML and that the above arrangement of lease was a sham as it was arrived at to change the basis of valuation/assessment of fabrics processed from "comparable goods basis/method" to "cost method".

5. On factual analysis the Tribunal came to the conclusion that the lease agreement referred to above was genuine and, therefore, RSWML was right in invoking the cost method under Rule 6(b )(ii) of the said 1975 Rules. According to the Tribunal the present case stood covered by the judgment of this Court in Ujagar Prints (III) v. Union of India.

6. At the outset we may point out that the question of valuation was not examined by the Tribunal. Even if we are to proceed on the assumption that the Tribunal had erred, we are still not inclined to interfere in this matter for the reasons hereinafter mentioned. We are, therefore, proceeding on the basis that RSWML is the real manufacturer and that the lease was a sham.

7. The question which would still arise, whether even if one is required to proceed on the basis of "comparable goods method" is there a case of under valuation. Is the matter Revenue neutral? In this connection, we may point out that the "comparable goods method" is contemplated by Rule 6(b)(i) whereas the "cost method" is contemplated by Rule 6(b)(ii). In this case even if we are to proceed under Rule 6(b)(i), as contended by the Department, we find from the facts that RSWML used to receive unsorted fabrics from its process house, RSWML thereafter used to carry out the work of sorting and thereafter the goods were cleared through their depot. Under Section 4(1)(a) of the Central Excise Act as it stood at the relevant time, in case of valuation falling under Section 4(1), the normal price constituted the a basis of assessable value. We quote hereinbelow Section 4(1)(a):

"4. Valuation of excisable goods for purposes of charging of duty of excise.--(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be(a) the normal price thereof, that is to say, the price at which such b goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:" (emphasis supplied) 8. In the present case we are proceeding on the basis that ex-factory price was ascertainable. Even then, the underlinedt words indicate that if sale price c of sorted goods at the depot of RSWML is to be taken into acco