2017 (3) TMI 369 - AT - Central Excise

Valuation - manufacture of motor vehicles parts and clearance to own other unit - valuation done as per the valuation Rules 6b(ii) of erstwhile Central Excise (Valuation) Rules, 1975 - The department s objection is that the assessable value which is on cost construction method is not correct in as much as the appellant have not included Head Office admin expenses, R D expenses and royalty in the cost of the production - Held that - there is no dispute that the recipient units are the appellant s own units. Therefore if there is any differential duty, liability the same is available as CENVAT credit to the recipient units. As per the submission of Learned Counsel the recipient units have paid ₹ 75.49 crores and ₹ 16.41 crores duty from PLA respectively. In such case the entire exercise of payment of duty and availment of credit is revenue neutral - even though duty is payable and the recipient unit is part of the same entity and is eligible for MODVAT/CENVAT credit paying duty from PLA also then it is a revenue neutral exercise. For this reason demand of duty cannot be recovered - appeal allowed - decided in favor of appellant.

Summary

Issues: Valuation dispute under Central Excise (Valuation) Rules, 1975 for IC Engines and parts thereof.

Analysis:
- The appellant, engaged in manufacturing IC Engines and parts, cleared goods to other units for tractor manufacturing, leading to a valuation dispute for the period November 1996 to March 2001.
- The dispute centers around the assessable value determined by the cost construction method, excluding Head Office admin expenses, R&D expenses, and royalty, leading to a demand for differential duty.
- The appellant argues that Head Office expenses are not directly related to production, citing a CESTAT judgment and CAS-4. They contend that R&D expenses should only include costs related to products manufactured and cleared to other units, as per CAS-4.
- Regarding royalty expenses, the appellant asserts that royalty should only be included if based on production, which is not the case for goods cleared to sister units.
- Additionally, the appellant highlights that all duty paid is available as MODVAT/CENVAT credit to recipient units, creating a revenue-neutral situation, supported by various judgments.

- The Revenue reiterates the findings of the impugned order, emphasizing the assessable value calculation.
- The Tribunal notes that the recipient units are appellant's own units, making any differential duty liability available as CENVAT credit to them.
- Citing judgments, including CCE Vs Tarapur Grease India Pvt Ltd and CCE Vs Special Steel Ltd, the Tribunal upholds the revenue-neutral exercise, where payment of duty and credit availment by recipient units balance out, leading to the duty demand being unsustainable.
- The Tribunal dismisses the appeal based on revenue neutrality, without delving into the valuation issue, granting the adjudicating authority liberty to verify the factual matrix regarding revenue neutrality.

In conclusion, the Tribunal allows the appeals, setting aside the impugned order and emphasizing the revenue-neutral nature of the duty payment and credit availment by recipient units, rendering the duty demand unsustainable. The decision is based on consistent judgments highlighting the principle of revenue neutrality in such cases.