2006 (7) TMI 68 - AT - Central Excise

Valuation(Central Excise)- Stock Transfer- Transfer of incomplete stock to its sister company and they clear the same on payment of central excise-It held that on clearance of incomplete product Rule 8 of CE applied irrespective of Rule 7 of CE

Summary

Issues Involved:
1. Applicability of Rule 8 of the Central Excise Valuation Rules, 2000.
2. Appropriateness of the valuation method adopted by the Commissioner.
3. Revenue neutrality and double taxation.
4. Limitation period for demand of duty.
5. Applicability of Rule 7 of the Central Excise Valuation Rules, 2000.
6. Demand of interest under Section 11AB of the Act.

Issue-wise Detailed Analysis:

1. Applicability of Rule 8 of the Central Excise Valuation Rules, 2000:
The appellants argued that the impugned goods are semi-finished and transferred to sister units on a stock transfer basis, with no sale involved. They contended that Rule 8 was correctly applied, and duty liability was discharged based on the cost of production. The sister units took Cenvat credit for the duty paid and cleared the finished goods on payment of duty on transaction value. The tribunal found this reasoning sound, stating that the incomplete product sent to the sister unit for further processing is covered by Rule 8, as the product is used for consumption in the production of other articles.

2. Appropriateness of the Valuation Method Adopted by the Commissioner:
The Commissioner argued that Rule 8 was not applicable because the processes at the sister units did not amount to manufacture, and thus, the valuation should be based on the transaction value of the sister unit. However, the tribunal disagreed, stating that the incomplete product is indeed used for consumption in the sister unit, leading to the emergence of a complete product. The tribunal concluded that the appellants had correctly discharged their duty liability under Rule 8.

3. Revenue Neutrality and Double Taxation:
The appellants argued that the entire exercise was revenue neutral since the differential duty demanded was the difference between the amount paid at Bangalore and the amount paid at the sister unit. They contended that demanding duty again at Bangalore would amount to double taxation. The tribunal agreed, noting that if the orders of the Commissioner were upheld, it would result in demanding duty twice on the same product, which is not permissible in law.

4. Limitation Period for Demand of Duty:
The appellants contended that the demand for duty for the period from December 2003 to September 2004 was barred by limitation, as the duty paid at Bangalore was taken as credit at the sister units. The tribunal did not specifically address this issue in detail but implicitly agreed by setting aside the Commissioner's orders.

5. Applicability of Rule 7 of the Central Excise Valuation Rules, 2000:
The Commissioner had invoked Rule 7, arguing that it provided a more appropriate method for valuation. However, the tribunal found that Rule 7 was not applicable in this case, as it applies to goods transferred to a depot or consignment agent, not to partially processed goods sent to a sister unit for further processing. The tribunal emphasized that Rule 7 covers the valuation of goods sold from depots, which was not the situation here.

6. Demand of Interest under Section 11AB of the Act:
The appellants argued that when the duty demand itself is not sustainable, the provisions of Section 11AB to demand interest cannot be sustained. The tribunal agreed, setting aside the Commissioner's orders and allowing the appeals with consequential relief.

Conclusion:
The tribunal concluded that the appellants had correctly discharged their duty liability under Rule 8 of the Central Excise Valuation Rules, 2000. The Commissioner's orders were found to lack merit, and the appeals were allowed with consequential relief. The tribunal emphasized that the differential duty had already been paid in the jurisdictional Commissionerate of the sister units, and upholding the Commissioner's orders would result in double taxation.