2010 (8) TMI 906 - AT - Central Excise

Valuation - clearances of cotton yarn to their own unit - clearance for job-work - Rule 8 of the Central Excise Valuation Rules, 2000 - undervaluation - whether the value adopted by the appellant for the goods cleared on their own account and on job work basis based upon the Cost Accounting Standard-4 (CAS-4) is correct or the value which has been arrived by the cost audit report of the company should be adopted? - Held that - rule comes into play when the goods are cleared for consumption to their own unit or on their behalf. Since it is undisputed that the processed yarn cleared from the appellant s factory is consumed by their own sister concern, provisions of Rule 8 of the said rules will apply. The appellants have been submitting the cost certificates to the authorities. The said cost certificates were of the cost of production on the manufacture of such goods. Both the lower authority s finding that the said CAS-4 certificates could not be computed for each consignment at the time of clearance, does not mean that the assessee is at liberty to remove the goods to a related person on an approximate value, seems to be incorrect as if it is undisputed that the processed yarn is consumed by the related/sister concern for further manufacturing of the goods, provisions of Rule 8 of the said rules would clearly apply. Since the cost certificates which were submitted by the assessee before the clearances of the goods from the factory are not disputed or challenged by the revenue authorities, it has to be accepted that they were correct cost of production. Revenue neutrality - Held that - the duty paid on such processed yarn cleared by appellant is being taken as Cenvat credit, by their own sister concern. This fact is not disputed by the revenue. If that be so, then the question of revenue neutrality arises, as it is an admitted fact that the transaction is mostly between the sister units. If that be so, the demand of duty on the appellant would be of no consequence as it would be revenue neutral. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Discrepancy in valuation of goods cleared on own account and job work basis
- Correct application of Rule 8 of Central Excise Valuation Rules, 2000
- Admissibility of CAS-4 certificates for valuation
- Revenue neutrality due to Cenvat credit utilization by sister concern

Analysis:

Issue 1: Discrepancy in Valuation
The case involved a dispute over the valuation of goods cleared by the appellant on their own account and job work basis. The appellant contended that they adopted the assessable value based on Rule 8 of the Central Excise Valuation Rules, 2000, for both scenarios. The revenue authorities challenged this valuation, leading to demand notices for differential duty, penalties, and interest. The appellant argued that the Cost Accounting Standard-4 (CAS-4) certificates, certified by Cost Accountants, were valid for determining the cost of production, which was not disputed by the revenue. The lower authorities upheld the demands, prompting the appeals.

Issue 2: Application of Rule 8
The Tribunal analyzed Rule 8, which states that when goods are not sold but used for consumption in production, the value shall be 110% of the cost of production. As the processed yarn was consumed by the appellant's sister concern, Rule 8 was deemed applicable. The CAS-4 certificates submitted by the appellant were considered accurate for determining the cost of production, as they were not challenged by the revenue authorities. The Tribunal emphasized that the cost of production under CAS-4 should be adopted for duty liability, rejecting the revenue's reliance on the cost audit report that included expenses beyond the factory production.

Issue 3: Admissibility of CAS-4 Certificates
The Tribunal highlighted that the CAS-4 certificates provided a correct assessment of the cost of production, focusing on expenses within the factory of production. In contrast, the cost audit report encompassed broader expenses, making CAS-4 more suitable for duty discharge. The Tribunal concluded that the appellant's reliance on CAS-4 for valuation was justified, overturning the lower authorities' decisions.

Issue 4: Revenue Neutrality
Notably, the Tribunal acknowledged that the duty paid on the processed yarn was utilized as Cenvat credit by the appellant's sister concern, ensuring revenue neutrality. This utilization of credit between sister units rendered the duty demand on the appellant inconsequential, aligning with the principle of revenue neutrality. The Tribunal cited case laws supporting this stance and ultimately set aside the impugned orders, allowing the appeals.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the correctness of adopting CAS-4 certificates for valuation under Rule 8 and highlighting the concept of revenue neutrality due to Cenvat credit utilization by the sister concern.