2007 (5) TMI 98 - AT - Central Excise

Demand - Department contended that appellant an EOU determine the assessable value of manufactured good was not correct and accordingly demand were made along with penalty - Held that department contention was not correct and set aside

Summary

Issues:
1. Assessment of assessable value under Central Excise (Valuation) Rules for goods cleared to sister units by a 100% Export Oriented Unit (EOU).
2. Application of Notifications No. 8/97-C.E. and 23/2003-C.E. for determining duty payment.
3. Interpretation of Section 3(1) of the Central Excise Act in relation to valuation of goods cleared by EOU to Domestic Tariff Area (DTA) units.

Analysis:
1. The appellants, a 100% Export Oriented Unit (EOU), manufactured "Instant Tea" using indigenous raw materials and cleared the product to sister units without involving any sale. The assessable value of the goods was determined under Rule 8 of the Central Excise (Valuation) Rules, set at 115% and 110% of the cost of production for different periods. The department disputed this valuation, issuing a show-cause notice proposing a different valuation based on the export price of similar goods. The Tribunal found the proposal ambiguous and upheld the appellants' right to determine the assessable value under Rule 8.

2. The appellants contended that they were entitled to exemption under Notifications No. 8/97-C.E. and 23/2003-C.E., which allowed duty payment based on the excise duty leviable on like goods produced in India and sold domestically. The Notifications deemed goods manufactured by an EOU as produced in a Domestic Tariff Area (DTA) unit. The appellants argued that the valuation of goods was correctly done under Rule 8, and no consideration of export price was necessary. The Tribunal agreed with this interpretation, emphasizing the specific formula provided by Rule 8 for determining assessable value.

3. The Tribunal analyzed the application of Section 3(1) of the Central Excise Act in relation to duty payment by EOUs for goods cleared to DTA units. The lower authorities failed to provide a clear finding on the correct application of the law. The Tribunal highlighted the distinction between duty payment for goods manufactured from indigenous raw materials by an EOU, as governed by Notifications No. 8/97-C.E. and 23/2003-C.E., and the general provisions of Section 3(1) of the Central Excise Act. It noted that the lower authorities did not address this distinction, leading to ambiguity in their orders. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants.