2010 (4) TMI 674 - AT - Central Excise

Valuation inputs A plain reading of the rule 3(4), therefore, would reveal that in a case where the goods are procured for consumption thereof in the final dutiable products by availing Cenvat credit in respect of the duty paid on such goods, if the same goods instead of consumption thereof for manufacture of dutiable final products are transferred to a third party, then the manufacturer has to pay an amount equal to the duty of excise leviable on such goods at the rate prevalent on the date of removal of such goods and for that purpose, the value of such goods is to be determined in terms of Section 3(2) or Section 4 or Section 4A of the said Act, as the case may be.Removal of inputs on reversal of credit to sister concern who resold it to another dealer - Undoubtedly records disclose that at the time of transfer of the goods in favour of the sister concern, the appellants reversed the credit, which was availed on the said goods. It is not the case of the Department that such reversal of the credit has in any manner reduced the liability of the appellants or that there was any act or conduct on the part of the appellants which could reveal intention to evade the duty. Besides, as rightly pointed out by the learned advocate for the appellants, the assessee was all the time harping on the decision of the Larger Bench to justify non-leviability of the duty amount confirmed under the impugned order. In such circumstances, in our considered opinion, the appellants are justified in contending that, it is not a fit case for imposition of penalty.

Issues Involved:
1. Methodology for the valuation of goods transferred to a sister unit.
2. Applicability of Rule 3(4) of the Cenvat Credit Rules, 2002.
3. Binding nature of the Larger Bench decision in Eicher Tractors case.
4. Imposition of penalty.

Issue-wise Detailed Analysis:

1. Methodology for the valuation of goods transferred to a sister unit:

The core issue in this case is the methodology for the valuation of goods (Grease Seal) that were procured by the appellants while availing Cenvat credit but were transferred to a sister unit without being consumed in the manufacture of final dutiable products. The appellants argued that the value of the goods should be determined based on the invoice on which the credit was availed, as per Circular No. 643/34/2002-CX., dated 1-7-2002, particularly point 14. However, the Department contended that since the goods were sold immediately after transfer to the sister concern, the actual transaction value should be used for valuation.

2. Applicability of Rule 3(4) of the Cenvat Credit Rules, 2002:

Rule 3(4) mandates that when inputs or capital goods, on which Cenvat credit has been taken, are removed from the factory as such, the manufacturer must pay an amount equal to the duty of excise leviable on such goods at the rate applicable on the date of removal, based on the value determined under Section 3(2), Section 4, or Section 4A of the Central Excise Act, 1944. The Board's Circular dated 1st July 2002 clarifies that in cases where inputs are removed to a sister unit without sale, the value shown in the original invoice should be adopted. However, if the transaction value is available, it should be used for determining the duty liability.

3. Binding nature of the Larger Bench decision in Eicher Tractors case:

The appellants relied on the Larger Bench decision in Eicher Tractors v. CCE, Jaipur, which held that the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004 apply when inputs or capital goods are removed as such, and the value should be based on the original invoice. However, the Tribunal noted that the facts of the Eicher Tractors case differed significantly from the present case. In Eicher Tractors, the transaction value was not available, unlike in the present case where the goods were sold shortly after being transferred to the sister unit, making the transaction value available.

4. Imposition of penalty:

The appellants argued against the imposition of a penalty, contending that the provisions were not clear and they had reversed the credit at the time of transfer. The Tribunal agreed, noting that there was no intention to evade duty and the appellants had relied on the Larger Bench decision. The Tribunal found that the imposition of a penalty was not justified in this case.

Conclusion:

The Tribunal concluded that the appeal partly succeeds. The penalty imposed under the impugned order was set aside, but the valuation based on the transaction value was upheld. The appeal was disposed of accordingly.

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