2011 (2) TMI 1008 - AT - Central Excise

Valuation - demand of duty - assessee sold transformers to their sister division at the cost of production 10% as prescribed under Rule 8 of the Valuation Rules in spite of the fact that the provisions of law applicable to the case of the appellants are comprised under Rule 11 - Secondly, that the appellants had failed to inform the department about the sale of the goods to the related persons - Held that - In the instant case price of the comparable goods to independent buyer was available with the Appellant as is evident from the sale of 7500KVA Copper bound transformer made to M/s. Sumita Tex Spin Pvt. Ltd. at Rs.6121000/-. The price of the goods was known prior to sale of goods and Appellant should not have resorted to Rule 8 of the Valuation Rules. Price was also known when a contract for setting up of a switchyard project of Rs.53 million was made on 19.07.06 by M/s. Crompton Greaves Ltd. Engg. Project Division and accordingly, cost was distributed on all the equipments used in the said switchyard project as is evident from the said contract. The impugned order discloses that while the adjudicating authority had accepted the contentions sought to be raised on behalf of the assessee in relation to the first charge against the assessee, and there was a clear finding that the prices of different transformers were not comparable for various reasons recorded in the impugned order. There was no challenge by the department to the said finding. Undisputedly, there were no cross objections filed by the department before the Commissioner (Appeals). Being so, the said finding by the adjudicating authority had attained finality. In those circumstances, it was not open to the Commissioner (Appeals) to arrive at any finding contrary to the said finding. Therefore, the impugned order is not sustainable and is liable to the set aside and the matter is to be remanded to the Commissioner (Appeals) to decide same afresh in accordance with the provisions of law.

Summary

Issues:
1. Valuation of transformers under Central Excise Tariff Act, 1985
2. Compliance with Cost Accounting Standard on cost of production for captive consumption (CAS-4)

Issue 1: Valuation of transformers under Central Excise Tariff Act, 1985

The case involved an appeal arising from an order confirming a demand of duty, interest, and penalty against the appellants for selling transformers to a sister division at a certain price. The show cause notice alleged that the appellants did not inform the department about the sale and demanded recovery of duty along with interest and penalty. The appellants argued that each transformer was custom-built based on specific requirements, making them non-comparable in terms of pricing. They contended that the cost of production plus 10% was the best valuation method. The adjudicating authority agreed with the appellants, stating that transformer prices depend on various factors beyond just the rating. The Commissioner (Appeals), however, found the appeal unsustainable, citing the availability of price information for comparable goods and the inapplicability of certain case laws mentioned by the appellants.

Issue 2: Compliance with Cost Accounting Standard on cost of production for captive consumption (CAS-4)

The second charge in the show cause notice related to the compliance with CAS-4 for valuation of goods cleared to a related person for payment of duty. The notice alleged that the certificate of cost issued by the chartered accountant did not adhere to CAS-4, and certain cost components were not considered in the valuation. The appellants relied on Rule 8 for valuation, which specifies the cost of production as 110% when goods are not sold but used for consumption in production. The adjudicating authority found no contestation on this charge by the appellants. However, the Commissioner (Appeals) did not discuss this issue in the impugned order, leading to the appellate tribunal setting aside the order and remanding the matter for fresh consideration, emphasizing the need for compliance with the law.

In conclusion, the appellate tribunal set aside the impugned order due to jurisdictional issues and lack of consideration of the second charge. The case highlighted the complexities of valuing transformers under the Central Excise Tariff Act, emphasizing the need for adherence to valuation rules and accounting standards to avoid disputes and penalties.