2011 (8) TMI 828 - AT - Central Excise

Determination of value of excisable goods - clearances to sister unit for captive consumption as well as to independent buyers - Gunapradhan Principle - Held That - In view of ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI (2006 - TMI - 47731 - SUPREME COURT OF INDIA), (a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers; (b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.

Summary

Issues:
- Appeal against confirmation of demand of differential duty
- Denial of Cenvat credit of duty paid
- Valuation of goods cleared to sister unit for captive consumption

Analysis:
1. The appellants filed an appeal against the confirmation of demand of differential duty along with interest and penalty. The case involved M/s. New Bombay Ispat Udyog Pvt.Ltd., a manufacturer of M.S. Ingots & Billets, availing Cenvat Credit on inputs. The dispute arose when the department alleged undervaluation of goods cleared to their sister concern, M/s. MITC Rolling Mills Pvt. Ltd. The department issued a show-cause notice for demanding differential duty based on Central Excise Valuation Rules. The impugned orders demanded the differential duty, interest, and penalties, leading to the appeals by all the appellants.

2. The advocate for the appellants argued that the department's allegation of undervaluation was not sustainable as the goods were cleared to both the sister concern and independent buyers at the same price. He contended that Rule 9 read with Rule 8 was not applicable, citing a Tribunal decision in the case of Ispat Industries Ltd. The advocate sought to set aside the impugned orders based on the transaction value under Rule 4.

3. On the contrary, the Revenue's representative relied on a Board circular to determine the assessable value for goods cleared to a sister unit for captive consumption. The circular suggested assessing the value at 115% of the cost of production. The Revenue argued that the impugned orders were correctly passed, emphasizing the Director's admission regarding duty payment under CAS-4. The Revenue sought dismissal of the appeals and upholding of the impugned orders.

4. After hearing both sides, the Tribunal considered the issue of assessable value for goods cleared to a sister unit for captive consumption. Referring to a decision in the case of Ispat Industries Ltd., the Tribunal concluded that Rule 9 read with Rule 8 of the Valuation Rules 2000 was not applicable in the present case. The Tribunal set aside the impugned orders and allowed the appeals with any consequential relief.

5. In conclusion, the Tribunal's judgment clarified the valuation principles for goods cleared to a sister unit for captive consumption, emphasizing the precedence of Rule 4 over Rule 8 in such scenarios. The decision provided a legal interpretation consistent with the Central Excise Act, leading to the setting aside of the impugned orders and allowing the appeals.