2012 (7) TMI 55 - AT - Central Excise

Captive consumption - Valuation of wire rods manufactured and supplied to sister units - Revenue contended difference between the cost of conversion adopted in respect of interplant transfer to sister units and the conversion cost actually charged from unrelated party (TISCO Jamshedpur) - Held that - On perusal of debit notes and invoices it is found that appellants have shown the amount as conversion charges and not the conversion cost and it is the stand of the appellant that the conversion charges are inclusive of conversion cost profit element. This explanation given by the appellants is reasonable and needs acceptance. Since for the purpose of valuation under rule 8 of the Central excise Valuation Rules, the cost of production is required to be taken, this cost of production cannot be equated to the conversion charges charged by the appellants in respect of goods supplied to TISCO. Accordingly, conversion charges shown in debit note/invoices issued to TISCO cannot be taken as a conversion cost and taken as a basis for the purpose of assessments of wire rods cleared to sister units - Decided against the Revenue.

Summary

Issues: Valuation of goods for interplant transfer, Undervaluation of goods, Application of Rule 8 of the Valuation Rules, 2000, Time limitation for demand of duty

Valuation of goods for interplant transfer:
The case involved determining the assessable value of wire rods manufactured by the appellants and supplied to their own units at Tarapur and Borivali. The Revenue alleged undervaluation by the appellants due to under-declaration of conversion costs, leading to undervaluation of goods compared to those sent to TISCO Jamshedpur. The Revenue contended that the cost of production was undervalued, as the conversion cost component was lower for goods sent to their units. The Tribunal analyzed the invoices and debit notes issued by the appellants, noting that the conversion charges shown included a profit element. The Commissioner's decision was based on the difference between the conversion costs declared for interplant transfers and those charged to TISCO Jamshedpur. The Tribunal found the appellants' explanation reasonable, as the conversion charges included both conversion costs and profit. It held that the conversion charges shown in the invoices and debit notes could not be equated to conversion costs for valuation under Rule 8 of the Valuation Rules, 2000. Consequently, the Tribunal set aside the order and allowed the appeal.

Undervaluation of goods:
The Revenue alleged that the appellants undervalued the wire rods cleared to their own units by misdeclaring the value for duty payment. The appellants were accused of choosing to issue debit notes instead of regular billing through invoices to evade Central Excise duty. The show cause notice demanded duty for a specified period, along with interest and penalties. The Commissioner confirmed the demand, interest, and penalty imposed on the appellants. The appellants contended that they determined the value of wire rods based on the cost of production for interplant transfers, as per Rule 8 of the Valuation Rules, 2000. They argued that the job charges recovered from TISCO Jamshedpur included both conversion costs and profit, making the demand incorrect. The appellants also claimed that any duty paid was revenue neutral, as it was available as CENVAT credit to the recipient unit. They further argued that the demand was time-barred, as they had filed a declaration in 2000 without misdeclaration.

Application of Rule 8 of the Valuation Rules, 2000:
The Tribunal highlighted the application of Rule 8 of the Valuation Rules, 2000 in determining the value of goods not sold but used for consumption in production. The rule states that the value shall be 115% of the cost of production or manufacture of such goods. The Revenue argued that the appellants undervalued the cost of production by declaring lower conversion costs for goods sent to their units compared to those sent to TISCO Jamshedpur. The Tribunal found that the conversion charges shown in the invoices and debit notes included a profit element, and thus could not be equated to conversion costs for valuation purposes under Rule 8.

Time limitation for demand of duty:
The appellants argued that the demand issued for a specified period was time-barred, as they had filed a declaration in 2000 without misdeclaration. They contended that the provisions of Section 11A were not applicable due to no misdeclaration on their part. The Revenue, however, claimed that failure to declare necessary information amounted to suppression of fact, justifying the invocation of the extended period for demand. The adjudicating authority upheld the extended period based on the failure to declare essential information, leading to the suppression of facts.

In conclusion, the Tribunal allowed the appeal, setting aside the order based on the incorrect equating of conversion charges with conversion costs for the valuation of goods under Rule 8. The Tribunal found the appellants' explanation regarding the inclusion of profit in conversion charges reasonable, leading to the rejection of the Revenue's allegations of undervaluation.