2014 (12) TMI 115 - AT - Central Excise

Valuation of goods - Clearance of goods to sister concerns - Section 4(1)(b) of the Act read with Rules 8 and 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Held that - Rule 8 of the Valuation Rules, which has been invoked in the show cause notice for determination of value is not the appropriate rule, especially when the supplies made to the sister concerns formed only a small portion of total supplies effected by the appellant manufacturer. In Ispat Industries Ltd. - 2007 (2) TMI 5 - CESTAT, MUMBAI , a question arose before the Tribunal whether the assessable value in respect of goods which were transferred to another plant of the same assessee is required to be determined as per Rule 4 of the Valuation Rules, 2000 or as per the Rule 8 of the said Rules, in a case where the same goods were also sold to independent buyers. The Larger Bench held that Rule 8 would apply only in a case where the entire production of a particular commodity is captively consumed. - valuation in the instant case has to be done in terms of Rule 4 of the Central Excise Valuation Rules, 2000 and not under Rule 8 as proposed in the show cause notice - Decided in favor of assessee. Ascertainment of value at nearest time - Held that - If more than one price to independent buyer is available, the lowest of such price should be taken as the basis. Inasmuch as the appellant was not put to notice about the basis for determination - matter remanded back to adjudicating authority for this purpose. Penalty u/s 11AC - Invocation of extended period of limitation - Inasmuch as the entire show cause notice has been issued consequent to the decision of the Hon ble Apex Court decision in the case of IFGL Refractories case (2005 (8) TMI 112 - SUPREME COURT OF INDIA), the question of invoking the extended period of time would not arise. The ratio of this Tribunal s decision in the case of KDL Biotech Ltd. - 2010 (9) TMI 931 - CESTAT MUMBAI would apply to the facts of the present case also. Consequently, the question of imposition of penalty under Section 11AC also would not arise. - matter remanded back - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of assessable value for goods cleared to related persons.
2. Applicability of Rule 8 or Rule 4 of the Central Excise Valuation Rules, 2000.
3. Validity of duty demands invoking the extended period.
4. Imposition of penalties under Section 11AC.

Detailed Analysis:

1. Determination of Assessable Value for Goods Cleared to Related Persons:
The appellant, M/s. Supreme Petrochem Ltd., cleared goods to their sister concerns, which are considered "related persons" under Section 4(3)(c) of the Central Excise Act, 1944. The department contended that the transaction prices could not be accepted as the assessable value and needed re-determination under Section 4(1)(b) of the Act read with Rules 8 and 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The assessable value was recalculated based on the cost of production plus 10%/15%, leading to duty demands.

2. Applicability of Rule 8 or Rule 4 of the Central Excise Valuation Rules, 2000:
The adjudicating authority initially determined the value under Rule 4, considering the prices of similar goods sold to independent buyers. However, subsequent orders used Rule 8, leading to disputes. The Tribunal observed that Rule 8 is not appropriate when only a small portion of the goods is supplied to sister concerns. Citing precedents like Ispat Industries Ltd. and Indian Drug Manufacturers Association, the Tribunal held that Rule 4 should be applied, where the value of similar goods sold to independent buyers forms the basis for determining the assessable value.

3. Validity of Duty Demands Invoking the Extended Period:
The appellant argued that the duty demands invoking the extended period could not be sustained as they were under a bona fide impression that additional consideration (surrender of advance licenses) would not form part of the assessable value. The Tribunal agreed, stating that the extended period could not be invoked since the legal position became clear only after the Supreme Court's decision in CCE, Bhubaneshwar-II v. IFGL Refractories Ltd.

4. Imposition of Penalties under Section 11AC:
The Tribunal noted that there was no suppression of facts by the appellant, and the entire issue arose due to a change in legal interpretation post the Supreme Court's decision. Consequently, the imposition of penalties under Section 11AC was deemed inappropriate.

Conclusion:
The Tribunal remanded the case back to the adjudicating authority for fresh consideration under Rule 4 of the Central Excise Valuation Rules, 2000. The authority must notify the appellant of the basis for determining the assessable value and allow the submission of relevant evidence. The extended period for duty demands and penalties under Section 11AC were not applicable. The appeals were allowed by way of remand, ensuring the appellant's right to be heard before passing the de novo order.

(Operative part of the order pronounced in the Court)