2014 (12) TMI 651 - Commissioner - Central Excise

Valuation of goods - Whether the value of goods cleared by the appellants to their interrelated unit/sister concern at Baddi during the material period should have been assessed under Rule 8 or Rule 4 of the Valuation Rules - Held that - Appellants had cleared goods to their sister concern (related person) and also to independent buyers during the material period and had assessed the value of the goods cleared by them to related person as per Rule 8 of the Valuation Rules. The adjudicating authority has held that valuation of goods cleared by the appellants to related person, had to be done under Rule 4 of the Valuation Rules i.e. at the price at which the identical goods were sold by the appellants to the independent buyers. It is applicable in cases where goods are not sold but used for captive consumption by the assessee or are captively consumed on his behalf. In the instant case, the goods in respect of which the valuation is disputed, have neither been captively consumed by the appellants, nor had been consumed captively on their behalf. I find that the appellants have tried to lay stress on the point that the goods had been consumed in another unit of the same company, hence the goods had been captively consumed. The contention of the appellants is not tenable as the words captively consumed are used in the context to consumption within the same factory/unit and would not be applicable in cases where the goods are consumed in another factory of the appellants. It is evident from the opening sentence of the above quoted rule that these provisions are applicable only to cases where goods are not sold by an assessee except to or through a related person. Thus, the provisions of Rule 9 are applicable only if goods are sold solely through a related person , and the said provisions cannot be applied to the instant case where the goods were also sold by the appellants to independent buyers. As such, I find that the provisions of Rules 8 & 9 of the Valuation Rules are not applicable to the facts of the instant case and the clarifications issued by the Board in respect of Rules 8 & 9 of the Valuation Rules cannot be made applicable to these cases. The appellants have referred to clarification at S. No. 5 of the Board s Circular No. 643/34/2002-CX, dated 1-7-2002 whereas clarification given at S. No. 12 of the said Circular is more appropriate to the facts of the instant case. Appellants had cleared part of the goods to unrelated buyers and part of the goods to a related person. It is clear from the legal provisions contained in Rule 9 of the Valuation Rules that these provisions are to be invoked only in cases where goods are sold exclusively to or through related persons. It is not in dispute that such a case does not exist here. Therefore, taking resort to provisions of Rule 9 of the Valuation Rules was not justified. - Valuation Rules have been formulated as a guide for the determination of value of goods which would yield a reasonable and commercial value. Rule 11 of the Valuation Rules specifically states, Value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of Section 4 of the Act . The principle laid down in the Section 4(1) of the Act is to adopt the sale price, where price is the sole consideration as the assessable value of the goods. I also find that in situation similar to the present cases, the Hon ble Tribunals have held that if independent sale price is available then that should be adopted as assessable value for clearance to related buyers. Conclusion of the adjudicating authority that valuation of goods cleared by the appellants was required to be done under Rule 11 read with Rule 4 of the Valuation Rules i.e. price at which goods were sold by the appellants to the independent buyers, is as per the relevant provisions of law and also in harmony with the above judgments of the Hon ble Tribunal on this issue. The appellants have also argued that valuation of goods sold to independent buyers depends upon the credit period involved and also needs adjustments in price due to cash or deferred payments, but this plea of the appellants has no relation with the method to be adopted for valuation of goods where similar goods are sold to independent buyers as well as to related persons. - conclusion of the adjudicating authority is upheld. Further, the argument of the appellants that Rule 4 of the Valuation Rules has no application in the instant case where goods have been removed to their own unit, also does not succeed in view of the above discussion of legal provisions and case laws. Regarding the case laws referred to by the appellants in support to their contention that the Circulars are binding on the department, I find that the appellants would not get any help from the said case laws as it is clear from the above discussion that clarification issued by the Board in the matter is in consonance with provisions of law and also with the judicial decisions on the matter and accordingly the impugned orders are upheld. - Decided against assessee.

Summary

Issues Involved:
1. Whether the value of goods cleared to the interrelated unit/sister concern should be assessed under Rule 8 or Rule 4 of the Central Excise Valuation Rules, 2000.
2. Applicability of Board's Circulars on valuation.
3. Imposition of penalty and interest on the differential duty.

Issue-wise Detailed Analysis:

1. Assessment of Value under Rule 8 or Rule 4:
The primary issue was whether the appellants should have assessed the value of goods cleared to their sister concern under Rule 8 or Rule 4 of the Valuation Rules. The appellants argued that the valuation should be under Rule 8, as clarified by the Board's Circulars, which they claimed were binding on the department. Rule 8 states, "Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten percent of the cost of production or manufacture of such goods." However, the adjudicating authority held that Rule 4 should apply, as the goods were sold to independent buyers and related persons, and thus should be valued at the price at which identical goods were sold to independent buyers.

The judgment clarified that Rule 8 applies only when goods are captively consumed by the assessee or on his behalf, which was not the case here. The goods were sold to a related person, not captively consumed. Rule 9, which brings Rule 8 into operation, applies only when goods are sold exclusively to or through a related person, which was also not the case here. Therefore, the valuation should be done under Rule 4, using the price at which goods were sold to independent buyers.

2. Applicability of Board's Circulars:
The appellants contended that the Board's Circulars No. 354/81/2000-TRU and No. 643/34/2002 mandated valuation under Rule 8 for goods sold to related persons. They cited several Supreme Court judgments asserting that Board's Circulars are binding on the department. However, the judgment pointed out that the circulars referred to by the appellants were applicable to goods captively consumed, not sold to related persons. The relevant clarification from Circular No. 643/34/2002 stated that when goods are sold partly to related persons and partly to independent buyers, the transaction value for sales to unrelated buyers cannot be adopted for sales to related buyers. Instead, valuation should be done under Rule 11 read with Rule 9 (or 10), but Rule 9 cannot be applied directly as it covers only cases where all sales are to related buyers.

3. Imposition of Penalty and Interest:
The appellants argued that no penalty should be imposed as they acted per the department's instructions. However, the judgment upheld the imposition of penalty and interest, stating that the appellants' actions were not in line with the laid-down law and departmental clarifications. The adjudicating authority's decision to impose a penalty of Rs. 10,000 under Rule 25(1)(a) of the Central Excise Rules, 2002, and demand interest under Sections 11A and 11AB of the Central Excise Act, 1944, was upheld.

Conclusion:
The judgment upheld the adjudicating authority's order, confirming that the valuation of goods cleared to the related person should be under Rule 4 of the Valuation Rules, using the price at which goods were sold to independent buyers. The Board's Circulars cited by the appellants were not applicable to the facts of the case. The imposition of penalty and interest was justified, and the appeal was rejected. The stay application was disposed of accordingly.