2015 (8) TMI 494 - SC - Central Excise

Valuation of goods - Captive consumption - same or such goods - Commissioner (Appeals) has accepted the cost produced by the assessee but referred the wrong rule - tribunal reversed the decision of commissioner (appeals) - Held that - Though in the Show Cause Notice the Assistant Commissioner had mentioned the applicability of Section 4(1)(a) of the Act, even he abandoned that course of action while passing the order. In the final order passed by him, he accepted that the case was covered by Section 4(1)(b) of the Act and therefore, applied the Valuation Rules, 1975. Further, as per him, it is the Rule 4 which was applicable. On the other hand, as per the Commissioner (Appeals), Rule 4 was not applicable and he invoked Rule 6 of the Valuation Rules, 1975. - It is not a case where Section 4(1)(a) of the Act is applicable. That is the common case of the parties. As per Section 4(1)(a) of the Act, normal prices of the goods, viz., the prices at which such goods are ordinarily sold by the Assessee to a buyer, is to be taken into consideration, subject, of course, to the condition that the buyer is not a related person and the price is the sole consideration for the sale. Rule 4 would be applicable only in those cases where value of such goods which are sold by the assessee for delivery at any other time nearest to the time of the removal of the goods under the assessment, appears to be reasonable to the concerned officer. Goods cannot be treated as same or would fall within the description such goods as sold to the other buyers in loose form when they are used captively by the appellant in the turnkey projects. We find that the only mistake which is committed by the Commissioner is to refer to Rule 6(b) inasmuch as in the present case, the goods are not consumed by the appellant/ assessee itself but used in the turnkey projects/contracts meant for the third party. Thus, it was Rule 7 which should have been referred to by the Commissioner (Appeals) as none of the preceding rules would apply. To put it otherwise, it is the case of best judgment assessment . However, we find that, that is the exercise otherwise undertaken by the Commissioner (Appeals) in accepting the costing of the goods which was placed by the assessee/appellant before the assessing officer and it was taken into consideration by the Commissioner (Appeals). - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Valuation of goods used captively in turnkey contracts for excise duty purposes.
2. Applicability of Section 4(1)(a) vs. Section 4(1)(b) of the Central Excise Act.
3. Determination of the appropriate Valuation Rule under the Central Excise (Valuation) Rules, 1975.

Detailed Analysis:

1. Valuation of Goods Used Captively in Turnkey Contracts for Excise Duty Purposes:
The appellant manufactures smoke detectors and parts thereof, sold in two ways: in loose condition and as part of turnkey projects. The dispute centers on the valuation of these smoke detectors and parts when used in turnkey projects for excise duty purposes. The Assessing Officer issued multiple Show Cause Notices alleging that the valuation should be based on the price at which these goods are sold in loose condition. The appellant contested this, arguing that the valuation should be based on the Central Excise (Valuation) Rules, 1975.

2. Applicability of Section 4(1)(a) vs. Section 4(1)(b) of the Central Excise Act:
The appellant argued that the matter should be covered under Section 4(1)(b) and not Section 4(1)(a). The Assessing Officer initially mentioned Section 4(1)(a) in the Show Cause Notices but ultimately accepted that Section 4(1)(b) was applicable. Section 4(1)(b) is invoked when the normal price of the goods is not ascertainable, requiring the price to be determined by the "nearest ascertainable equivalent thereof" as prescribed by the Valuation Rules, 1975.

3. Determination of the Appropriate Valuation Rule under the Central Excise (Valuation) Rules, 1975:
The Assessing Officer applied Rule 4 of the Valuation Rules, 1975, taking the value of the goods at the same rate as sold in loose condition. The Commissioner (Appeals) disagreed, finding that Rule 4 was not applicable and instead applied Rule 6(b). The Commissioner noted that the goods used in turnkey projects could not be compared to those sold in loose condition and accepted the appellant's cost analysis, certified by a Chartered Accountant, for valuation purposes. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the Commissioner's order, applying Rule 4 without providing detailed reasoning.

The Supreme Court found that the goods used in turnkey projects could not be treated as the same as those sold in loose condition. The Court concluded that Rule 7, which deals with 'best judgment assessment,' should have been applied instead of Rule 6(b). The Commissioner (Appeals) had essentially performed a best judgment assessment by accepting the appellant's cost analysis. Therefore, the Supreme Court set aside the CESTAT's order and restored the Commissioner's order with the modification that the valuation be referred to under Rule 7 instead of Rule 6.

Conclusion:
The appeals were allowed, and the order of the Commissioner (Appeals) was restored with the modification that the valuation be conducted under Rule 7 of the Valuation Rules, 1975, instead of Rule 6. No orders as to costs were made.