2018 (7) TMI 1937 - AT - Central Excise

Valuation - inter unit transfer of the goods - applicability of Rule 8 of the Valuation Rule or under any provision of Section 4 (a) of the Act - HELD THAT - In the case of ISPAT INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., RAIGAD 2007 (2) TMI 5 - CESTAT, MUMBAI , it was held that the Rule 8 of the Central Excise Valuation Rule is applicable only in case where the entire production is being transfer to their sister units. There is no sale to the independent buyers. Where there is the sale to the independent buyers the Valuation is required to be confirmed under the provisions of the Section 4 (a) of the Central Excise Act and not under valuation Rule. The issue has been resolved by the decision of Larger Bench of the Tribunal which has been confirmed by the Supreme Court, and therefore, is binding on the Adjudicating Authority. This aspect has not been considered ignorantly by the Adjudicating Authority. Penalty - HELD THAT - The assessee has paid the duty only on the account of fact the payment of duty by the first unit is available as the Cenvat Credit to the other unit and emerging into the Revenue Neutral situation. In such a case there is no scope of payment of any imposition of any penalty under Section 11AC of the Act or interest under 11AB of the Act. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.
2. Applicability of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
3. Revenue neutrality in the context of inter-unit transfer of goods.
4. Justification for invoking the extended period of limitation under Section 11A of the Central Excise Act, 1944.
5. Levy of interest under Section 11AB of the Central Excise Act, 1944.

Detailed Analysis:

1. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:
The Revenue's appeal argued that the Commissioner (Appeal) failed to appreciate the imposition of penalty, distinguishing it from the Rashtriya Ispat Nigam case. The Adjudicating Authority concluded that the respondent was guilty of suppression of material facts and evasion of duty, invoking the extended period for limitation under Section 11A of the Act and adjudging an equivalent penalty under Section 11AC. The Tribunal found that the demand was not sustainable due to revenue neutrality, thus negating the imposition of any penalty.

2. Applicability of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000:
The dispute arose regarding the valuation of inter-unit transfers. The respondent followed a 'transfer price' system, which was equivalent to the prevailing market price. The Tribunal noted that the respondent sold the same goods to independent buyers at the same price, making Rule 8 inapplicable. The Tribunal relied on the decision in Ispat Industries Pvt. Ltd. and Steel Complex Ltd., confirming that Rule 8 applies only when the entire production is captively consumed.

3. Revenue Neutrality in the Context of Inter-Unit Transfer of Goods:
The Tribunal emphasized that the inter-unit transfers resulted in a revenue-neutral situation since the duty paid by one unit was availed as Cenvat Credit by the receiving unit. This principle was upheld in the case of Anglo French Textile, where the Supreme Court confirmed that such transfers are revenue-neutral, thus negating the demand for differential duty and penalty.

4. Justification for Invoking the Extended Period of Limitation under Section 11A of the Central Excise Act, 1944:
The Adjudicating Authority invoked the extended period under Section 11A, alleging suppression of facts. However, the Tribunal found that the respondent's method was known to the Department, and there was no willful misstatement or suppression. The Tribunal concluded that the extended period was unjustified, and the demand was not sustainable.

5. Levy of Interest under Section 11AB of the Central Excise Act, 1944:
The Commissioner (Appeal) held that interest was not leviable, relying on the Insulator and Electrical Company case. The Tribunal agreed, finding that since the demand itself was not sustainable due to revenue neutrality, there was no basis for imposing interest under Section 11AB.

Conclusion:
The Tribunal dismissed the Revenue's appeal (Appeal No. E/287/2007) and allowed the respondent's appeal (Appeal No. E/482/2009), setting aside the impugned order and granting consequential relief. The Tribunal's decision was based on the principles of revenue neutrality, proper valuation under Section 4(a) instead of Rule 8, and the inapplicability of penalties and interest due to the lack of willful suppression or misstatement.

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