2008 (2) TMI 303 - AT - Central Excise

Works contract with customers for installation and erection of lifts parts/components cleared from appellant s factory to sites of customers for AMC and for modernization since contract is indivisible, sale value of parts/components is not available for valuation of impugned items appropriate method is cost construction method u/r 8 not deductive method since appellants filed classification list declaring the value, there is no suppression of facts - larger period is not invocable

Issues Involved:
1. Valuation of parts and components cleared from the factory for installation of lifts.
2. Applicability of Rule 8 read with Rule 11 of the Central Excise Valuation Rules.
3. Correct method for determining transaction value.
4. Allegations of suppression and invocation of extended period of limitation.
5. Principles of Natural Justice in the context of the show cause notice and subsequent orders.

Issue-Wise Detailed Analysis:

1. Valuation of Parts and Components Cleared from the Factory for Installation of Lifts:
The main issue revolves around the valuation of parts and components manufactured by the appellant and used in the installation of lifts. The appellant adopted a valuation method based on the cost of production and profit as per Rule 8 read with Rule 11 of the Central Excise Valuation Rules. The Department, however, did not accept this method and initiated proceedings to determine the value from the total contract value after certain deductions. The Commissioner partly accepted the appellant's contention that the items cleared were parts or components of elevators, not complete lifts in CKD condition. However, he held that the transaction value could be derived from the composite value by working backwards from the contract price, which was beyond the allegations in the show cause notice.

2. Applicability of Rule 8 Read with Rule 11 of the Central Excise Valuation Rules:
The appellant argued that the valuation method they adopted under Rule 8 read with Rule 11 was correct. Rule 11 provides that where the value of excisable goods cannot be determined under Rules 4 to 10, it should be determined using reasonable means consistent with the principles of the Valuation Rules and Section 4(1) of the Act. The Commissioner, however, misinterpreted and misapplied these provisions, stating that Rule 8 did not apply because there was a sale and the goods were not consumed in the production or manufacture of any other article. The Tribunal agreed with the appellant, stating that the term "article" was not limited to excisable goods and that the components were used in the manufacture of lifts at the sites.

3. Correct Method for Determining Transaction Value:
The Commissioner adopted a method of valuation by working back from the contract price, which was not the basis of the show cause notice. The Tribunal found this method to be a serious violation of the Principles of Natural Justice, as the appellant was not put on notice regarding this valuation method. The Tribunal held that the valuation should be within the ambit of Section 4 read with the Valuation Rules, and the cost construction method adopted by the appellant was more acceptable.

4. Allegations of Suppression and Invocation of Extended Period of Limitation:
The Department invoked the extended period of limitation under proviso to Section 11A of the Central Excise Act, alleging suppression of facts. The Tribunal found no evidence of suppression, as the appellant had been regularly filing price lists and declarations, and earlier proceedings on similar issues had been dropped by the Joint Commissioner. The Tribunal held that there was no justification for invoking the longer period of limitation.

5. Principles of Natural Justice in the Context of the Show Cause Notice and Subsequent Orders:
The Tribunal found that the Commissioner had adopted a valuation method not mentioned in the show cause notice, violating the Principles of Natural Justice. The show cause notice was based on the presumption that complete lifts were being cleared, which was not correct. The Tribunal held that the impugned orders went beyond the scope of the show cause notice and were not sustainable.

Conclusion:
The Tribunal set aside the impugned orders, agreeing with the appellant's method of valuation under Rule 8 read with Rule 11 of the Central Excise Valuation Rules. The appeals were allowed with consequential relief, and the operative portion of the order was pronounced in the open court.

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