2008 (7) TMI 128 - AT - Central Excise

Issue pertains to valuation of raw material partly got manufactured on job- work and partly purchased intermediate goods cleared to sister unit by valuing them on cost construction method department enhanced value of clearances by adopting peak prices from on the buyers held that action of department is no correct because weighted average price of inputs procured form different sources should be adopted for valuation assessee s appeal allowed

Summary

Issues:
- Valuation of intermediate products for excise duty
- Adoption of peak prices for raw materials
- Invocation of extended period for demand
- Imposition of penalty

Valuation of Intermediate Products for Excise Duty:
The appellant had multiple units manufacturing products falling under Chapter 34 and cleared intermediate products like soap noodles to other units. The valuation was based on the cost construction method as per the Central Excise (Valuation) Rules, 1975. The main raw material, HRBO oil, was procured from different sources, including job work basis and purchase from independent manufacturers. The department challenged the declared value based on peak prices from one supplier, leading to a show cause notice for enhancing the assessable value. The Tribunal held that the adoption of peak prices for the entire period was unjustified. They suggested using the weighted average price of inputs from different sources. The appellant's contention of revenue neutrality in transactions was accepted, as duty paid by one unit was available as credit to the recipient unit, indicating no intention to evade excise duty.

Adoption of Peak Prices for Raw Materials:
The Tribunal found the department's approach of using occasional peak prices for raw materials and enhancing the assessable value for all clearances as unjustified. They recommended adopting a weighted average price for inputs procured from various sources. The Tribunal agreed with the appellant's argument regarding revenue neutrality, emphasizing that duty paid by the present unit was creditable to the recipient unit, and there was no intent to evade excise duty. Additionally, the recipient units had reportedly paid substantial revenue from PLA, further supporting the revenue neutrality aspect.

Invocation of Extended Period for Demand:
The show cause notice issued proposed a demand for the period from May 1994 to December 1996. The appellant argued that the entire demand was time-barred as it exceeded the statutory limitation period. The Tribunal concurred, stating that the invocation of the extended period was not justified, especially considering the revenue neutrality in transactions between the appellant's units. They held that the demand was barred by limitation, thereby rejecting the department's claim for an extended period for demand.

Imposition of Penalty:
The Tribunal found no justification for the imposition of a penalty. They allowed the appeal on the grounds of limitation and revenue neutrality, providing consequential relief to the appellant. The order was pronounced in the open court, granting relief to the appellant based on the issues of limitation and revenue neutrality, ultimately leading to the allowance of the appeal and the absence of a penalty imposition.