2008 (6) TMI 113 - AT - Central Excise

Valuation of goods which are transferred inter-units - goods cleared were assessed on provisional basis, paying higher amount of duty - appellant adopted a higher profit margin of 30% - appellant explained this adoption of higher margin only to take care of value fluctuation in respect of inputs which have gone into the manufacture of the goods cleared from their Chennai units since there is no allegation of fraud, whatever duty paid is taken as credit by another unit, credit is not deniable

Summary

Issues: Valuation of goods transferred inter-units and availment of Cenvat credit by recipient units.

The judgment by the Appellate Tribunal CESTAT New Delhi involved two appeals filed by the same appellant concerning the valuation of goods transferred between their manufacturing units and the consequent availment of Cenvat credit by the recipient units. The appellant had manufacturing units in Chennai transferring goods to their factories in Gurgaon, where they manufactured brake assembly and calliper assembly for sale to a specific company. The dispute arose as the appellant adopted a higher profit margin of 30% instead of the required 10% or 15% while clearing goods from their Chennai units, resulting in higher duty payments. The Excise authorities in Gurgaon contended that the higher profit margin adoption was incorrect, leading to a demand for substantial amounts along with interest and penalties in two separate cases. The appellant argued that the provisional assessment of goods from Chennai units was due to the uncertainty in input valuation, and the higher profit margin was a precautionary measure against input price escalation. They maintained that the credit taken by Gurgaon units based on actual duty paid was legitimate, as there was no accumulated credit with the Chennai units. The appellant cited various legal decisions to support their case and highlighted the similarity between modvat rules pre-31.3.2000 and Cenvat rules post-1.4.2000, emphasizing the eligibility of credit on inputs and capital goods. The appellant contended that the denial of credit based on the actual price paid was erroneous, as the duty had been deposited by the Chennai units, and the inputs were used in manufacturing dutiable goods.

The Appellate Tribunal analyzed the submissions from both sides and noted that the provisional valuation of goods from Chennai units was subject to change upon finalization. Despite adopting a higher profit margin, the appellant had paid duty on a provisional basis, explaining the margin choice as a safeguard against input value fluctuations. Upon finalization of assessments, although the adopted value was deemed higher, the appellant did not seek any refund for clearances from Chennai units. The Tribunal found no fraudulent intent in the valuation declaration and observed that the duty paid by Chennai units had been credited. The Tribunal determined the entire process as revenue-neutral without any fraudulent activities. Noting the absence of assessment revisions for Chennai units affecting the credit taken by Gurgaon units, the appeals were allowed with consequential relief granted to the appellant.