2016 (5) TMI 306 - SC - Central Excise

Includability - Whether amounts recovered by IIL in the form of debit notes towards bank charges, interest, etc. were includible in the assessable value of inputs iron ore pellets - Transfer of iron ore pellets by IIL to IMIL, sister concern is a sale or transfer - Held that - as per circular dated 1.7.2002, a distinction is made between inputs on which credit has been taken which are removed on sale, and those which are removed on transfer. If removed on sale, transaction value on the application of Section 4(1)(a) of the valuation rules is to be looked at. However, where the goods are entirely transferred to a sister unit, it is reasonable to adopt the value shown in the invoice on the basis of which Cenvat Credit was taken by the assessee i.e. the invoice of the supplier of the pellets to the assessee. As it is clear that the present is a case of transfer and not sale of pellets, no infirmity can be found with the Tribunal s judgment, which only follows the circular dated 1.7.2001. In addition, the Tribunal was also correct in holding that post manufacturing expenses cannot be loaded on to the amount equal to the duty of excise leviable on such goods as this amount would, then, cease to be an amount equal to the duty of excise but would be something more. Therefore, on both these counts it is found that the Tribunal is justified in its finding on law, which is based on its finding of fact that the present is a case of transfer and not sale. This being the case, it is unnecessary to consider any of the other submissions made by the learned counsel including the point of limitation. - Decided against the revenue

Summary

Issues Involved:
Appeal against CESTAT decision upholding duty demands, penalty, and interest by Commissioner. Dispute over transfer of iron ore pellets between two companies - sale or transfer. Interpretation of Rule 57AB(1C) of Central Excise Rules, 1944 and Rule 3(4) of Cenvat Credit Rules, 2001. Assessable value determination under Section 4(1)(a) of Central Excise Act. Application of circular dated 1.7.2002 in valuation of goods. Post manufacturing expenses inclusion in assessable value.

Analysis:

1. CESTAT Decision Appeal: Two appeals were filed against CESTAT's decision overturning the Commissioner's order confirming duty demands, penalty, and interest. The Tribunal found that the transfer of iron ore pellets between two companies was not a sale but a transfer of raw materials under a joint procurement policy, as per a tripartite agreement.

2. Interpretation of Rules: The Commissioner upheld show cause notices, stating that the transaction was a sale, and assessable value should include additional consideration like amounts in debit notes. The Tribunal, however, held that only the invoice value of the supplier should be considered for valuation under Rule 57AB(1C) and Rule 3(4), not post manufacturing expenses.

3. Application of Circular: The Tribunal relied on a circular from 2002, stating that in cases of transfer to a sister unit without a sale, the value shown in the invoice for Cenvat credit should be adopted for valuation. This circular guided the Tribunal's decision in determining the assessable value of the transferred goods.

4. Assessable Value Determination: The Supreme Court agreed with the Tribunal's findings, emphasizing that the case involved a transfer, not a sale, of pellets. Therefore, the value shown in the invoice for Cenvat credit was deemed appropriate for valuation, as per the circular, and post manufacturing expenses could not be added to the duty of excise amount.

5. Final Judgment: The Supreme Court dismissed the appeals, upholding the Tribunal's decision based on the distinction between sale and transfer, as guided by the circular. The Court affirmed that the Tribunal's findings on law and fact were justified, and there was no need to address other arguments raised, including the point of limitation.

This comprehensive analysis covers the key issues involved in the legal judgment, providing a detailed breakdown of the interpretation of rules, application of circulars, and the final decision by the Supreme Court.