2016 (11) TMI 773 - AT - Central Excise

Valuation - related party - clearance of goods to sister unit - payment of duty as per Rule 8 of the Valuation Rules, 2008 - Held that - the appellants are clearing the goods not only to their sister unit but to independent buyers and paying duty on the clearance to their sister unit on the value at which the clearance made to independent buyers - reliance paced on the decision of the case of ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., RAIGAD 2007 (2) TMI 5 - CESTAT, MUMBAI where it was held that the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers - the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand of duty based on Valuation Rules, 2008.

Analysis:
The appellants challenged an order confirming duty demand for clearing goods to their sister unit without paying duty as per Rule 8 of the Valuation Rules, 2008. The Tribunal noted that the appellants were also clearing goods to independent buyers and paying duty based on the value of clearance to independent buyers, not just to their sister unit. The Tribunal held that Rule 8 of the Valuation Rules, 2008 was not applicable in this case, citing a previous Tribunal decision and the principle that value should be the price at which the transaction is carried out. The Tribunal emphasized that the valuation rules aim to determine the value of goods as if they were sold in the course of ordinary trade and commerce. It was observed that adopting 115% of the cost of production as a method for valuation could lead to unreasonable and non-commercial values, especially if the manufacturer is incurring losses. The Tribunal referred to a Supreme Court decision affirming the Tribunal's previous ruling on a similar issue.

The Tribunal also referenced a larger bench decision which concluded that Rule 8 of the Valuation Rules would not apply when some part of the production is cleared to independent buyers. It was emphasized that Rule 4 should be preferred over Rule 8 as it leads to a value more consistent with the statutory provisions of the Central Excise Act, 1944. Consequently, the impugned orders were set aside, and the appeals were allowed with any consequential relief.