2017 (9) TMI 1178 - AT - Central Excise

Valuation - unprocessed cotton fabrics, cleared to sister unit - Rule 8 of Central Excise (Valuation) Rules, 2000 - revenue neutral situation - Held that - the goods are cleared to the sister unit and the appellant is eligible for credit on the duty paid, the entire exercise is a revenue neutral situation - This being the case, even if the appellant is directed to pay duty, other sister unit would be eligible for the credit. In the case of Jay Yuhshin Ltd. 2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI , in a similar situation, the Larger Bench of the Tribunal has held that when there is revenue neutrality, the demand of duty is unsustainable. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Determination of duty on cotton yarn received from different units, duty payment on cotton yarn produced in appellant's unit, alleged manufacturing process on unprocessed cotton fabrics, demand of duty, imposition of penalty, revenue neutrality in the case.

Analysis:
The appellants were receiving cotton yarn from their 'A' and 'B' Units and producing cotton yarn themselves. Duty was imposed on the value determined at 115% of the cost of production for cotton yarn received from 'A' and 'B' Units as well as for the cotton yarn produced in their own unit. The unprocessed cotton fabrics cleared to 'A' and 'B' Units were alleged to undergo manufacturing processes, leading to a demand of duty of ?27,42,060 along with interest and penalty. The original authority and the Commissioner (Appeals) upheld the demand and penalty.

The appellant argued that the fabrics produced in their unit were in an unprocessed stage and were cleared to 'A' Unit for processing since their unit lacked facilities for processes like bleaching and dyeing. Most fabrics were sold in unprocessed form for domestic and export purposes, with duty discharged at the time of clearance. The excise duty paid at Unit C was taken as CENVAT credit at Unit A, resulting in a revenue-neutral situation. The appellant cited the decision of the Larger Bench in Jay Yuhshin Ltd. case to support their stance.

The learned AR reiterated the findings of the impugned order, emphasizing the need for valuation under Rule 8 of Central Excise (Valuation) Rules when goods are transferred to a sister unit. He relied on the Tribunal's decision in BOC India Ltd. case to support the legality of the raised demand.

After hearing both sides, the Tribunal considered the revenue-neutral nature of the situation where the appellant was eligible for credit on the duty paid. Citing the Jay Yuhshin Ltd. case, the Tribunal held that in cases of revenue neutrality, the demand of duty is unsustainable. Consequently, the Tribunal set aside the demand based on revenue neutrality, allowing the appeal with any consequential relief.

In the operative portion of the order pronounced in open court, the impugned order was set aside, and the appeal was allowed with any consequential relief.