2018 (7) TMI 86 - AT - Central Excise

Valuation - job-work - Rule 4(5)(a) of CENVAT Credit Rules 2004 - The department was of the view that the appellant did not discharge duty liability on the 110% of the cost of production - Held that - It is seen that the job worked components were cleared to their own sister unit on stock transfer basis. Even if the appellant had paid the said duty the same would be eligible as credit to their sister unit. Taking note of the fact that the entire exercise is revenue neutral situation neither the assessee stands to lose anything by paying higher duty nor the Revenue stand to gain anything by appellant s adoption of lower assessable value the demand is unwarranted and is unsustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Calculation of assessable value for duty payment on stock transfer basis.
2. Eligibility of CENVAT credit for stock transferred components.
3. Revenue neutrality and duty liability.

Analysis:
1. The case involved a dispute regarding the calculation of assessable value for duty payment on stock transfer basis. The appellants, manufacturers of manual typewriters and vacuum cleaners, procured raw materials and availed CENVAT credit. They cleared components to a job worker and then transferred the finished goods to their sister unit. The department argued for adding a 10% profit margin on the cost of production for assessing duty, while the appellants contended that the duty paid was eligible as credit to their sister unit. The Tribunal considered a similar case precedent and held that the duty paid by one unit on goods transferred to another unit was available as credit, making the entire exercise revenue neutral. Thus, the demand for additional duty was deemed unwarranted and unsustainable.

2. The issue of eligibility of CENVAT credit for stock transferred components was raised by the appellants. They argued that since the components were transferred to their sister unit, any duty paid would be eligible as credit. The Tribunal, relying on precedent, emphasized that the duty paid by one unit on goods transferred internally was available as credit to the receiving unit. This principle of revenue neutrality guided the decision to set aside the demand for additional duty, as the duty paid did not result in a loss for the assessee or a gain for the Revenue.

3. The concept of revenue neutrality and duty liability formed a crucial aspect of the judgment. The Tribunal highlighted that in cases where duty paid on goods transferred internally was available as credit to the receiving unit, there was no basis for demanding additional duty. By emphasizing that the entire excise process was revenue neutral, with no party losing or gaining financially, the Tribunal concluded that the demand for duty based on a higher assessable value calculation was unwarranted and unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief deemed necessary.