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2018 (8) TMI 1272 - AT - Central ExciseMethod of valuation - manufacture of transformers as well as their installation on a turnkey basis - Captive consumption in execution of contract - It is alleged that there is a clear sale price of the transformers and they should accordingly be valued as per Section 4(1)(a) of the Central Excise Act based on the transaction value and not under Rule 8 of Central Excise Valuation Rules, 2000 - Held that - The Learned Commissioner was correct in holding that there was an indivisible turnkey contract for supply of transformers, other materials and also installation and commissioning of the same. The cost of the materials has been given in the schedule but it includes not only the cost of the transformer manufactured by them but also other bought out items as explained by the Learned Counsel for the respondent herein and also as recorded in the draft audit report by the Central Excise Department themselves. The entire amount cannot be considered as the cost of transformer sold to M/s APSPDCL. The correct way of assessing the value of transformer, in such a case, is treating the same as captively consumed by the respondent in executing the contract given to them by M/s APSPDCL. Appeal dismissed - decided against Revenue.
Issues:
1. Valuation of transformers for Central Excise Duty based on contract terms. 2. Application of Rule 8 of Central Excise Valuation Rules for captive consumption. 3. Allegation of incorrect valuation leading to differential duty demand. Issue 1: Valuation of transformers for Central Excise Duty based on contract terms The appellant was contracted by a company for the conversion of low tension network into high voltage distribution systems on a turnkey basis, involving the manufacture and installation of transformers. The appellant adopted the valuation of transformers under Section 4(1)(b) of the Central Excise Act based on a Chartered Accountant's Certificate. The Revenue issued a show cause notice seeking to recover differential duty, alleging incorrect valuation of transformers. The Commissioner, in the Order-in-Original, dropped the demands. The Revenue contended that there was a sale transaction, and the value should be as per the contract, not as 'meant for captive consumption' under Rule 8. The Departmental Representative argued that the transaction value should be considered, even in turnkey contracts, and Rule 8 does not apply. Issue 2: Application of Rule 8 of Central Excise Valuation Rules for captive consumption The Commissioner found that the contract did not have a sale invoice under Section 4(1)(a) but involved a transfer of goods for a valuable consideration. The Revenue argued that once the conditions of Section 4(1)(a) are met, the value should be as per the contract, not under Rule 8. They criticized the reliance on past cases and contended that Rule 8 does not apply to this case. The Respondent's Counsel argued that the contract was on a turnkey basis, with separate invoicing for materials and services. The audit report acknowledged the manufacture of transformers and their use in turnkey projects, supporting the Respondent's stance that the entire amount invoiced did not represent the cost of transformers sold. Issue 3: Allegation of incorrect valuation leading to differential duty demand The Respondent's Counsel presented evidence from the audit report to demonstrate that the invoiced amount included various items, not just the transformers, as clarified by the Central Excise Department. The Commissioner correctly held that it was an indivisible turnkey contract, and the entire amount invoiced did not solely pertain to the cost of transformers. The Respondent had treated the transformers as captively consumed, which was upheld by the Commissioner. The Tribunal found no error in the Commissioner's decision, rejecting the appeal. This detailed analysis of the legal judgment highlights the key issues of valuation for Central Excise Duty, the application of Rule 8 for captive consumption, and the resolution of the differential duty demand based on the contract terms and audit findings.
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