2018 (12) TMI 552 - AT - Central Excise

Valuation - related party transaction - additional consideration in the clearance of silico manganese and high chrome ferro manganese to M/s Steel Authority of India Ltd. - Rule 8 of Central Excise Rules - Held that - The respondent is a subsidiary of M/s Steel Authority of India Ltd; that they are related is not in doubt. Respondent is also a speciality manufacturer and, while operating as an independent manufacturer, their expertise was resorted to by the parent company on their raw materials for a process where product was to be used in the steel plant. The invoices submitted by Learned Counsel make it amply clear that the cost of conversion is not market-determined but specifically agreed upon by the two entities - the special provision of rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 to be invoked to the exclusion of all others. Rule 11, read with rule 6, of the same rules are intended to cover situations of clearances in the normal course to independent buyers and hence not applicable in the present instance. There is no allegation that the computation of value under rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has ignored or excluded any includable element - Indeed, the cost of the raw material, subsumed in the slag has, undoubtedly, been included in the computation under rule 8 and with such inclusion the discharge of duty liability on the goods cleared to the principal manufacturer incorporates the cost of the material subsumed in the slag that has emerged during the process of manufacture. It could also be said that slag is not a distinct product but is a remnant of the manufacturing process liable to appropriate duty on clearance as such. There is, therefore, no merit in the grounds adduced by Revenue. Appeal dismissed - decided against Revenue.

Summary

Issues involved:
Challenge to legality and propriety of dropping proceedings against a company for recovery of short-paid duty on additional consideration in clearance of goods.

Detailed Analysis:

Issue 1: Challenge to legality and propriety of dropping proceedings against the company for recovery of short-paid duty on additional consideration in clearance of goods

The Revenue challenged the order-in-original that dropped proceedings against the company for recovery of short-paid duty on additional consideration in the clearance of goods. The Revenue contended that the respondent had retained by-products during the clearance of finished goods, which constituted additional consideration not included in the assessable value for duty liability. The Revenue argued that the special relationship between the respondent and the principal manufacturer did not preclude the application of rule 11 of the Central Excise Valuation Rules, 2000. The Revenue cited circulars and court decisions to support their position.

In response, the respondent relied on the decision of the Supreme Court and sales invoices to establish that they were acting as a contract manufacturer with a special relationship. The respondent argued that similar demands for subsequent periods had been dropped by the original authority, indicating a binding precedent. The respondent also cited circulars and tribunal decisions to support their valuation method.

The Tribunal noted that the respondent was a subsidiary of the principal manufacturer, and their relationship was not in doubt. The Tribunal observed that the cost of conversion was specifically agreed upon by the entities, indicating a special provision under rule 8 of the Valuation Rules to be invoked. The Tribunal held that rule 11, read with rule 6, was not applicable in this case as they cover clearances to independent buyers, not related parties. The Tribunal found that the valuation adopted by the respondent was in line with the circular and decisions cited.

The Tribunal concluded that the computation of value under rule 8 had included all relevant elements, including the cost of raw materials subsumed in the by-products. The Tribunal determined that the duty liability on the goods cleared incorporated the cost of materials in the by-products, which were liable to duty. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the valuation method adopted by the respondent.

In conclusion, the Tribunal upheld the order dropping proceedings against the company for recovery of short-paid duty, emphasizing the application of rule 8 for valuation in related-party transactions and the inclusion of all relevant elements in the duty liability calculation.