2019 (2) TMI 754 - AT - Central Excise

Method of Valuation - Clearance of MS Ingots to other division - case of the revenue in the SCN is that the clearances effected by appellant to rerolling division should have been valued under Rule 8 of the Central Excise Valuation Rules, 2000 by arriving at cost construction basis and add to that profit margin - revenue neutrality - Held that - It is the case of the revenue and the adjudicating authority s findings that appellant has undervalued the goods cleared to their rerolling division. This allegation is based upon the working of the authorities from the balance sheets supplied by the appellant. In our view, the findings of the adjudicating authority are unsustainable on the face of it. If the revenue authorities are not finding fault with the assessable value on which Central Excise duty is paid, when cleared to independent buyers, the said value needs to be considered as a correct assessable value. In the case in hand, there being no dispute of the assessable value cleared to independent buyers, the same value having been considered by the appellant for the clearances made to the sister concern is correct and cannot be called out for revaluating the clearances made to sister unit. Revenue neutrality - Held that - The clearances which were made by the appellants to the sister unit on payment of duty and sister concern is availing the CENVAT credit of such duty paid tantamount to revenue neutrality. The question of revenue neutrality would apply in its full force in favour of the appellant herein - the demand for the period by invoking extended period is unsustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Valuation of goods cleared to sister concern under Central Excise Valuation Rules, 2000; Application of Rule 8 for valuation; Dispute regarding undervaluation by revenue; Applicability of larger bench decision in Ispat Industries Ltd case; Revenue neutrality in clearances to sister unit; Imposition of penalty under Sec.11AC of the Central Excise Act, 1944.

Analysis:

1. Valuation under Central Excise Valuation Rules, 2000:
The appeal challenged the Order-in-Original regarding the valuation of goods cleared to the rerolling division. The revenue alleged undervaluation based on the cost construction method from the balance sheets. The appellant contested this, citing the larger bench decision in Ispat Industries Ltd case, arguing that the assessable value for clearances to sister units should be the same as for independent buyers. The revenue insisted on applying Rule 8 for valuation, considering the high percentage of goods transferred to the sister unit.

2. Application of Rule 8 for Valuation:
The revenue contended that Rule 8 of the Valuation Rules should apply when goods are cleared to a sister concern for further manufacture. They relied on previous Tribunal decisions to support this argument, emphasizing that the cost construction method should be used for valuation in such cases. They distinguished the present case from Ispat Industries Ltd, where a smaller percentage of goods were transferred to other units.

3. Larger Bench Decision in Ispat Industries Ltd Case:
The Tribunal analyzed the Ispat Industries Ltd case, where it was clarified that Rule 8 applies only when the entire production of a commodity is captively consumed. The Tribunal emphasized that Rule 4 should be preferred over Rule 8 in cases where both rules are applicable. The judgment established that Rule 8 does not apply when some part of the production is cleared to independent buyers, and Rule 4 leads to a more consistent valuation.

4. Revenue Neutrality and Imposition of Penalty:
The Tribunal found that the appellant had discharged Central Excise duty correctly for the goods cleared to the rerolling division. The concept of revenue neutrality was invoked, stating that the sister unit could avail CENVAT credit for the duty paid. The Tribunal held that the demand for the extended period was unsustainable, and the imposition of penalty under Sec.11AC was not warranted.

5. Conclusion:
Based on the above analysis, the Tribunal set aside the impugned order, following the precedent set by the larger bench decision in Ispat Industries Ltd and other relevant cases. The judgment emphasized the correctness of the assessable value for clearances to sister units and upheld the principle of revenue neutrality in the appellant's favor.