2024 (6) TMI 1000 - AT - Central Excise

Valuation of goods cleared on Stock Transfer Basis - cost profit adopted was lower than the actual cost issued - demand confirmed on the ground that the goods cleared to their sister unit does not match exactly with the goods cleared to the 3rd parties and accordingly confirmed the demands - revenue neutrality - Extended period of limitation. HELD THAT - During the period under consideration, the Tribunals/Courts were consistently holding that the value adopted would be as per the Rule 4 of the Valuation Rules, 2000. In these cases, it was held that if even a fraction of supply was made to third independent parties, the value adopted has to be as per Rule 4 only. Subsequently, amendment was carried out on 22nd November 2013 to overcome these decisions. After this, for the clearances made to the sister unit, the value has to be arrived as per Rule 8 of the Valuation Rules, 2000. Revenue neutrality - HELD THAT - Admittedly, the goods were cleared to their sister unit who were using the materials for further manufacturing process and paying the Excise Duty on the finished goods. Therefore, whatever Excise Duty was paid by the Appellant, the same would have been available to the sister unit as Cenvat Credit. In such a case, the Appellant would not be gaining any additional benefit by lowering the assessable value while clearing the goods to their sister unit. Extended period of limitation - HELD THAT - The Tribunals and Courts have held that even if a fraction of clearances are for third parties, Rule 4 would be applicable. Since it s a matter of interpretation, the Appellant cannot be burdened with suppression clause to confirm the demand. Therefore, the confirmed demand for the extended period is required to be set aside on account of time bar also. Appeal allowed even on account of limitation in respect of the confirmed demand for the extended period.

Summary

Issues involved:
The issues involved in the judgment include valuation of goods cleared on Stock Transfer Basis, applicability of Rule 8 of the Valuation Rules, 2000, comparison of prices for goods cleared to sister unit and 3rd parties, time bar for Show Cause Notice, revenue neutrality, interpretation of valuation rules, and confirmation of demands for the extended period.

Valuation of goods cleared on Stock Transfer Basis:
The Appellants were clearing goods to their sister unit on Stock Transfer Basis as per Rule 8 of the Valuation Rules, 2000. The Department alleged that the cost profit adopted by the Appellants was lower than the actual cost, leading to a Show Cause Notice for the period July 2000 to December 2004. The demands were confirmed by the Adjudicating Authority, prompting the Appellants to file an Appeal before the Tribunal.

Comparison of prices for goods cleared to sister unit and 3rd parties:
The Appellants argued that the price adopted for clearances to their sister unit was actually higher than the price adopted for clearances to 3rd parties. They contended that Rule 4 should apply for valuation, not Rule 8 as assumed by the Department. The Appellants emphasized that even a small percentage of clearances to 3rd parties should not trigger Rule 8, as consistently held by Tribunals and Courts before the rules were amended in 2013.

Time bar for Show Cause Notice and revenue neutrality:
The Appellants claimed that the Show Cause Notice issued in 2005 was time-barred. They argued for revenue neutrality, stating that the Excise Duty paid by them was claimed by the receiving sister unit, ensuring no additional benefit for the Appellants. Citing a relevant case law, the Appellants sought to set aside the confirmed demands on account of limitation.

Interpretation of valuation rules and confirmation of demands:
The Tribunal noted that during the period under consideration, valuation had to be as per Rule 4, not Rule 8. It was established that in some cases, the Appellants had indeed priced goods higher for their sister unit compared to 3rd parties, meeting the requirements under Rule 3. The Tribunal held that the confirmed demands could not be sustained on merits and allowed the Appeal. Additionally, the Tribunal found the issue to be revenue neutral and a matter of interpretation, leading to the decision to set aside the confirmed demands for the extended period on account of time bar.

Conclusion:
The Tribunal allowed the Appeal on merits, recognizing the correct valuation adopted by the Appellants for clearances to their sister unit. The judgment emphasized revenue neutrality, correct interpretation of valuation rules, and the need to set aside the confirmed demands for the extended period due to time bar.