2025 (3) TMI 565 - AT - Central Excise

Invocation of extended period of limitation - undervaluation while stock transferring the goods to its related units - allegation in SCN is that the excise duty paid by the Appellant under Section 4(1) (a) of the Excise Act was lower than the amount payable under Rule 8/9 of the Valuation Rules - revenue neutrality - demand of interest and penalty - HELD THAT - The issue is no longer res integra as this Tribunal has already decided this issue in the Appellant s own case Steel Authority of India v. Commissioner of Central Excise Service Tax Ranchi I 2025 (3) TMI 258 - CESTAT KOLKATA pertaining to a different unit of the same assessee and concerning the same issue pertaining to valuation of inter-unit transfer of refractory material had held that no demand is sustainable since the issue is revenue neutral. The same proposition has been held by this Tribunal in the case of Hindalco Industries Ltd. v. Commissioner of Central Excise Bhubaneswar-II 2023 (5) TMI 720 - CESTAT KOLKATA where it was held that The Appellant has argued that the entire exercise is revenue neutral as the duty paid by them will be available as credit for their sister unit. We agree with this view of the Appellant. The duty paid by the Appellant would be available as credit to their sister unit. This the entire exercise is revenue neutral. Demand of interest and penalty - HELD THAT - Since the demand of duty is not sustained the question of demanding interest and imposition of penalty does not arise. Conclusion - The principle of revenue neutrality was reaffirmed emphasizing that when duty paid on inter-unit transfers is available as credit additional demands are unsustainable. The impugned order is set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(i) Whether the demand for short payment of excise duty is sustainable in cases of inter-unit transfer where such duty paid would be eligible as credit to the recipient unit, leading to a revenue-neutral situation?

(ii) Whether the Appellant is liable to pay excise duty at the value of Cost of production plus 10% under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 for inter-unit transfer of refractory materials used by the other factories in the manufacture of their dutiable finished products, especially when the same products are also sold by the Appellant to unrelated buyers?

ISSUE-WISE DETAILED ANALYSIS

Issue (i): Revenue Neutrality in Inter-Unit Transfers

Relevant Legal Framework and Precedents: The legal framework involves the Central Excise Act and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The Tribunal referenced its previous decisions, particularly in the Appellant's own case and the case of Hindalco Industries Ltd., which established that when excise duty paid on inter-unit transfers is available as credit to the receiving unit, the situation is revenue neutral.

Court's Interpretation and Reasoning: The Tribunal observed that the issue of revenue neutrality is well-settled by previous decisions. It noted that when the duty paid by one unit is available as credit to another, it does not result in a loss of revenue to the exchequer, thereby rendering the demand for differential duty unsustainable.

Key Evidence and Findings: The Appellant demonstrated that the duty paid on goods transferred to other units was available as credit, which was utilized for the payment of duty on the final products. This evidence supported the argument of revenue neutrality.

Application of Law to Facts: The Tribunal applied the principle of revenue neutrality, as established in prior cases, to the facts of the current case, noting that the duty paid would ultimately be credited back, nullifying any revenue loss.

Treatment of Competing Arguments: The Tribunal considered the Respondent's reiteration of the findings in the impugned order but found them insufficient to counter the established principle of revenue neutrality.

Conclusions: The Tribunal concluded that the demand for short payment of excise duty was not sustainable due to the revenue-neutral nature of the inter-unit transfers.

Issue (ii): Valuation Under Rule 8 of the Valuation Rules

Relevant Legal Framework and Precedents: Rule 8 of the Central Excise Valuation Rules mandates that goods not sold but transferred to other units should be valued at 110% of the cost of production. However, the Tribunal referenced prior decisions that focused on the revenue-neutral aspect rather than strict adherence to Rule 8.

Court's Interpretation and Reasoning: The Tribunal emphasized that even if the valuation under Rule 8 was not followed, the critical factor was whether the duty paid could be credited back, leading to a revenue-neutral situation. The Tribunal leaned on the precedent that prioritized the absence of revenue loss over strict rule compliance.

Key Evidence and Findings: The evidence showed that the Appellant's other units availed of the credit for the duty paid, aligning with the Tribunal's reasoning in similar cases.

Application of Law to Facts: The Tribunal applied the established legal principle that the lack of revenue loss due to credit availability negated the need for additional duty payment under Rule 8.

Treatment of Competing Arguments: The Tribunal acknowledged the Respondent's position but found the Appellant's reliance on revenue neutrality and prior Tribunal decisions more compelling.

Conclusions: The Tribunal concluded that the Appellant was not liable to pay additional excise duty under Rule 8 due to the revenue-neutral nature of the transactions.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "As the entire exercise would be revenue neutral, there is no loss of revenue to the exchequer."

Core Principles Established: The principle of revenue neutrality was reaffirmed, emphasizing that when duty paid on inter-unit transfers is available as credit, additional demands are unsustainable.

Final Determinations on Each Issue: The Tribunal set aside the demand for excise duty, interest, and penalties, concluding that the transactions were revenue neutral and thus did not warrant additional duty payments.

The appeal was allowed, and the impugned order was set aside, reinforcing the principle of revenue neutrality in inter-unit transfers within the same corporate entity.