2017 (10) TMI 209 - AT - Central Excise

Valuation - revision of the value of goods supplied by the respondents to their own subsidiary - Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Held that - The issue regarding the manner of assessment when part of the goods are sold to independent buyers and part are consumed or captively sold to related persons has been dealt with the Larger Bench of the Tribunal in the case of Ispat Industries Ltd. 2007 (2) TMI 5 - CESTAT, MUMBAI , where it was held that the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers and the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944. The correct method of assessment in these circumstances would be adoption of the price at which the said goods were sold to independent buyers. In the instant case, the demand has been raised on the transaction value for sale to related buyers. The law of the land takes precedence over the circulars issued by the CBEC and also any letters issued by the Revenue by way of audit or by show-cause notice. CBEC Circular itself regarded the transaction value as irrelevant for the purpose of arriving at assessable value for sales to related persons. Time limitation - Held that - the method of valuation was adopted by the appellants on the directions of audit. The CBEC Circular dated 01/07/2002 also prescribed the same method of assessment. Thus, not only the facts were known to revenue but the appellants acted on the direction of revenue. In these circumstances, the invocation of extended period is also not justified. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Applicability of Rule 8, 9, and 10(a) of the Central Excise Valuation Rules, 2000.
2. Determination of assessable value for goods supplied to related and unrelated parties.
3. Validity of additional consideration in assessable value.
4. Relevance of CBEC circulars and audit directions.
5. Issue of limitation for demand of duty.

Detailed Analysis:

1. Applicability of Rule 8, 9, and 10(a) of the Central Excise Valuation Rules, 2000:
The Revenue argued that the respondents were supplying goods to their own subsidiary and unrelated buyers, and were raising Central Excise invoices based on Rule 8 (cost plus 15%). The Revenue contended that Rule 8, 9, and 10(a) were inapplicable since the sale price to unrelated buyers was available, and Rule 11 should be used for valuation when goods are sold to both related and unrelated parties. The Tribunal found that Rule 10(a) applies when goods are sold exclusively to interconnected undertakings, and Rule 11 should be used when goods are sold to related and unrelated buyers, leading to the application of Rule 8 for valuation.

2. Determination of Assessable Value for Goods Supplied to Related and Unrelated Parties:
The respondents argued that they followed Rule 8 for valuation based on audit objections and CBEC circulars. The Tribunal noted that Rule 11 and the clarifications in the CBEC Circular No.643/34/2002-CX dated 01/07/2002 apply, which specify that for goods sold to related persons, the valuation should follow Rule 8 (115% of cost). The Tribunal upheld that the respondents correctly assessed the goods at 115% of the cost of production for sales to their subsidiary units.

3. Validity of Additional Consideration in Assessable Value:
The Revenue claimed that the respondents recovered additional consideration through debit notes, which should be included in the assessable value. The Tribunal rejected this, stating that the CBEC circulars and the method prescribed by the Revenue during the audit did not consider transaction value for related party sales, thus invalidating the additional consideration argument.

4. Relevance of CBEC Circulars and Audit Directions:
The respondents relied on CBEC circulars and audit directions to justify their valuation method. The Tribunal acknowledged that the respondents followed the Revenue's prescribed method and the CBEC Circular No.643/34/2002-CX dated 01/07/2002, which supported their valuation approach. The Tribunal concluded that the Revenue cannot now change its stance and demand duty based on transaction value.

5. Issue of Limitation for Demand of Duty:
The respondents argued that the demand was time-barred since they followed the valuation method directed by the Revenue. The Tribunal agreed, noting that the method was adopted based on audit directions and CBEC circulars, and the facts were known to the Revenue. Therefore, the invocation of the extended period for demand was unjustified.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the respondents' method of valuation based on Rule 8, supported by CBEC circulars and audit directions. The Tribunal also ruled that the demand was time-barred and the additional consideration argument was baseless. The cross-objection was disposed of accordingly.

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