2018 (5) TMI 1296 - AT - Central Excise

Method of Valuation - garments - Department took the view that assessable value in respect of clearances made from the depot to their sister concern (Unit-II) should be determined under Rule 8 of the Valuation Rules - whether valuation to be done u/s 4 or u/s 8 of Valuation Rules? - Held that - Rule 8 of Central Excise (Valuation) Rules, 2000 will apply only where the entire production of the particular commodity is captively consumed - if both the Rules i.e. Rule 4 and Rule 8 of the Valuation Rules are applicable, sequential application of various rules is the only reasonable way to read the rules. Hence Rule 4 in any case would be preferred. It is also not disputed that impugned goods have been sold by the assessee to individual buyers. This being the case, price at which the goods have been sold to unrelated buyers will have to be taken as the basis for valuation and not as per the provisions of Rule 8. Appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
Valuation of cotton yarn cleared by the assessee to Unit-I, application of Rule 4 and Rule 8 of the Valuation Rules, determination of duty liability, imposition of penalties, interpretation of Board's circular, relevance of case laws in valuation disputes.

Analysis:

Valuation Dispute - Rule 4 vs. Rule 8 Application:
The case involved a dispute regarding the valuation of cotton yarn cleared by the assessee to Unit-I. The Department contended that the assessable value should be determined under Rule 8 of the Valuation Rules. However, the Commissioner (Appeals) held that for the period up to 12.2.2003, valuation should be governed by Rule 4 based on the decisions of the Larger Bench of the Tribunal. For the subsequent period, the lower appellate authority determined that valuation should be in accordance with Rule 8. The Tribunal observed that Rule 8 applies only when the entire production of a commodity is captively consumed. It was established through various precedents that if both Rule 4 and Rule 8 are applicable, sequential application is preferred, with Rule 4 being the reasonable choice when goods are sold to unrelated buyers.

Interpretation of Case Laws and Board's Circular:
The assessee argued that the ratio laid down by the Larger Bench of the Tribunal in a specific case should apply for the entire period in question. Additionally, they contended that a Board's circular from 13.2.2003 should not apply to their case as Rule 8 was not relevant due to the absence of captive consumption. The Tribunal agreed with the assessee's position, citing various case laws to support their interpretation and emphasizing that the price at which goods were sold to unrelated buyers should be the basis for valuation.

Decision on Duty Liability and Penalties:
After considering the arguments and precedents, the Tribunal ruled in favor of the assessee. They set aside the part of the order confirming duty liability after 13.2.2003, stating it cannot be sustained. However, no issues were found with the rest of the impugned order. Consequently, the assessee's appeal was allowed, and the Department's appeal was rejected. The Tribunal disposed of the appeals accordingly, maintaining the decision on the valuation dispute and penalties.

In conclusion, the judgment clarified the application of Rule 4 and Rule 8 in valuation disputes, emphasized the importance of case laws in interpreting legal provisions, and made a definitive ruling on duty liability and penalties based on the specific circumstances of the case.