2018 (8) TMI 1565 - AT - Central Excise

Extended period of limitation - method of valuation - appellants were engaged in manufacture of cotton yarn and also undertaking job work of reeling, rewinding, doubling of cotton yarn received from their sister units/group companies. The appellants were also sending cotton yarn for further processing to these sister/group units on job work basis - Case of Department is that valuation should have been done as per Rule 9 r/w Rule 8 of Central Excise (Valuation) Rules, 2000. Held that - The entire issue having been mired in litigation till the law was finally settled by the said Supreme Court s judgment, the extended period of limitation invoked in these proceedings cannot sustain - The show cause notices have been issued in 2006 invoking extended period alleging suppression of facts. The impugned order cannot sustain as the demand is hit by limitation - appeal allowed - decided in favor of appellant.

Issues:
1. Correct assessable value determination under Central Excise (Valuation) Rules, 2000.
2. Application of Rule 8 and Rule 11 for valuation.
3. Consistency in department's stand in similar cases.
4. Time limitation for demand of duty.
5. Impact of previous judgments on the present case.

Issue 1: Correct assessable value determination under Central Excise (Valuation) Rules, 2000:
The appellants were engaged in manufacturing cotton yarn and job work for sister units. The department alleged incorrect assessable value determination and issued show cause notices for differential duty. The appellants argued that they cleared goods after paying duty on cost and conversion charges. They contended that Rule 8 was erroneously applied, while Rule 11 required valuation at arm's length for clearances to interconnected parties. They also cited a Board Circular for valuation under Rule 11, emphasizing no applicability of Rule 8.

Issue 2: Application of Rule 8 and Rule 11 for valuation:
The appellants argued that Rule 8 was wrongly applied, and valuation should be based on raw material cost and conversion charges under Rule 11. They highlighted the inconsistency in the department's stand and relied on previous judgments supporting their interpretation of valuation rules. The appellants also contended that the demand was revenue-neutral and challenged the application of Rule 8 to their case.

Issue 3: Consistency in department's stand in similar cases:
The Tribunal noted the department's inconsistent stand in a previous case involving a sister unit. The Commissioner (Appeals) had set aside demands in that case, which the department did not appeal. The Tribunal held that the department could not take a different stand in the present case, especially when the demands were hit by limitation due to the previous case's outcome.

Issue 4: Time limitation for demand of duty:
The Tribunal found that the demands in the show cause notices were hit by limitation, referencing previous judgments and the application of Rule 9 and Rule 10(b) for interconnected activities. The Tribunal emphasized that the law was unsettled until a Supreme Court judgment clarified the valuation principles, thus rejecting the extended period of limitation invoked by the department.

Issue 5: Impact of previous judgments on the present case:
The Tribunal analyzed previous judgments related to valuation principles and time limitation for duty demands. It highlighted the evolution of legal interpretations until the final settlement by the Supreme Court. The Tribunal concluded that the demands in the present case were hit by limitation and set aside the impugned order, allowing the appeals with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the demands due to time limitation and inconsistency in the department's stand, emphasizing the application of valuation rules and legal precedents in determining assessable value for duty calculation.

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