2020 (7) TMI 514 - AT - Central Excise

Method of Valuation - inter unit transfer of goods from the Taloja Unit for captive consumption to the Belur Unit - entire value of cost of production or actual value of cost of production to be adopted? - adoption of rule 8 of the 2000 Valuation Rules, for ultimately transferring the goods to the supplier of goods - HELD THAT - The fact of the present case are similar to the facts of the aforesaid decision of the Tribunal in M/S ITC LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI 2016 (4) TMI 280 - CESTAT CHENNAI . The factual position was also explained in detail in the written submissions filed by the Appellant at the time of hearing before the Additional Commissioner. It was clearly pointed out that if both the units of the Appellant had been in one factory, there would not have been any scope for addition of profit margin @ 10% of the cost of production for each division. It was also stated that the Taloja Unit, while discharging the duty liability prior to the transfer of the partly processed material to the unit at Belur, followed the provision of rule 8 of the 2000 Valuation Rules by paying duty @110% at the cost of production. In view of the decision of the larger Bench of the Tribunal in I.T.C Ltd., it has to be held that the Appellant was justified in reducing the assessable value to the actual cost of production (i.e. 100% of cost excluding the notional loading of 15% or 10% of the goods manufactured by the Taloja Unit) as the cost of raw material for the Belur Unit for the purpose of determining the assessable value under rule 8 of the 2000 Valuation Rules. Department relied upon the larger Bench decision of the Tribunal in EICHER MOTORS LTD. VERSUS COMMISSONER OF C. EX., INDORE 2008 (6) TMI 19 - CESTAT NEW DELHI . A perusal of the said decision indicates that Eicher Motors Ltd was engaged in the manufacture and sale of bus/truck. It supplied chassis on payment of excise duty under rule 8 of the 2000 Valuation Rules @110% of the cost of manufacture of the chassis to M/s. Bhagirath Coal and Metal Fabricators Pvt. Ltd. for building the bodies of buses/ trucks on job work basis. The Tribunal held that 110% of the cost of chassis should be considered to arrive at the assessable value at the end of Bhagirath and not 100% of the cost of chassis - It is clear that this decision in Eicher Motor Ltd. Did not deal with a case of inter-unit transfer of goods. This decision, therefore, would not come to the help of the Department - On the other hand, the larger bench decision of the Tribunal in I.T.C Ltd. squarely applies to the present case as the said decision is in relation to conversion and job work carried out at different divisions of the same company through inter-unit transfer of goods for captive consumption. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Determination of assessable value for inter-unit transfer of goods for captive consumption.
2. Applicability of Rule 8 of the Central Excise Valuation Rules, 2000.
3. Interpretation of valuation principles in non-sale transactions.
4. Invocation of extended period of limitation under Section 11A(1) of the Central Excise Act, 1994.
5. Imposition of penalty under Section 11AC of the Central Excise Act.
6. Demand for interest under Section 11AB of the Central Excise Act.

Detailed Analysis:

1. Determination of Assessable Value for Inter-Unit Transfer of Goods for Captive Consumption:
The core issue was whether the assessable value for inter-unit transfer of goods from the Taloja Unit to the Belur Unit should be based on 110%/115% of the cost of production or the actual cost of production (100%). The Appellant argued that the Taloja Unit paid Central Excise duty based on 110% of the cost of production as per Rule 8 of the 2000 Valuation Rules, and the cost of material for the Belur Unit should be taken as 100% of the cost of production at the Taloja Unit. The Tribunal agreed with the Appellant, referencing the larger Bench decision in I.T.C Ltd., which held that for inter-unit transfers, only the actual cost of production should be considered, excluding the notional loading mandated by Rule 8.

2. Applicability of Rule 8 of the Central Excise Valuation Rules, 2000:
Rule 8 stipulates that where goods are not sold but used for further manufacture, their value should be 110% (previously 115%) of the cost of production. The Tribunal noted that Rule 8 applies to the determination of the assessable value for excise duty purposes. However, in cases of inter-unit transfers within the same company, only the actual cost of production should be used to avoid inflated values due to repeated application of the 110%/115% rule.

3. Interpretation of Valuation Principles in Non-Sale Transactions:
The Tribunal emphasized that in non-sale transactions, the value must be determined as per Rule 8. However, it clarified that for inter-unit transfers, the notional loading should not be included in the cost of production. This interpretation aligns with the decision in I.T.C Ltd., ensuring that the assessable value reflects the actual cost without unnecessary inflation.

4. Invocation of Extended Period of Limitation under Section 11A(1) of the Central Excise Act, 1994:
The Department invoked the extended period of five years under the proviso to Section 11A(1), alleging intent to evade duty. The Appellant contested this, arguing that their valuation method was in line with Rule 8 and previous judicial interpretations. The Tribunal did not specifically address this issue in detail, focusing instead on the correct interpretation of Rule 8.

5. Imposition of Penalty under Section 11AC of the Central Excise Act:
The Appellant argued against the imposition of penalties, stating there was no intent to evade duty and their valuation method was based on a reasonable interpretation of the rules. The Tribunal's decision to set aside the demand implicitly supports the Appellant's stance that penalties were unwarranted.

6. Demand for Interest under Section 11AB of the Central Excise Act:
The Appellant contended that no interest should be demanded as there was no short payment or non-payment of duty. The Tribunal's decision to allow the appeal and set aside the demand supports the Appellant's position that interest was not applicable.

Conclusion:
The Tribunal concluded that the Appellant correctly valued the goods based on the actual cost of production, excluding the notional loading mandated by Rule 8 for inter-unit transfers. The decision of the Commissioner (Appeals) was set aside, and the appeal was allowed, aligning with the larger Bench decision in I.T.C Ltd. This judgment clarifies the application of valuation rules in inter-unit transfers, ensuring that the assessable value reflects the true cost of production without artificial inflation.

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