2021 (9) TMI 74 - AT - Central Excise

Valuation - Scope of the SCN - related persons or not - transferor and the transferee units owned by the same legal entity - raw coal transferred by the appellant s coal producing unit, namely, WJ Area to its washery unit - dispute with regard to valuation is only for the period upto October 2015 (during the period when the units were separately registered with jurisdictional excise authorities) - revenue neutrality - extended period of limitation - HELD THAT - The entire case of the Revenue is based on the observation that the two different units of the appellant are related persons but the relevant Rule 9 has not been invoked - Since the entire foundation of the show cause notice is based on the wrong notion that the washery is a related person of the appellant, the entire demand is liable to be quashed. Further the invocation of Rule 8 of the Valuation Rules has been done mechanically without even appreciating the fact that there is no captive consumption by the appellant or consumption on its behalf and washing of coal is neither production nor manufacture. Revenue neutrality - HELD THAT - Since the issue is decided on merits to hold that Rule 8 of the Valuation is not applicable in the instant case, we are not further entering into the issue of revenue neutrality as pleaded by the appellant. Extended period of limitation - HELD THAT - In so far as the limitation is concerned, we do not find any positive evidence in the entire SCN to prove the element of fraud or suppression and hence, the extended period is not applicable in the instant case. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appellant assails demand of central excise duty and penalty for the period March 2011 to October 2015.
- Whether Rule 8 of Valuation Rules is applicable on raw coal transfer between units of the same legal entity.
- Whether transferor and transferee units are related persons for invoking Rule 8.
- Applicability of Rule 8 in the absence of captive consumption or manufacture.
- Dispute on revenue neutrality due to centralized registration obtained in November 2015.
- Time bar for demand in absence of fraud or wilful suppression.

Analysis:

1. The appellant, a PSU engaged in coal mining and sales, challenged a demand for central excise duty and penalty for the period March 2011 to October 2015. The dispute arose from the transfer of raw coal between its units, namely a coal-producing area and a washery unit, both part of the same legal entity. The demand was based on the contention that the units were related persons and valuation should be at 110% of production cost under Rule 8 of the Central Excise Valuation Rules.

2. The appellant argued that as all units were under one legal entity, they could not be considered related persons, citing a Tribunal decision. Additionally, they contested the application of Rule 8, stating that raw coal transfer did not involve captive consumption or manufacture. The appellant emphasized that the valuation dispute became academic post-centralized registration in November 2015, rendering the issue of revenue neutrality crucial.

3. The Tribunal examined whether the transferor and transferee units qualified as related persons and if Rule 8 was applicable. Relying on precedent, the Tribunal found that the foundation of the show cause notice, based on the units being related persons, was flawed. The invocation of Rule 8 was deemed mechanical, as there was no captive consumption or manufacture involved in the coal transfer process.

4. Given the findings on the applicability of Rule 8, the Tribunal did not delve into the revenue neutrality argument. Moreover, the Tribunal noted the absence of evidence for fraud or wilful suppression, rendering the extended period inapplicable. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief as per law.

5. The judgment highlighted the importance of correctly assessing related persons and the application of valuation rules in transactions within the same legal entity. It emphasized the need for substantive evidence in demanding excise duty and penalty, especially concerning fraud or wilful suppression to justify the extended period for raising demands.