2022 (10) TMI 1076 - AT - Central Excise

Valuation of goods - finished goods cleared by the appellant to their interconnected sister units at the value for charging duty appear to be transaction value as stipulated in Section 4(1)(a) of the Act - revenue neutrality - time limitation. Whether valuation of the goods cleared by the appellant to their sister units should be made under Rule 8 i.e. 110% of the cost of production or on transaction value i.e. in terms of Rule 4 of Valuation Rules read with Section 4(1)(a) of Central Excise Act? HELD THAT - As per the facts of the case, the appellant have cleared their goods to their sister units and value of the same was determined as per the transaction value in terms of Rule 4 of Valuation Rules read with Section 4(1)(a) of Central Excise Act, 1944. The claim of the revenue is that for the clearance of goods to their own unit for the purpose of value Rule 8 shall apply and according to which the value should be arrived at by applying the price on the basis of 110% of the cost of manufacture. As of now it is settled law that in a case where the assessee sell the same goods partly to unrelated person and partly to their related person, the transaction value which is charged to unrelated buyer shall prevail and the same price shall be applicable in case of clearance of goods to the assessee s own unit. The Rule 8 does not make it clear that in respect of same goods being cleared partly to the assessee s own unit and partly to the unrelated buyer, whether in both cases the valuation under Rule 8 shall apply or otherwise. In view of the various judgments, it is settled law that wherever there are clearance partly to the assessee s own unit or captive consumption and partly on sale basis, the transaction value of the sale of the goods to the unrelated person shall be applicable for assessment in case of supplies made to their own unit/captive consumption. Applying the same principal, in the present case also, the appellant have rightly paid the duty on the transaction value in terms of Rule 4 of Valuation Rules - Reliance can be placed in judgement of Hon ble Supreme Court in COMMISSIONER VERSUS STEEL COMPLEX LTD. 2015 (10) TMI 500 - SC ORDER wherein, the hon ble Apex Court has given the following observation that Rule 8 of the Central Excise Valuation (Determination of Price of excisable goods) Rules 2000, which was prevailing at that time will have no application in the present case where the goods are only partly sold under ex-factory basis and partly cleared for captive consumption. For the period prior to 1st December, 2013 the valuation of the goods cleared to their sister units shall be governed by Rule 4 of the Valuation Rules whereby, the transaction value of the similar goods cleared to independent buyers shall be the assessable value for charging excise duty in respect of the goods cleared to the assessee s own other units. In the present case also the period involved is up to November, 2013 therefore, the ratio of the above decisions is directly applicable in the present case. From the statutory changes, pre and post 01.12.2013, it is clear that prior to 01.12.2013 the Larger Bench and Hon ble Apex court interpreting the Rule 8 prevailing at that time held that wherever part clearance is for own unit or captive use and part for independent buyers, the price charged to independent buyer should be taken as transaction value in terms of Section 4(1)(a) read with Rule 4 of Valuation Rules. The legislators keeping in mind and accepting the interpretation of valuation provision made in the judgments supra, brought an amendment in Rule 8 and the same is effective from 10.12.2013. This amendment in Rule 8 further strengthen the case of the appellant in their favour. Needless to state that the said amendment cannot be applied retrospectively. For the above reason also the contention of the revenue is not sustainable. The impugned order is not sustainable hence the same is set aside - Appeal allowed.

Issues Involved:
1. Valuation of goods cleared to sister units under Rule 8 vs. Rule 4 of the Central Excise Valuation Rules, 2000.
2. Applicability of Section 4(1)(a) vs. Section 4(1)(b) of the Central Excise Act, 1944.
3. Revenue neutrality and limitation.

Detailed Analysis:

1. Valuation of Goods Cleared to Sister Units:
The primary issue revolves around whether the valuation of goods cleared by the appellant to their sister units should be determined under Rule 8 (110% of the cost of production) or based on transaction value under Rule 4 of the Central Excise Valuation Rules, 2000, read with Section 4(1)(a) of the Central Excise Act, 1944. The appellant argued that they had paid duty on the transaction value, which was higher than 110% of the cost of production for more than 50% of the clearances. The adjudicating authority, however, assessed the goods under Rule 8, leading to the demand for differential duty.

The Tribunal referred to the Larger Bench decision, which clarified that Rule 8 applies only when the entire production is captively consumed. If goods are partly sold to unrelated buyers, the transaction value charged to unrelated buyers should be applicable for clearances to the assessee's own unit. The Tribunal cited several judgments, including the Supreme Court's decision in Steel Complex Ltd., which upheld that Rule 8 does not apply when goods are partly sold and partly captively consumed.

The Tribunal concluded that the appellant rightly paid duty based on transaction value under Rule 4, as the goods were partly sold to unrelated buyers. The Tribunal's earlier decision in the appellant's own case, which was upheld by the Supreme Court, further supported this view.

2. Applicability of Section 4(1)(a) vs. Section 4(1)(b):
The show cause notice alleged that the transaction value adopted by the appellant was incorrect under Section 4(1)(a) because the goods were not sold but transferred to their own units. Therefore, the valuation should be determined under Section 4(1)(b) and Rule 8. The Tribunal, however, found that when goods are partly sold to unrelated buyers, the transaction value under Section 4(1)(a) should prevail, making Rule 8 inapplicable.

The Tribunal emphasized that Section 4(1)(b) and Rule 8 should only apply when goods are entirely captively consumed. The Tribunal's decision aligned with the principle that the transaction value for sales to unrelated buyers should be used for valuing goods transferred to sister units.

3. Revenue Neutrality and Limitation:
The appellant argued that the demand for differential duty was not justified as they had paid duty on a higher transaction value for more than 50% of the clearances. The Tribunal noted that the adjudicating authority selectively picked instances where the value was less than 110% of the cost of production, ignoring instances where it was higher.

The Tribunal also considered the issue of revenue neutrality, where any additional duty paid would be available as credit to the sister units, making the demand revenue-neutral. Regarding limitation, the Tribunal did not find any specific arguments or judgments addressing this issue in the provided text.

Conclusion:
The Tribunal concluded that the valuation of goods cleared to sister units should be based on transaction value under Rule 4, as the goods were partly sold to unrelated buyers. Rule 8 was deemed inapplicable in such cases, aligning with the Supreme Court's interpretation. The Tribunal set aside the impugned order and allowed the appeal, emphasizing that the amendment to Rule 8 effective from 01.12.2013 could not be applied retrospectively.

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