2023 (5) TMI 436 - AT - Central Excise

Method of valuation - manufacture of SRGO (Straight Run Gas Oil)/DHDS (Diesel Hydrosulphurisation Feed) - clearance on stock transfer basis - to be valued under Rule 8 of CEVR, 2000 or Rule 11? - contention of the Department is that the above said goods were either captively consumed within the factory at Haldia or cleared to their own sister unit at Barauni, on stock transfer basis and hence Rule 8 of the Central Excise Valuation Rules, 2000 is to be adopted. HELD THAT - SRGO manufactured by IOCL Haldia refinery has not been sold to any independent buyers. In fact the Appellant stated that it is not a marketable product and no duty is payable. However, they have agreed to pay duty only to avoid litigation as the entire exercise is revenue neutral. They stated that Rule 8 of the Valuation Rules is not applicable in their case as all the SRGO/DHDS manufactured were not captively consumed in their factory at Haldia. Part of the SRGO/DHDS manufactured at Haldia Refinery were consumed captively for manufacture of HSD and the remaining were cleared to their sister unit at Barauni. The Appellant stated that whatever duty paid by their Haldia Unit will be availed as credit for their Barauni unit and hence the entire exercise is revenue neutral and there is no loss of revenue to the exchequer - there are merit in the argument of revenue neutrality by the Appellants The duty paid by the refinery at Haldia is available as credit to the unit in Barauni. Valuation is to be done as per Rule 8 of the Valuation Rules when the entire goods are captively consumed and there is no other method of sales involved. In this case the Appellant has partly consumed the goods captively and partly cleared the same to their sister unit. The Circular No.643/34/2002-CX dated 01.07.2002 does not visualize this situation. For captive consumption Rule 8 would be applicable and for sale to their sister unit Rule 9 of the Valuation Rule 2000 would be applicable. Since none of the Valuation Rules from Rule 4 to 10A covers the above said situation, the Appellant stated that they have adopted Rule 11 Best Judgement Method. Rule 11 is adopted when the situation is not covered by any of the other methods of valuation prescribed from Rule 4 to 10A. The method of valuation adopted by the Appellant under Rule 11 of the Valuation Rules is the appropriate method in this case because the situation of part sale to related person and part captive consumption is not covered by any of the other Rules in the Valuation Rules 2000. Even if CAS-4 is arrived at and the goods are valued as per Rule 8 of the Valuation Rules, there is no loss of revenue because of the duty paid will be available as credit and the entire exercise would be revenue neutral. The issue of Revenue Neutrality is a very valid argument in this case as the sister Unit at Barauni would be eligible for the credit of the duty paid by the Haldia Unit. The above said decisions cited by the Appellant are squarely applicable in this case. The facts and circumstances of the decision in COMMR. OF C. EX. CUS., VADODARA-II VERSUS INDEOS ABS LIMITED 2010 (3) TMI 656 - GUJARAT HIGH COURT are same as that of the present case on hand - it was held in the said case that The grievance was that the aspect of undervaluation has not been considered by the Tribunal at all. Grievance would have merited acceptance if the ultimate exercise would have benefited the Revenue by collection of duty in the coffers of the exchequer. In the facts of the present case, admittedly no such benefit accrues to the exchequer. The valuation adopted by the Appellant under Rule 11 of the Valuation Rules 2000 is proper - Appeal allowed.

Summary

Issues involved: Valuation of SRGO/DHDS manufactured by Haldia Refinery and cleared on stock transfer basis, applicability of Rule 8 of the Central Excise Valuation Rules, 2000, revenue neutrality, appropriate method of valuation.

Valuation of SRGO/DHDS: The Department contended that Rule 8 of the Valuation Rules should be adopted for determining the value of SRGO/DHDS, as they were either captively consumed within the factory or cleared on stock transfer basis. The Appellant argued that in the petroleum industry, determining the cost through CAS-4 method is impractical due to the integrated nature of the refinery. They claimed to have computed the cost using a back calculation method based on the refinery transferring price, ensuring revenue neutrality.

Circular on Valuation for Captive Consumption: The Department referred to Circular 643/34/2002-CX, stating that Rule 8 of the Valuation Rules is applicable for goods consumed captively. They argued that since the Appellant did not follow this method, the demand in the impugned order is justified.

Appellant's Method of Valuation: The Appellant contended that Rule 8 was not applicable as not all SRGO/DHDS were captively consumed, some were cleared to their sister unit. They defended their method of valuation based on the Order-in-Original, emphasizing revenue neutrality as the duty paid would be credited to the Barauni unit.

Rule 11 Best Judgement Method: The Appellant justified their adoption of Rule 11 for valuation, as it covers situations not addressed by Rule 4 to 10A. They argued that their method ensured revenue neutrality, citing relevant legal precedents supporting their stance on the issue.

Revenue Neutrality Argument: The Appellant highlighted the revenue neutrality aspect, asserting that the duty paid by the Haldia unit would benefit the Barauni unit. They referenced decisions supporting their position and emphasized that the entire exercise was revenue neutral, with no loss to the exchequer.

Conclusion: The Tribunal found the valuation method adopted by the Appellant under Rule 11 to be appropriate, ensuring revenue neutrality. The demand in the impugned order was deemed unsustainable, and the appeal filed by the Appellant was allowed.