Goods manufactured in one factory is send to another factory (sister unit) for manufacture of another goods - Is it captive consumption - Method of valuation under central excise

5.

How will valuation be done in cases of captive consumption (i.e. consumed within the same factory) including transfer to a sister unit or another factory of the same company/firm for further use in the manufacture of goods?

For captive consumption in one's own factory, valuation would be done as per Rule 8 of the Valuation Rules i.e. the assessable value will be 115% of the "cost of production" of the goods. If the same goods are partly sold by the assessee and partly consumed captively, the goods sold would be assessed on the basis of "transaction value" [Provided they meet the conditions of Sec. 4(1)(a) and the goods captively consumed would be valued as per Rule 8 of the Valuation Rules. This is because, as per new Section 4, transaction value has to be determined for each removal.

Where goods are transferred to a sister unit or another unit of the same company valuation will be done as per the proviso to Rule 9.

14.

How will valuation be done when inputs or capital goods, on which Cenvat credit has been taken, are removed as such from the factory, under the erstwhile sub-rule 1(C) of Rule 57AB of the Central Excise Rules, 1944, or under Rule 3(4) of the Cenvat Credit Rules, 2001 or 2002?

Where inputs or capital goods, on which credit has been taken, are removed, as such on sale, there should be no problem in ascertaining the transaction value by application of Sec. 4(1)(a) or the Valualtion Rules, [Provided tariff values have not been fixed for the inputs or they are not assessed. under Section 4A on the basis of MRP.]

There may be cases, where the inputs or capital goods are removed as such to a sister unit of the assessee or to another factory of the same company and where no sale is involved. It may be noticed that sub-rule (1C) of Rule 57AB of the erstwhile Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001 (now 2002), talk of determination of value for "such goods" and not the "said, goods". Thus, if the assessee partly sells the inputs to independent buyers and partly transfers to its sister units, the transaction value of "such goods" would be available in the form of the transaction value of inputs sold to an unrelated buyer (if the sale price to the unrelated buyer varies over a period to the unrelated buyer varies over a period of time, the value nearest to the time of removal should be adopted).

Problems will however, arise where the assessee does not sell goods to any independent buyer and the only removal of such input/capital goods, outside the factory, is in the nature of transfer to a sister unit. In such a case, proviso to Rule 9 will apply and provisions of Rule 8 of the valuation rules would have to be invoked. However, this would require determination of the cost of production or manufacture, which would not be possible since the said inputs/capital goods have been received by the assessee from outside and have not been procured or manufactured in his factory. Recourse will, therefore, have to be taken to the residuary Rule 11 of the valuation rules and the value determined using reasonable means consistent with the principles and general provisions of the valuation rules and sub-section (1) of Sec. 4 of the Act. In that case, it would, be reasonable to adopt the value shown in the invoice on the basis of which Cenvat credit was taken by the assessee in the first place. In respect of capital goods, adequate depreciation may be given as per the rates fixed in Letter F.No. 495/16/93-Cus.-VI, dt. 26-5-93, issued on the Customs side.