Custom, Excise & Service Tax Tribunal
Wellknown Polyester Ltd vs Daman on 26 October, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH - COURT NO. 03
EXCISE Appeal No. 10898 of 2015
[Arising out of OIO-DMN-EXCUS-000-COM-0039-14-15 dated 19/02/2015 passed by
Commissioner of Central Excise, Customs and Service Tax-DAMAN]
Wellknown Polyester Ltd .....Appellant
Plot No. 210/3, 213/2 To 213/4, 214/1 To 214/3, 215, 216/1 To 216/7, 216/4-B, 182,
183/1 To 184, 185, 186, 203/1 & 203/2,
Dabhel Indl Co Op Society Ltd, Village :
Dabhel, Nani Daman,
DAMAN, U T OF DAMAN
VERSUS
C.C.E. & S.T.-Daman .....Respondent
3rd Floor...Adarsh Dham Building, Vapi-Daman Road, Vapi Opp.Vapi Town Police Station, Vapi Gujarat-396191 APPEARANCE:
Shri Prakash Shah, Advocate for the Appellant Shri. Vinod Lukose, Superintendent (Authorized Representative) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU FINAL ORDER NO.A / 11291 /2022 DATE OF HEARING: 06.05.2022 DATE OF DECISION: 26.10.2022 RAMESH NAIR The brief facts of the case are that the appellant are engaged in the manufacture of Polyester Oriented Yarn (POY), Polyester Chips and Fully Drawn Yarn (FDY) falling under chapter 54024600, 39076090 and 54024700 respectively under Central Excise Tariff Act, 1985. The appellant have cleared their finished goods namely Polyester Oriented Yarn (POY), Polyester Chips and Fully Drawn Yarn (FDY) to their interconnected sister unit namely M/s.
Wellknown Polyester Ltd. (unit I, II and IV) under normal transaction value as per Section 4 of Central Excise Act. During the course of year 2000 Audit of 2 E/10898/2015 the records of the appellant by central excise officers, it was contended that in respect of clearance of goods to their sister unit the value should be adopted in terms of Rule 8 of Central Excise Valuation Rules, 2002 accordingly, a show cause notice was issued for the period from August, 2009 to November, 2013.
1.1 In the show cause notice, it was alleged that finished goods were 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.
It was further contended that since the goods were cleared to their sister unit, it does not involve sale of goods therefore the transaction value adopted for the purpose of charging excise duty is not correct in terms of Section 4(1)(a) whereas, the value has to be determined as per provision of Section 4(1)(b) of the Central Excise Act, 1944 accordingly, the value of goods cleared to sister unit shall be done in terms of Rule 8 read with Board Circular No.643/34- 2002-Cx dated 01.07.2002. The appellant adopted transaction value at which the goods were sold to unrelated person, for charging excise duty in respect of clearances made to their sister unit. In some cases, the value determined was more than the value determinable in terms of Rule 8 i.e. more than 110% of the cost of manufacture however, in some supplies the value was less than 110% of the cost of manufacture. In the show cause notice ignoring the higher value only picked up those supplied wherein the value is lesser than 110% of the cost of manufacture and comparing with the value (determined on the basis of 110% of the cost of manufacture) the differential duty was computed and for the same amount the show cause notice has proposed the demand of differential excise duty. The adjudicating authority confirmed the proposal made in the show cause notice vide Order-In-Original. The appellant being aggrieved by the said Order-In-Original dated 10.2.2015 filed an appeal before this tribunal which was registered as appeal nos. E/10898-10899/2015.
The tribunal vide Final Order No. A/11568-11569/2015 dated 28.10.2015 remanded the matter to the adjudicating authority to decide the matter 3 E/10898/2015 afresh. Thereafter, the appellant filed ROM application E/ROM/11057,11060/ 2015 for rectification of this tribunal's order dated 28.10.2015. In the ROM application, the appellant have submitted that since the issue in the appellant's own case, on the identical issue has been decided finally the matter was not supposed to be remanded whereas, the same ought to have been decided finally. However, the tribunal vide Order No. M/10085-10086/2016 dated 05.01.2016 rejected the application for rectification of mistake. Being aggrieved by the said order dated 05.01.2016, the appellant approached the Hon'ble High Court of Bombay with a plea that tribunal should be directed to decide the matter finally recalling their order whereby, the matter was remanded. The Hon'ble High Court of Bombay vide its order dated 21 st December, 2017 set aside the tribunal order and restored the appeal to the tribunal for fresh consideration therefore, this appeal is taken for fresh consideration in the light of the Hon'ble High Court order.
2. Shri Prakash Shah, learned counsel appearing on behalf of the appellant submits that by the impugned order, the learned Commissioner has confirmed differential duty on Chips/ Polyester Oriented Yarn and Fully Drawn Yarn (FDY) by taking the value for the purpose of assessment at 110% of cost of production as per CAS-4 under Rule 8 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000 ('Valuation Rules') only on those clearances where the value at which duty was paid by the appellant was less than 110% of the cost of production. He referred to Annexure-A to show cause notice wherein, he has pointed out that appellant had paid duty on more than 50% (approximately) of goods transferred to its other units on the value in excess of 110% of cost of production. It is his submission that the adjudicating authority ignored the said clearances in demanding the differential duty. He submits that undisputedly, the appellant had transferred the goods to their other factories under Rule 4 of the Valuation Rules read with Section 4(1)(a) of Central Excise Act, 1944 and paid duty on the value which is higher than 4 E/10898/2015 110% of the cost of production for more than 50% of clearances. He submits that it is clear from the impugned order that the learned Commissioner has not accepted the assessment of the goods cleared to other factories of the appellant as determined under Rule 4 of the Valuation Rules and has proceeded to assess the goods under Rule 8 of the Valuation Rules. In view of his finding, that contention of the appellant that provisions of Valuation Rules, 2000 cannot be applied in these removals would make the provision of Section 4(1)(b) redundant as each removal is to be looked at from the perspective whether the same is getting sold or otherwise and since the removal did not involve the sale but are mere transfer to their own unit which is pari materia to consumption within same group company the provision of Section 4(1)(b) ibid is applicable and Valuation Rules, 2000 is required to be invoked in the instant case.
2.1 He submits that the identical issue in the appellant's own case of their unit II has been considered by this tribunal vide its final order dated 24 th August, 2015. He submits that final order of this tribunal dated 24 th August, 2015 has been accepted by the department and the said order has attained finality in the absence of further challenge before higher appellate court. He submits that in view of the above settled legal position, the present appeal deserves to be allowed. He placed reliance on the following judgments:-
Modipon Fibre Company Vs. Commissioner of C. Ex. Meerut reported in 2007 (218) ELT 8 (S.C) Pepsico India Holdings (p) Ltd. Vs. Commissioner of C. Ex., Mumbai reported in 2004 (163) ELT 478 (Tri.-Del.) Philips Electronics India Ltd Vs. Commissioner of C.Ex., Chandigarh reported in 2015 (328) ELT 600 (Tri. Del.) Garden Silk Mills Ltd. Vs. Commr. Of C. Ex. & Service Tax, Surat-I reported in 2019 (369) ELT 1498 (Tri.- Ahmd.) 5 E/10898/2015 Commissioner of C.Ex. & Service Tax, Raipur V.s Kingar Agrico Pvt Ltd.-
2018 (364) ELT 906 (Tri.- Del.) Commissioner of C. Ex., Aurangabad v/s. Sterlite Optical Technologies Ltd. - 2018 (359) E.L.T 723 (Tri-Mumbai) Hindustan Insecticides Ltd. v/s. Commissioner of C. Ex., LTU, New Delhi
- 2017 (358) E.L.T. 845 (Tri. - Del.) Essar Steel India Ltd. v/s. Commissioner of C. Ex., Raipur- 2017 (345) E.L.T. 139 (Tri. - Del.) Reliance Industries ltd. v/s. Commr. Of C. Ex. & S.T., Rajkot - 2014 (308) E.L.T 495 (Tri. - Ahmd.) Steel Complex Ltd Vs. Commissioner of Central Excise, Calicut reported in 2004 (171) ELT 255 (Tri.-Bang.) Commissioner Vs. Steel Complex Ltd reported in 2015 (321) ELT A138 (SC) Steel Authority of India Ltd. Vs. Commissioner of C. Ex., Raipur reported in 2016 (335) ELT 91 (Tri.-Del.) My Home Industries P. Ltd Vs. Commissioner of C. Ex., Hyderabad-III reported in 2017 (357) ELT 1065 (Tri.-Hyd.) Pradip Chandra Parija Vs. Pramod Chandra Patnaik reported in 2002 (144) ELT 7 (S.C.) Shanker Raju Vs. Union of India reported in 2011 (271) ELT 492 (SC)
3. Shri Vinod Lukose, learned Superintendent (AR) appearing on behalf of the revenue reiterates the finding of the impugned order. He placed reliance on the following judgements:-
2018 (359) ELT 242 (Tri-Chennai)-CCE, Puducherry Vs. GEC Alsthom (I) Ltd 2017 (352) ELT 110 (Tri-Mum)-CCE, Mumbai-III Vs. Blue Star Ltd 2006 (200) ELT 353 (SC)-CCE, Pune Vs. Cadbury India Ltd 2004 (177) ELT 1032 (Tri-Mum)-Crompton Greaves Ltd Vs. CCE, Aurangabad 2015 (320) ELT 690 (SC) - Crompton Greaves Ltd Vs. CCE, Aurangabad 6 E/10898/2015 2016 (339) ELT 475 (Tri-Bang)-Sun Microsystems India P Ltd Vs. CC, Bangalore 2012 (283) ELT 161 (SC)-CCE, Mumbai Vs. Fiat India P Ltd 2017 (357) ELT 978 (Tri-Del)-CCE, Indore Vs. Surya Roshni Ltd 2018 (13) GSTL 313 (Tri-Mum)-CCE, Mumbai-II Vs. BSNL 2015 (330) ELT 253 (Tri-Mum)-L Oreal India P Ltd Vs. CCE, Pune-I Revenue Neutrality 2019 (29) GSTL 304 (Tri-Mum)-Board of Control for Cricket In India Vs. CST, Mumbai 2005 (183) ELT 241 (SC)-Dharampal Satyapal Vs. CCE, New Delhi LIMITATION 2019 (365) ELT 681 (Mad)- King Bell Apparels Vs. CCE, Sale, 2015 (327) ELT 326( Tri.- Mum) - Paper Products Ltd Vs. CCE, Mumbai 2014 (302) ELT 113 (Tri-Del)-CCE, Bhopal Vs. Quantum Instruments & Electronics 2013 (290) ELT 322 (Guj)-Salasar Dyg & Ptg Mills P Ltd Vs. CCE, Surat- I 2011 (264) ELT 481 (SC)-CCE, Visakhapatnam Vs. Mehta & Co 2010 (256) ELT 369 (Guj)-CCE, Surat-I Vs. Neminath Fabrics P Ltd 2019 (20) GSTL 198 (Bom)-McKinsey & Company INC Vs. CCE 2017 (4) GSTL 264 (Tri-Del)-CST, Delhi Vs. Star Estate Management Ltd 2017 (47) STR 357 (Tri-Del)-Rishabh Travels Vs. CCE, Jaipur 2016 (46) STR 297 (Tri-Del.) - Lakhan Singh & Co Vs. CCE, Jaipur 2015 (40) STR 993 (Tri-Mum)-Axis Bank Ltd Vs. CST, Mumbai-1 2016 (46) STR 297 (Tri-Del)-Lakhan Singh & Co Vs. 2015 (38) STR 884 (Tri-Mum)-Star India P Ltd Vs. CCE, Thane-I
4. We have carefully considered the submissions made by both the sides and perused the records. We find that the limited issue to be decided is as to 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 7 E/10898/2015 transaction value i.e. in terms of Rule 4 of Valuation Rules read with Section 4(1)(a) of Central Excise Act. We find that this appeal is before us for deciding is in pursuance of the Hon'ble High Court of Bombay judgment vide order dated 21st December, 2017 wherein, the Hon'ble Court has observed that when the issue in the appellant's own case was decided in the earlier proceeding, the tribunal should not have remanded the matter to the adjudicating authority whereas, the tribunal should have passed the proper reasoned order on the submission made by the appellant. We therefore, take up the appeal to decide the same on our independent observation.
4.1 We find 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. However, the matter was considered by the Larger Bench of this Tribunal has observed as follows:-
"The issue referred to the Larger Bench is whether the assessable value in respect of goods which are transferred to another plant of the same assessee is required to be determined as per Rule 4 of the Central Excise Valuation Rules, 2000 (as claimed by the appellant) or as per Rule 8 of the said rules (as claimed by the Revenue), in a case where the same goods are also sold to independent buyers?8
E/10898/2015
2. We have heard both sides. It is an undisputed position that the assessees were transferring a part of its production (about 20%) of HR coils to its units at Taloja, Kamothe and Kalmeshwar and the balance production was being sold to independent buyers. It is also not disputed that the value on which duty has been discharged by them at the time of clearance of goods to their units was the same at which duty was discharged by them in respect of clearances to independent third parties. Before the referral Bench, the assessees had placed reliance on the decision of the Tribunal in the case of Avon Tubes v. CCE, Ludhiana 2004 (117) ECR 616 wherein the Tribunal held that when the goods are partly sold to unrelated buyers and rest are captively consumed, the assessable value of the captively consumed goods should be determined based on the value at which the goods are sold to unrelated buyers. It was further held that Rule 8 of Valuation Rules is applicable only in a situation where all the excisable goods manufactured by an assessee are captively consumed by him or on his behalf in the production or manufacture of other articles. On the other hand, learned DR appearing for the Revenue had placed reliance on the decision of the Tribunal in the case of BOC (I) Ltd. v. CCE 2004 (168) E.L.T. 478 wherein the Tribunal had by referring to CBEC circular No. 643/34/2002-CX dated 1-7-2002, held that where goods are captively consumed within the same factory, valuation should be determined in terms of Rule 8 and where goods are transferred to a sister unit or another factory of the same company, valuation of the said goods should be done as per the proviso to Rule 9 of the Valuation Rules.
3. Shri Vipin Jain, learned Advocate appearing on behalf of the assessees, along with Shri Vishal Agarwal, Chartered Accountant, raised the following contentions :
(a) There is no conflict between the decisions of the Tribunal in the case of Avon Tubes Ltd. v. CCE, Ludhiana 2004 (117) ECR 616 and BOC India Ltd. v. CCE, 2004 (168) E.L.T.
478. Both the decisions are unanimous in their view that if all the clearances are for captive consumption and there are no clearances to independent buyers, then the provisions of Rule 8 will apply.
(b) The decision of Tribunal in BOC's case has no application to the assessee's case, as unlike in BOC's case, where the entire production was captively consumed, bulk of assessee's clearances are made to independent buyers. In BOC's case, the entire production was cleared for captive use and there was no instance of sale to an independent buyer, so as to enable determination of assessable value under Rule 4.
(c) The question referred to the Larger Bench, i.e. whether Rule 4 or Rule 8 of the Valuation Rules would apply is a hypothetical question in so far as the assessee is concerned, as the provisions of Rule 8 are inapplicable to the present case for the following two reasons :
9E/10898/2015
(i) As held in Avon's case, Rule 8 applies only when there are no instance of sale of finished products to independent buyers (i.e. when all clearances are for captive consumption)
(ii) In addition to (a) above, for applying Rule 8 the clearance must either be for captive consumption of the assessee himself or must be a transfer for the purpose of enabling the transferee unit to manufacture goods on behalf of the original manufacturer (assessee). The 'assessee', for the purpose of the Central Excise Rules, refers to a particular factory or unit of the manufacturer company, which in this case is the Dolvi plant where the HR coils are manufactured.
(d) The Hon'ble Bombay High Court in case of Indian Drug Manufacturer Association v. Union of India 2002 TIOL 292-HC-
Mum has, while dealing with the dispute regarding application of Rule 4 vis-a-vis Rule 8 held that -
(i) Rule 8 applies to cases where goods are not sold but are consumed captively in the manufacture of other articles.
(ii.) Rule 4 provides that in all cases where the goods are not sold and delivered at the time and place of removal, valuation is to be made by taking the value of such goods sold and delivered at the time nearest to the time and place of removal in question.
(e) That the Tribunal has in the case of Hindustan Copper Limited v. CCE 2005 TIOL 751 and 2006 TIOL 901, held that even in cases where goods are captively consumed assessable value has to be based on price at which goods are sold to such independent buyers.
(f) The Tribunal in the case of Steel Complex Ltd. v. CCE 2004 (171) E.L.T. 255 has held that the assessable value determined by applying Valuation Rules cannot be unreasonable and inconsistent with the provisions of Section 4(1) of the Act. Therefore Rule 4 should to be applied, as it provides that the value on which duty ought to be paid should be the same as the value on which duty is paid in respect of sale to an independent third party. It was submitted that such as determination would be consonance with section 4 of the act rather than applying an artificial method of valuation as provided in Rule 8 that is 115% of cost of production.
(g) That the provisions of Central Excise Valuation Rules should be read in consonance with the statutory provisions of the Act, i.e. Section 4 of the Central Excise Act. Applying this principle, it would be more consistent with the provisions of Section 4 of the Act if the actual transaction value of the identical goods sold to independent buyers is made applicable as the assessable value of goods which are transferred to another unit of the same assessee. The observations of the Supreme Court with regard to "The Gunapradhan principle" in appellant's own case, reported in 2006 (202) E.L.T. 561, was relied upon in support of this proposition.
10E/10898/2015
4. The learned DR appearing on behalf of Revenue submits that the decisions relied upon by the assessee are all based on the decision of the Tribunal in the case of Steel Complex Ltd., which did not consider the Board Circular dated 1-7-2002. He also submitted that the facts in the case of Steel Complex were different in as much as the company in that case had suffered huge losses. He submitted that the decision of the Bombay High Court in the case of Indian Drug Manufacturers Association is not applicable as the dispute therein was relating to the applicability or otherwise of Rule 4; assessee's contention that Rule 8 applies only in cases where the goods are not sold but are entirely captively consumed, is incorrect; the Board in its circular dated 1-7-2002 had clarified that in a case where goods are transferred to a sister unit or another unit of same company, the assessable value would have to be determined in terms of proviso to Rule 9, which in turn refers to Rule 8; assessee's contention that Rule 8 will not apply as the goods where not consumed by the assessee himself or on his behalf in the manufacture of other articles was also incorrect as transfer to one's own unit/sister unit tantamounts to consumption on behalf of unit transferring the goods.
5. We have considered the rival submissions and are of the view that the assessee is correct in contending that provisions of Rule 8 would apply only in a case where its entire production of a particular commodity is captively consumed. This is evident on a plain reading of Rule 8 of the valuation rules, which reads as under
"Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods" (emphasis supplied).
If the intention was not to restrict the applicability of Rule 8 to cases where the entire production was being captively consumed, the Rule would have simply stated "where excisable goods are consumed by an assessee himself or on his behalf in the manufacture of other articles" instead of preceding the above expression with the words "where the excisable goods are not sold". This view is also supported by the judgment of the jurisdictional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared 'exclusively' to be used in consumption or for manufacture of other articles. We also agree with the contention of the assessee that Rule 8 will apply only in two situations, (a) where the goods are consumed by him in the same factory (captive consumption) or (b) where such goods are transferred to another factory for consumption in the manufacture of other articles on behalf of the assessee. In this case, it is not the case of the revenue that the goods were transferred to other units for manufacture of other articles on behalf of the assessee/appellant, i.e. the Dolvi Unit. We agree with the assessee's contention that the expression 'assessee', 11 E/10898/2015 wherever it appears in the Central Excise Rules, applies to a particular factory, which is why different units belonging to one company are separately registered and separately assessed to duty. Since the assessee in the present case is the Dolvi plant and it is not the revenue's case that the other three units of the company to whom HR coils were transferred were undertaking further manufacturing operations on behalf of the Dolvi Unit, the provisions of Rule 8 will not apply. We, therefore, hold that Rule 8 is inapplicable in the instant case.
6. We also note that in the present case the application of Rule 4 is being disputed by the Revenue not on the ground that the said rule is inapplicable to the present case but on the ground that a more specific provision in Rule 8 is available to enable determination of the assessable value. As discussed above, the provisions of Rule 8, in our view, are not applicable to the present case and therefore the value determined by the assessee under Rule 4 deserves acceptance.
7. We also agree with the submission of the assessee that even if both the rules, i.e. Rule 4 and Rule 8, were applicable, it would only be logical to read and apply the various rules in the Central Excise Valuation Rules in a sequential manner. Though the Central Excise Valuation Rules, 2000 do not specifically prescribe such sequential application of various rules, the same, in our view, is the only reasonable way to read these rules. Any other interpretation would only lead to confusion and chaos. Since the applicability of Rule 4 is not really in dispute, there was no need to look further and regardless of the applicability or otherwise of Rule 8, the assessable value should have been determined in terms of Rule 4 of the Valuation Rules.
8. The conclusion that we are drawing in the present case would lead to determination of a value which, in our view, will not only be reasonable but also consistent with the provisions of Section 4 of the Central Excise Act. We would, at this stage, draw support from the judgment of the Supreme Court in the assessee's own case, as reported in 2006 (202) E.L.T. 561, wherein the Court applied "The Gunapradhan Principle" in interpreting the Customs Valuation Rules. We have kept in mind the following observations of the Court in coming to our above conclusion :
"26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act.
27..................
36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in 12 E/10898/2015 Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is 'primary' whereas the conditions in Rule 9 (2) are the 'accessories'. The 'accessory' must, therefore, serve the 'primary'."
9. In view of what we have observed above, we answer the reference in the following terms :
(a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers;
(b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.
10. The papers are now returned to the referral Bench for passing orders on the appeal."
Similar view was taken by this Tribunal in the case of Steel Complex Ltd. -2004 (171) ELT 255 (Tri.- Bang.) "8. Section 4(1) lays down the principle of Central Excise Valuation. The core of it is that value shall be the price at which the transaction is carried out. Sub-section (b) of Section 4 relates to valuation of goods which are not transacted through sale. Valuation Rules have been formulated as a guide for the determination of value of goods which are disposed of except through sale. The direction cumulatively conveyed by these rules is to determine the value of those goods as their would have been sale price, in case, they were to be sold in the course of ordinary trade and commerce. In order to achieve this, rules have stipulated several methods and guidelines like adjustment for different date of delivery (Rule 4), adjustments towards freight (Rule 5), sale price of related buyer (Rule 6). Taking 115% of the cost of production is also one such method (Rule 8). In any event adopting a measure which would yield a very unreasonable and non-commercial value has to be avoided. Rule 11 specifically states, "value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of Section 4 of the Act". The present is a case where obviously, erroneous value is being obtained by following Rule 8. The appellant is a Public Sector Company. It is disposing of part of the goods manufactured by it through sale in commercial transactions to unconnected parties. There is no dispute that sale price in these transactions is the sole consideration. It also transferred part of the goods for conversion i.e. other than through sale. The present order has determined that the assessable value 13 E/10898/2015 (would be sale price) of the goods so transferred is much higher than the price at which the appellants were selling goods in course of ordinary sale and commerce. This finding has been reached by adopting 115% of the cost of production of the goods. That the value so determined bears no resemblance to the sale price or would be sale price of the goods is evident. Such a determination of value is clearly contrary to the principle of valuation and guidelines contained in Section 4(1) and Valuation Rules, 2000. The appellant's submission that valuation carried out is arbitrary, unreasonable and contrary to law has to be accepted. Adopting 115% of cost of production may be a reliable method where the manufacturer in question is operating at a profit. The same norm would be wholly unreliable where manufacturer is incurring huge losses. Rules lay down reasonable means consistent with principles and general provisions of the Rules and sub-section (1) of Section 4 of the Central Excise Act for ascertaining the value of the goods. In the present case, the determining the assessable value at 115% of the cost of production was clearly unreasonable and inconsistent with the principles and general provisions of the Rules and sub-section (1) of Section 4 of the Central Excise Act. The principle laid down in the Section 4(1) of the Act is to adopt the sale price, where price is the sole consideration as the assessable value of the goods. The original valuation of the goods in question was according to this principle. The sale price to other buyers was adopted as the value for goods transferred to job worker also. Duty was also paid on that basis. There was no requirement to alter that basis for valuation and to make the demand for additional payment of duty."
The above decision of this tribunal has been upheld by the Hon'ble Supreme Court reported at Steel Complex Ltd.- 2015 (321) ELT A138 (SC) wherein, the hon'ble Apex Court has given the following observation:
" After hearing Learned counsel for the parties, we are of the opinion 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.
We are therefore, not inclined to interfere on this ground alone, with the order passed by the customs, Excise and Service tax Appellant Tribunal. The appeals are, accordingly, dismissed."
The similar view was taken by this tribunal in the case of Steel Authority Of India Ltd.- 2016 (335) ELT (91)(Tri.-Del.) "6. The main point for determination is that the applicability of Rule 8 of Central Excise Valuation (Determination on Price of Excisable Goods) Rules, 2000 in respect of internally transferred goods for consumption in assessees' various project work. The second point for decision is valuation of steel items cleared on stock transfer basis to other units of the assessee-company. We find that in respect of steel 14 E/10898/2015 items consumed by the assessee in various projects within or outside the factory they have adopted the value of comparable goods for which the transaction value is available during the relevant time. The main case of the Revenue is that the excise duty should be paid in terms of Rule 8 as the same were not sold and were captively consumed. The said Rule during the relevant time clearly indicates that where the excisable goods are not sold by the assessee but are used by him or on his behalf in the production or manufacture of other articles, the value shall be 115% of the cost of production or manufacture of such goods. We find here the assesses are using only part of their production captively for project work. There are proper sale of these items to unrelated persons fulfilling the condition of transaction value for the purpose of Central Excise duty. The new Rule 8 introduced w.e.f. 1-12-2013 clearly makes departure to the effect that even where part of the excisable goods are not sold the value should be on the cost basis. The provisions of Rule 8 as prevailing during the relevant time have no application in the present case where the goods are partly sold under ex-factory basis and partly cleared for captive consumption. This has been repeatedly held in various decisions of the Hon'ble Supreme Court and Tribunal. In a recent decision in the case of Steel Complex Limited (Civil Appeal No. 3408/2004, decided on 1-4 2015) [2015 (321) ELT A138 (S.C.)] the Supreme Court upheld the above reasoning. The ratio have been followed by the Tribunal in various decisions:
Balajee Electro Steel Ltd. v. CCE - 2007 (219) E.LT. 563 (Tri.- Kol.) Oswal Woollen Mills Ltd. v. CCE-2012 (282) E.L.T. 547 (Tri.-
Kol.)
SAIL v. CCE-2010 (251) E.LT. 571 (Tri.-Kol.)
Gangotri Electrocasting v. CCE - 2013 (293) E.L.T. 395 (Tri.-
Kol.)..
7. We find the reasoning given by the original authority in his order dated 30-1-2006 regarding the applicability of Rule 8 in the present case of captive consumption is misconceived. Since the transaction value of the excisable goods is available and not all the excisable goods are captively consumed, the provisions of Rule 8 as prevailing during the relevant time will not apply to the assessees."
This tribunal in the case of MY HOME Industries P. Ltd. - 2017 (357) ELT 1065 (Tri.-Hyderabad) held as under:- (Para 5.1 to 5.4) 5.1 The issue that comes up for decision in these appeals concerns the method of valuation required to be followed in respect of the clearances made by the appellants. The period of dispute is from January, 2012 to March, 2013 and April, 2013 to February, 2014. Erstwhile Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2001 was in force up to 30-11-2013, which read as under:
"8. Where the excisable goods are not sold by the assessees but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be 15 E/10898/2015 one hundred and fifteen per cent. of the cost of production or manufacture of such goods.
" 5.2 However, pursuant to Notification No. 14/2013-C.E. (N.T.), dated 22-11-2013, the said Rule 8 was substituted w.e.f. 1-12-2013 as under:
"8. Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods."
5.3 What comes to the fore is that notwithstanding the amendment to the said Rule 8 of Valuation Rules w.e.f. 1-12-2013, there has been no change in the basic premise and purpose of the Rule, namely, to lay down the method of valuation of excisable goods which are not sold by the assessee but used for consumption by him or on his behalf (job worker), in the production or manufacture of other articles (emphasis added). Only difference is that prior to 1-12-2013, Rule 8 would be applicable only if whole of the excisable goods manufactured are not sold but captively consumed by the assessee, or, on his behalf for the production or manufacture of other articles. But from 1-12-2013, even if only part of the goods are so captively consumed or used on behalf of the assessee for manufacture of other articles, that part should be assessed under Rule 8 ibid. From the facts on record, the cement manufactured by the appellant at their units in Nalgonda District, is being used in the manufacture of ready mix concrete at Nachaaram Unit and in the manufacture of bricks at Patancheru Unit. In respect of self- consumption clearances, Central Excise invoices have been issued in their own name. The cement so cleared for self-consumption was used for construction of civil buildings and other expansion works at their own factory, through contractors, by supplying cement free of cost. In view of the changes in Rule 8 w.e.f. 1-12-2013, differential duty only for the period January, 2012 to March, 2013 and April, 2013 to November 2013 has been demanded. For the period prior to that date, however, the earlier provisions of Rule 8 will therefore apply, which envisages entire quantity of goods manufactured to be used for consumption by the assessee or on its behalf. If this conditionality was not satisfied, value necessarily would have to be determined under Rule 4 of the Central Excise Valuation Rules as it existed during the period under dispute. Viewed in this context, we do not find any infirmity in the following finding of the lower appellate authority, which is reproduced as under:
"7. From the above, it is clearly evident that only when the entire production of the goods are not sold and used for self or captive consumption, the central excise duty is leviable in terms of Rule 8 of the Valuation Rules and when part production is used for self or captive consumption, the duty is required to be paid in terms of Rule 4 of the Valuation Rules. This fact is confirmed by the Apex Court in the case of Steel Complex Ltd. - 2015 (321) E.L.T. A138 (S.C.) wherein it is held 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 16 E/10898/2015 the present case, where the goods are only partly sold under ex-factory basis and partly cleared for capitation consumption. The Larger Bench of Mumbai in the case of Ispat Industries Ltd. v. Commissioner of C.Ex. Raigad - 2017 (209) ELT. 185 (Tri. - LB) held that if the transfer of part of production is to another plant of the same assessee and balance production is sold to independent buyers, the provision of Rule 8 of Valuation Rules will not apply. Quoting the above decision of the Tribunal, the High Court of Gujarat, in the case of Ultratech Cement Pvt. Ltd. - 2014 (302) E.LT.
334 (Guj.), held that when captive consumption is made partly and sale to independent buyers is made partly, value is to be determined under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and not under Rule 8 ibid. humbly, following the decision of the judicial forum, I hold that the appellant is required to pay the duty on the goods (cement) used for self or captive consumption under Rule 4 of the Valuation Rules, 2000 and accordingly, I uphold the impugned order in demanding the differential duty up to 30-11-2013."
5.4 In the circumstances, we are of the considered opinion that up to 30-11-2013, appellants were required to discharge duty on the impugned clearances only as per erstwhile Rule 4 of the said Central Excise Valuation Rules, 2000. The demands of differential duty in the impugned orders do not call for any interference, and we sustain the same.
In view of the above 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.
4.2 This issue is no longer res integra particularly in the appellant's own case as per this Tribunal's order No.A/11232/2015 dated 24.8.2015 wherein, the Tribunal has passed the following order:
"After hearing both the sides and on perusal of the records, we find that the issue involved in this case is as to whether the clearance of POY made by the Appellant to their sister/own unit, by adopting the assessable value available with them in relation to the transaction value adopted for sale to independent buyers, in accordance with Rule 4 of Valuation Rules, 2000, is correct as claimed by them or the said clearances are to be assessed @ 110% of cost of production based on CAS 4 certificates in accordance with Rule 8 of Valuation Rules, 2000 as per the orders of Adjudicating authority.17
E/10898/2015
2. We find that the issue is no more res integra in view of the decision of the Hon'ble Supreme Court, Tribunal and the Larger Bench of the Tribunal. The Tribunal in the case of Steel Complex Ltd Vs CCE, Calicut - 2004 (171) ELT 255 (Tri-Bang), on the identical issue, allowed the appeal of the Assessee. The said decision was upheld by the Hon'ble Supreme Court as reported in 2015 (321) ELT A 138 (SC). It has been held that Rule 8 of the Valuation Rules, 2000, which was prevailing at that time, will have no application, where the goods are only partly sold under ex-factory basis and partly cleared for captive consumption. The Hon'ble Gujarat High Court in the case of Commissioner of Central Excise, Bhavnagar Vs Ultratech Cement Pvt. Ltd - 2014 (302) ELT 334 (Guj.) dismissed the appeal filed by the Revenue. It has been held that the captive consumption partly and sale to independent buyers partly, value is to be determined under Rule 4 of Central Excise Valuation Rules, 2000 and not under Rule 8 of the said Rules. It has approved the decision of the Larger Bench of the Tribunal in the case of Ispat Industries Ltd Vs CCE Raigad - 2007 (309) ELT 185 (Tri- LB). We have also noticed that Rule 8 of the Valuation Rules, 2000 was amended by Notification No.14/2013-CE(NT), dt.22.11.2013. The present case is for the period prior to 22.11.2013.
3. In view of the above, the impugned order cannot be sustained.
Accordingly, the impugned order is set aside. The appeal filed by the Appellant is allowed."
In view of the above decision in the appellant's own case, it was categorically held that 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.
It is noteworthy to mention that the legislators to overcome and to apply the revenue's contention made the amendment in Rule 8 w.e.f. 01.12.2013. Rule 8 before and after amendment reads as under:
Prior to 01.12.2013 "Where the excisable goods are not sold by the assesse but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen per cent of the cost of production or manufacture of such goods.
Post 01.12.2013 " Where whole or part of the excisable goods are not sold by the assesse but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods."18
E/10898/2015 From the above statutory changes, 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.
5. As per our above discussion and finding, the impugned order is not sustainable hence the same is set aside. Appeal is allowed with consequential relief if any, in accordance with law.
(Pronounced in the open Court on 26.10.2022 ) RAMESH NAIR MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Palak