2015 (11) TMI 1171 - SC - Central Excise

Supreme Court affirms excise duty valuation for 100% EOU manufacturing instant tea

The Supreme Court affirmed the Tribunal's decision in a case concerning excise duty valuation for a 100% EOU manufacturing instant tea. The Court held ... 100% EOU - Valuation - clearances of product to two sister units on payment of duty in terms of Notification No.8/97 CE dated 1.3.1997 and Notification No.23/2003 CE dated 31.3.2003 - Captive consumption - Department contended that appellant an EOU determine the assessable value of manufactured good was not correct and accordingly demand were made along with penalty - Held that:- There is specific provision for exemption of certain goods produced in a 100% EOU wholly from raw materials produced or manufactured in India. It is not disputed by the revenue that the instant tea manufactured by the respondent would be covered being a finished product specified in the schedule to the Central Excise Tariff Act. Further, the notification goes on to state that the said tea should be “allowed to be sold” in India in accordance with the relevant EXIM policy. It further goes on to state that the exemption from payment of the duty of excise that is leviable thereunder under Section 3 is what is payable in excess of an amount equal to the duty of excise leviable on like goods produced or manufactured in India produced in an undertaking other than in a 100% Export Oriented Undertaking, if sold in India. - notification states that duty calculated on the said basis would only be payable to the extent of like goods manufactured in India by persons other than 100% EOUs. This being the case, it is clear that in the absence of actual sales in the wholesale market, when goods are captively consumed and not sold, Rule 8 of the Central Excise Rules would have to be followed to determine what would be the amount equal to the duty of excise leviable on like goods. Duty of excise arrived at based on Section 3(1) Proviso (ii) is more than the duty determinable for like goods produced or manufactured in India in other than 100% EOUs. Since the notification exempts anything that is in excess of what is determined as excise duty on such like goods, and considering that for the entire period under question the duty arrived at under Section 3(1) proviso (ii) is in excess of the duty arrived at on like goods manufactured in India by non 100% EOUs, it is clear that the whole basis of the show cause notice is indeed flawed. Further, the show cause notice is based on one solitary circumstance – the fact that goods captively consumed by the two sister units of the unit in question are not “sold”. - notification has been framed by the Central Government, in its wisdom, to levy only what is levied by way of excise duty on similar goods manufactured in India, on goods produced and sold by 100% EOUs in the domestic tariff area if they are produced from indigenous raw materials. If the revenue were right, logically they ought to have contended that the notification does not apply, in which event the test laid down under Section 3(1) proviso (ii) would then apply. This not being the case, we are of the view that the Tribunal’s judgment [2007 (5) TMI 98 - CESTAT, CHENNAI] is correct and requires no interference - Decided against Revenue. Issues Involved:1. Applicability of Notification No. 8/97-CE and Notification No. 23/2003-CE.2. Determination of assessable value for excise duty purposes.3. Interpretation of Section 3(1) Proviso (ii) of the Central Excise Act, 1944.4. Application of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.Issue-wise Detailed Analysis:1. Applicability of Notification No. 8/97-CE and Notification No. 23/2003-CE:The respondent, a 100% EOU engaged in manufacturing instant tea, cleared their product to two sister units under the aforementioned notifications. These notifications exempted the excess excise duty chargeable on the tea manufactured wholly from indigenous raw materials. The Supreme Court noted that it was undisputed that these notifications applied to the facts of the case.2. Determination of Assessable Value for Excise Duty Purposes:A show cause notice issued by the Department proposed that the tea, being captively consumed and not sold, should be valued at 115% of the cost of production per Rule 8 of the Central Excise Valuation Rules. However, it suggested using the export price of similar goods for valuation since the tea was transferred to sister concerns without a sale transaction. The Tribunal, however, determined that Rule 8 should apply for captive consumption, thus rejecting the Department's basis for valuation.3. Interpretation of Section 3(1) Proviso (ii) of the Central Excise Act, 1944:The Department argued that Section 3(1) Proviso (ii) should apply, meaning the valuation should be based on the FOB value of similar exported goods. However, the Tribunal and the Supreme Court found that the exemption notifications specifically provided for an exemption that should be calculated based on the excise duty payable on like goods produced or manufactured in India by undertakings other than 100% EOUs. The Supreme Court clarified that the duty of excise leviable under Section 3 would be on the basis of the value of like goods produced or manufactured outside India as determined by the Customs Act, but the notification limited this duty to what is payable on similar goods produced in India by non-100% EOUs.4. Application of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000:The Supreme Court upheld the Tribunal's decision to apply Rule 8 for determining the excise duty in cases of captive consumption. The Court emphasized that the show cause notice's reliance on the export price of similar goods was flawed, as the notification's language specified 'allowed to be sold' rather than 'sold,' indicating no actual sale was required for the notification to apply. The Court also noted that the CBEC circular referenced by the Department was irrelevant to the case since it pertained to goods cleared in the DTA, not to the captive consumption scenario at hand.Conclusion:The Supreme Court dismissed the appeal, affirming the Tribunal's judgment. It concluded that the show cause notice's basis was flawed, as it incorrectly applied the export price for valuation instead of Rule 8 of the Central Excise Valuation Rules, which was appropriate for captive consumption cases. The Court reiterated that the exemption notifications intended to levy excise duty equivalent to what would be levied on similar goods produced by non-100% EOUs, thus supporting the respondent's position.