Revenue neutrality and documentary evidence defeated differential duty demand on allegedly fully finished goods cleared to a sister concern.

Contemporaneous route cards and maintained records showed that drilling, reeling and broaching were not carried out at the appellant's unit but at the sister concern's unit, so the goods cleared from the factory were not fully finished goods. On that factual basis, valuation under Rule 6(c)(iii) of the Central Excise Valuation Rules, 1975, or Rule 9 of the Central Excise Valuation Rules, 2000, was not justified. The demand also failed on revenue neutrality because any duty paid by the appellant would have been available as credit to the sister concern, leaving no revenue loss. The impugned order was set aside and the appeal succeeded.

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Issues: (i) Whether the goods cleared from the appellant's factory to its sister concern were fully finished goods for valuation purposes; (ii) whether the demand of differential duty could be sustained in view of revenue neutrality.

Issue (i): Whether the goods cleared from the appellant's factory to its sister concern were fully finished goods for valuation purposes.

Analysis: The demand rested mainly on the statement of the Director, but the route cards and other maintained records showed that drilling, reeling and broaching were not carried out at the Pune unit and were undertaken at the sister concern's unit. When contemporaneous documentary evidence was available and was not disputed, the statement alone could not be treated as decisive. On that basis, the goods cleared from the appellant's factory were not fully finished goods.

Conclusion: The goods were not fully finished, and valuation under Rule 6(c)(iii) of the Central Excise Valuation Rules, 1975 or Rule 9 of the Central Excise Valuation Rules, 2000 was not justified.

Issue (ii): Whether the demand of differential duty could be sustained in view of revenue neutrality.

Analysis: The goods were ultimately sold by the sister concern on payment of duty, and any duty paid at the appellant's end would have been available as credit at the sister concern's end. The overall transaction therefore did not result in a revenue loss, and the larger bench view on revenue neutrality supported the appellant's case.

Conclusion: The demand was not sustainable in view of revenue neutrality.

Final Conclusion: The impugned order was set aside and the appeal succeeded because the department failed to establish that the clearances were of fully finished goods and the alleged short payment did not survive on a revenue-neutral transaction.

Ratio Decidendi: Where contemporaneous documentary records displace a contrary statement and the transaction is revenue neutral, differential duty demand based on treating goods as fully finished cannot be sustained.

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