Revenue neutrality defeats excise demand on sister-concern clearances where duty paid is available as Cenvat credit.

Duty demand on clearances to a sister concern was held unsustainable on revenue neutrality grounds because the goods were cleared on payment of duty, the recipient was entitled to Cenvat credit, and the recipient unit was also paying duty through PLA in excess of the alleged short payment. The dispute arose from valuation under Rule 8 of the Central Excise Valuation Rules, 2000 and inclusion of overheads, but once the record showed that any differential duty would be available as credit and the overall revenue impact was neutral, the demand could not survive. The appeal was allowed and the impugned order was set aside.

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Issues: Whether the demand could survive in a case of valuation of goods cleared to a sister concern, where the differential duty would be available as Cenvat credit to the recipient unit and the recipient was paying duty from PLA in excess of the alleged short payment.

Analysis: The goods were valued under Rule 8 of the Central Excise Valuation Rules, 2000 and the dispute related to inclusion of certain overheads in the assessable value. The decisive factor was that the appellant had cleared the goods on payment of duty and the recipient sister concern was entitled to Cenvat credit of the duty paid. The record also showed that the recipient unit was discharging duty partly from PLA and that such payment exceeded the differential duty involved. On these facts, the situation was one of revenue neutrality. In such a case, the duty demand could not be sustained, and once the demand failed on this ground, the question of valuation did not require further examination.

Conclusion: The demand was not sustainable because the case was revenue neutral; the appeal was allowed and the impugned order was set aside.

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