2023 (7) TMI 44 - AT - Central Excise

Tribunal upholds valuation method for goods, rejects cost construction. Rule 6(b)(i) applied pre-2000.

The Tribunal upheld M/s. Lakshmi Machine Works Ltd.'s valuation method of goods cleared to sister units based on comparable prices. It found Rule 6(b)(i) ... Valuation of goods cleared by the appellant to sister units during two continuous periods separated by a change in law - Rule 6(b)(ii) read with Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (CVR 2000). For the period prior to 01/07/2007 - HELD THAT:- It is held that this is a case where the appellant was clearing goods to their sister units and also to un-related buyers. They have mentioned this both in the statement of their Manager recorded by the department and in their reply to the SCN which is also mentioned in para 15 of the impugned order. Para 6 of the impugned order also records that the appellant cleared around 30% of their production to their own units. The said price was not accepted as it was a contract price. Prior to 01/07/2000 the value of goods were notionally determined to be the ‘normal price’ under section 4 of the Central Excise Act, 1944. It was only after the amendment of the said section in July 2000 that the concept of transaction value came to be the law - Since goods cleared as per the provisions of proviso (i) to Section 4(1)(a) are the normal price of comparable goods and the impugned order does not discuss as to why this price not acceptable except to say that they are contract price, the contention of the appellant cannot be ignored - the contract price has to be treated as the ‘normal price’, as provided in section 4, which is comparable and applicable in the appellant’s case. Its only when the value of the goods cannot be determined under Rule 6(b)(i) that one needs to travel to Rule 6(b)(ii) which is not the case here. Hence the appellants prayer to adopt the value of goods cleared to their sister unit as per the comparable contract value available on the basis of Rule 6(b)(i) of CVR, 1975 upheld. For the period from 01/07/2007 - HELD THAT:- The erstwhile Section 4 of the Central Excise Act, was substituted by section 94 of the Finance Act, 2000 (No.10 of 2000), and came into force from 01/07/200. This section contains the provision for determining the ‘transaction value’ of the goods for purpose of assessment of duty. The new Valuation Rules i.e. CVR 2000, enables valuation of goods for excise purposes on value charged as per commercial practices by introducing the concept of ‘transaction value’ rather than determining the value of goods by a notionally determined ‘normal price’ of the erstwhile section. Changes were also made in the Valuation Rules by the introduction of CVR, 2000 in place of CVR 1975 to reflect the change in laws - the appellant is of the view that even after 01/07/2000, Rule 8 is applicable to them only if the entire excisable goods are not sold but are consumed by them or on their behalf in the production or manufacture of other articles, which is not so in their case. They have sales to non-related buyers and hence Rule 8 will not be applicable in their case. Its only after Rule 8 was amended by Notification No. 14/2013-CE (NT) dated 22.12.2013 with effect from 1.12.2013, that they are liable to value the goods as per Rule 8 of CVR 2000. The appellant was eligible to clear rough castings to their sister concern on payment of duty on the assessable value based on comparable prices of goods cleared by them to non-related buyers during the entire period covered by the impugned order. The impugned order is set aside with consequential relief, if any, as per law - Appeal allowed. Issues Involved:1. Valuation of goods cleared to sister units.2. Applicability of Rule 6(b)(i) and Rule 6(b)(ii) of CVR 1975.3. Applicability of Rule 8 of CVR 2000 and its amendment.4. Penalty and suppression of facts.Summary:1. Valuation of Goods Cleared to Sister Units:The appellant, M/s. Lakshmi Machine Works Ltd., challenged the valuation method used for goods cleared to their sister units. The appellant argued that the value should be based on the price of comparable goods sold to non-related buyers, while the department insisted on using the cost construction method.2. Applicability of Rule 6(b)(i) and Rule 6(b)(ii) of CVR 1975:For the period prior to 01/07/2000, the appellant contended that the value should be determined under Rule 6(b)(i) of CVR 1975, which allows for valuation based on comparable goods. The Tribunal found that the contract price for non-related buyers should be considered as the 'normal price' for comparable goods, as the department did not provide any reason to reject this price. Therefore, Rule 6(b)(i) was applicable, and there was no need to resort to Rule 6(b)(ii).3. Applicability of Rule 8 of CVR 2000 and its Amendment:For the period from 01/07/2000, the appellant argued that Rule 8 of CVR 2000 should not apply as they had sales to non-related buyers. The Tribunal noted that the Board's circular mandated the cost construction method, but the plain meaning of the statute indicated that Rule 8 applied only when the excisable goods were not sold at all. The Tribunal concluded that the appellant was correct in valuing goods based on comparable prices until Rule 8 was amended by Notification No. 14/2013-CE (NT) dated 22.12.2013, which clarified that even partial sales would invoke Rule 8.4. Penalty and Suppression of Facts:Since the appeal was decided in favor of the appellant on merits, the issues of suppression of facts, interest, and penalty did not survive.Conclusion:The Tribunal upheld the appellant's method of valuing goods based on comparable prices for the entire period covered by the impugned order. The appeal was allowed, and the impugned order was set aside with consequential relief as per law.