Inter-unit transfers within the same company are not sales and are valued at 115% of production cost.

Transfer of goods from one unit of the same company to another unit for further conversion is not treated as a sale under the Central Excise Valuation Rules. Reading Circular No. 643/34/2002-CX dated 1-7-2002 with Rule 8 and the proviso to Rule 9, such captive consumption and inter-unit transfers to a sister unit or another factory of the same company must be valued at 115% of the cost of production. The stated position is that the transfer is not a sale and the assessable value is to be determined accordingly.

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Issues: Whether transfer of goods by one unit of the assessee to another unit of the same company for further conversion could be treated as a sale, and whether such transfers were liable to be valued at 115% of the cost of production under the Central Excise Valuation Rules.

Analysis: The transfer of goods to another unit of the same assessee was covered by the Board's clarification in Circular No. 643/34/2002-CX. dated 1-7-2002. The circular, read with Rule 8 and the proviso to Rule 9 of the Central Excise Valuation Rules, provided that captively consumed goods and transfers to a sister unit or another factory of the same company were not to be treated as sales and that the assessable value in such cases was to be taken at 115% of the cost of production.

Conclusion: The transfer was not a sale, and valuation had to be made at 115% of the cost of production. The appeal was therefore allowed and the impugned order was set aside.

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