2024 (3) TMI 1100 - AT - Central Excise

CESTAT Mumbai upholds 110% production cost valuation for inter-plant transfers under Rule 8 Central Excise Valuation Rules 2000

CESTAT Mumbai dismissed the appeal in a case involving valuation computation at 110% of production cost for goods received through inter-plant transfer ... Valuation - computation done at 110% of the cost of production of goods at the second unit received through inter-plant transfer - Rule 8 of the Central Excise Valuation Rules, 2000 - Revenue Neutrality - HELD THAT:- In UNION CARBIDE INDIA LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, CALCUTTA [2003 (9) TMI 89 - SUPREME COURT], Hon'ble Supreme Court had laid down ratio that for the purpose of computing the cost of production, Rule 6 of the Valuation Rules is squarely applicable to the cases of inter-plant transfer for determination of cost of production under Rule 8, where goods are not sold but are captively consumed by the Appellant and the interpretation made to distinguish cost and price in the case of CHALLAPALLI SUGARS LIMITED & HINDUSTAN PETROLEUM CORPORATION LTD. VERSUS COMMISSIONER OF INCOME-TAX, AP & COMMISSIONER OF INCOME-TAX (CENTRAL) , CALCUTTA [1974 (10) TMI 3 - SUPREME COURT] by the Hon'ble Supreme Court was also considered to arrive at the conclusion that cost of raw material at Jamshedpur would also remain as cost of material consumed at Tarapur, by removing the notional profit. It is however worth mentioning, here that no finding is available in those two judgments that Rule 6 of Valuation Rules, as existing then was similar to Rule 8 of the Valuation Rules, 2000. It would not be a breach of judicial propriety to give a finding that Appellant is liable to pay the duty, interest and penalty as demanded in the Show-cause notice that was also confirmed by this Tribunal - Appeal dismissed. Issues Involved:1. Legality of the orders passed by the Commissioner in confirming demand as per Rule 8 of the Central Excise Valuation Rules, 2000.2. Applicability of the decision of the Larger Bench in the case of ITC Ltd. Vs. Commissioner of Central Excise, Chennai-I.3. Substitution of Tata Iron & Steel Co. Ltd. with Tata Steel Ltd.4. Analysis of the cost of production and assessable value in inter-plant transfers.5. Relevance of the cost accounting standards (CAS-4) and circulars issued by the Department.Summary:1. Legality of Orders Confirming Demand:The Tribunal examined the legality of the orders passed by the Commissioner in confirming the demand based on Rule 8 of the Central Excise Valuation Rules, 2000. The orders were challenged on the basis that the computation was done at 110% of the cost of production for inter-plant transfers, which was contested by the appellants.2. Applicability of Larger Bench Decision in ITC Ltd. Case:The Tribunal was directed by the Hon'ble High Court of Bombay to reconsider the issue in light of the decision of the Larger Bench in ITC Ltd. Vs. Commissioner of Central Excise, Chennai-I. The Larger Bench had held that the decision in Eveready Industries India Ltd. represented the correct position of law, contrary to the Mumbai Bench's decision in Tata Iron & Steel Co. Ltd. Vs. CCE, Thane-II.3. Substitution of Tata Iron & Steel Co. Ltd. with Tata Steel Ltd.:The Tribunal noted that Tata Iron & Steel Co. Ltd. had been renamed as Tata Steel Ltd. The appellants were reluctant to get themselves substituted, but the Tribunal held that the liability would not be escaped on the ground that the order was passed against a company that is no longer in existence.4. Analysis of Cost of Production and Assessable Value:The Tribunal analyzed the facts that the appellants received billets from their Jamshedpur plant, cleared on payment of duty at 110% of the cost of production, and used these inputs at their Tarapur plant. The Department contended that the assessable value should include the 110% cost of production from the Jamshedpur plant. The Tribunal referred to the CAS-4 standards and the Department's circulars, concluding that the cost of material consumed should include duties paid, and thus, the assessable value should be based on 110% of the cost of production.5. Relevance of Cost Accounting Standards (CAS-4) and Department Circulars:The Tribunal referred to the CAS-4 standards prescribed by ICWAI and the Department's circular dated 13.02.2003, which mandated that the cost of production for captively consumed goods should be computed as per CAS-4. The Tribunal upheld the view that the cost of billets at the Tarapur unit should be 110% of the cost of production of billets from the Jamshedpur unit.Conclusion:The Tribunal dismissed the appeals and confirmed the orders passed by the Commissioner of Central Excise, Thane-II, for payment of duty, interest, and penalty as demanded in the show-cause notices. The order dated 22.03.2013, which was set aside by the Hon'ble High Court, was upheld in light of the Larger Bench decision. The Tribunal emphasized the need to follow judicial propriety and the directions of the Hon'ble Bombay High Court.