Excise duty demand on goods cleared between clinker and grinding units time-barred under normal limitation period

CESTAT Ahmedabad held that excise duty demand on goods cleared from clinker unit to grinding unit was time-barred. The case involved valuation dispute whether duty should be calculated at 110% of production cost under Rule 8 or transaction value under Rule 4 of Central Excise Valuation Rules, 2000. Since both units later obtained common registration and situation was revenue neutral with no malafide intention, extended limitation period could not be invoked. Show cause notice issued March 2016 for March 2011-November 2013 period exceeded normal limitation. Appeal allowed on limitation grounds without examining merits.

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Issues involved:
1. Determination of assessable value for excise duty on goods cleared to sister unit for captive consumption.
2. Sustainability of demand of duty in a revenue-neutral situation.
3. Invocation of extended period of limitation.

Issue 1 - Determination of assessable value:
The appellant argued that the demand for excise duty on goods cleared to their grinding unit should not be based on the cost of production method but on the transaction value of goods sold to independent buyers, citing revenue neutrality. They contended that any duty paid on the clinker was available as cenvat credit to the clinker unit, making the situation revenue neutral. The appellant also highlighted that the demand was time-barred as the entire period in question was beyond the normal period of limitation, supported by regular filing of returns and audits conducted without any objections raised on valuation methods.

Issue 2 - Sustainability of demand in revenue-neutral situation:
The Tribunal found that the appellant's clinker and grinding units were practically one entity, granted common registration in 2016, reinforcing the claim of revenue neutrality. Citing precedent cases, the Tribunal emphasized that no malafide intention could be attributed to the appellant in a revenue-neutral scenario. The demand for duty was set aside on grounds of revenue neutrality, with the period of demand falling beyond the normal limitation period.

Issue 3 - Invocation of extended period of limitation:
The Tribunal referred to relevant circulars and judgments to support the appellant's valuation method based on cost of production for captive consumption. It was noted that the appellant had acted in accordance with applicable circulars, and the demand was deemed time-barred due to the extended period falling outside the normal limitation period. Consequently, the demand was held to be not sustainable, and the appeal was allowed with consequential relief.

The impugned order was set aside on the ground of limitation, and the appeal was allowed with consequential relief.

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