Revenue-neutral excise valuation on sister-unit clearances led to demand being held unsustainable.

Clearances to a sister unit under Rule 8 of the Central Excise Valuation Rules, 2000 were valued at 110% of cost of production under CAS-4. The dispute centred on whether any further duty demand was sustainable when the receiving unit could avail Cenvat credit of the additional duty, leaving the exercise revenue neutral. On these facts, the valuation issue was treated as not producing any real revenue gain to the exchequer, and the demand was held unsustainable in favour of the assessee.

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Issues: Whether duty demand on clearances to a sister unit was sustainable when any additional duty paid would be available as Cenvat credit, making the exercise revenue neutral.

Analysis: The appellant cleared goods to its sister unit on payment of duty under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 by adopting 110% of cost of production as determined under CAS-4. The additional duty, if any, would remain available as Cenvat credit to the receiving unit. On these facts, the valuation dispute did not result in any real revenue gain to the exchequer, and the situation was treated as revenue neutral.

Conclusion: The demand was held unsustainable and the appeal was allowed in favour of the assessee.

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