Revenue neutral stock transfer to sister unit under Rule 8 cannot demand duty on short payment while ignoring excess payment

CESTAT Kolkata allowed the appeal in a case involving undervaluation of goods during stock transfer to related units. The appellant had cleared goods to sister unit under Rule 8 of Valuation Rules, adopting 110% of cost per CAS-4. The Tribunal held this was a revenue neutral situation, as any excess duty paid would be entitled to cenvat credit by the same unit. Following precedent in Hindalco Industries case, the Tribunal ruled that demanding duty on short payment while ignoring excess payment was bad in law. The impugned order was set aside.

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The Appellate Tribunal considered an appeal against an order concerning the valuation of refractory materials like Fire Bricks and Mortar under the Central Excise Tariff Act. The appellant, engaged in manufacturing these materials, faced allegations of undervaluation during stock transfers to related units. The department issued Show Cause Notices invoking the extended period of limitation, alleging undervaluation under the Valuation Rules. The Appellant responded with detailed submissions, including paying differential duties for certain periods. Despite this, the Commissioner confirmed a significant demand, leading to the appeal.The core issue revolved around whether the undervaluation alleged by the department was justified. The appellant argued for revenue neutrality, stating that the duty paid would be available as credit to their sister unit, making the exercise revenue neutral. The Revenue supported the impugned order, emphasizing the alleged undervaluation.The Tribunal analyzed the situation, noting that the appellant had paid duty under Rule 8 by adopting 110% of the cost of the product as per CAS-4 for clearances to sister units. Citing the Hindalco Industries case, the Tribunal agreed with the appellant's contention of revenue neutrality. Referring to precedents, the Tribunal concluded that the duty paid by the appellant would be available as credit to their sister unit, making the entire exercise revenue neutral. Therefore, the Tribunal set aside the impugned order and allowed the appeal, finding no sustainable demand against the appellant.In summary, the Tribunal held that the appellant's actions resulted in revenue neutrality, as the duty paid would be available as credit to their sister unit. This finding, supported by relevant precedents, led to the decision to set aside the impugned order and grant relief to the appellant.

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