2026 (1) TMI 648 - AT - Central Excise

Valuation of goods cleared to related captive units governed by Rule 8 (cost-plus) upheld; Rules 4/11 demands, time-bar set aside

Dominant issue 1 - Valuation rule applicable: The Tribunal applied precedent holding that when most production is cleared to related captive units and ... Method of valuation - clearances made by the appellant to its own units for captive consumption - to be valued in terms of Rule 8 of the Valuation Rules, or on the basis of the price at which sales are made to independent third-party buyers, in terms of Rule 11 r.w. Rule 4 of the Valuation Rules - revenue neutrality - invocation of extended period of limitation. Whether the appellant is correct in following Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [“the Valuation Rules” for short] for arriving at the value in respect of clearances of goods to their own units at Angul and Raigarh, when most of the quantity of such goods manufactured by them is cleared to their own units and part of the quantity is cleared to third party buyers, or not? - HELD THAT:- The case of the appellant is squarely covered by the decision in the case of OCL India Ltd. v. Commissioner of Central Tax, G.S.T. & C.E., Rourkela [2024 (6) TMI 1463 - CESTAT KOLKATA] where it was held that 'On stock transfer of clinker, the Appellant paid excise duty at 110% of cost of production in accordance with Rule 8 of the Central Excise Valuation Rules, 2000 ('Valuation Rules'). The Kapilas and Bengal units availed Cenvat Credit of the excise duty charged and paid by the Appellant.' As the issue is squarely covered by the decision in the case of OCL India Ltd, in view of this, the appellant has correctly valued their goods in terms of Rule 8 of the Valuation Rules and therefore, the demand of central excise duty by adopting Rules 4 and 11 of the Valuation Rules is not sustainable. Whether it is a case of revenue neutrality? - HELD THAT:- Admittedly, in this case, the appellant has been clearing the goods to their own units, for further manufacture. In that view, the issue that arises is whether the duty paid by the appellant is available as CENVAT Credit to their own unit which is using these goods for further manufacture and clearing on payment of duty, resulting in a revenue neutral situation, or not - the same issue has been examined by this Tribunal in the case of Britco Foods Company Ltd. v. Commissioner of C.Ex., Pune [2000 (10) TMI 76 - CEGAT, MUMBAI] wherein it was held that such a situation is revenue neutral. The said decision has been affirmed by the Hon’ble Apex Court in COMMISSIONER OF C. EX., PUNE VERSUS COCA-COLA INDIA PVT. LTD. [2007 (4) TMI 17 - SUPREME COURT] - thus, in that view, if duty is paid by the appellant, the same would be available as CENVAT Credit to the appellant in their own unit and in these circumstances, it is a revenue neutral situation. Whether the extended period of limitation can be invoked in the facts and circumstances of the present case, or not? - HELD THAT:- Admittedly, in the facts of this case also, audits took place, on 16.05.2012 and 14.08.2013, but the valuation arrived at by the appellant by adopting Rule 8 of the Valuation Rules and payment of duty as per CAS-4 has never been disputed. In these circumstances, the Show Cause Notice, issued to the appellant for the period from January, 2010 to November, 2013, is barred by limitation. Therefore, the whole of the demand against the appellant is barred by limitation. The impugned order is set aside and the appeal is allowed. Issues: (i) Whether Rule 8 of the Valuation Rules could be applied to value clearances to the appellant's own units for captive consumption when part of production was sold to third parties; (ii) Whether the case is revenue neutral; (iii) Whether the extended period of limitation is invokable.Issue (i): Whether Rule 8 of the Valuation Rules applies to value clearances to the appellant's own units for captive consumption, despite part sales to independent buyers.Analysis: The legal framework comprises Section 4(1) of the Central Excise Act, the Valuation Rules (Rules 4, 8, 9, 10, 11) and relevant Board circulars and CAS-4 guidance. The issue was examined in light of precedents and the Board circulars requiring cost determination for captively consumed goods in accordance with CAS-4 and recognizing Rule 8 for captive consumption. Distinctions in facts from decisions applying Rule 4 or Rule 9 were considered where transfers were not for captive consumption or where factual comparability of 'such goods' to independent sales was absent. The Tribunal's prior decisions applying Rule 8/CAS-4 to captively consumed intermediate products were followed.Conclusion: Valuation in terms of Rule 8 (using CAS-4) for goods cleared to the appellant's own units for captive consumption is correct. The demand based on Rules 4 and 11 is not sustainable. Conclusion in favour of the assessee.Issue (ii): Whether the matter is revenue neutral.Analysis: The statutory and rule framework on CENVAT credit (Rule 3 of Cenvat Credit Rules, 2004) and authorities holding that duty paid on inter-unit transfers that is fully available as credit at the receiving unit results in revenue neutrality were applied. Prior tribunal decisions on analogous facts where recipient units availed full credit were relied upon to determine effect on revenue realization.Conclusion: The transaction is revenue neutral because duty paid on clearances to the receiving sister units was fully available as CENVAT credit to those units. Conclusion in favour of the assessee.Issue (iii): Whether invocation of the extended period of limitation is permissible.Analysis: The applicable limitation principles under Section 11A and judicial guidance on invocation of extended period where facts were disclosed to revenue during periodic audits were considered. The existence of departmental audits and prior audit observations addressing valuation meant the department had knowledge of relevant facts within the normal limitation period; precedents establishing that extended period cannot be invoked where facts were within departmental knowledge were applied.Conclusion: The show cause notice issued invoking the extended period is time-barred. Conclusion in favour of the assessee.Final Conclusion: The demand of duty, interest and penalty is set aside on merits and limitation/revenue neutrality grounds and the appeal is allowed with consequential reliefs.Ratio Decidendi: Where excisable goods are cleared to a manufacturer's own units for captive consumption and the receiving units avail full CENVAT credit, valuation of such captive clearances is to be determined under Rule 8 using CAS-4, and related differential demands are unsustainable; further, extended limitation cannot be invoked where the department had knowledge of the relevant facts through audits.