The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai has held that the goods cleared to sister units of the assessee shall be valued based on the Comparable Contract Price since the Amendment to Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 shall be applicable only after December 1st, 2013.
The excise appeal was filed by M/s. Lakshmi Machine Works Ltd., Coimbatore before the CESTAT against the Order in Appeal passed by the Commissioner (Appeals), Coimbatore.
The assessee had two units, the Foundry Division and the Machine Tool Division. Prior to September 1, 2001, both units had separate central excise registration certificates. During the period from April 1998 to March 2002, the Foundry Division manufactured and cleared rough castings to its sister concern, paying duty based on the assessable value declared in Form Annexure – II under Rule 173C of the Central Excise Valuation Rules, 1975 to the Central Excise Department.
It was later discovered that the value of the goods was not determined correctly. The department raised a dispute against the valuation of the goods cleared to their sister unit and the applicable rules for determining the value.
The Revenue contended that the goods should be valued based on the cost of production or manufacture, including the profits.
The assessee argued that the value should be based on the price of comparable goods produced by them or any other person.
The Revenue issued a Show Cause Notice proposing a demand for differential duty, interest, and penalty for the period from 1998-99 to 2001-02.
The Adjudicating Authority confirmed the demand and imposed a penalty.
The assessee filed an appeal before the Commissioner (Appeals) but the same was rejected.
Aggrieved by the order of the Commissioner (Appeals), the assessee filed an appeal before the CESTAT.
The appellant-assessee, represented by Shri M. Saravanan argued that Rule 6(b)(ii) and Rule 8 of the Central Excise Valuation Rules, 1975 are not applicable to them because they have sales to non-related buyers.
The assessee also claimed that Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is applicable only after its amendment in December 2013.
The assessee clarified that there was no intention to evade payment of duty, and therefore, no penalty should be imposed on them.
The Revenue, Commissioner of GST & Central Excise, represented by Smt. Anandalakshmi Ganeshram contended that the correct valuation procedure was not followed by the assessee and that they wilfully evaded duty, making them liable for the demand and penalty.
The bench noted that the dispute is related to the valuation of goods cleared by the assessee to their sister units during two distinct periods. The first period is prior to July 1, 2000, governed by the Central Excise Valuation Rules, 1975, and the second period is from July 1, 2000, governed by the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (CVR 2000).
For the first period, the CESTAT upheld the assessee’s argument that the value of goods cleared to their sister unit should be based on the comparable contract price, as per Rule 6(b)(i) of Central Excise Valuation Rules, 1975.
For the second period, the bench agreed with the assessee that Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is not applicable until its amendment in December 2013.
The two-member bench consisting of Ms. Sulekha Beevi C.S. (Judicial Member) and Shri M. Ajit Kumar (Technical Member) clarified that the words in the statute must be understood in their plain meaning, and the amended Rule 8 specifies that it applies when the whole or part of the excisable goods are not sold.
The bench also held that since the assessee had sales to non-related buyers, they are not liable to adopt the value of comparable goods cleared by them as the amendment to Rule 8 makes it applicable from December 1, 2013.
In result, the CESTAT sets aside the order and allowed the appeal filed by the assessee.
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