Excise Valuation Rule 11 Applies When Goods are Partly Captively Consumed and Partly Sold to a Sister Concern: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that Rule 11 of the Central Excise Valuation Rules applies when goods are partly captively consumed and partly sold to a sister concern.

Allied Resins and Chemicals Ltd., the appellant, manufactures formaldehyde and various grades of formaldehyde and urea resins. The company stock-transferred part of its products to its own units and sold the remainder to its sister concern, Aarem Chemicals Pvt. Ltd.

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The department issued a demand of Rs. 3,14,66,034, stating that Rule 8 (cost + 10% profit) should be applied to determine the valuation. The appellant challenged this before the CESTAT arguing that Rule 11 of the Central Excise Valuation Rules should apply since the goods were not entirely captively consumed.

The department alleged undervaluation claiming that the appellant used lower input costs for formaldehyde and melamine than the balance sheet figures, which included higher overhead costs.

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The appellant countered that the department’s methodology was flawed and not reflective of actual transaction values. The counsel also argued that revenue neutrality made the demand unsustainable because any excise duty paid by its Rampur unit was creditable to its Hide Road unit or Aarem Chemicals Pvt. Ltd., causing no revenue loss to the government.

The two-member bench comprising Ashok Jindal (Judicial Member) and Rajeev Tandon (Technical Member) examined the appellant’s arguments that Rule 8 is inapplicable as it applies only to entirely captively consumed goods but Rule 11 governs situations not addressed by Rules 4 to 10A.

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The tribunal reviewed the appellant’s submitted valuation which was certified by a Chartered Accountant. The tribunal referenced the Indian Oil Corporation Ltd. v. CCE, Haldia case which held that Rule 11 should apply when goods are partly captively consumed and partly sold to related parties.

The tribunal rejected the department’s allegations of undervaluation citing that the appellant’s Chartered Accountant-certified cost construction method was reliable and consistent. So, the tribunal upheld the appellant’s Rule 11 valuation.

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