Revenue Neutral Transactions Between Sister Units Not Liable for Excise Demand: CESTAT [Read Order]

In this ruling, two sets of appeals were heard together and the dispute pertained to valuation of goods/scrap cleared by M/s. Bharat Roll Industry Private Limited (Units I & II), engaged in manufacturing rolls for rolling mills, from one unit to another within the same corporate entity.

The Revenue alleged that during 2008–2009 to 2009–2010 (up to January 2010), the assessee cleared iron and steel scrap to its sister units on an arbitrarily fixed value instead of determining value under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 read with Section 4(1)(b) of the Central Excise Act, 1944.

When GST Disputes Knock—Answer with the Gavel! Click here

It was contended that the assessee should have computed the assessable value at 110% of the cost of production as per CAS-4 methodology, and accordingly, a duty short payment of Rs. 1.61 crore was alleged.

The Commissioner of Central Excise and Service Tax, Haldia, in the Order-in-Original dated 23.12.2015, dropped the proceedings. It was held that the duty paid by one unit was available as CENVAT credit to the receiving unit. Further, the entire transaction was revenue neutral, with no intention to evade duty and the exercise of recalculating duty had no impact on government revenue.

Aggrieved by this, the Department filed an appeal before the Tribunal.

Cash Transactions Can Lead to Fines! Are you at risk? Click here

The Tribunal comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member observed that the goods cleared were scrap, which arises incidentally during manufacture and cannot be treated as “manufactured goods” under Section 2(f) of the Central Excise Act. Further, the Revenue’s insistence on applying CAS-4 for determining value of scrap was “beyond comprehension” since costing principles under CAS-4 apply to manufactured goods and not waste or by-products. It was held that since the receiving unit availed CENVAT credit of the duty paid, the entire transaction was revenue neutral.

Accordingly, the Tribunal found no merit in the Revenue’s appeal and dismissed it.

The Tribunal, in the second appeal concerning challenge by appellant of a demand confirming clearance of cast articles of iron and steel from Unit-II to other units during April 2006 to March 2010, noted that identical issues for earlier periods (2001–2003 and 2003–2005) had already been decided in the assessee’s favour and in those cases. It was held that the situation was revenue neutral and that extended period of limitation was not invokable. It was concluded that there was no mala fide intent on the part of the assessee to evade duty.

Following the precedent in Final Orders dated 04.03.2024, the Tribunal allowed the appeal with consequential relief.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates