Supreme Court Upholds Excise Duty on Stock Transfers to Sister Units Should Be Valued Under Rule 8 at 110% of Cost [Read Judgement]
The Supreme Court upholds that excise duty on stock transfers to sister units must be calculated under Rule 8 at 110 percent of cost.
![Supreme Court Upholds Excise Duty on Stock Transfers to Sister Units Should Be Valued Under Rule 8 at 110% of Cost [Read Judgement]](https://images.taxscan.in/h-upload/2025/08/05/2073319-excise-duty-taxscan.webp "Supreme Court Upholds Excise Duty on Stock Transfers to Sister Units Should Be Valued Under Rule 8 at 110% of Cost [Read Judgement]")
The Supreme Court of India upheld the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), holding that excise duty on stock transfers to sister units must be calculated under Rule 8 of the Central Excise Valuation Rules at 110 percent of the cost of production. OCL India Limited, the respondent, is engaged in the manufacture of clinker, which is an...
The Supreme Court of India upheld the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), holding that excise duty on stock transfers to sister units must be calculated under Rule 8 of the Central Excise Valuation Rules at 110 percent of the cost of production.
OCL India Limited, the respondent, is engaged in the manufacture of clinker, which is an intermediate product used in cement production. The company operates three separately registered manufacturing units located in Rajgangpur, Kapilas, and Bengal. Clinkers produced at the Rajgangpur unit were either used internally, transferred to the other two units for further manufacturing, or sold in small quantities to unrelated buyers.
Want a deeper insight into the Income Tax Bill, 2025? Click here
For stock transfers to its Kapilas and Bengal units, the company paid excise duty using Rule 8, valuing the goods at 110 percent of the cost of production in line with the CBEC Circular dated February 13, 2003, and the CAS-4 standard issued by the Institute of Cost Accountants.
The tax department argued that since the company also sold clinker to unrelated buyers, it should have used the transaction value method under Rule 11 or Rule 4 of the Valuation Rules. They also argued that all three units were interconnected and thus "related persons" under the Central Excise Act.
Based on this reasoning, the department issued a show cause notice demanding over Rs. 9.7 crore in differential duty, interest, and penalty. The company’s counsel argued that Rule 8 applied because the transfers were for captive consumption, and the company had followed CBEC’s binding instructions.
How to Audit Public Charitable Trusts under the Income Tax Act Click Here
They also argued that there was no suppression of facts and that the demand was revenue-neutral since the receiving units had availed input credit. The CESTAT agreed with this view and relied on earlier decisions in similar cases, including Nalco, where duty paid under Rule 8 using CAS-4 was upheld.
The department appealed to the Supreme Court. The bench comprising Justices Abhay S. Oka and Ujjal Bhuyan heard the case and condoned the delay in filing the appeal. The court observed that the Tribunal’s ruling was based on a binding precedent that had not been challenged by the department.
The court also agreed with the Tribunal’s view that Rule 8 was the correct rule to apply in this case. The Supreme Court dismissed the appeal.
Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates
