The Supreme Court Division Bench comprising of Justice A.K. Sikri and Justice R.F. Nariman today, in the case, Commissioner of Central Excise, Raigad v. M/s Ispat Metallics Industries Ltd v. Ors, declared that the transfer of goods to the sister concern of an establishment will not amount to “sale” as per the circular dated 1.7.2002. earlier, a similar view was taken by the Tribunal upon which the Commissioner of Central Excise, Raigad has filed the appeal to the Supreme Court in the instant case.
The appellants are engaged in the manufacture of HR coils, sheets, plates, etc., which are cleared on payment of duty of excise. In the manufacture of such goods, it avails credit on inputs such as iron ore pellets. Adjacent to its plant, another group company, namely, M/s. Ispat Metallics Industries Ltd. also has a factory in which pig iron and molten metal are manufactured. The principal raw material for manufacture for both these companies is iron ore pellets. The said pellets were purchased from Mandovi Pellets and Essar Steel Limited. These were carried to the factory of IIL. Credit was availed by IIL of the duty paid on the entire quantity so procured. As and when required by the sister company IMIL, pellets were transferred through a conveyor from ISIL’s plant to IMIL’s premises under cover of an invoice and on reversing an amount equal to the Cenvat credit availed on inputs that were so transferred. In addition to such invoices, IIL also raised debit notes on IMIL for recovering actual expenditure incurred by it in relation to the procuring of such iron ore pellets, such as bank commission, interest, etc.
An SCN was sent to both companies alleging that iron ore pellets were sold by IIL to IMIL and that the amounts recovered by IIL in the form of debit notes towards bank charges, interest, etc. were includible in the assessable value of such inputs that were cleared. that iron ore pellets were sold by IIL to IMIL and that the amounts recovered by IIL in the form of debit notes towards bank charges, interest, etc. were includible in the assessable value of such inputs that were cleared.
The learned Commissioner upheld the show cause notices stating that the transaction between IIL and IMIL was one of sale and not transfer. As per the said order, the amounts mentioned in the debit note from IIL to IMIL were also included in the assessable duty valuation as additional consideration.
The Tribunal reversed the aforesaid decision on the ground that the transfer of iron ore pellets by IIL to IMIL was not a sale of goods but was transfer of raw materials, jointly procured, under a joint procurement policy which was followed by the two sister companies and this becomes clear on a reading of the tripartite agreement between the supplier of the pellets, IIL, and IMIL. Further, the Tribunal applied a circular dated 1.7.2002 by which, where no sale is involved but only a transfer by one sister unit to another, the value shown in the invoice on the basis of which Cenvat credit was taken by the assessee would be the value for the purpose of Rule 57AB and Rule 3(4). It was further held that additional consideration could not be added inasmuch as the amount spoken of in the Rule 57AB and Rule 3(4) is an amount equal to the duty of excise which is leviable on such goods. Post manufacturing expenses cannot possibly amount to a duty of excise leviable on such goods and therefore all amounts paid under the debit notes between IIL and IMIL could not be added to the value of those goods.
The Court by upholding the decision of the Tribunal held that, as per para 14 of the circular of 1.7.2002 clearly distinguishes the inputs on which credit has been taken which are removed on sale, and those which are removed on transfer. If removed on sale, “transaction value” on the application of Section 4(1)(a) of the valuation rules is to be looked at. However, where the goods are entirely transferred to a sister unit, it is reasonable to adopt the value shown in the invoice on the basis of which Cenvat Credit was taken by the assessee i.e. the invoice of the supplier of the pellets to the assessee.
It was further held that the Tribunal was also correct in holding that post-manufacturing expenses cannot be loaded on to the amount equal to the duty of excise leviable on such goods as this amount would, then, cease to be an amount equal to the duty of excise but would be something more.
Read the full text of the judgment below.
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