Differantial duty as per CAS4, Central Excise

[deepak kalambate]

We are manufacturer exporter & we have two related units (who are manufacturer-exporter) to which we are selling our goods.We are selling same goods to related party and also third party. In some case we have charged lesser rate to related customer being goods are third quality.

Central Excise audit has raised objection that we have to pay C.Ex duty as per CAS4 alongwith interest and penalty.

Now our query is..

a) CAS4 is applicable to us?

b)If yes, we have to make payment alongwith interest?

c)Penalty in this case can imposed?  becoz CAS4 can be obtained after completion of financial year/ finalization of accounts

Pl advise.

 

Posts / Replies

[Pradeep Khatri]

Please check the Rule 8 read with Rule 9 of the Central Excise Rules, 2000 in this regard.

[ajay singh]

a) In the landmark judgement of UOI Vs. Bombay Tyres International SC was held that in relation to related party transaction duty is payable on the basis of cost of production which is certified by the practicing cost accountant in CAS - 4 issued by the Institute of Cost Accountant of India plus 10% on the cost of production.

b) yes you have to calculate the cost of production and if there is is any difference in duty payable than you have to pay the difference amount of duty plus interest.

c) there is no penalty you can take CAS-4 certificate monthly/ quarterly

Please feel free to contact me for any query.

Regards

Ajay Singh

(+919560595825)

[deepak kalambate]

thank you very much sir

[phani raju konidena]

As per the following case laws, if there is availability of rate against sale to independent buyers, there is no need to apply the Rule 8 of the Central Excise Valuation Rules, 2000 i.e., 110% on cost of manufactured goods.

i)             Daman Ganga Board Mills Pvt. Ltd., Vs. CCE, Daman, Vapi – (2011 (6) TMI 63 - CESTAT, AHMEDABAD)  2012 (276) ELT 532 (Tri.-Ahmd.) –

Valuation (Central Excise) – Stock Transfer – Where a part of the production is being transferred to another plant of the same assessee and balance of production sold to independent buyers, the goods transferred to other unit of same assessee, will not be assessed in terms of Rule 8 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 i.e. at 110% cost of manufactured goods.

ii)           Ispat Industries Ltd., Vs. CCE, Raigad   (2007 (2) TMI 5 - CESTAT, MUMBAI )=2007 (209) ELT 185 (Tri.-LB) -

Valuation (Central Excise) - Transfer of part of production to another plant of same assessee and balance production sold to independent buyers - Rule 8 of Central Excise (Valuation) Rules, 2000 would apply only where entire production of a particular commodity is captively consumed - Goods not transferred to other units for manufacture of other articles on behalf of assessee/ appellant i.e. Dolvi unit - Since Rule 8 ibid not applicable, value determined by assessee under Rule 4 ibid, to be accepted. [paras 7, 9]

Valuation (Central Excise) - Transfer of part of production to another plant of same assessee and balance production sold to independent buyers - Even if both the Rules i.e. Rule 4 and Rule 8 of Central Excise (Valuation) Rules, 2000 applicable, sequential application of various rules is only reasonable way to read the rules. [para 8]

Valuation (Central Excise) - Rule 4 of Central Excise (Valuation) Rules, 2000 in any case to be preferred over provisions of Rule 8 ibid not only for reason that they occur first in sequential order of Valuation Rules but also for reason that in a case where both rules are applicable, application of Rule 4 ibid will lead to a determination of a value which will be more consistent and in accordance with parent statutory provisions of Section 4 of Central Excise Act, 1944. [para 9]

The above Larger Bench decision attained the finality as the department has not challenged the issue to the Supreme Court of India. Moreover, various other CESTAT benches have also been continuously following the same decision on similar issue.

iii)    CCE, Vapi Vs.Subray Catal Chemical Pvt.Ltd., (2010 (1) TMI 957 - CESTAT AHMEDABAD) =2010 (261)ELT 1170 (Tri.- Ahmd.) – In this case the west zonal bench of Ahmedabad while rejecting the appeal of the revenue has held that -

 Valuation (Central Excise) - Removal to sister unit - Goods independently sold as well as used for further manufacture - Provisions of Rule 8 of Central Excise (Valuation) Rules, 2000 attracted only where excisable goods not sold but used for consumption or production or manufacture of other articles - Sales to independent buyers available, provisions of Rule 8 ibid not applicable - Section 4 of Central Excise Act, 1944. [para 3]    

    iv)          The Supreme Court on 24.08.2009 dismissed the Civil Appeal No. D 19024 of 2009 filed by the Commissioner of Central Excise, Daman against the CESTAT Final  Order No.A/2308/2008-WZB/AHD dated 03.10.2008 as reported in MAFATLAL INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., DAMAN (2008 (10) TMI 517 - CESTAT, AHMEDABAD ) =2009 (241) ELT 153 (Tri.-Ahmd.)

 In the case of Mafatlal Industries Ltd., Vs. CCE, it was held that the entire demand raised upon the assessee due to non-inclusion of notional profit for clearance to another unit of the assessee was available as credit to his own unit thus demand of the same was unjustified as it was only for procedural and technical purposes that duty was required to be paid at the time of clearance from assessee’s unit.

 Moreover, differential duty demanded from the assessee was available as credit to his own unit and such unit was in position to utilize the same, the issue related to basically taking out money from one pocket and putting in the same in another pocket of the same person.

 v)           Sundaram Fasteners Ltd., Vs. CCE, Hyderabad-I – (2008 (11) TMI 149 - CESTAT BANGLORE)= 2009 (237) ELT 55 (Tri.-Bang.) –

 Valuation (Central Excise) – Captive consumption – Cost construction method adopted for clearances to sister unit – Demand based on value adopted for sale certain buyers – Contention on revenue neutrality in case of inter-unit transfer, accepted – Invoices relied on by the  department pertaining to stray cases and not relevant – Impugned order rejecting cost construction, set aside – Section 4 of Central Excise Act, 1944 – Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

i)             In the case of CCE, Mumbai Vs. Special Steel Ltd., (2010 (8) TMI 779 - CESTAT-MUMBAI) =2010-TIOL-1176-CESTAT-MUM –

 the West Zonal Bench of Mumbai Court No.1 has held that Valuation - Clearance to sister concerns at lower rates when compared to price charged to independent buyers - Neither the questions of facts nor any anticipated question of law would have any bearing on Revenue inasmuch as any outcome of this case will not detract from the revenue neutral situation – Appeal disposed of without expressing any opinion on questions of fact/law.

 ii)           In the case of Super Forgings & Steel Ltd., Vs. CCE, Kolkata-IV  (2006 (9) TMI 432 - CESTAT, KOLKATA) =2007 (208) E.L.T. 153 (Tri.-Kol.)

Demand - Limitation - Non-filing of declaration under Rule 173C of erstwhile Central Excise Rules, 1944 - Revenue neutrality - Transfer of goods from one unit to another - Even if valuation was adopted on lower side at the time of clearance from Dankuni Factory, it not leads to any gain to company - Non-filing of declaration under Rule 173 ibid not attributing any intention to evade payment of excise duty - Demand for larger period of limitation and equal amount of penalty under Section 11AC  of Central Excise Act, 1944 not sustainable - Section 11A ibid. [para 4]

 iii)          CCE, Vadodara  Vs. Sicgil Industrial Gases Ltd., (2008 (10) TMI 529 - CESTAT, AHMEDABAD) = 2009 (245) E.L.T. 693 (Tri.-Ahmd.)

 Demand - Limitation - Extended period - Suppression - Clearance of goods to sister unit on stock transfer basis - Assessable value adopted by assessee in respect of such stock transfer was less than the assessable value at which similar goods sold to other independent wholesale buyers - Duty paid available as credit to sister unit, thus, leading to revenue neutral situation - No intention on the part of respondents to pay less duty, specifically when no evidence on record to reflect upon such intention - Confirmation of demand invoking extended period not justified - Commissioner (Appeals) rightly set aside demand though by adopting different reasons - Proviso to Section 11A(1) of Central Excise Act, 1944. - Adoption of lower assessable value in respect of clearances to their own unit can be on the bona fide belief that since no margin of profit is to be taken into account at the time of removal, so lower assessable value is to be adopted. There can be other factors also justifying adoption of lower assessable value in the hands of assessee. This mere fact will not ipso facto lead to the conclusion that such adoption of lower value was with intention to evade payment of duty. [para 6]

iv)          CCE, Vadodara-II  Vs. Indeos ABS Ltd., (2010 (3) TMI 656 - GUJARAT HIGH COURT) = 2010 (254) E.L.T. 628 (Guj.)

Demand - Undervaluation - Revenue neutrality - Tribunal disposed of appeal holding that since goods cleared to sister concern, whatever duty payable available as credit to own unit (sister concern) hence entire exercise revenue neutral - Grievance now that undervaluation not considered by Tribunal - HELD : Grievance acceptable if ultimate exercise benefited Revenue by collection of duty - No such benefit accrues to exchequer - Tribunal chosen not to determine academic issue - No legal infirmity in impugned order of Tribunal - Sections 4 and 11A of Central Excise Act, 1944. - If the Tribunal has chosen not to determine an academic issue, it is not possible to state that any legal infirmity exists in the impugned order of the Tribunal. [para 4] - Appeal dismissed.

the Hon’ble Hight Court of Gujarat while answering revenue proposed following three questions;

(a)          “Whether in the facts and circumstances of the case, CESTAT is right in allowing appeal filed by the assessee on the ground of revenue neutrality which issue has been kept opened by the Hon’ble Supreme Court in the two cases relied upon by CESTAT?

(b) Whether CESTAT is right in ignoring the main issue of undervaluation adopted by the assessee?

(c)  Whether determination of correct assessable value for the purpose of charging central excise duty can be done away with simply on the ground of revenue neutrality?”

The Hon’ble High Court has held that the grievance was that the aspect of undervaluation has not been considered by the Tribunal at all. Grievance would have merited acceptance if the ultimate exercise would have benefited the Revenue by collection of duty in the coffers of the exchequer. In the facts of the present case, admittedly no such benefit accrues to the exchequer. In the circumstances, if the Tribunal has chosen not to determine an academic issue, it is not possible to state that any legal infirmity exists in the impugned order of the Tribunal.

1. The Addl.Commissioner, Visakhapatnam has stated in the Order-in-Original that he did not find any discussion on the assessment procedure in the relevant case laws quoted in the present case.  But, the Addl.Commissioner has erred to go through the merits of the decision of the Larger Bench in the case of Ispat Industries Ltd., Vs. CCE, Raigad  (2007 (2) TMI 5 - CESTAT, MUMBAI )=2007 (209) ELT 185 (Tri.-LB), which has discussed the assessment procedure very clearly. The relevant paras of 7, 8 and 9 of the case law are reproduced here below for your kind consideration.  

7. We also agree with the submission of the assessee that even if both the rules, i.e. Rule 4 and Rule 8, were applicable, it would only be logical to read and apply the various rules in the Central Excise Valuation Rules in a sequential manner. Though the Central Excise Valuation Rules, 2000 do not specifically prescribe such sequential application of various rules, the same, in our view, is the only reasonable way to read these rules. Any other interpretation would only lead to confusion and chaos.  Since the applicability of Rule 4 is not really in dispute, there was no need to look further and regardless of the applicability or otherwise of Rule 8, the assessable value should have been determined in terms of Rule 4 of the Valuation Rules.

8. The conclusion that we are drawing in the present case would lead to determination of a value which, in our view, will not only be reasonable but also consistent with the provisions of Section 4 of the Central Excise Act. We would, at this stage, draw support from the judgment of the Supreme Court in the assessee’s own case, as reported in  ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI  (2006 (9) TMI 181 - SUPREME COURT OF INDIA)= 2006 (202)E.L.T. 561, wherein the Court applied “The Gunapradhan Principle” in interpreting the Customs Valuation Rules. We   have kept in mind the following observations of the Court in coming to our above conclusion :

“26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act.

27..................

36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is ‘primary’ whereas the conditions in Rule 9 (2) are the ‘accessories’. The ‘accessory’ must, therefore, serve the ‘primary’.”

9. In view of what we have observed above, we answer the reference in the following terms :

(a)      the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers;

(b)      the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.

[deepak kalambate]

Dear Sir,

We have paid Interest @ 18% on diff.duty as per CAS4 Certificate

Now C.Ex dept is asking for 30% Interest

Please advice