2019 (4) TMI 640 - AT - Central Excise

Valuation - various goods manufactured by the appellant but captively consumed for use within the factory as well as captive mines for various activities such as construction repair and maintenance activities - Rule 8 of the Central Excise Valuation Rules 2000 - time limitation - Held that - The Larger Bench of the Tribunal in the case of Ispat Industries Ltd. 2007 (2) TMI 5 - CESTAT MUMBAI where it was held that 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. Thus during the disputed period the valuation is required to be adopted in terms of Rule 4 ibid on the basis of value of clearances to independent buyers. Time Limitation - Held that - It is on record that the appellant has kept Department informed about their proposal for captive clearance of goods manufactured for purposes of civil constructions repair and maintenance etc.. They have done so by means of a letter in December 2005 - the Department will not be justified in alleging suppression against the appellant and invoking extended period of limitation. As such the demand raised by the show-cause notice dated 02.08.2006 is to be restricted to normal period of time limit - The second show-cause notice dated 22.03.2007 is within time. There is no justification for imposition of penalty - penalty set aside. Appeal allowed in part.

Summary

Issues: Valuation of goods for captive consumption, Application of Central Excise Valuation Rules, Benefit of time bar, Imposition of penalty

Valuation of goods for captive consumption:
The case involved determining the assessable value of goods manufactured and diverted for captive consumption within the factory and captive mines. The appellant valued these goods based on Rule 8 of the Central Excise Valuation Rules, 2000, which considered the cost of production with an addition of 10% notional profit. However, the Department argued that the value should be determined under Rule 4, which involves adopting the value of identical goods cleared to independent buyers. The Tribunal reviewed various decisions, including a Larger Bench ruling in Ispat Industries Ltd., which stated that Rule 8 applies only when the entire production is captively consumed. The Tribunal found that during the disputed period, valuation should be based on Rule 4, favoring the Revenue's stance.

Application of Central Excise Valuation Rules:
The Tribunal analyzed the conflicting interpretations of Rule 4 and Rule 8 of the Central Excise Valuation Rules. It emphasized the sequential application of these rules and concluded that Rule 4 should be applied for determining the assessable value in the case at hand. The decision in Ispat Industries Ltd. was pivotal in establishing the precedence for adopting the value of clearances to independent buyers during the relevant period.

Benefit of time bar:
The appellant argued for the benefit of time bar, contending that they had informed the Department about the captive clearances through letters in December 2005. They also highlighted their reliance on a previous Tribunal decision for valuation, which was later overturned by the Larger Bench. The Tribunal agreed with the appellant, stating that the Department could not allege suppression and invoke the extended period of limitation. Consequently, the demand raised in the first show-cause notice was restricted to the normal time limit, while the second notice was deemed timely.

Imposition of penalty:
Regarding the imposition of a penalty, the Tribunal found no justification in the circumstances of the case and decided to set it aside. The appeals were partly allowed based on the above considerations, with the decision announced in the open court.