2021 (12) TMI 358 - AT - Central Excise

Valuation of goods - M S Rounds/TMT bars - classifiable under Tariff item 72131090 of the erstwhile Central Excise Tariff or not - applicability of Rule 7 or Rule 8 of Valuation Rules - HELD THAT - Rule 7 of the Valuation Rules 2000 will apply only where an assessee does not sell any goods to unrelated buyers at the factory gate but transfers all their goods to their consignment agents. In this regard it will be useful to examine the provisions of Rules 7 and 8 of the Valuation Rules 2000 during the relevant period as they use the same starting expression. The expression Where the excisable goods are not sold by the assessee came to be examined by the Larger Bench of the Tribunal in the case of ISPAT INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX. RAIGAD 2007 (2) TMI 5 - CESTAT MUMBAI where it was held that the assessee is correct in contending that provisions of Rule 8 would apply only in a case where its entire production of a particular commodity is captively consumed. This decision of the Larger Bench was relied upon by the Tribunal in the case of BHARAT PETROLEUM COPRN. LTD. VERSUS COMMR. OF C. EX. CHENNAI 2009 (9) TMI 845 - CESTAT CHENNAI to hold that Rule 7 of the Valuation Rules 2000 which uses the same expression where excisable goods are not sold.. can be invoked only where there are no sales of the goods at the factory gate and all the goods of the assessee are transferred to consignment agents. If the assessee s excisable goods are also sold at the factory gate Rule 7 will not apply. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Correctness of assessable value determination under Rule 7 of the Central Excise Valuation Rules, 2000.
2. Inclusion of transportation cost in the assessable value.
3. Applicability of Rule 4 vs. Rule 7 of the Valuation Rules.
4. Time-barred nature of the demand and invocation of the extended time limit.

Issue-wise Detailed Analysis:

1. Correctness of Assessable Value Determination under Rule 7:
The department issued two Show Cause Notices (SCNs) alleging that the appellants did not determine the assessable value correctly for goods transferred to consignment agents under Rule 7 of the Central Excise Valuation Rules, 2000. The appellants argued that the SCNs lacked substantiation, particularly the first SCN, which did not provide details of sale prices at consignment agents' ends. They contended that Rule 7 is not applicable since the premises of consignment agents are considered as the 'place of removal,' and Rule 4 should apply instead. The appellants cited the Larger Bench decision in Ispat Industries Ltd. vs. Commissioner of Central Excise, Raigad, which held that Rule 7 cannot apply if goods are also sold at the factory gate to unrelated buyers. The Tribunal agreed with the appellants, holding that Rule 7 applies only where all goods are transferred to consignment agents and not sold at the factory gate.

2. Inclusion of Transportation Cost in the Assessable Value:
The department alleged that the appellants did not include transportation costs in the assessable value of goods sold from consignment agents' premises, leading to a short levy. The appellants argued that no separate demand was made for freight charges in the first SCN. The Tribunal did not specifically address this issue in its final decision, as it found Rule 7 inapplicable.

3. Applicability of Rule 4 vs. Rule 7 of the Valuation Rules:
The appellants argued that Rule 4 is the appropriate rule since goods removed to consignment agents are not sold at the time of removal but later. They cited the Larger Bench decision in Ispat Industries, which held that Rule 8 (similar to Rule 7) applies only when all goods are captively consumed. The Tribunal agreed, stating that Rule 7 cannot apply if goods are sold at the factory gate to unrelated buyers. The Tribunal also referenced decisions in Bharat Petroleum Corporation Ltd. and Steel and Metal Tubes (I) Ltd., which supported this interpretation.

4. Time-barred Nature of the Demand and Invocation of the Extended Time Limit:
The appellants contended that the bulk of the demand is time-barred, as there was no ground for invoking the extended time limit. They argued that their marketing pattern was examined during audits, and no discrepancies were found. The Tribunal did not delve into this issue in detail, as it found the primary basis for the demand (application of Rule 7) to be incorrect.

Conclusion:
The Tribunal set aside the impugned order, agreeing with the appellants that Rule 7 of the Valuation Rules, 2000, is inapplicable when goods are also sold at the factory gate to unrelated buyers. The appeal was allowed, and the demand was quashed. The Tribunal did not find it necessary to examine other issues raised by the appellants due to the primary finding on Rule 7's inapplicability.