Applicability of Valuation Rule 8 for clearances made to holding company.

PJ/CASE LAW/2015-16/2879

Case:-AQUAMALL WATER SOLUTIONS LTD. VERSUSCOMMR. OF C. EX., HYDERABAD

Citation:- 2015 (321) E.L.T. 519 (Tri. - Bang.)

Brief facts:-This appeal is directed against the Order-in-Original No. 08/2007-C.E., dated 28-3-2007, passed by the Commissioner of Customs and Central Excise, Hyderabad.
The brief fact of the case for consideration is that the appellants herein are manufacturers of water purifying (De pollution) equipment and parts thereof. The said goods are chargeable to duty. The appellants are the wholly owned subsidiary of M/s Eureka Forbes Ltd. (EFL) and cleared almost their entire production to EFL and a very negligible quantity to other buyers. EPL effect sale of the aforesaid water purifiers and parts thereof to customers on retail basis. The appellants were selling their entire production of spare parts to their holding company, EFL and EFL had sold the said parts at much higher prices to the customers. After introduction of transaction value with effect from 1-7-2000, the appellants adopted the valuation based on Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, more specifically value as calculated by costing method as provided under Rule 8 of the said Central Excise Valuation Rules, 2000. The Revenue was aggrieved by this and issued show cause notices demanding differential duty and also sought to impose penalties. The Adjudicating Authority after considering the submission made by the appellant confirmed the demand of differential duty and also imposed equal amount of penalty. Aggrieved over such an order, the appellants have filed this appeal.

Appellant’s contention:- The learned Counsel submits that the issue in this case is no longer res integra as in respect of the very same appellant, the Revenue had filed an appeal against the Order-in-Appeal No. 18/2005, dated 18-7-2005. He drew attention to Para 4 of the said order. He submitted that since the issue has already been decided in their favour, by this Bench in Final Order No. 1211/2007, dated 26-10-2007 [2008 (223)E.L.T.385 (Tri. - Bang.)], the appeal may be allowed with consequential relief.

Respondent’s contention:- The learned SDR submitted that the Revenue has not accepted the said order of the Tribunal and has filed an appeal against the said order.

Reasoning of judgment:- They have considered the submissions made by both the sides and perused the records. The issue involved in this case is whether Rule 8 of Central Excise Valuation Rules, 2000 can be invoked for the purpose of determination of assessable value of spares cleared by the appellants for consumption as spares in the spares’ market. The Revenue’s contention is that the Rule 8 is applicable only in the case where the spare parts were used for consumption in the production or in the manufacture of another final product. They have perused their Final Order No. 1211/2007, dated 26-10-2007 [2008 (223)E.L.T.385 (Tri.-Bang.)]. They find that the issue involved in the case before them and in the appellant’s own case in Final Order dated 26-10-2007 is one and the same. They reproduce the findings in Paragraphs 4 & 5 of the above said Final Order, which are as under :-
“4. We heard both sides. According to the Revenue, Rule 8 is applicable only to case where the goods are used for consumption in the production or manufacture of other articles. In the instant case EFL is not engaged in the production or manufacture of any articles. Therefore, it was argued that Rule 8 could not be applied and the correct rule would be Rule 10A read with Rule 9 of the Central Excise Valuation Rules, 2000, which will be on the basis of the sale price of EFL. The learned Advocate argued that the sale price of EFL is not applicable as the goods are not sold by EFL but used only for the Annual Maintenance. In such cases one should take recourse to Rule 11, once recourse is taken to Rule 11 one has to be go to Rule 8 which is the only rule where valuation is determined when there is no sale. Our attention was also invited to the clarification issued by C.B.E. & C. in its Circular No. 643/34/2002 CX, dated 1-7-2002.
Valuation Rules - Clarifications
Circular No. 643/34/2002-CX, dated 1-7-2002
F. No. 6/39/2000-CX 1
Subject : Clarification of doubts under the new Valuation Rules
I am directed to refer to Board’s letter F. No. 354/81/2000-TRU, dated 30th June, 2002 [2000 (119) E.L.T. T22] clarifying certain points relating to the new valuation provisions made effective from 1-7-2000.
2. The Board has received a number of references from the field formations as well as representations from the trade associations about certain doubts still persisting in the minds of the field officers. These points of doubt are being clarified in the Table enclosed.
3. Field formations may be suitably informed.
4. Hindi version will follow.
5. Receipt of this Circular may kindly be acknowledged.
CLARIFICATIONS ON POINTS OF DOUBT UNDER THE NEW VALUATION PROVISIONS INTRODUCED W.E.F. 1-7-2000

13.

How will valuation of samples be done which are distributed free, as part of marketing strategy, or as gifts of donations?

Since the goods are not sold Section 4(1)(a) will not apply and recourse will have to be taken to the Valuation Rules. No specific rule covers such a contingency. Except Rule 8 all the other rules cover contingencies where sale is involved in some form or the other. Therefore, the residuary Rule 11 will have to be adopted along with the spirit of Rule 8. In other words, the assessable value would be 115% of the cost of ‘production or manufacture’ of the goods.

5. This case is also similar to the case, which is clarified above. When there is no sale as there is no specific rule to cover the same, Rule 8 would be the most appropriate. The learned JDR relied on certain case laws, which are not very relevant for the issue at hand. Therefore, we do not find any infirmity in the impugned order, which has adopted the Cost Construction Method of Valuation in terms of Rule 8 for the spares supplied to EFL for use in their Annual Maintenance Contract Work. Hence, Revenue’s appeal is rejected.”
It can be seen from the above reproduced findings that the issue involved in the case before Tribunal is in respect of the very same assessee and on the very same issue. Respectfully following the ratio of the above said decision, we set aside the impugned order and allow the appeal with consequential relief, if any.

Decision:-Appeal allowed.

Comment:- The substance of the case is that in case where the goods are cleared to holding company, there is no sale and so the most appropriate Valuation Rule that is applicable is the Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. It is not necessary that the goods are further processed by the holding company so as to invoke provision of Rule 8 of valuation rule.

Prepared by:- Monika Tak

Comments

PJ/CASE LAW/2015-16/2879

Post a Comment

Query