Correctness of valuation done by assessee as per Rule 8.

PJ/Case Law/2013-14/2054

Case:- COMMISSIONER OF CENTRAL EXCISE, NAGPUR Vs DIFFUSION ENGINEERING LTD.

Citation:-2013-TIOL-1856-CESTAT-MUM

Brief facts:-The Revenue is in appeal against Order-in-Appeal NO. RK/193 to 194/NGP-I/2004 issued on 29/07/2004 passed by the Commissioner of Customs & Central Excise (Appeals), Nagpur. Vide the impugned order, the learned appellate authority held that determination of value by the respondent-assessee, M/s. Diffusion Engineers Ltd. under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 read with Section 4(1)(d) of the Central Excise Act, 1944 is correct in law and, therefore, the duty demands confirmed on the respondent-assessee by the adjudicating authority amounting to Rs. 5,75,750/- along with interest thereon and imposing equivalent amount of penalty under Section 11AC and additional penalty of Rs. 3,00,000/- imposed under Rule 25 of the Central Excise Rules, 2002 are not sustainable in law.

The respondent-assessee, M/s. Diffusion Engineers Ltd., has two units named as Unit No.1 situated at plot NO. T-5&6, MIDC Industrial Area, Higna, Nagpur and Unit NO.2 situated at Plot NO. N-78, MIDC Industrial Area, Hingna Road, Nagpur and they are engaged in the manufacture of wear plates and sleeves of iron and steel. The respondent also manufactures flux cored wire and welding electrodes at Unit NO.1 and removes the same to Unit NO.2 for undertaking manufacturing activities at Unit No.2 and discharges excise duty liability on such flux cored wire and welding electrodes at 115% of the cost of production as provided for under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Since the respondent, apart from manufacturing excisable goods, were also undertaking rebuilding/re-conditioning work of old/used/defective Grinding Rollers, Liners, etc. and flux cored wire and welding electrodes were used in undertaking such reconditioning work, the department was of the view that duty liability should have been discharged not on the basis of cost-construction method under Rule 8 but under Rule 5 of the said Valuation Rules, which provided for payment of duty on the sale price of similar goods sold by the assessee. Hence the Revenue is in appeal before the Tribunal.

Appellant’s contention:- The learned Additional Commissioner (AR) appearing for the Revenue submits that inasmuch as the respondent had not used the flux cored wire and welding electrodes in the manufacture of excisable goods in Unit NO.2, they could not have determined the value under Rule 8 of the said Valuation Rules but should have determined the value under Rule 5 i.e., on the basis of like goods sold. It is his submission that, if one wants to avail the benefit under Rule 8, then the goods has to be used in the production/manufacture of "excisable goods" in Unit No.2.

Respondent’s contention:-The learned counsel for the respondent submits that Rule 8 of the Valuation Rules, 2000 does not envisage captive consumption for manufacture of excisable goods and uses the expression "articles". Further, the CBEC, vide Circular NO. 643/34/2002-CX dated 01/07/2002 has also clarified that if excisable goods are captively consumed, then Rule 8 shall apply and where such goods are transferred to a sister-unit, then valuation can be done under Rule 9. Rule 9, also in a situation where there is no sale, provides that valuation prescribed in Rule 8 can be adopted in the case of captive consumption. From this circular, it is abundantly clear that when the goods are not sold but captively consumed, whether in the manufacture of ‘excisable goods' or otherwise, the provisions of Rule 8 would prevail and, therefore, discharge of excise duty liability by the respondent, following the procedure prescribed under Rule 8 is correct in law and, therefore, the impugned order passed by the lower appellate authority is sustainable in law.

Reasoning of judgment:- The Tribunal held that the Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods), Rules 2000 reads as follows:

"(8) Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods."

The expression used is production or manufacture of other articles'. The said rule nowhere envisages that the production or manufacture should be of excisable goods. Therefore, the argument of the Revenue that the goods should be used in the manufacture of ‘other excisable goods' has no basis.

It is not the case of the Revenue that the appellant has sold the goods. It is an admitted position that the appellant has utilised the goods in its factory in the repair of certain other articles. Therefore, the question of invoking Rule 5 of the Valuation Rules would not arise at all, as Rule 5 envisages sale of goods, which is not the case herein. Even if for a moment it is assumed that Rule 8 will not apply and in the absence of any specific provision under any other rules, resort will have to be made to Rule 11 which provides for using reasonable means consistent with the principles and general provisions of the Rules and sub-section (1) of Section 4 of the Act. Even if the provisions of Rule 11 are applied, the most appropriate rule will be Rule 8 and, therefore, even if it is held that Rule 8 will not apply, then even under Rule 11, the principles envisaged in Rule 8 should be followed. Therefore, no infirmity was found in the order passed by the lower appellate authority. Accordingly, appeal filed by the Revenue was dismissed as devoid of merits. The cross-objection filed was also disposed of.

Decision:- Appeal rejected.

Comment:- The substance of this case is that Rule 8 does not state that the goods should be directly be used in production of excisable goods. For captive consumption, the goods may be used in manufacturing or producing excisable goods or other articles. Accordingly, as unit no. 2 used the goods sent by unit no. 1 for repair-reconditioning, valuation as per Rule 8 adopted by assessee was found to be correct and proper as per the provisions of law.

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