Whether stock transfer to sister concern to be valued as per Rule 8 of Valuation Rules?

PJ/Case Laws/2012-13/1373

Case:-M/s FORBES & COMPANY LTD Vs COMMISSIONER OF CENTRAL EXCISE, CHENNAI-IV

Citation:-2012-TIOL-1942-CESTAT-MAD

Brief facts:-A duty demand of Rs.13,77,261/- under Section 11A has been confirmed against the applicants along with interest and equivalent amount of penalty under Section 11AC of the Central Excise Act, 1944. The applicants have imported certain raw materials and the same was sent to job worker and after processing by the job worker, the goods were returned to the applicants, which were cleared on stock transfer basis to their other Unit, after processing the same, have been cleared on payment of duty. The applicants are following the Rule 4(5)(a) of CENVAT Credit Rules, 2004, wherein goods were sent to the job workers and the same have been received by them upon processing. At the time of stock transfer, the applicants are reversing the CVD component availed by them at the time of import. But they are not discharging their duty liability as per Rule 8 of the Valuation Rules, whereby, they have to discharge the duty liability at appropriate rate on value equal to 110%/115% (depending on the period) of the cost of goods plus the cost of production. Therefore, show-cause notice was issued and impugned demands were confirmed. Aggrieved from the said order, the applicants are seeking waiver of pre-deposit by way of this stay application.

Appellant contention:-Appellant contented that they are reversing the credit taken by them at the time of import on stock transfer basis and the duty has been discharged by their sister Unit after processing the goods. Therefore, there is no Revenue loss to the department and further it is also contended that clearances made by them are in the knowledge of the department, therefore, extended period of limitation is not invokable.

Respondent contention:-The learned DR for the Revenue strongly opposes the contention of the learned consultant andsubmitted that in this case, the valuation is the main thing and the same has not been disclosed by the applicants while clearing their goods and nothing has come out by way of ER-1 returns. Therefore, applicants are asked to make pre-deposit of the impugned demand as demanded. It is further contended that when there is no sale of goods, then duty is to be paid on the value arrived on Cost Construction Method. Therefore, impugned order is correct.

Reasoning of judgment:-The applicants have to discharge their duty liability as per the formula adopted by Ujagar Prints & others vs UOI (2002-TIOL-02-SC-CX)i.e., cost of production plus 10%/15% of the cost of the goods, same has not been done by the applicants. Further, the valuation adopted by the applicants was also not disclosed at the time of clearance of the goods. Therefore, the applicants have failed to make a case for 100% waiver of pre-deposit and hence they are directed to pre-deposit 50% of the duty confirmed against them within eight weeks and report compliance on 26.09.2012. On such deposit, the balance amount of duty, interest and penalty shall remain waived and recovery thereof stayed during the pendency of the appeal.

Decision:-50% Pre-deposit ordered.

Comment:-The analogy drawn from this case is that when the goods are transferred to sister concern for further processing and then cleared by sister concern on payment of duty, the transferor unit is required to value goods under Rule 8 of the valuation rules i.e. cost+10%.

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PJ/Case Laws/2012-13/1373

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