Case Law Details
Avon Steel Industries Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Chandigarh)
CESTAT Chandigarh held that duty demand valuing goods cleared to sister concern in term of rule 8 of the Central Excise (Valuation) Rules, 2000 (CVR, 2000) without any reasonable justification and without providing report of Deputy Director (Cost) is unsustainable in law.
Facts- The appellants are engaged in the manufacture of “HR Coils”; they sell the coils to related as well as unrelated parties. On conduct of an audit of the appellants, Revenue came to the conclusion that the appellant is clearing part of the final goods to their sister concerns and therefore, the valuation of the goods removed to the sister concerns should be, on the basis of cost plus 10%,in terms of Rule 8 of Central Excise (Valuation) Rules, 2000.
A show-cause notice demanding duty of Rs.43,52,529/- along with penalty and interest was issued to the appellants; the show-cause notice was adjudicated vide OIO wherein duty of Rs.29,17,703/- was confirmed under the extended period along with equal penalty u/s. 11AC of the Central Excise Act, 1944.
Conclusion- Held that as contended by the learned Counsel for the appellants, the report of the Deputy Director (Cost) was not provided to the appellants; the working papers on the basis of which the Deputy Director (Cost) has arrived at the figures are also not given; the same are not even explained in the show-cause notice. We find that this is a serious case of violation of principles of natural justice as the appellants have been denied an opportunity to analyse or counter the findings of the Deputy Director (Cost).
Held that no reasonable justification has been given to invoke the Valuation Rules except for making a bland averment that the appellants are clearing goods to their sister concerns at a lower price. The variation in the quality and thickness of the goods supplied to the sister concerns has not been distinctly brought out; no chemical analysis of the products has been made. We are of the considered opinion that prices of goods cleared to their sister concern are shown to have been less compared to their clearances of comparable goods to independent buyers, the Department has not made any case for taking recourse to CVR, 2000.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s Avon Steel Industries Private Limited assail the Order-in-Appeal dated 06.06.2013 passed by the Commissioner (Appeals) of Central Excise, Chandigarh.
2. Brief facts of the case are that the appellants are engaged in the manufacture of “HR Coils”; they sell the coils to related as well as unrelated parties. On conduct of an audit of the appellants, Revenue came to the conclusion that the appellant is clearing part of the final goods to their sister concerns and therefore, the valuation of the goods removed to the sister concerns should be, on the basis of cost plus 10%,in terms of Rule 8 of Central Excise (Valuation) Rules, 2000. A show-cause notice dated 13.09.2010 demanding duty of Rs.43,52,529/- along with penalty and interest was issued to the appellants; the show-cause notice was adjudicated vide OIO dated 23.09.2011 wherein duty of Rs.29,17,703/- was confirmed under the extended period along with equal penalty under Section 11AC of the Central Excise Act, 1944.
3. Shri Sudeep Singh Bhangoo, learned Counsel for the appellant, submits that the price at which they clear their “HR Coils” to independent buyers as well as sister concerns depends on the thickness of the HR Coils; as the sale price to independent buyers was available and is comparable, there was no need to take recourse to Valuation Rules. He submits further that the Department has relied upon the report of the Deputy Director (Cost), Central Excise, disregarding the certificate issued by the independent Chartered/ Cost Accountant which was submitted to the Department before the issuance of show-cause notice; the Department has not made available the copy of the certificate issued by Deputy Director (Cost) and have not specified as to how the said Deputy Director has arrived at different figures for calculation; extracts of the report were shown to the appellants only at the time of personal hearing before the Commissioner (Appeals); he submits that this is a clear violation of principles of natural justice. He submits, also that in a case having identical facts, in case of their sister concern, “M/s Avon Tubes”, Tribunal has decided the issue in favour of the appellants.
3. Learned Counsel further submits that if the Revenue goes by the independent Chartered Accountant’s certificate, the price at which they have cleared goods to their sister concern is more than what is payable as per the report. He submits that Deputy Director (Cost) has seriously erred in including the job charges earned by them in respect of job-work performed by them to other manufacturers; if the said job charges are deducted, the prices at which HR Coils are cleared to their sister concerns are comparable to or more than the value indicated in the report and therefore, there was no scope for demand of differential duty. He submits alsothat the entire issue is revenue neutral as their sister concern would any way be eligible to avail CENVAT credit even if duty paid is at a higher price. He relies on the following cases:
- Special Steel Ltd.- 2015 (329) ELT 449 (Tri. Mumbai) upheld by the Hon’ble Supreme Court in 2016 (334) ELT A123 (SC).
- Akash Optifibre Ltd.- 2010 (261) ELT 404 (Tri. Del.).
- Atul Ltd.- 2009 (237) ELT 287 (Tri. Ahmd.)
- Crustal Quinone (P) Ltd.- 2009 (233) ELT 499 (Tri. Ahmd.).
4. Shri Harish Kapoor, learned Authorized Representative appearing on behalf of the Department reiterates the findings of the OIA and submits that all the issues raised by the appellants have been discussed by the Appellate Authority and findings were given to that effect. He submits that the appellant’s contention that the expenses under job-work charges needs to be deducted is not correct in terms of Point No. 5.3 of Chapter 3 of Revised Guidance Note on Cost Accounting Standard on cost of production for captive consumption (CAS-4) job charges are direct expenses to be included in the calculation of the assessable value. He submits that the appellant’s contention on limitation is not acceptable as they are under self-assessment procedure. He relies on the following cases:
- Tata Iron & Steel Co. Ltd.- 2014 (300) ELT 571 (Tri. Mumbai).
- Crompton Greaves Ltd.- 2004 (177) ELT 1032 (Tri. Mumbai).
- Steel Industries Kerala Ltd.- 2005 (188) ELT 33 (Tri. Bang.).
- Jabalpur Oxygen Company- 1991 (52) ELT 455 (Tri.)
5. Learned Authorized Representative submits further that the appellant’s argument on revenue neutrality is not acceptable in view of the following cases:
- Crompton Greaves Ltd.- 2004 (177) ELT 1032 (Tri. Mumbai)
- Jay Yuhshin Ltd.- 2000 (119) ELT 718 (Tri. LB).
- Nirlon Ltd.- 2004 (177) ELT 836.
6. Heard both sides and perused the records of the case. We find that as contended by the learned Counsel for the appellants, the report of the Deputy Director (Cost) was not provided to the appellants; the working papers on the basis of which the Deputy Director (Cost) has arrived at the figures are also not given; the same are not even explained in the show-cause notice. We find that this is a serious case of violation of principles of natural justice as the appellants have been denied an opportunity to analyse or counter the findings of the Deputy Director (Cost).
7. Further, ongoing through the show-cause notice, we find that no reasonable justification has been given to invoke the Valuation Rules except for making a bland averment that the appellants are clearing goods to their sister concerns at a lower price. The variation in the quality and thickness of the goods supplied to the sister concerns has not been distinctly brought out; no chemical analysis of the products has been made. We are of the considered opinion that prices of goods cleared to their sister concern are shown to have been less compared to their clearances of comparable goods to independent buyers, the Department has not made any case for taking recourse to CVR, 2000. As submitted by the learned Counsel for the appellants, we find that this Tribunal has gone into the issue in respect of their sister concerns themselves, Tribunal held that:“we find substance in the submission of the learned Advocate that Rule 8 is to be brought into operation where the excisable goods are not sold by the assessee. In the present matter it has not been disputed by the Revenue that almost 60% of the goods manufactured by the appellant are sold to the buyers who are not related and the price is the sole consideration. It clearly shows that the value of the goods at the place and time of removal is available and that price should be adopted for the purpose of ascertaining the assessable value of the goods which are used captively by Unit-I and Unit-II of the appellants. This was also the decision of the Appellate Tribunal in the case of Steel Complex Ltd. (supra). Thus, we set aside the impugned order and allow the appeal.”
8. Learned Authorized Representative submits that in terms of Point No. 5.3 of Chapter 3 of Revised Guidance Note on Cost Accounting Standard on cost of production for captive consumption (CAS-4) job charges are direct expenses to be included in the calculation of the assessable value. We find that there is no dispute on the addition of job charges as far as they relate to the job charges incurred in the manufacture of the goods in question. The appellant submits that these are charges earned by them while performing job work for other manufacturers. We fail to understand as to how the expenditure or income unrelated to the goods in question can be included or subtracted for the purpose of arriving at the assessable value. As the report of the Deputy Director (Cost) was not made available, it cannot be understood as to how the Deputy Director (Cost) included the job charges in the assessable value. In the absence of any definitive explanation by the Department, the argument of the appellants that these job charges do not relate to the goods in question has to be accepted. We find that this Bench while deciding the Stay Application in the instant appeal vide Stay Order No.53723/2014 dated 13.10.2014 has observed that there is force in the argument of the appellant that the payment received for doing job-work is not includable for the purpose of working out the cost of production of the impugned goods. Moreover, the argument of the appellant that the said job charges are income to them rather than expenditure not being controverted, inclusion of the same for the purpose of valuation of the impugned goods is not acceptable. We also find support from the certificate dated 02.09.2023 issued by H.K. Chitkara Co. Chartered Accountants to the effect that the said income is earned on account of job charges for a job quantity of 53436.065 MT.
9. In view of the aforesaid discussion, we are of the considered opinion that the impugned order is not sustainable and is liable to be set aside. It is to make it clear that we are not going, at this juncture, into the issue of limitation or revenue neutrality as we find that the appeal survives on merits. In the result, the impugned order is set aside and appeal is allowed.
(Pronounced on 17/10/2023)
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