Duty demand in terms of rule 8 of Valuation Rules unsustainable as higher duty already paid

SAIL, Alloy Steel Plant Vs Commissioner of Central Excise (CESTAT Kolkata)

CESTAT Kolkata held that demand of excise duty in terms of rule 8 of the Valuation Rules not sustainable as correct higher duty already paid in terms of rule 4 of the Valuation Rules.

Facts- The Appellant is a Public Sector Undertaking under the Ministry of Steel, Government of India and is engaged in the activity of manufacturing excisable goods falling under chapters 72, 73 and 86 of the Central Excise Tariff Act. During the relevant period, the Appellant supplied billets, rounds, HT Bars, blooms, etc., to its independent customers as well as cleared the same to its job workers for job work. The clearances made to the Appellant’s job-workers were made upon payment of excise duty on the value determined as per Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (the Valuation Rules), viz. independent sale price of such goods. However, the department alleged that Rule 8 of the Valuation Rules was applicable on such clearances, and the Appellant was liable to pay the differential excise duty in terms of Rule 8 of the Valuation Rules.

The show cause notices were adjudicated and proposed demands were confirmed. In terms of OIO, the appellant was held liable for payment of excise duty along with interest and penalty. Being aggrieved, assessee has preferred the present appeal.

Conclusion- Held that demand raised vide the impugned order is not sustainable as during the relevant period the Appellant had paid the correct duty arrived at in terms of Rule 4 of the Valuation Rules. Moreover, the Appellant has paid much higher duty than what is demanded in the impugned order and such factual circumstances, adjustment of excise duty must have been allowed instead of raising any further demand.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The Appellant is a Public Sector Undertaking under the Ministry of Steel, Government of India and is engaged in the activity of manufacturing excisable goods falling under chapter 72, 73 and 86 of the Central Excise Tariff Act. During the relevant period, the Appellant supplied billets, rounds, HT Bars, blooms, etc., to its independent customers as well as cleared the same to its job workers for job-work. The clearances made to the Appellant’s job-workers were made upon payment of excise duty on value determined as per Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (hereinafter referred to as ‘the Valuation Rules’), viz. independent sale price of such goods. However, the department vide the following two Show Cause Notices alleged that Rule 8 of Valuation Rules was applicable on such clearances, and the Appellant was liable to pay the differential excise duty in terms of Rule 8 of the Valuation Rules, as demanded:

• SCN C. No. II (8) 25/AE/CE/BOL/2006/8246 dt. 02/08/2007 proposing demand of excise duty of Rs. 26,30,268/- for the period July 2006 to August 2006;
• SCN C. No. II (8) 25/AE/CE/BOL/2006/11067 dt. 14/09/2007 proposing demand of excise duty of Rs. 2,37,82,742/- for the period January 2005 to June 2006.

2. The Show Cause notices were adjudicated vide the common Order in Original No. 44-45/Commr/BOL/09 dated 27.02.2009 wherein the proposed demands were confirmed. In the course of adjudication, the Ld. Commissioner agreed with the proposition that in case identical supplies were made to the independent buyers as well as job workers, Rule 4 was applicable. However, to ascertain whether the same goods which were sent by the Appellant to the job workers were also sold to independent parties, the verification report of the jurisdictional Assistant Commissioner was sought. The jurisdictional Assistant Commissioner undertook the fact-finding activity of ‘whether identical category of goods stock transfer is sold to the independent buyers and if so at what value’ and submitted his report vide a letter dated 02.2009 which forms part of the order dated 27.02.2009.

3. The referred report dated 25.02.2009 is elaborate and refers to various transactions of the Appellant for the relevant period and categorises the transactions in various Annexures as stated under and compared the excise duty paid and duty payable as per department.

For SCN dated 02.08.2007

Annexure 1 – Sold to independent buyers & where the stock transfer value is higher than the sales value to independent buyers.

Annexure 2 – Sold to independent buyers & where the stock transfer value is less than the sales value to independent buyers.

Annexure 3 – Not sold to independent buyers & where CAS-4 price is less than the stock transfer value.

Annexure 4 – Not sold to independent buyers & where CAS-4 price is higher than the stock transfer value.

Annexure 5 – Not sold to independent buyers & where CAS-4 price is less than the stock transfer value.

Annexure 6 – Not sold to independent buyers & where CAS-4 price is higher than the stock transfer value.

For SCN dated 14.09.2007

Annexure 1 – Sold to independent buyers & where the stock transfer value is higher than the sales value to independent buyers.

Annexure 2 – Sold to independent buyers & where the stock transfer value is less than the sales value to independent buyers.

Annexure 3 – Sold to independent buyers & where the stock transfer (ultimate customer – Tata Motors Ltd.) value is less than the sales value to independent buyers.

Annexure 4 – Not sold to independent buyers & where CAS-4 price is less than the stock transfer value.

Annexure 5 – Not sold to independent buyers & where CAS-4 price is higher than the stock transfer value.

Annexure 6 – Not sold to independent buyers & where CAS-4 price is less than the stock transfer (defence) value.

Annexure 7 – Not sold to independent buyers & where CAS-4 price is higher than the stock transfer (defence) value.

Annexure 8 – Not sold to independent buyers & where CAS-4 price is less than the stock transfer value.

Annexure 9 – Not sold to independent buyers & where CAS-4 price is higher than the stock transfer value.

4. In some of these annexures, the Appellant appeared to have paid excess duty than was due and in others, short payment. Based on the above fact-finding report, the Ld. Commissioner ignored the Annexures which showed excess payment of duty and confirmed the demand in relation to the Annexures which showed short payment. Thus, in terms of the OIO dated 27.02.2009, the Appellant was held liable for payment of excise duty of Rs. 21,65,587/- in respect of SCN dated 02.08.2007 and Rs. 1,31,59,371/- in respect of SCN dated 09.2007, along with interest and equal penalty.

5. The Appellant being aggrieved by such order is before us.

6. The Ld. Advocate for the Appellant submits that:

• Since there was no sale transaction between the Appellant and job-workers, therefore, transaction value was not available, and the valuation needed to be adopted in terms of the Valuation Rules. The Appellant valued the goods at the comparable values at which the said goods were sold to the independent parties in terms of Rule 4, while making adjustments in certain cases to account for the grades of material, at times. In this regard, the Appellant relied on the decision of the Larger Bench of Tribunal in Ispat Industries v. CCE, Raigad [2007 (209) ELT 185 (Tri – LB)].
• The Appellant submits that Rule 4 of the Valuation Rules allows for adjustment between the date of sale and supplies under consideration. Thus, where the exact grade was not sold at or around the same time, the Appellant arrived at the comparable price by making adjustments to the price of other grades of identical goods sold near thereto, to value the goods supplied to the job-worker. Thus, the valuation adopted by the Appellant is correct and valuation adopted in the order dated 27.02.2009 is bad in law and for such reason the said order is liable to be set aside.
• The Ld. Advocate for the Appellant, without prejudice to the above, also points out that upon perusal of the report of the department it is evident that as per the annexures to the verification report of the jurisdictional Assistant Commissioner, in some annexures, the excise duty paid is in excess whereas in some it is less than what was payable. The excess payment is much more than the cases of short­fall as per the department’s own report, which is explained as under:

i. for SCN dated 02.08.2007 (July 2006 to August 2006) – supplies covered under Annexure 1, 3 and 5 of the report resulted in higher payment of excise duty to the extent of Rs. 39,90,919/- whereas supplies covered under Annexures 2, 4 and 6 of the report resulted in lower payment of excise duty to the extent of Rs. 21,65,587/-. The net result is excess payment of Rs. 18,25,332/-.

ii. for SCN dated 14.09.2007 (January 2005 to June 2006) – supplies covered under Annexures 1, 4, 6 and 8 of the report resulted in higher payment of excise duty to the extent of Rs. 4,22,58,330/- whereas supplies covered under Annexures 2, 3, 5, 7 and 9 of the report resulted in lower payment of excise duty to the extent of Rs. 1,31,59,371/-. The net result is excess payment of Rs. 2,90,98,959/-.

• The approach of the Ld. Commissioner in ignoring the excess payments and confirming the demand pertaining to short payments alone is legally unsustainable and against a long line of settled precedents, viz.:
  • Commr. of CGST & CE Vs. Godrej Consumer Products Ltd. 2019 (367) ELT 985 (MP);
  • Jindal Steel & Power4 Ltd. Vs. CCE, Raipur-I 2016 (342) ELT 253 (Tri.-Del.);
  • Suzlon Energy Ltd. Vs. CCE, & ST Vadodara 2016 (339) ELT 87 (Tri.-Ahmd.);
  • Vinir Engineering Pvt. Ltd. Vs. CCE, Bangalore 2004 (168) ELT 34 (Tri.-Bang.);
  • Angadpal Industries Ltd. Vs. CCE, Thane-II 2012 (280) ELT 542 (Tri.-Mum.);
  • ToyotaKirloskar Auto Parts Pvt. Ltd. Vs. CCE, LTU Bang. 2012 (276) ELT 332 (Kar.);
  • Hindustan Zinc Ltd. Vs. CCE, Jaipur 2016 (336) ELT 328 (Tri.-Del.);
  • Essar Steel India Ltd. Vs. CCE, Raipur 2017 (345) ELT 139 (Tri.-Del.);
  • SangamSpinners Vs. CCE, Jaipur-II 2016 (344) ELT 623 (Tri.-Del.)
• The entire issue is revenue neutral in nature as the job worker of the Appellant is eligible to claim CENVAT Credit on the duty paid by the Appellant and the Appellant further avails the Cenvat credit of the duty paid by the job-worker. Thus, in such a scenario demand is not sustainable as held by:
• • Cce, Pune Vs. Coca-Cola India Pvt. Ltd., 2007 (213) Elt 490 (S.C.);
  • Cce & C. Vadodara-II Vs. Indeos Abs Ltd. 2010 (254) ELT 628 (Guj.), affirmedby the Hon’ble Supreme Court in [2011 (267) E.L.T. A155 (S.C.)]
• The SCN dated 14.09.2009 is wholly time barred and that extended period of limitation has been erroneously invoked vide the said SCN, since on the identical issue previously the department had already issued the Show Cause Notice No. 31/BOL/2005 dated 04.08.2005. Thus, the department was aware of this issue and cannot allege suppression against the Appellant. In this regard, the Appellant relied upon the judgments of the Hon’ble Supreme Court in Nizam Sugar Factory Vs. Coll. Of CE, AP 2006 (197) ELT 465 (S.C.) and Anand Nishikawa Co. Ltd. Vs. CCE, Meerut 2005 (188) ELT 149 (S.C.).

7. The Authorized Representative for the Department relies upon the findings of the impugned order and supports the same.

8. We have perused the records of the case and the detailed submissions made by the Ld. Advocate for the Appellant as well the contentions of the department. We find that the methodology explained by the Appellant for valuation of goods as per Rule 4 by making adjustment as to the grade of the finished goods cleared to the job workers, appears to be correct. Thus, at the first instance, duty was correctly paid by the Appellant.

9. Even otherwise, if we consider the report of the jurisdictional Assistant Commissioner, arriving at the transaction value of goods cleared by the Appellant in the form of a number of annexures and by working out the short/ excess payment of duty by the Appellant, it emerges that in overall, the Appellant has paid much more duty than what is confirmed by the order appealed against.

10. The Learned Commissioner vide the impugned Order has raised the demand for excise duty by ignoring the transactions where higher excise duty has been paid, when compared to the duty payable as per Rule 8 valuation. Further, transactions where excise duty paid is lower than the duty payable on application of Rule 8 has been selected. By adopting such methodology of pick and choose, the excise duty demand has been arrived at. This bench finds that the approach of the Ld. Commissioner in confirming the demand by considering the annexures relating to short payment of excise duty alone is legally erroneous. The Ld. Commissioner ought to have allowed the adjustment of excess excise duty paid against the short payment, prior to raising any demand on the Appellant. We are in agreement with the long range of judgments referred to by the Appellant wherein such adjustment has been allowed in the context of identical matters, matters involving CAS-4 valuation, matters involving provisional assessment and matters involving SSI exemptions. Some of the judgments which are directly applicable to the present case are referred hereunder:

(a) Pr. Commr. of CGST & CE Vs. Godrej Consumer Products Ltd. 2019 (367) ELT 985 (MP) – wherein the Hon’ble High Court upheld the Tribunal’s order relying on the following observations made in the case of Essar Steel India Ltd. v. Commissioner, 2017 (345) ELT 139 (Tribunal):

“10. The next issue for decision is on the quantification of differential duty. Even though there is no provisional assessment in the present case, the duty determination on the inter-unit transfer is made on annual costing. As such when the Department arrived at cost on annual average basis the duty liability, excess or shortage has also to be determined on such basis. It is not tenable while for arriving at per unit duty liability the whole year data is considered for costing, for total duty liability only months when short payment was noticed were considered. In other words when CAS-4 based annual costing formed basis for arriving transaction value, the overall duty liability/short payment should be arrived at after considering duty already paid during that year on such goods. We find the reasoning given by the Original Authority against adjustment of already paid duty as untenable. Section 11 B has no application in such situation, when the appellants duty liability is determined on annual CAS-4, the duty already paid during said period has to be adjusted. The question of unjust enrichment has no relevance here. There is no refund considered here. The point that the duty paid in excess in certain months has been availed as credit by sister unit hence, cannot be adjusted towards short payment also not tenable. The demand arose based on annual costing. Such cost price in terms of Rule 8 will apply to all clearances made during the relevant year. Admittedly, duty already discharged has to be considered for arriving at overall short payment. Selectively applying the said cost price only for months when the clearances were below such cost price is not legally sustainable.”

b. Jindal Steel & Power Ltd. Vs. CCE, Raipur-I 2016 (342) ELT 253 (Tri.-Del.) – wherein in identical set of facts as in the present case, the following observations were made:

“2. ……………………… We find the reasoning given by the lower authority as devoid of merit. In the present case, the appellant was not allowed to have provisional assessment and the department now proceeds to demand of duty selectively for periods within the same financial year wherever the value is less than the Rule 8 value and refused adjustment within the same financial year when the value is determined higher than the Rule 8 value. It is apparent that the duty liability as already discharged on the basis of value which is not final. The net excess or shortage will have to be considered. In the present case, admittedly, no refund has been claimed or under consideration for the impugned period even though overall payment by the appellant for the whole year is much higher than the actual liability.”

11. It is observed that demand raised vide the impugned order is not sustainable as during the relevant period the Appellant had paid the correct duty arrived at in terms of Rule 4 of the Valuation Rules. Moreover, the Appellant has paid much higher duty than what is demanded in the impugned order and in such factual circumstances, adjustment of excise duty must have been allowed instead of raising any further demand.

12. Further, as duty demand is not sustainable, there arises no question of sustaining the demand for penalty or interest.

13. In view of above observations, the impugned order cannot be sustained and is accordingly set aside. The appeal filed by the Appellant is allowed with consequential relief, as per law.

(Order pronounced in the open court on 12 May 2023.)