By TIOL News Service

MUMBAI, MAR 09, 2018: THIS is Revenue appeal.

The respondent is manufacturing excisable goods [CSH 8517 3000] and clearing the same to their units/branches located all over India for consumption/use to provide services to their customers. Valuation was arrived at based on the cost of production.

Revenue held a view that since there was no sale the value of excisable goods manufactured by the respondent should have been determined as per Section 4(1)(b) of the CEA, 1944 r/w Rule 11 and Rule 8 of the Valuation Rules, 2000 i.e. by cost construction method.

Accordingly, the department alleged that the AV should be 110% of the cost of production of the said goods and the differential CE duty allegedly recoverable is Rs.1,32,86,489/-.

However, the adjudicating authority dropped the proceedings relying on the CESTAT judgment in the respondent's own case - 2007-TIOL-2402-CESTAT-KOL and which relied on the decision in PCC Pole Factory - 2003-TIOL-110-SC-CX.

The AR submitted that the cited decision relied upon the apex Court decision which dealt with the valuation under Rule 6(b) of Central Excise (Valuation) Rules 1975, whereas the period involved in the present case is covered by the Central Excise (Valuation) Rules 2000.

Inasmuch as Rule 8 of the Valuation Rules, 2000 clearly prescribed the valuation at the rate of 110% of the cost of production and is different from the provisions of earlier rule 6(b) (supra).

The respondent assessee submitted that the issue having been already settled in their case and which judgment had been accepted by the jurisdictional Commissioner, it is a settled law that the department cannot now take a contrary stand. Reference was also made to the decision in XEN, Central Workshop, PSEB - 2014-TIOL-3298-CESTAT-DEL.

The Bench considered the submissions made by both sides and observed -

+ We find that the issue involved is valuation of excisable goods which is neat question of law, question of law can be raised at any stage when the matter is before the Tribunal. The Tribunal can very well decide the matter independently irrespective whether the earlier judgment on the same issue has been accepted by the department. Therefore, we do not agree at this stage, the issue cannot be re-decided on its merit.

+ We find that in the present case, for the purpose of valuation, Central Excise (Valuation) Rules, 2000 is applicable. As per the facts of the present case, the goods were not sold by the appellant but provided to the customer for use.

+ Obviously, Section 4(1)(a) shall not apply, therefore, the recourse to be made to Section 4(1)(b) and Rules made thereunder. If we see the Rules sequentially we find that any of the Rules from Rule 1 to 10 are not directly applicable to the nature of transaction in question, therefore, the recourse has to be made from Rule 11 of the Central Excise (Valuation) Rules, 2000…

+ On plain reading of the above Rule 11, it can be seen that even though the Rule 1 to 10 do not apply but the valuation can be made by adopting the suitable Rule in the Rules 1to 10. In case of removal other than the sale of the goods the appropriate Rule is Rule 8 which can be applied…

+ Therefore, in accordance with Rule 8, Valuation should be 110% of the cost of production.

The CESTAT further noted that the Commissioner had decided the matter solely on the basis of the Tribunal's order in the respondent's case - 2007-TIOL-2402-CESTAT-KOL and which was based on the apex court decision in PCC Pole Factory - 2003-TIOL-110-SC-CX and no independent finding on the valuation provision was given.

After extracting rule 6(b) of the Valuation Rules, 1975, the Tribunal further observed –

"…From the above Rule, it can be seen that it provides for addition of profit but the word suffix is "if any" that means the profit can be added as per Rule 6(b) only when the assessee is making profit. As per Rule 8 the valuation should be done on 110% of the cost of production irrespective of whether the assessee is making profit or not, therefore there is departure from Rule 6(b) of Central Excise Rules, 1975 and introduction of Rule 8 of Central Excise Rules, 2000. In terms of Section 4(1)(b) and Valuation Rules 2000 there is no provision where only cost of product can be taken as value of the goods when supply is other than sale, the cost of production alone cannot be taken as value of excisable goods. Therefore, the only option of valuation is left with Rule 8 and in accordance with Rule 11 the appropriate Rule 8 should be applied…"

The Bench concluded thus –

"Since both the Tribunal judgment in the case of appellant as well as XEN, Central Workshop, PSEB (supra) are based on PCC Pole Factory (supra) the matter needs to be referred to the Larger Bench to resolve the following question:

Whether during the period after 1st July 2000 the valuation of the goods supplied which does not involve as sale should be done under Rule 8 of Central Excise Rules, 2000 or on the basis of cost of production without adding any notional profit."

The Registry was directed to place the matter before the President for constituting the Larger Bench.

(See 2018-TIOL-777-CESTAT-MUM)