[2016) 3 S.C.R. 766.

COMMISSIONER OF CENTRAL EXCISE, RAIGAD

- F

MIS. !SPAT METALLICS INDUSTRIES LTD. & ORS.

(Civil Appeal No. 2562 of2008)

MAY 06, 2016

[A.K. SIKRI AND ROHINTON FALi NARIMAN, JJ.)

Central Excise Rules, 1944 - r.57AB (JC) - CENVAT Credit Rules, 2001 - r. 3 (4) - Procurement of iron ore pellets (raw 111ateria/) iointly by the assessee-manufacturer and its sister company under a joint procurement policy - Credit was availed by the priiicipal company of the duty paid on the entire quantity so procured - Later as and when required by the sister company, the pellets were transferred to .it by the principal company on reversing an amount equal to the CENVAT credit availed on inputs that were so transferred

- In addition the principal company alsQ raised debit notes OJI the sister co111pany for recovering actual expenditure incurred by it in relation to the procuring of such iron ore pellets such as bank charges, interest etc.- Reven.ue issued show cause notice to both the companies stating that the amounts mentioned in the debit note from principa.l company to sister company were also includible in the assessable duty valuation as additional consideration because the transaction between the two companies rl'as one. of sale and not transfer - The show cause notice upheld by the Co111111issiV-ner - The Tribunal reversed the order of Commissioner holding that the transfer of the raw material by principal co111pany to its sister company was not a sale - On appeal, held: The transaction in . .the present case is a tramfer and not sale - As per circular dated

1. 7.2001, in case of transfe1; the value to be adopted is the value

._ shown in the invoice on the basis of which CENVAT credit was taken by the assessee i.e. invoice of the supplier of the pellets to t_he assessee. - Post manufacturing expenses also cannot be loaded on to the amount equal to the duty of excise leviable on.such goods - Central Excise Act, 1944 - s. 4{1)(a) - Circular dated 1. 7.2002.

Dismissing the appeals, the Court

COMMISSIONER OF CENTRAL EXCISE, RAIGAD v. MIS.,

ISPAT METALLICS INDUSTRIES LTD ..

HELD: 1. The Tribunal being the last pri11cipal rorum of appreciation of facts has held that transfer of iron ore pellets by the principal company to its sister concern was not a sale of goods but was only a transfer of raw materials procured under the Tripartite Agreement between the two of them and the supplier of the said pellets. This is a pure finding of fact and the Revenue has not been able .to dislodge thi~· finding of fact. No infirmity can be found with the Tribunal's judgment, which only follows the cir'cular dated 1.7.2001. The circular makes it clear that a distinction is made between inputs on which credit has been taken which are removed on sale, and those which. are removed on transfer. If removed on sale, "transaction value" on the application of Section 4(l)(a) is to be looked at. However, where the goods are entirely transferred to a sister unit, it is reasonable to adopt the value shown in the invoice on the basis of which Cenvat Credit was taken by the assessee i.e. the invoice of the supplier of the pellets to the assessee. [Paras 10, 11 and 12] [770-G-H; 772-A- C)

2. The Tri'bunal was also correct in holding that post manufacturing expenses cannot be loaded on to the amount equal

767 •'

to the duty of excise leviable on such goods as this amount would, then, cease to be an amount equat to the dufy of ecise but would . be something more.~-Thus, the Tribunal is justified i11 its finding .E

o~ tnw, whicli is based on its fif!ding of fact that the present is a case of transfer and not sale. [Para"l2) [772-D)

.CJVILAPPELLATEJURISDI<;:TlON: Civil Appeal No. 2562 of 2008. . .

From the Judgment and Order ctated 11. I 0.2005 in Appeal Nos. E/ 1462, 1093, 1509/05 of the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Branch at Mumbai ·

WITH

C.A. Ncr:8557/2015.

K. Radhakrishna, Sr. Adv., Ms. Nisha Bagchi, Ms. Pooja Sharma, B. Krishna Prasad, Advs. for the Appellant.

V. Lakshmi Kumaran, Hemant Bajaj; Aditya Bhattacharya, Anandh K., Ms. L. Charnaya, M.P. Devanath, Advs. for the Resporide!Jts:

,/'

A The Judgment of the Court was delivered by

R.F. NARIMAN, J. I. Two appeals have been filed from a common decision of CESTAT dated 11.10.2005, whereby the Tribunal has upset the order of the Commissioner, confirming various duty demands, B penalty and interest.

2. The brief facts necessary in order to appreciate the controversy at hand, taken from C.A. No.2562 of2008, are as follows.

3. Mis. !spat Industries Limited (hereinafter referred to as the "llL") is engaged in the manufacture of HR coils, sheets, plates, etc., which are cleared on payment of duty of excise. In the manufacture of such goods, it avails credit on inputs such as iron ore pellets. Adjacent to its plant, another group company, namely, M/s. I spat Metallics Industries Ltd. (hereinafter referred to as the "IMIL") also has a factory in which pig iron and molten metal are manufactured. The principal raw material for manufacture for both these companies is iron ore pellets. The said pellets were purchased from Mandovi Pellets and Essar Steel Limited.

These were carried to the factory of IIL. Credit was availed by llL of the duty paid on the entire quantity so procured. As and when required by the sister company !Ml L, pellets were transferred through a conveyor from llL's plant to IMIL's premises under cover of an invoice and on reversing an amount equal to the Cenvat credit availed on inputs that were so transferred. In addition to such invoices, llL also raised debit notes on !MIL for recovering actual expenditure incurred by it in relation to the procuring of such iron ore pellets, such as bank commission, interest, etc.

4. The aforesaid two companies were issued show cause notices dated 29.9.2003 and 14.10.2003 respectively. It was alleged that iron ore pellets were sold by llL to IMIL and that the amounts recovered by llL in the form 'of debit notes towards bank charges, interest, etc. were includible in the assessable value of such inputs that were cleared. The notice alleged that the reversal of credit equal to the amount paid to the supplier which was being followed by llL was not in '<ompliance with law.

5. The learned Commissioner upheld the show cause notices stating that the transaction between llL and !MIL was one of sale and not transfer. Since the goods were reassessed to duty in terms of Rule

COMMISSIONER OF CENTRAL EXCISE, RAIGAD v. M/S. 769

!SPAT METALLICS INDUSTRIES LTD. [R.F. NARIMAN, J.]

57AB(l C) of the Central Excise Rules, 1944 and Rule 3(4) oftheCenvat Credit Rules, 200 I, the assessable value in terms of Section 4( I )(a) of the Central Excise Act i.e., the transaction value at the time of clearance plus any additional consideration paid by the buyer at a later stage is to be added and, therefore, the amounts mentioned in the debit note from llL to !MIL were also includible in the assessable duty valuation as additional consideration. The extended period for limitation was also found to be available on the facts of the present case.

6. The Tribunal reversed the aforesaid decision on the ground that the transfer of iron ore pellets by IIL to !MIL was not a sale of goods but was transfer ofraw materials, jointly procured, under a joint procurement policy which was followed by the two sister companies and this becomes clear on a reading of the tripartite agreement between the supplier of the pellets, HL, and !MIL. This being so, the Tribunal applied a circular dated 1.7.2002 by which, where no sale is involved but only a transfer by one sister unit to another, the value shown in the invoice on the basis of which Cenvat credit was taken by the assessee would be the value for the purpose of Rule 57 AB and Rule 3( 4). It was further held that additional consideration could not be added inasmuch as the amount spoken of in the Rule 57 AB and Rule 3(4) is an amount equal to the duty of excise which is leviable on such goods. Post manufacturing expenses cannot possibly amount to a duty of excise leviable on such goods and therefore all amounts paid under the debit notes between llL and !MIL could not be added to the value of those goods. Further, the invoice value of the supplier alone was to be taken into account and, consequently, the judgment of the learned Commissioner was set aside, not only on merits, but also on limitation, following the judgments of the Tribunal itself and of this Court.

7. Shri Radhakrishnan has read to us in detail the show cause notices and the Commissioner's judgment dated 24.12.2004, which is strongly relied upon by him in support of his case. It is his case that a proper reading of the relevant rules would make it clear that what has to be seen is transaction value under Section 4(1 )(a) of the Central Excise Act and not invoice value of the supplier of the iron ore pellets. This being so, according to him, the learned Commissioner is right in his reasoning and the Tribunal's judgment should be reversed.

8. Shri V. Lakshm ikumaran, the learned counsel, on the other hand supported the decision of the Tribunal and argued that on a reading of

the Rules the rate applicable to such goods would be as on the date of removal but value would necessarily be that determined for such goods under Section 4 or 4A of the Central Excise Act which would be the invoice value of the iron ore pellets cleared by the supplier of those pellets. He relied strongly on the circular dated 1.7.2002, which was dso relied upon by the Tribunal, and further went on to argue that there was no suppres_sion otfacts in this case and, hence, the extended period of limitation could not possibly have been applied to the facts of this case.

9. Having heard the learned counsel for the parties, it is important to first set out the relevant rules. Rule 57 AB(I C) of the Central Excise Rules, 1944 and Rule 3(4) of the CenvatCredit Rules, 2001 as they read at the relevant time, read as follows:-

"57( 1 C) When inputs or capital goods, on which credit has been taken, are removed as s11ch from the factory, the manufacturer of the final products shall pay an amount equal to the duty of excise which is leviable on such goods at the rate applicable to such goods on the date of such removal and on the value determined for such goods under Section 4 of the said Central Excise Act, and such removal shall be made under the cover of'an invoice referred to in rule 52A."

Rule 3(4) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, the manufacturer of the final products shall pay an amount equal to the duty of excise which is leviable on such goods at the rate applicable to such goods on the date of such removal and on the value determined for such goods under Section 4 or Section 4A of the Act, as the case may be, and such removal shall be made under the cover of an invoice referred to in rule 7."

10. The Tribunal being the last forum of appreciation of facts has held that transfer of iron ore pellets by IIL to IMIL was not a sale of goods but was only a transfer of raw materials procured -under the Tripartite Agreement between the two of them and the supplier of the said pellets. This is a pure finding of fact and Shri Radharishnan has not been able to dislodge this finding of fact. This being the case, the application .of the circular of 1. 7.2002 becomes_ important. Paragraph

14 of the said circular reads as under:-

COMMISSIONER OF CENTRAL EXCISE, RAIGAD v. MIS. 771

ISPAT METALLICS INDUSTRIES LTD. [R.F. NARIMAN, J.)

14.

How will valuation be done when inputs or capital goods, on which CENVAT credit has been taken are removed as such from the factory, under the erstwhile sub rule (IC) of rule 57AB of the Central Excise Rules,

1944, or under rule 3( 4) of the Cenvat Credit Rules, 2001 or 2002 7

Where inputs or capital goods, on which credit has been taken, are removed as such on sale, there should be no problem in ascertaining the transaction value by application of sec.4(1 )(a) or the Valuation Rules. [Provided tariff values have no.t been fixed for the inputs or they are not assessed under Seetion 4A on the basis of

MRP] There may be cases where the inputs or capital goods are removed as such to a sister unit of the assessee or to another factory of the same company and where no sale is involved. It may be noticed that sub rule (IC) of Ruic 57AB of the erstwhile Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules 2001 (now 2002, talk of determination of value for "such goods" and not the "said goods". Thus, if the assessce partly sells the inputs to independent buyers and partly transfers to its sister units, the transaction value of "such ' goods" would be available in the fonn of 'the transaction value of inputs sold to an unrelated buyer (if the sale price to the unrei'ated buyer varies over a period of time, the value nearest to the time of removal should be adopted).

Problems will, however, arise wlwre the assessee does not sell the inputs/ capital goods to any independent buyer and the only removal of such input/ capital goods, outside the factory. is in the nature of transfer to asister unit. In such a case proviso to rule 9 will apply and provisions of mle 8 of the valuation rules would have to be invoked. However, this would require determination of the 'cost of production or manufacture', which would not be possible since the said inputs/ capital goods have been received -by the assessee from outside and have not been produced or manufactured in his factoty. Recourse will, . therefore:, have to be taken to the residuary rule

11 of the valuation rules and the value determined using reasonable means consistent with the principles and general provisions of the valuation rules and sub-section (ll ofsec.4 of the Act. In that case it would be reasonable to adopt the value shown in the invoice on the basis of which CENVAT credit was take1i by the assessec in the first place. In respect of capital goods adequate depreciation may be given as per the rates fixed in letter F No.

I I .A reading of this circular makes it clear that a distinction is made between inputs on which credit has been taken which are removed on sale, and those which are removed on transfer. If removed on sale, "transaction value" on the application of Section 4(1 )(a) of the valuation rules is to be looked at. However, where the goods are entirely transferred to a sister unit, it is reasonable to adopt the value shown in the invoice on the basis of which Cenvat Credit was taken by the assessee i.e. the invoice of the supplier of the pellets to the assessee.

12. As it is clear that the present is a case of transfer and not sale of pellets, no infirmity can be found with the Tribunal's judgment, which only follows the circular dated 1.7.2001. In addition, the Tribunal was also correct in holding that post manufacturing expenses cannot be loaded on to the amount equal to the duty of excise leviable on such goods as this amount would, then, cease to be an amount equal to the duty of excise but would be something more. On both these counts therefore, we find that the Tribunal is justified in its finding on law, which is based on its finding of fact that the present is a case of transfer and not sale.

This being the case, it is unnecessary to consider any of the other submissions made by the learned counsel including the point of limitation.

The appeals are, accordingly, dismissed.

Kalpana K. Tripathy Appeals dismissed.