[Order per : Jyoti Balasundaram, Vice-President]. - The issue referred to the Larger Bench is whether the assessable value in respect of goods which are transferred to another plant of the same assessee is required to be determined as per Rule 4 of the Central Excise Valuation Rules, 2000 (as claimed by the appellant) or as per Rule 8 of the said rules (as claimed by the Revenue), in a case where the same goods are also sold to independent buyers?
2. We have heard both sides. It is an undisputed position that the assessees were transferring a part of its production (about 20%) of HR coils to its units at Taloja, Kamothe and Kalmeshwar and the balance production was being sold to independent buyers. It is also not disputed that the value on which duty has been discharged by them at the time of clearance of goods to their units was the same at which duty was discharged by them in respect of clearances to independent third parties. Before the referral Bench, the assessees had placed reliance on the decision of the Tribunal in the case of Avon Tubes v. CCE, Ludhiana 2004 (117) ECR 616 wherein the Tribunal held that when the goods are partly sold to unrelated buyers and rest are captively consumed, the assessable value of the captively consumed goods should be determined based on the value at which the goods are sold to unrelated buyers. It was further held that Rule 8 of Valuation Rules is applicable only in a situation where all the excisable goods manufactured by an assessee are captively consumed by him or on his behalf in the production or manufacture of other articles. On the other hand, learned DR appearing for the Revenue had placed reliance on the decision of the Tribunal in the case of BOC (I) Ltd. v. CCE wherein the Tribunal had by referring to CBEC circular No. 643/34/2002-CX dated 1-7-2002, held that where goods are captively consumed within the same factory, valuation should be determined in terms of Rule 8 and where goods are transferred to a sister unit or another factory of the same company, valuation of the said goods should be done as per the proviso to Rule 9 of the Valuation Rules.
3. Shri Vipin Jain, learned Advocate appearing on behalf of the assessees, along with Shri Vishal Agarwal, Chartered Accountant, raised the following contentions :
(a) There is no conflict between the decisions of the Tribunal in the case of Avon Tubes Ltd. v. CCE, Ludhiana 2004 (117) ECR 616 and BOC India Ltd. v. CCE, . Both the decisions are unanimous in their view that if all the clearances are for captive consumption and there are no clearances to independent buyers, then the provisions of Rule 8 will apply.
(b) The decision of Tribunal in BOC’s case has no application to the assessee’s case, as unlike in BOC’s case, where the entire production was captively consumed, bulk of assessee’s clearances are made to independent buyers. In BOC’s case, the entire production was cleared for captive use and there was no instance of sale to an independent buyer, so as to enable determination of assessable value under Rule 4.
(c) The question referred to the Larger Bench, i.e. whether Rule 4 or Rule 8 of the Valuation Rules would apply is a hypothetical question in so far as the assessee is concerned, as the provisions of Rule 8 are inapplicable to the present case for the following two reasons :
(i) As held in Avons case, Rule 8 applies only when there are no instance of sale of finished products to independent buyers (i.e. when all clearances are for captive consumption)
(ii) In addition to (a) above, for applying Rule 8 the clearance must either be for captive consumption of the assessee himself or must be a transfer for the purpose of enabling the transferee unit to manufacture goods on behalf of the original manufacturer (assessee). The ‘assessee’, for the purpose of the Central Excise Rules, refers to a particular factory or unit of the manufacturer company, which in this case is the Dolvi plant where the HR coils are manufactured.
(d) The Hon’ble Bombay High Court in case of Indian Drug Manufacturer Association v. Union of India 2002 TIOL 292-HC-Mum has, while dealing with the dispute regarding application of Rule 4 vis-a-vis Rule 8 held that -
(i) Rule 8 applies to cases where goods are not sold but are consumed captively in the manufacture of other articles.
(ii.) Rule 4 provides that in all cases where the goods are not sold and delivered at the time and place of removal, valuation is to be made by taking the value of such goods sold and delivered at the time nearest to the time and place of removal in question.
(e) That the Tribunal has in the case of Hindustan Copper Limited v. CCE 2005 TIOL 751 and 2006 TIOL 901, held that even in cases where goods are captively consumed assessable value has to be based on price at which goods are sold to such independent buyers.
(f) The Tribunal in the case of Steel Complex Ltd. v. CCE has held that the assessable value determined by applying Valuation Rules cannot be unreasonable and inconsistent with the provisions of Section 4(1) of the Act. Therefore Rule 4 should to be applied, as it provides that the value on which duty ought to be paid should be the same as the value on which duty is paid in respect of sale to an independent third party. It was submitted that such as determination would be consonance with section 4 of the act rather than applying an artificial method of valuation as provided in Rule 8 that is 115% of cost of production.
(g) That the provisions of Central Excise Valuation Rules should be read in consonance with the statutory provisions of the Act, i.e. Section 4 of the Central Excise Act. Applying this principle, it would be more consistent with the provisions of Section 4 of the Act if the actual transaction value of the identical goods sold to independent buyers is made applicable as the assessable value of goods which are transferred to another unit of the same assessee. The observations of the Supreme Court with regard to “The Gunapradhan principle” in appellant’s own case, reported in , was relied upon in support of this proposition.
4. The learned DR appearing on behalf of Revenue submits that the decisions relied upon by the assessee are all based on the decision of the Tribunal in the case of Steel Complex Ltd., which did not consider the Board Circular dated 1-7-2002. He also submitted that the facts in the case of Steel Complex were different in as much as the company in that case had suffered huge losses. He submitted that the decision of the Bombay High Court in the case of Indian Drug Manufacturers Association is not applicable as the dispute therein was relating to the applicability or otherwise of Rule 4; assessee’s contention that Rule 8 applies only in cases where the goods are not sold but are entirely captively consumed, is incorrect; the Board in its circular dated 1-7-2002 had clarified that in a case where goods are transferred to a sister unit or another unit of same company, the assessable value would have to be determined in terms of proviso to Rule 9, which in turn refers to Rule 8; assessee’s contention that Rule 8 will not apply as the goods where not consumed by the assessee himself or on his behalf in the manufacture of other articles was also incorrect as transfer to one’s own unit/sister unit tantamounts to consumption on behalf of unit transferring the goods.
5. We have considered the rival submissions and are of the view that the assessee is correct in contending that provisions of Rule 8 would apply only in a case where its entire production of a particular commodity is captively consumed. This is evident on a plain reading of Rule 8 of the valuation rules, which reads as under
“Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods” (emphasis supplied).
If the intention was not to restrict the applicability of Rule 8 to cases where the entire production was being captively consumed, the Rule would have simply stated where excisable goods are consumed by an assessee himself or on his behalf in the manufacture of other articles instead of preceding the above expression with the words where the excisable goods are not sold. This view is also supported by the judgment of the jurisdictional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared exclusively to be used in consumption or for manufacture of other articles. We also agree with the contention of the assessee that Rule 8 will apply only in two situations, (a) where the goods are consumed by him in the same factory (captive consumption) or (b) where such goods are transferred to another factory for consumption in the manufacture of other articles on behalf of the assessee. In this case, it is not the case of the revenue that the goods were transferred to other units for manufacture of other articles on behalf of the assessee/appellant, i.e. the Dolvi Unit. We agree with the assessee’s contention that the expression ‘assessee’, wherever it appears in the Central Excise Rules, applies to a particular factory, which is why different units belonging to one company are separately registered and separately assessed to duty. Since the assessee in the present case is the Dolvi plant and it is not the revenue’s case that the other three units of the company to whom HR coils were transferred were undertaking further manufacturing operations on behalf of the Dolvi Unit, the provisions of Rule 8 will not apply. We, therefore, hold that Rule 8 is inapplicable in the instant case.
6. We also note that in the present case the application of Rule 4 is being disputed by the Revenue not on the ground that the said rule is inapplicable to the present case but on the ground that a more specific provision in Rule 8 is available to enable determination of the assessable value. As discussed above, the provisions of Rule 8, in our view, are not applicable to the present case and therefore the value determined by the assessee under Rule 4 deserves acceptance.
7. We also agree with the submission of the assessee that even if both the rules, i.e. Rule 4 and Rule 8, were applicable, it would only be logical to read and apply the various rules in the Central Excise Valuation Rules in a sequential manner. Though the Central Excise Valuation Rules, 2000 do not specifically prescribe such sequential application of various rules, the same, in our view, is the only reasonable way to read these rules. Any other interpretation would only lead to confusion and chaos. Since the applicability of Rule 4 is not really in dispute, there was no need to look further and regardless of the applicability or otherwise of Rule 8, the assessable value should have been determined in terms of Rule 4 of the Valuation Rules.
8. The conclusion that we are drawing in the present case would lead to determination of a value which, in our view, will not only be reasonable but also consistent with the provisions of Section 4 of the Central Excise Act. We would, at this stage, draw support from the judgment of the Supreme Court in the assessee’s own case, as reported in , wherein the Court applied “The Gunapradhan Principle” in interpreting the Customs Valuation Rules. We have kept in mind the following observations of the Court in coming to our above conclusion :
“26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act.
27..................
36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is ‘primary’ whereas the conditions in Rule 9 (2) are the ‘accessories’. The ‘accessory’ must, therefore, serve the ‘primary’.”
9. In view of what we have observed above, we answer the reference in the following terms :
(a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers;
(b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.
10. The papers are now returned to the referral Bench for passing orders on the appeal.
(Pronounced in Court on 2-2-07)