R. 8 Applicable Instead of Related Party Valuation Rules: CESTAT Quashes Excise Duty Demand on Inter-Unit Transfers

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a Central Excise duty demand of ₹14.85 lakh and held that transfers between amalgamated units of the same legal entity cannot be treated as “sales” for the purpose of applying related party valuation provisions under the Central Excise Valuation Rules. The bench of Justice Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member), observed that after amalgamation approved by the Chhattisgarh High Court, both R R Ispat and GPIL shared the same PAN and Corporate Identification Number (CIN), making them the same legal entity. The Bench held that since there were not “two distinct legal persons”, the transfer of goods between the units could not be treated as a “sale” under Section 2(h) of the Central Excise Act. The appeal was filed by M/s R R Ispat, a unit of Godawari Power and Ispat Limited (GPIL), against an order confirming excise duty demand, interest, penalty, and denial of Cenvat credit. The department had alleged that the appellant cleared scrap/end cuttings to GPIL at a lower price than the price charged to independent buyers and therefore ought to have followed Rule 9 of the Central Excise Valuation Rules applicable to related party transactions. The Tribunal specifically held that Rule 9 and Rule 10 of the Valuation Rules, which deal with related party transactions, were not applicable in the present case. Instead, Rule 8 dealing with captive consumption and inter-unit transfers within the same entity was applicable. While reaching this conclusion, the Tribunal relied heavily on the Kolkata Bench decision in Jindal Steel and Power Ltd. vs. Commissioner of Central Tax, GST & Central Excise, Rourkela, where it was held that Rule 8 applies to valuation of goods transferred to the assessee’s own units for captive consumption. The Bench distinguished earlier judgments relied upon by the Revenue, including Aquamall Water Solutions Ltd. and Ispat Industries Ltd., observing that those cases involved sales to related persons or transfers not meant for captive consumption, whereas in the present case the goods were transferred to another unit of the same entity for further manufacture. Importantly, the Tribunal also accepted the assessee’s plea of “revenue neutrality.” It noted that whatever duty was paid by one unit would have been available as Cenvat credit to the receiving unit. Therefore, the entire exercise was revenue neutral and there was no loss to the Revenue. The Bench relied on the decision in Britco Foods Company Ltd. affirmed by the Supreme Court to hold that in such revenue-neutral situations, the excise duty demand itself was unsustainable. On limitation, the Tribunal held that the extended period could not have been invoked because the assessee had regularly filed returns and the department had conducted audits on its records. Hence, the department was fully aware of the inter-unit clearances and there was no suppression of facts with intent to evade duty. Consequently, the Tribunal also set aside the penalties imposed under Section 11AC of the Central Excise Act. The Tribunal further quashed the denial of Cenvat credit amounting to ₹52,842 which had been disallowed solely on the ground that the credit was availed beyond the prescribed six months/one-year period from the invoice date. The Bench held that such a condition was merely procedural and substantive Cenvat credit could not be denied when receipt and utilisation of inputs in manufacture were undisputed. The Tribunal allowed the appeal and set aside the entire demand of duty, interest, penalties, and denial of Cenvat credit with consequential relief to the assessee. Case Details Case Title: M/S R R Ispat Versus Commissioner, Customs, Central Excise & Service Tax Citation: JURISHOUR-1259-HC-2026(Ker) Case No.: EXCISE APPEAL NO.52199 OF 2022 Date: 13.05.2026 Counsel For Appellant: Krisha Mohan K. Menon Counsel For Respondent: Krisha Mohan K. Menon Click Here To Read Order Read More: Service Tax Demand Time-Barred If Department Conducted Periodic Audits Without Raising Objection: CESTAT

R. 8 Applicable Instead of Related Party Valuation Rules: CESTAT Quashes Excise Duty Demand on Inter-Unit Transfers

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