PER: K. ANPAZHAKAN:

1. R R Ispat (hereinafter referred to as “the appellant”) has filed this appeal against the Order-in-Appeal No. RPR-EXCUS-000-APP 008-20-21 dated 29.05.2020, wherein the demand of Central Excise duty of Rs. 14,85,067/- has been confirmed along with interest and penalty. Cenvat credit amounting to Rs.52,842/- has also been disallowed along with interest and penalty.

2. The facts of the case are that the appellant M/s RR Ispat had cleared scrap (end cuttings) to the related party M/s.Godawari Power and Ispat Limited (herein after referred as GPIL) at a lower price than the price at which the same goods were sold by the appellant to independent buyers. Accordingly, the audit raised an objection regarding undervaluation of the said goods, since the department was of the opinion that the appellant had not followed the provisions of Rule 9 of the Valuation Rules, 2000 for the purpose of the clearance of the said goods to ‘related person’ GPIL. Further, the audit has also raised the objection regarding availment of Cenvat Credit of Rs. 52,842/- which had been taken after six months/one year from the date of invoice.

2.1. Accordingly, a show cause notice was issued to the appellant demanding Central Excise duty and recovery of irregularly availed Cenvat Credit. On adjudication, the demand of duty and recovery of irregularly availed Cenvat credit proposed in the show cause notice were confirmed along with equal penalty under Section 11AC of the Central Excise Act. Penalty under Rule 15(2) of the Cenvat Credit Rules was also confirmed along with interest and equal amount of penalty on the appellant. On appeal, the Ld. Commissioner (Appeals) upheld the demands confirmed by the adjudicating authority and rejected the appeal filed by the appellant.

3. The appellant submits that the Department has alleged that they have sold the goods to (GPIL) at a lower price whereas the same goods were sold to independent buyers at a higher price. It was also alleged that they were required to follow Rule 9 of the Valuation Rules 2000, i.e., the price at which similar goods are sold to unrelated buyers should have been adopted. In this regard, the appellant submits that they had sold scrap (end cuttings) falling under Tariff Entry 72045000 to its other unit GPIL. On 30.03.2011, the Hon’ble High Court of Chhattisgarh approved the amalgamation of both the companies. Thus, the appellant submits that both the units are the same legal entity, as they share the same PAN and Corporate Identification Number. Since the appellant and GPIL are the same legal entity post amalgamation, the transaction between the units is not a “sale” under Section 2(h) of the Central Excise Act, as there are no two legal persons existed as per Section 3(42) of the General Clauses Act, 1897 for a ‘sale’ to happen. As both the units share the same PAN and Corporate Identification Number, the appellant submits that there is no transfer of ownership or consideration between two distinct persons, which is an essential condition for a transaction to qualify as a ‘sale’. Therefore, Valuation Rules such as Rule 9 and Rule 10, which are applicable to related party sales are not attracted in the present case. The appellant further submits that Rule 8 of the Valuation Rules is applicable in the present case. Rule 8 deals with valuation of goods where the same manufacturer transfers goods within the same entity and the goods are not sold but transferred for manufacture of goods. Rule 8 requires cost-based valuation, which was never examined or applied by the authorities. In support of this view, the appellant relied on the decision of Tribunal, Kolkata, in the case of Jindal Steel and Power Ltd. vs. Commissioner of Central Tax, GST & Central Excise, Rourkela – 2026 (1) TMI 648 CESTAT Kolkata, wherein on a similar set of facts, the Tribunal has held that Rule 8 of the Central Excise Valuation Rules is applicable for arriving at the value of clearances made to own unit.

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