Transfer of raw material to the sister unit by assessee cannot be held as ‘sale of goods’, Apex Court says
Civil Appeal No. 2562 of 2008
Bench: Justice A. K. Sikri; Justice R. F. Nariman
Case Brief: In the present case, there were two appeal brought against the common decision made by the CESTAT in the year 2005, in which the said Tribunal did not agree with the order passed by the Commissioner, confirming various duty demands, penalty and interest. In the facts of the case, there were two companies, namely M/s. Ispat Industries Limited- IIL and M/s. Ispat Metallics Industries Ltd.- IMIL. Both of them issued show cause notices in 2013 and it was alleged that the iron ore pellets were sold by ILL to IMIL and that amounts recovered by IIL in the form of debit notes towards bank charges, interest, etc. were includible in the assessable value of such inputs that were cleared for Excise Tax. Also, the reversal of credit equal to the amount paid to the supplier which was being followed by IIL was not as per law. The Commissioner here upheld the validity of the said notices and hold that the transaction between IIL and IMIL was one of ‘sale and not transfer’. However, the Tribunal reversed the said decision of Commissioner on the ground that the transfer of iron ore pellets by IIL to IMIL was not ‘sale of goods’ but was transfer of raw materials, jointly procured, under a joint procurement policy which was followed by two sister companies (IIL and IMIL) as per agreement held between the supplier of the pellets, IIL and IMIL. Moreover, the Tribunal highly relied upon the circular of 2002. Now, this bench firstly considered the relevant rules like Rule 57AB (1C) of the Central Excise Rules, 1944 and Rule 3(4) of the Cenvat Credit Rules, 2001.
Moreover, when the bench has gone through the afore mentioned circular, it found 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. Thus, the bench found that the 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 assessee. As such, the bench found that the Tribunal’s decision contains no infirmity and it was also correct in holding that the 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. As such appeals were dismissed by the bench.
Read the Judgement: C.C.E., Raigad Vs. M/S. Ispat Metallics Industries Ltd.& Ors