Hindalco Industries is justified in reducing Assessable Value to Actual Cost of production in Inter unit Transfer of Goods: CESTAT

The Customs, Excises, and Service Tax Appellate Tribunal (CESTAT) held that M/s. Hindalco Industries Ltd. is justified in reducing the assessable value to the actual cost of production in the inter-unit transfer of goods.

The Appellant, M/s. Hindalco Industries Ltd. is engaged in the manufacture of Aluminium Rolled products falling under Chapter Heading No. 7606/7607 of the Central Excise Tariff Act 1985from its Belur Unit.

The Head Office of the Appellant entered into a job work agreement with M/s. Amco India Pvt. Ltd. and M/s. Raviraj Foils Ltd. The Appellant received foil scraps/aluminum ingot from the supplier of goods for conversion into rolled products.

This conversion job was to be undertaken by the Appellant partly through the Taloja Unit of the Appellant and partly through the Belur Unit of the Appellant. The Appellant contends that the Taloja Unit and the Belur Unit paid Central Excise duty in respect of the processes done by them by calculating the assessable value on the basis of the cost of production as contemplated under rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000.

The dispute that has arisen for consideration in this Appeal is whether in the case of inter-unit transfer of goods from the Taloja Unit for captive consumption to the Belur Unit, the entire value (i.e. 115% or 110% as the case may be) of the cost of production or the actual cost of production (i.e. 100% of cost excluding the notional loading of 15% or 10%) of the goods, manufactured by the Taloja Unit, would be the cost of the raw material for the Belur Unit of the Appellant for the purpose of determining the assessable value under rule 8 of the 2000 Valuation Rules, for ultimately transferring the goods to the supplier of goods.

The Commissioner (Appeals) concluded that the principle laid down in rule 8 would apply at all stages for ascertaining the value of goods that are consumed and it would not be material if the job work was undertaken at two separate Units of the Appellant. Thus, the valuation of the intermediate products manufactured by the Appellant by way of job work at two different units of the Appellant should be determined by taking the entire value (i.e. 115% or 110% of the cost of production) at both the units.

The tribunal headed by the President, Justice Dilip Gupta held that the Appellant was justified in reducing the assessable value to the actual cost of production (i.e. 100% of cost excluding the notional loading of 15% or 10% of the goods manufactured by the Taloja Unit) as the cost of raw material for the Belur Unit for the purpose of determining the assessable value under rule 8 of the 2000 Valuation Rules.