CESTAT sets aside excise duty demand on RR Ispat, holding inter-unit transfers after amalgamation are not sales.

May 13, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a central excise duty demand of over Rs. 14.85 lakh imposed on M/s R R Ispat, a unit of Godawari Power and Ispat Limited, holding that transfers between amalgamated units of the same legal entity cannot be treated as “sales” for the purpose of excise valuation rules.

In a significant ruling dealing with valuation disputes under the Central Excise Act, the tribunal held that Rule 9 and Rule 10 of the Central Excise Valuation Rules, which apply to related party transactions, were wrongly invoked by the department. Instead, the bench ruled that Rule 8 governing captive consumption and stock transfers within the same entity would apply in such cases. The order was passed by a division bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan on May 13, 2026.

The dispute arose after departmental audit authorities alleged that R R Ispat had supplied scrap material, described as “end cuttings,” to its related entity GPIL at prices lower than those charged to independent buyers. Based on this alleged undervaluation, the department demanded excise duty along with interest and penalties. Authorities also disallowed Cenvat credit of Rs. 52,842 on the ground that the credit had been availed beyond the prescribed limitation period of six months or one year from the invoice date.

The company challenged the demand by arguing that after a High Court-approved amalgamation in 2011, both R R Ispat and GPIL became part of the same legal entity sharing the same Permanent Account Number (PAN) and Corporate Identification Number (CIN). According to the appellant, there could not be a “sale” between the two units because a sale requires transfer between two distinct legal persons under Section 2(h) of the Central Excise Act read with Section 3(42) of the General Clauses Act, 1897.

The appellant further argued that the department incorrectly compared the value of “end cuttings” with the price of “misrolls,” which were entirely different products. It also contended that the entire exercise was revenue neutral because any excise duty paid by one unit would be available as Cenvat credit to the receiving unit.

Before the tribunal, the department maintained that both units held separate central excise registrations and therefore could not be treated as the same establishment. Revenue authorities relied on several judicial precedents to justify adoption of higher transaction values for valuation purposes.

Rejecting the department’s stand, CESTAT observed that the amalgamation approved by the Chhattisgarh High Court fundamentally altered the legal character of the entities. The tribunal noted that the two units shared the same PAN and corporate identity, making them a single legal entity for valuation purposes. The bench stated, “the transaction between both the units is not a ‘sale’ under Section 2(h) of the Central Excise Act, as there are not two legal persons existed… for a ‘sale’ to happen.”

The tribunal relied heavily on earlier CESTAT Kolkata decisions, particularly in the cases of Jindal Steel and Power Ltd., OCL India Ltd., and National Aluminium Company Ltd., where Rule 8 valuation based on cost accounting standards and captive consumption principles was upheld for stock transfers between units of the same manufacturer.

Explaining the legal position in simple terms, the tribunal clarified that Rule 8 applies when goods are transferred internally for further manufacturing rather than sold in the open market. Under this framework, valuation must be based on production cost determined according to CAS-4 cost accounting standards rather than market price comparisons with unrelated buyers.

The bench concluded that the department failed to examine valuation under Rule 8 and wrongly proceeded under related-party valuation provisions. Consequently, the entire duty demand, along with interest and penalties, was quashed. The tribunal also accepted the appellant’s argument on revenue neutrality, observing that “the duty paid by one unit would be available as Cenvat Credit to the other unit.”

On limitation, the tribunal ruled against the department’s invocation of the extended period under Section 11A of the Central Excise Act. It noted that the company had regularly filed returns and undergone departmental audits, meaning the transactions were already within the knowledge of the authorities. The bench held that there was no suppression of facts or intent to evade duty.

The tribunal also granted relief on the issue of delayed Cenvat credit availment. It held that denial of credit merely because it was taken beyond the prescribed period amounted to rejection on a procedural ground despite the substantive eligibility of the credit being undisputed. According to the bench, “the substantive benefit of Cenvat Credit… cannot be denied merely because of the procedural irregularity.”

The ruling is expected to have wider implications for manufacturing companies operating multiple units under merged corporate structures. It reinforces the principle that stock transfers between units of the same legal entity cannot automatically be treated as related-party sales attracting higher excise valuation norms. The judgment may also influence pending disputes involving captive consumption, valuation methodology, and revenue neutrality under the erstwhile central excise regime.

Case Reference : M/s R R Ispat (A Unit of Godawari Power and Ispat Limited) v. Commissioner, Customs, Central Excise & Service Tax, Raipur, Excise Appeal No. 52199 of 2022, Final Order No. 50874/2026, decided on May 13, 2026 by Customs, Excise and Service Tax Appellate Tribunal.