2023 (3) TMI 730 - AT - Central Excise

Tribunal sets aside duty demand, clarifies cost of raw materials in inter-unit transfers

The Tribunal ruled in favor of the appellant, setting aside the demand of duty, interest, and penalty related to the consideration of IDSC/ICNC debit ... Valuation - inclusion in the assessable value or not - IDSC/ICNC debit note raised by Bhadrachalam Unit - component of cost of raw materials of the appellant or not - unabsorbed overheads due to idle capacity - HELD THAT:- The Larger Bench in M/S ITC LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI [2016 (4) TMI 280 - CESTAT CHENNAI] answered the reference, holding that the decision of the Chennai Bench of the CESTAT rendered in Final Order No. 542/2010 dated 11.05.2010 in the Revenue’s appeal against M/s. Eveready Industries Ltd. [2011 (4) TMI 141 - CESTAT, CHENNAI] and the subsequent decision of the same Regional Bench as reported in CCE, CHENNAI VERSUS M/S. EVEREADY INDUSTRIES (I) LTD. [2011 (4) TMI 141 - CESTAT, CHENNAI] represent the correct position in law. The findings of the Larger Bench are The percentage of loading on such cost of production, mandated by provisions of Rule 8 for remittance of excise duty by the Bhadrachalam unit cannot not however be considered as comprised in the cost of the raw material consumed for manufacture of packaging material and thus constituting the cost of production at the Chennai unit. Applying the dictum laid by the Larger Bench in M/S ITC LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI [2016 (4) TMI 280 - CESTAT CHENNAI], it is held that the demand, interest and penalties cannot sustain and requires to be set aside - The issues are therefore answered in favour of the assessee. Appeal disposed off. Issues Involved:1. Whether IDSC/ICNC debit notes should be considered as a component of the cost of raw materials.2. In the case of inter-unit transfer of goods for captive consumption, what constitutes the cost of raw material.3. Whether unabsorbed overheads due to idle capacity should be included in the cost of production.4. Whether the demand was barred by limitation.Issue 1:The Tribunal, in an appeal, decided on the consideration of IDSC/ICNC debit notes as a component of the cost of raw materials. The Tribunal, in its Interim Order No. 37/2014, set aside the demand of duty, interest, and penalty related to this issue. The decision was made in favor of the appellant, ruling that the demand could not be sustained.Issue 2:Regarding the inter-unit transfer of goods for captive consumption, the Tribunal referred the matter to the Larger Bench for clarification. The Larger Bench, in its Interim Order No. 18/2016, determined that the actual cost of production, excluding notional loading, is considered the cost of raw material in such transfers. The decision of the Chennai Bench in a previous case was upheld as the correct position in law, overruling a decision from the Mumbai Bench. Consequently, the demand, interest, and penalties related to this issue were set aside in favor of the assessee.Issue 3:The inclusion of unabsorbed overheads due to idle capacity in the cost of production was also addressed. The Tribunal had already set aside the demand of duty, interest, and penalty related to this issue in its Interim Order No. 37/2014, ruling in favor of the assessee.Issue 4:The issue of limitation regarding the demand was discussed, with the Tribunal noting that since the previous issues were decided on merits and one issue was referred to the Larger Bench, there was no need to discuss the issue of limitation and penalty separately. The Tribunal disposed of the appeal, directing that the Interim Order be considered part of the Final Order, and provided consequential reliefs as necessary.This judgment highlights the meticulous consideration of various complex issues related to cost components, inter-unit transfers, and inclusion of overheads in the cost of production. The Tribunal's detailed analysis, referral to the Larger Bench for clarification, and subsequent adherence to the decision provided a comprehensive resolution to the legal complexities involved in the case.