2003 (6) TMI 121 - AT - Central Excise

Tribunal Upholds Yarn Valuation, Clarifies Excise Act Application

HINDUSTAN SPG. & WEAVING MILLS LTD. Versus COMMISSIONER OF C. EX., MUMBAI

The Tribunal upheld the valuation of captively consumed single yarn based on the price of yarn sold by the appellants, rejecting abatements on packaging ... Valuation (Central Excise) - Abatement Issues:Valuation of captively consumed single yarn, rejection of abatements on packaging and sale expenses, applicability of Rule 6(b) of Central Excise (Valuation) Rules, inclusion of subsequent processing costs in yarn valuation, differential duty payment for sold yarn, objection to inclusion of post spindle stage expenses in captively consumed yarn valuation, application of Section 4(1)(a) of Central Excise Act, imposition and reduction of penalty.Valuation of Captively Consumed Yarn:The appeal concerned twenty show cause notices issued for the period 1-4-1994 to 1-6-1998, with a duty demand of Rs. 39,24,324.29 and an equal penalty imposed. The issue revolved around the valuation of single yarn captively consumed. The order-in-original used the price of yarn sold by the appellants for valuing captively consumed yarn, a decision upheld by the impugned order-in-appeal. The appellants argued that costs like packaging and selling should not be included in captive consumption valuation, as such costs do not occur. The department contended that the factory gate price should be applied for captive consumption, citing the inapplicability of Rule 6(b) of the Central Excise (Valuation) Rules and the need to include subsequent processing costs in yarn valuation.Differential Duty Payment and Post Spindle Stage Expenses:The appellants manufactured cotton yarn, most of which was captively consumed, with the remainder sold. Initially, they declared the value of cotton yarn based on manufacturing cost at the spindle point. However, the sale price included additional costs like winding, warping, sizing, packing, and more. Differential excise duty was paid on the value difference for sold yarn but not for captively consumed yarn. The appellants contended that post spindle stage costs should be apportioned and abatements allowed, as directed by the Commissioner (Appeal), instead of using the sale value for charging duty on captively consumed yarn.Application of Section 4(1)(a) of Central Excise Act:The department argued that since yarn was sold at the factory gate, Section 4(1)(a) of the Act applied, requiring the use of the sale value for captive consumption duty calculation. The appellants objected to including post spindle stage expenses in captively consumed yarn valuation, asserting that such yarn was cleared for captive consumption at the spindle stage, making subsequent processing costs irrelevant. The Tribunal found that Section 4(1)(a) applied correctly to the yarn sold, but reduced the penalty imposed due to the specific circumstances of the case.In conclusion, the Tribunal dismissed the appeal, except for reducing the penalty imposed. The judgment clarified the valuation rules under Section 4 of the Central Excise Act, the application of factory gate prices for captive consumption valuation, and the inapplicability of Rule 6(b) in cases where goods are partly sold and partly consumed internally.