2004 (7) TMI 193 - AT - Central Excise

Tribunal remands case for profit margin review based on cost accounting principles.

ITC LTD. Versus COMMISSIONER OF CENTRAL EXCISE, BANGALORE

ITC LTD. Versus COMMISSIONER OF CENTRAL EXCISE, BANGALORE - 2004 (175) E.L.T. 860 (Tri. - Bang.) Issues Involved:1. Excisability of slides and inner frames.2. Valuation of goods for captive consumption under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975.3. Inclusion of interest charges in the cost of production.4. Determination of margin of profit for captive consumption.Issue-wise Detailed Analysis:1. Excisability of Slides and Inner Frames:The appellants contended that slides and inner frames are not excisable as they are not marketable products. They argued that for a product to be excisable, it must satisfy the twin tests of being a manufactured product and being marketable. The appellants relied on several Supreme Court decisions to support their claim that the goods in question were not capable of being sold. However, the Tribunal found that the issue of excisability was not raised in the show cause notice or before the lower authorities. The Tribunal noted that the appellants had been in litigation over the classification of these goods, which had been decided against them previously. Therefore, the Tribunal held that the issue of excisability could not be raised in this appeal.2. Valuation of Goods for Captive Consumption:The appellants challenged the valuation adopted by the lower authority, arguing that since there was no sale of slides and inner frames, no profit margin should be added. The Tribunal referred to Rule 6(b)(ii) of the Valuation Rules, 1975, which mandates the inclusion of the margin of profit that would normally be earned on the sale of such goods. The Tribunal emphasized that the profit margin should be specific to the goods in question and not based on the overall profit of the company. The Tribunal cited several precedents, including the Dharangadhra Chemical Works case and the Raymonds Ltd. case, to support this view. Consequently, the Tribunal agreed with the appellants that the total profit of the company could not be used to determine the margin of profit for slides and inner frames.3. Inclusion of Interest Charges in the Cost of Production:The appellants argued that interest charges on loans taken for the purchase of machinery should not be included in the cost of production. They referred to CAS-4, a costing principle issued by the Council of Institute of Cost and Works Accountants of India, which states that interest and financial charges should not be considered part of the cost of production. The Tribunal concurred with this argument, noting that the interest on loans for machinery purchases should not be included in the cost of production as per the CAS-4 guidelines.4. Determination of Margin of Profit for Captive Consumption:The lower authorities had adopted the previous year's profit margin from the company's balance sheet to calculate the notional profit to be added to the cost of production. The Tribunal found that this method was based on instructions from the Board and had been accepted in earlier Tribunal orders. However, the Tribunal directed that the margin of profit should be determined based on cost accounting principles specific to the goods in question, rather than the overall profit of the company. The Tribunal remanded the matter to the adjudicating authority to take a fresh decision on the margin of profit by adopting the correct costing principles and excluding interest charges.Conclusion:The Tribunal set aside the order of the lower authority and remanded the matter for reconsideration. The adjudicating authority was directed to determine the margin of profit specific to slides and inner frames based on cost accounting principles and to exclude interest charges from the cost of production. The appeal was allowed by way of remand.