2026 (2) TMI 1271 - AT - Central Excise

Sale value determination: use audited actual sale value, include forex loss in raw material cost, accept auditor certificates where justified.

For fixation of special rates under Notification No.19/2008-CE and No.34/2008-CE, sale value must be the actual sale value recorded in audited financial ... Actual value addition - special rate fixation - sale value versus MRP (Section 4A) - deduction of discounts/rebates for net sales value - inclusion of foreign exchange loss in cost of raw materials - reliability and acceptance of Chartered Accountant's certificate - principles of natural justice-requirement of show cause notice before rejection - HELD THAT:- We find that the value that needs to be considered for the purposes of the fixation of special rate as per the Notification Nos.19/2008-CE dated 27.03.2008 and 34/2008-CE dated 10.06.2008 is the actual sale value i.e. the actual amount realised by the appellants in the sale of the goods minus the taxes paid etc and not the MRP as per Section4A of the Central Excise Act, 1944. We find that the wordings of the Statute being plain and unambiguous, the same shall be read and construed strictly by the words and no intendment is allowed in interpreting the same as held in Dharmendra Textiles Processors [2008 (9) TMI 52 - SUPREME COURT]. As regards the Foreign Exchange Loss, we are in agreement with the logic of the impugned order that the same being occurred in respect of the imported goods, the same cannot be excluded from the cost of raw material. The commissioner proceeds to reject all the applications filed by the appellants. We find that Learned Commissioner ignores his own finding that the appellants are eligible for value addition in respect of some items. Interestingly, we find that the value addition decided by the commissioner (AA) does not vary much from the value addition claimed by the appellants, in respect of the said items in the said years. Interestingly, Commissioner does not even bother to sanction the Special Rate in respect of items for which he himself held that the value addition was more than 115% of 34% and he doesn’t even discuss the admissibility to additional refund in such cases. He pauses just before the conclusion and makes a U-turn and holds that the special rates cannot be sanctioned for extraneous reasons, which were effectively countered by the appellants as discussed above. Such an order cannot be sustained. Appellants have claimed a value addition, over and above 115% of 34% in respect of 4 items only, among many items they manufactured and cleared over the years. The calculations submitted by the appellants are duly certified by the Chartered Accountant. The Certificates are not countered by the Commissioner with any cogent reasons as discussed above. It is seen that the values arrived by Commissioner are not at variance with the values arrived by the Appellants. Its travesty of justice that the commissioner rejects the special rates even in respect of those items. There is hardly any difference in the Rates arrived by the Adjudicating authority and the Rates claimed by the appellant. We are of the considered opinion that the impugned order has not made out any case for rejection of the special rates. We find that because of this reason and the other legal infirmities, as discussed above, the impugned order cannot be sustained and needs to be set aside. Accordingly, the appeal is allowed. Issues: (i) Whether sale value for computation of actual value addition under Notification No.19/2008-CE / Notification No.34/2008-CE should be taken as MRP under Section 4A of the Central Excise Act, 1944 or the actual sale value as per audited financial records; (ii) Whether foreign exchange loss relating to imported raw materials should be included in cost of raw materials for computation of actual value addition; (iii) Whether the adjudicating authority could reject value addition certificates issued by the statutory auditor without issuing a show-cause notice and without cogent reasons, and whether such rejection justified denial of fixation of special rates.Issue (i): Whether sale value for computing actual value addition is MRP under Section 4A of the Central Excise Act, 1944 or actual sale value as per audited financial records.Analysis: The notification prescribes calculation of actual value addition on the basis of financial records of the preceding financial year and defines sale value as sale value excluding excise duty, VAT and other indirect taxes. Prior tribunal precedent cited addressed the same interpretative point and supports using financial records/audited balance sheet figures rather than MRP under Section 4A. The statutory wording is plain and unambiguous, requiring adherence to the notification methodology.Conclusion: Sale value for fixation of special rates must be the actual sale value as reflected in audited financial records (actual amount realized minus applicable taxes) and not the MRP under Section 4A of the Central Excise Act, 1944.Issue (ii): Whether foreign exchange loss relating to imported raw materials is to be included in cost of raw materials for computing actual value addition.Analysis: The foreign exchange loss in the relevant year is directly linked to the expenses incurred on imported raw materials. The notification requires inclusion of costs consumed in production; where such loss arises from procurement of raw materials, it is part of the cost in the hands of the manufacturer and must be accounted for in cost calculations.Conclusion: Foreign exchange loss attributable to procurement of raw materials is to be included in the cost of raw materials for computation of actual value addition.Issue (iii): Whether the adjudicating authority could reject statutory auditor value addition certificates without issuing a show-cause notice and without providing cogent reasons, thereby denying fixation of special rates.Analysis: Value addition certificates certified by the statutory auditor based on audited balance sheets are ordinarily to be accepted unless the authority demonstrates credible, cogent reasons to displace them and follows principles of natural justice including issuing a show-cause notice where rejection is contemplated. In the present case, the adjudicating authority accepted that claimed rates exceeded the threshold for some items and his computed rates were substantially similar to the auditors' figures, yet proceeded to reject all applications based on queries deemed irrelevant and without adequate opportunity or reasons to displace the certificates. The authority also made proportional adjustments only where product-wise rebate/discount details were absent, and corrected perceived deficiencies; no sufficient basis was shown to wholly reject the certified calculations for eligible items.Conclusion: The adjudicating authority's wholesale rejection of the statutory auditor certificates without issuing a show-cause notice and without cogent reasons was not sustainable; the certified calculations for eligible items must be accepted and special rates fixed accordingly in respect of those items where the value addition exceeded the prescribed threshold.Final Conclusion: The impugned order rejecting the applications for fixation of special rates is set aside to the extent it refuses fixation of special rates for items and years where certified calculations met the eligibility criteria; the appeal is allowed and special rates shall be sanctioned for eligible items in accordance with the notification methodology and the audited records.Ratio Decidendi: For fixation of special rates under Notification No.19/2008-CE and Notification No.34/2008-CE, sale value must be taken from audited financial records (actual sale value excluding indirect taxes), foreign exchange loss linked to imported raw materials must be included in raw material cost, and statutory auditor certificates based on audited balance sheets should be accepted unless the authority furnishes cogent reasons and follows principles of natural justice before rejecting them.