valuation of goods and ED on scrap

[mukundan seshadri]

Dear Sir,
I'm working for a Central Government organisation under ministry of Railways engaged in manufacture of Coaches. We are not a corporate body but we are Government directly controlled by Railway Board like any other Zonal Railway like Southern Railway. Our transaction is through Book adjustment with Railway Board. We are not loading any profit element on the coach cost and the actual cost is transferred to Railway Board. We also manufacture spares for Railway Coaches under Chapter 8607 for our own use and also spare some material to Other Railway Workshop for maintenance activity.
From 2011 onwards, as the notification No 62/95 was withdrawn, our coaches became excisable w.e.f 20.04.2011. and spares from 31.05.2012. We are paying ED at lower rate of 2.06 percent on coach cost as per notification No 1/2011 without availing CENVAT credit and at the rate of 12.36 percent on spares. In this regard the follwoing points are to be clarified.
1. Excise Department is demanding assessable value of coaches and spares to be claculated at the rate of 110 percent of actual cost quoting rule no 8, 9 and 11 of valuation rules. Whether this is applicable in our case.
2. The also demand ED on whole scrap stating that notification No 27/2011 will not apply to us as we are also manufacturing spares which is not our main product. Whether this is correct.
If not how to reply to Excise dept.
Please clarify

[Madhukar N Hiregange]

First of all you need to start paying duty on 6 percent so that you can get the cenvat credit which in your case maybe as high as 8-9 percent . Then the duty payment on the value + 10 percent maybe discharged. Advisable to change your system immediately and pay the duty on scrap also by adjustment with cenvat credit which would accumulate till the rate of 6 percent is increased in the subsequent budgets.

[mukundan seshadri]

Dear Sir, Thanks for your reply. As our organisation is very big and we are using more than 7000 items as input materials, we find it difficult. Anyhow from 2014-15 onwards we are going for cenvat credit

The above problems pertain to 2011-12,2012-13 and 2013-13. Kindly reply.Even if we avail CENVAt, whether valuation at the rate of 110 percent is necessary. 

AI Summary

Valuation of goods: Whether a value addition for coaches and spares alters excise duty liability and scrap treatment. Whether valuation rules requiring an addition to value apply to coaches and spares manufactured by a government railway workshop is the primary issue; revenue asserts a notional markup and charges duty on scrap while the unit has been paying concessional duty without CENVAT. The operative compliance choice is to shift to standard duty payments with CENVAT credit and discharge duties on value plus the prescribed addition and on scrap by using accumulated input credits, or to contest the applicability of the valuation addition and scrap-notification.