TaxTMI 
TaxTMI 
2005 (8) TMI 337
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....39,727 TOTAL 37,76,17,250 1.2 During the period covered by first show cause notice i.e., December, 1997 to January, 2000, about 61% of the LAB production was stock transferred from Alindra plant to other plants located at Trikampura, Pithampur, Chhatral and Kanpur. About 27.5% of the production was sold to M/s. Kisan Industries (for short, KI), a division of Kisan Discretionary Family Trust (for short, KDFT). About 2.5% of the production was sold to IPCL. About 2% of the production was captively consumed at Alindra plant in the manufacture of detergent powder and cakes. About 0.5% of the production was sold to other independent buyers such as Pioneer Detergents (for short, PD) and Chemicals & Solvents India (for short, C&SI). Balance 6.5% of the production was exported is the portion submitted by the appellant. 1.3 LAB manufactured at Alindra was transferred to other factories on payment of duty on the price at which LAB was being sold to KI & others. Accordingly the assessable value of LAB per MT on which excise duty was paid by the appellants during the period December, 1997 to January, 2000 was as : Period Rs. December 1997 to March 1999 ....
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.... calculated by the show cause notice dated 25-2-2000 plus profit margin of 22.38% (profit margin for the company as a whole for the financial year 1999-2000). September 2000 & October 2000 The appellants discharged duty on LAB on assessable value equal to Rs. 48,000 per MT being the last sale price of LAB to KI. 115% of Cost of production as submitted by the appellants except for the interest element. This show cause notice adopted the interest element from the show cause notice dated 25-2-2000. November 2000 to March 2001 The appellants discharged duty on LAB on assessable value equal to Rs. 48,000 per MT being the last sale price of LAB to KI. Rule 8 of the Valuation Rules, 2000 is not applicable for captive consumption and therefore value has to be determined under Rule 4 read with Rule 11 of the Valuation Rules, 2000. Since the appellants had sold LAB to IPCL at Rs. 54,250 per MT, this value should be the assessable value for LAB captively consumed. April 2001 to November 2001 115% of cost of production in terms of Rule 8 of Valuation Rules, 2000. Rule 8 of the Valuation Rules, 2000 is not applicable for captive consumption and therefore value h....
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.... loss account as a whole should be reduced by interest income as per said audited profit and loss account. Net interest expenditure alone should be allocated on gross block basis, a method suggested in the show cause notice itself. (v) Interest, per se, is not includible in the cost of production, as per Circular dated 13-2-2003 read with CAS-4. (vi) Profit margin of LAB has taken by show cause notice based overall profit of the company as a whole which relates to diverse final products like soap, detergents, soda ash, HAB, etc. and is hence irrelevant for computing profit of LAB. Profit margin @ 10% is reasonable for valuation of industrial intermediate like LAB. (vii) If above adjustments are done to cost of production as calculated by the show cause notice, then no demand practically survives. (i) Since, much more duty has already been paid through PLA by the recipient factories, no demand can lie under Section 11A. (j) Since Modvat credit is available to the appellants own factories, proviso to Section 11A is inapplicable and hence entire demand is time-barred. (k) Reference to seized documents indicating higher cost of prod....
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....cost of catalyst over its estimated useful life on an ad hoc basis for the purpose of making management decisions is the submissions of the ld. Advocate for the appellants while Revenue, vide notice dated 25-2-2000, included an estimated cost of catalyst while calculating the cost of production of LAB. (i) The first charge of a catalyst is in the form of permanent investment and to be treated as fixed asset. Since first charge of catalyst is in the nature of fixed asset, the appellants charge depreciation on it, at the rates prescribed under Companies Act, 1956. This accounting policy cannot be found fault with as it is in line with generally accepted accounting principles. The statutory auditors have also not objected for such an accounting treatment. Alternatively, if the appellants, as per the following submissions, have dealt with amortisation of catalyst by including the cost of catalyst in the cost of production of LAB by : (a) The depreciation figure which includes depreciation on catalyst has to be reduced to avoid duplication of cost. (b) The amortised cost of catalyst should be reduced by the realized value of the catalyst. In other words, only ....
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....ost of catalyst one has to reduce the amount realized from the sale of precious metal recovered from spent catalyst and thereafter such reduced/net cost of catalyst only should be amortized over the life of the catalyst and included in the cost of production of LAB. Total catalyst cost is Rs. 3400 lacs and the realization against this amounts to Rs. 581.53 lacs. Therefore, realisation is 17.10% of the total cost. Therefore, the cost of catalyst worked out on per MT basis in the show cause notice should be reduced by 17.10% to arrive at correct cost of catalyst. Therefore, Column (4) of the table below should be reduced from the cost of production of LAB : Year Catalyst cost as per show cause notice (in Rs./MT) Percentage of realization Value realized by sale of precious metal recovered from spent catalyst (Rs./MT) (1) (2) (3) (4)=(2)*(3) 1997-1998 1948 17.10% 333.18 1998-1999 2136 17.10% 365.34 1999-2000 365.34 (iii) We would agree with these submissions as they are supported by CAS-4, whose relevant paras reproduced below : "4.1 Cost of Production : Cost of production shall consist of Mater....
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.... Kg of Detal catalyst for manufacturing 1MT of LAB. Based on above, the revised and actual cost of catalyst is worked out as under : Cost per Kg (Rs.) Consumption ratio as per Affidavit Cost of Catalyst (Rs.) As per SCN (Rs.) Excess cost (Rs) 1 2 3 4=2*3 5 6=5-4 Pacol catalyst 4838.47 0.0623 301.44 846.91 545.47 Detal catalyst 2107.20 0.1845 388.78 1033.81 645.03 Total 690.22 1880.72 1190.50 (vi) The impugned Order-in-Original has rejected the submissions made in para on following grounds : (i) Shri Joshipura and Shri Kalpesh Patel are responsible persons of the appellants and therefore the department had no reason to believe that the cost supplied by them are not correct. (ii) Any manufacturer would definitely know the cost so that he can determine the selling price of their product. We find no reason to uphold these findings in the impugned order. Shri Joshipura and Shri Kalpesh Patel are no doubt responsible employees of the appellants-company, but that will not lead the department seeking to reassess the goods, to ignore crucial points bas....
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....from total interest of the year 1997-98 of Rs. 42.62 crores for the company as a whole. In the books of LAB division, credit balance in favour of Head Office was shown as Rs. 340.27 crores as on 31-1-98. Therefore, out of Rs. 381.05 crores and Rs. 382.42 crores shown as payable by LAB division to other divisions as on 31-3-1998 and 31-3-1999 respectively, Rs. 366.67 crores is towards for the capital cost of LAB plant. (ii) The method adopted by the show cause notice dated 25-2-2000 to calculate interest for the year 1998-99 is demonstrated : Rs. (1) Amount owed by LAB division to Head Office on 1-4-1998 3,81,04,65,256 (2) Amount owed by LAB division to Head Office on 31-3-1999 3,82,42,60,439 (3)=[(1)+(2)1/2 Average of the above two figures 3,81,73,62,847 (4) Interest @ 14.79% for the year 1998-99 on (3) above. 56,45,87,987 (5) Clearance of LAB for the year 1998-99 = 58,995.253 MT (6)=(4)/(5) Interest cost per MT of LAB 9,570 This basis has been adopted for the period December, 1997 to March, 1998 and year 1999-2000. (iii) Interest per se is not includible in the cost of pr....
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.... of cost of production" These Circular dated 13-2-2003 clarified that cost of production shall henceforth be done strictly in accordance with CAS-4. This Circular is clarificatory in nature and hence retrospective in the sense that all pending proceedings shall also be covered by it. This Tribunal in National Aluminium Co. Ltd. v. CCE - Final Order Nos. 312-327/2005 - NB (A), dated 4-3-2005 [2005 (184) E.L.T. 183 (T)] held that Circular dated 13-2-2003 will apply for all pending proceedings. In view of the above, the contention of the impugned Order-in-Original that Circular dated 13-2-2003 is not applicable for past period is incorrect and liable to be rejected. The Tribunal in ITC Ltd. v. CCE - 2004 (175) E.L.T. 860 (T) has held that interest per se is not includible in the cost of production. Therefore we find no ground to uphold the interest costs. (c) Amount of interest calculated in the show cause notice for LAB division alone far exceeds the total interest incurred for the company as a whole. This shows that interest as calculated by show cause notice is ex facie incorrect. It is found that show cause notice dated 25-2-2000 has included a very exaggerated and not....
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....T. 483 (S.C.) (c) Union Carbide v. CCE - 2003 (158) E.L.T. 15 (S.C.). It is found that submissions made with respect to interest have not at all been considered by the impugned Order-in-Original. Hence the order is liable to be set aside in its entirety. (f) On Profit the show cause notice dated 25-2-2000 has calculated profit margin of 19.8% for the year 1997-98 and 17.95% for the year 1998-99 and 1999-2000 based on figures pertaining for the company as a whole taken for additional profit and loss account of the company. (i) The appellants submit that the LAB is an intermediate product whereas the profit margin of 19.8% for the year 1997-98 and 17.95% for the years 1998-99 and 1999-2000 relate to the company as a whole which sells diverse final products such as detergent powder, detergent cakes, toilet soap, AOS, Acid Slurry, soda ash etc. Therefore, the profit margin adopted by the department cannot be applied to the intermediate goods such as LAB as an industrial chemical and a commodity. It is bought and sold in bulk. Its chemical composition is well defined and its standards are fixed. Whereas, on the other hand, detergent powder and cakes are branded p....
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....0.00 (From January 2000) Which would shows that the revised cost of production for the year 1997-98 is merely 0.17% higher than the value at which LAB was transferred by the LAB division. For the year 1998-99 and 1999-2000, the cost of production is less than the value at which LAB has been transferred. In fact, for the year 1998-99 and 1999-2000, the appellants have paid duty at higher assessable value. All these figures as quoted above, were presented before the Commissioner also. The Commissioner has not rebutted them at all. Hence the figures require no verification. The impugned Order-in-Original is liable to be set aside on the grounds of non-consideration of relevant submissions made in defence by the notice. 2.2.1. As the LAB recipient factories had paid much more duty in PLA than now being demanded by the show cause notice dated 25-2-2000. In such situations, there cannot be any intention to evade payment of duty, more so when it is considered to be a related person or same person sales by Revenue. Ingredients of proviso to Section 11A therefore can not be attracted. Hence demand beyond one year period of limitation is barred. 2.2.2. The cost of production submitt....
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....rson at the time of removal, to buyers (not being related person); or where such goods are not sold to buyers, to buyers (being related person), who sells such goods in retail : Provided that in a case where the related person does not sell the goods, but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in Rule 8." In view of the above, LAB cleared to other factories of the appellants should be valued as provided under Rule 8 i.e., 115% of the cost of production of LAB. The appellants had repeatedly submitted to the Excise Department that 115% of cost of production amounts to Rs. 39,150/- per MT being the value on which LAB was cleared to other factories of the appellants. The impugned Order-in-Original holding to the contrary is liable to be set aside on this ground. 2.4.1. For the last two notices, the Commissioner has applied Rule 4 read with Rule 11 of the Valuation Rules, 2000. This stand is directly contrary to the stand taken for the earlier notices. Demands for the period November, 2000 to November, 2001 has been confirmed under Rule 4 read with Rule 11 of the Valuation Rules, 2000....