TaxTMI 
TaxTMI 
GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON COST OF PRODUCTION FOR CAPTIVE CONSUMPTION (CAS-4) - (Revised)
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....set in bold italic type and reference number has been retained as in CAS-4 for ready reference. CAS 4 refers to Central Excise Act and Rules framed there under for determination of assessable value of goods used for captive consumption. Therefore, this Guidance note refers to relevant sections of Central Excise Act, 1944, Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, other relevant rules thereto, case laws on the subject and provides methodology for determination of assessable value of captively consumed goods on cost construction method as a measure of simplification. Circular No. 692/08/2003-CX dated 13th February, 2003 issued by Department of Revenue (CBEC) inter alia provides "that for valuing goods which are captively consumed, the general principles of costing would be adopted for applying Rule 8. The Board has interacted with the Institute of Cost & Works Accountants of India (ICWAI) for developing costing standards for costing of captively consumed goods." Paragraph 3 of the above circular further provides: "cost of production of captively consumed goods will henceforth be done strictly in accordance with CAS-4…......
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....lue shall be determined under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 notified on 30.6.2000, as provided under Section 4(1)(b) of the Act. For ready reference extract of Section 4 of the Central Excise Act, 1944 and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 are annexed as Annexure II and III. Rules 8 and 9 deal with the valuation of goods captively consumed. Meaning of Captive Consumption: "Captive Consumption" means that the goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles in the same premises or elsewhere. When goods manufactured are supplied to a related party who does not sell the goods but consumes the same in manufacture of another product(s), such goods are also deemed to be "captively consumed" for the purpose of valuation under Excise Laws. In some cases during the manufacture, certain intermediate goods emerge and are used in manufacture/production of other goods. The use of such intermediate product within the factory is also termed as "Captive Consumption". Som....
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....9;ble Supreme Court of India, observed: "the Institute of Cost and Works Accountants of India (ICWAI) has laid down the principles of determining cost of production for captive consumption and formulated the standards for costing: CAS-4. According to CAS-4 the definition of "cost of production" is as under: "4.1 Cost of Production: Cost of Production shall consist of Material consumed, Direct wages and salaries, Direct expenses, Works overheads, Quality Control cost, Research and Development cost, Packing cost, Administrative Overheads relating to production." "The cost accounting principles laid down by ICWAI have been recognized by the Central Board of Excise and Customs vide Circular No. 692/8/2003 CX dated 13.2.2003. The circular requires the department to determine the cost of production of captively consumed goods strictly in accordance with CAS-4." The Tribunal in the case of BMF BELTINGS LTD. v. CCE : 2005 (184) E.L.T. 158 (Tri. Bang.) for the period 1995 to 2000 has directed the department to apply CAS-4 for the determination of the cost of production of the captively consumed goods. In ITC v. CCE (190) ELT 119 the Tribunal held that ....
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.... for consumption in the production or manufacture of articles. In case, the related person does not sell the goods but uses or consumes such goods in the production or manufacture of the articles, the value shall be determined in the manner specified in rule 8, i.e. assessable value to be 110% of cost of production as per proviso to Rule 9. Rule 10(a) of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, also provides that where excisable goods are sold to the related party/inter connected undertaking who does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value of goods shall be determined in the manner specified in Rule 8. The details of persons who shall be deemed to be related are prescribed under Section 4(3) (Refer Annexure II). Valuation of capital goods manufactured and captively consumed: Capital goods manufactured in a factory and used within the factory of manufacturer for manufacture/production of excisable goods, are exempt from payment of excise duty as per Notification No. 67/1995-CE dated 16th March,1995. This exemption is also available in case capital goods are manufactured by ....
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....shall include materials directly identified for production of goods such as: (a) indigenous materials (b) imported materials (c) bought out items (d) self manufactured items (e) process materials and other items Cost of material consumed shall consist of cost of material, duties and taxes, freight inwards, insurance, and other expenditure directly attributable to procurement. Trade discount, rebates and other similar items will be deducted for determining the cost of materials. Cenvat credit, credit for countervailing customs duty, Sales Tax set off, VAT, duty draw back and other similar duties subsequently recovered/recoverable by the enterprise shall also be deducted. Various types of materials used for production of goods have been indicated. It depends on the type of product and process of manufacture involved. For example for production of engineering product both indigenous and imported raw materials may be used besides bought out items. In process industry, it may be indigenous/imported raw materials and other item of materials. Materials are also classified as direct material and indirect material. Direct materials identified to finished product is a part of materia....
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....hall not be reduced from the input cost. Other export benefits like DEPB and DFRC will not be adjusted for calculation of cost of production. Any demurrage or detention charges or penalty levied by transport or other authorities shall not form part of the cost of materials. Bought out components: Landed cost of indigenous/imported/bought out items shall be calculated on the above basis. Illustrations of calculation of landed cost of indigenous and imported material are at Annexure VA and VB. Self manufactured Items: These will include any goods manufactured with raw material, indigenous or imported bought out material etc. by the manufacturer in the same factory for further use in manufacture of final product. For this purpose, the cost of production of such self manufactured items shall be considered as material cost for the subsequent product, after considering inward freight, octroi, etc., as applicable. Intermediate products/ goods transferred by another unit of the same manufacturer etc. shall be based on cost of production as per CAS-4. Process material, colour and chemicals, packing materials: The cost of these shall be calculated on the same lines as above. In some c....
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....e rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities. Direct wages and salaries include fringe benefits such as: I. Contribution to provident fund and ESIS II. Bonus/ex-gratia payment to employees III. Provision for retirement benefits such as gratuity and superannuation IV. Medical benefits V. Subsidised food VI. Leave with pay and holiday payment VII. Leave encashment VIII. Other allowances such as children's education allowance, conveyance allowance which are payable to employees in the normal course of business etc. Direct wages and salaries are also termed as Employee cost. Employee cost are classified as direct employees cost and indirect employees cost. Direct employee cost is assigned to or linked with a cost centre or cost object. Indirect Employee Cost is treated as Overhead as dealt later. Employee cost shall include the employee benefits as detailed above. If fringe benefits have not be identified with relevant cost centre, these should be allocated in the ratio of direct salaries and wages of the cost centres. Where an employee has worked in more than one departments/cost centres, it may be ....
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....plier and its impact shall be determined with reference to planned production. Amortized cost of moulds, dies, patterns, designs, drawings etc.: The cost of moulds, dies, patterns, patents etc should be apportioned to products for which such moulds, patterns, patents are used which are directly identifiable with the products, based on the useful life of the item. Based on the representation received from foundry manufacturer, the department has clarified treatment of pattern cost vide MF (DR) Circular No. 170/4/96-CX 1(F.No.6/14/94-CX 1) dated 23.1.1996 (Annexure VIII) as under: "the proportionate cost of pattern has to be included in the assessable value of the castings even in cases where such patterns are being supplied by the buyers of the castings or are prepared/manufactured by the job worker at the cost of the buyer. In cases where there is a difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of castings that can be manufactured from it and thus working the cost to be apportioned per unit. For this purpose a certificate from a Cost Accountant may be accepted." ....
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....t statements. List of items of expenses for works overheads, as indicated above, are illustrative and their treatment is indicated below. Other expenses such as Security, dispensary, canteen, staff welfare and the like will also form part of works overhead. Consumable stores are items used in the maintenance of plant for example lubricant, cotton waste, paint and the like. Spares are purchased items used for replacement of worn out part of machinery and the like. Other indirect materials are items of small value such as bolt, nut nails, and the like which cannot be directly identified economically with a product and are treated as indirect material. These form part of the works overhead. The depreciation on the fixed assets shall be as per the method of depreciation followed for the purpose of financial accounts as per rates specified under Companies Act, 1956. Depreciation on idle fixed assets shall be excluded from cost of production. Further, depreciation should not be calculated based on the replacement value or notional value on revaluation of the assets. As per CAS-4 Depreciation of plant and machinery, factory building and the like is part of works overhead. Insurance pr....
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....from the cost of production. The role of administration is to facilitate the manufacturing, general policy making and marketing activities. The administrative overheads shall be included in the cost of production only to the extent they are attributable to the factory. Administrative overheads in relation to activities other than manufacturing activities e.g. marketing, selling, depot/branches etc. shall be excluded from the cost of production. Administrative Overheads for production may include share from: • Salaries of staff for administrative and other departments relating to production such as Accounts, Purchase, HRD, Production Planning, Security etc. • General office expenses - like rent, lighting, rates & taxes, telephone, stationery, postage etc. • Depreciation of office building, office equipment, furniture, vehicles, etc • Repairs & Maintenance of office building, office equipment, furniture, vehicles, etc. • Legal expenses in relation to factory. Treatment of Head Office/Corporate Office Expenses: A company may have a number of factories with a head office. In a multi-locational/multi-product company, there are common activities carried o....
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....durable packing container, pro-rata cost shall be estimated and charged based on the life of the container. In case packed goods are sent to job worker, the cost of packing will form part of cost of production, unless these are returned to buyer for re-use. Packing cost includes both cost of primary and secondary packing required for transfer/dispatch of the goods used for captive consumption. 5.9 Absorption of overheads: Overheads shall be analyzed into variable overheads and fixed overheads. Variable Overheads are the items which change with the change in volume of production, such as cost of utilities etc. Fixed overheads are the items whose value do not change with the change in volume of production such as staff salaries, rent etc. The variable production overheads shall be absorbed in production cost based on actual capacity utilization. The fixed production overheads and other similar items of fixed costs such as quality control cost, research and development costs, administrative overheads relating to manufacturing shall be absorbed in the production cost on the basis of the normal capacity or actual capacity utilization of the plant, whichever is higher. Absorption....
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.... closing stock of work-in-progress shall be adjusted for calculation of cost of goods produced and similarly opening and closing stock of finished goods shall be adjusted for calculation of goods dispatched. For determining the cost of production for captive consumption, adjustment for opening and closing stock of work-in-progress shall be made. The valuation of opening stock and closing stock of WIP is valued at cost on the basis of stages of completion. Similarly for calculation of cost of finished goods dispatched, adjustment for opening and closing stock of finished goods, if any, is to be made. In case the cost of a shorter period is to be determined, where the figures of opening and closing stock are not readily available, the adjustment of figures of opening and closing stock may be ignored. Adjustment of opening and closing stock of WIP/finished goods will arise only when the cost of production is to be determined for historical cost and due consideration shall be given for above adjustment in determining the cost of production. However, if cost of production is to be determined for a future period, it will be based on projected cost and projected capacity utilisation. In....
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....ssing shall be deducted from value of scrap or waste. Illustration Stage Input material cost Processing cost Total (Rs/MT) (Rs/MT) (Rs/MT) 1 2000 500 2500 2 2500 1000 3500 3 3500 1000 4500 If during the production process at stage 3, the scrap is produced and the same is recycled at stage 2 after making an expenditure of ₹ 200 per MT to make it suitable for re-processing at stage 2, then scrap will be valued @ Rs (2500 - 200) i.e. ₹ 2300. If no expenditure is involved to make scrap re-usable, the scrap value will be @ ₹ 2500. The scrap value for the scrap produced during a period calculated at the rate as explained above may be deducted to find out the cost of production for the period. The above illustration refers to recycled waste or inferior/sub-standard production. Normal process loss is ignored for the sake of simplicity. If the cost calculation is done for the past period and the actual sales realization of scrap is available, the same shall be deducted after adjustment for opening and closing stock of scrap (to arrive at the realizable value of scrap generated) from the cost of production for the relevant period. In case the scrap is ....
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....rrangements of borrowings, finance charges in respect of finance leases and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest costs. Interest and financial charges are finance cost and do not form part of cost of production for captive consumption. Logic for excluding interest from captive consumption is that for purpose of assessable value a margin of 10% of cost of production is added to take care of return on capital employed. (Normally return on capital employed takes care of return on owners' equity and interest on borrowed fund). To make the calculation simple above approach of 110% of cost of production of captively consumed good is taken as assessable value. 5.17 Abnormal and Non-recurring Cost Abnormal and non-recurring cost arises due to unusual or unexpected occurrence of events, such as heavy break down of plants, accident, market condition restricting sales below normal level, abnormal idle capacity, abnormal process loss, abnormal scrap and wastage, payments like VRS, retrenchment compensation, lay-off wages etc. The abnormal cost shall not form the part of cost of production. Loss du....
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.... under The Companies (Cost Accounting Records) Rules 2011 issued in pursuant to under Section 209(1)(d) of the Companies Act, 1956, the system for cost calculation would be in place and the relevant information will be readily available for such calculations. If the product is not covered under above provision, maintenance of cost accounting records as per the generally accepted costing principles read with Cost Accounting Standards shall be useful for the purpose. Manufacturers following standard costing system should adjust the variances to the various products as per generally accepted cost accounting principles for calculation of product wise cost of production. Two illustrations of Cost Sheet are annexed as Annexure X (a) and X (b). Attestation/Certification: The responsibility of preparation of cost sheet is that of the management. After cost sheet has been authenticated by company's authorized representative, cost accountant in practice has to certify the same as per certificate appended below the cost sheet. Cost accountant shall carry out test checks with reference to books of account, cost records and other records required for the purpose. Records required under ....
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....ven to the main raw material. Review procedure of employee cost booking, direct expenses and other overheads relating to classification and allocation and absorption. (Breakup of Overhead into fixed and variable overheads). Check that the expenses as exhibited in the cost sheet have been properly worked out as provided under CAS-4. Authentication on cost sheet, workings and/or declaration shall, preferably obtained from the professional accountant of the company. However, when the normal capacity utilization is not quantifiable and /or actual capacity utilization is likely to be low, as compared to previous period; It is advisable that the manufacturer shall go for Provisional Assessment under rule 7 of Central Excise Rules, 2002. After the end of the year annual certification should be done based on the finalized books of account and if the cost of production is found different than the provisional costs, differential duty shall be paid by the manufacturer. In case of multi-location units, the cost of production should be worked out separately for each unit as per CAS-4. Periodicity of cost sheet/certification: The basic purpose of CAS-4 is to determine the cost of producti....
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....ard has interacted with the Institute of Cost & Works Accountants of India (ICWAI) for developing costing standards for costing of captively consumed goods. The Institute of Cost & Works Accountants of India [ICWAI] has since developed the Cost Accounting Standards, CAS 2, 3 and 4, on capacity determination, overheads & cost of production for captive consumption, respectively, which were released by the Chairman , CBEC on 23.1.2003. It is, therefore, clarified that cost of production of captively consumed goods will henceforth be done strictly in accordance with CAS-4. Copies of CAS-4 may be obtained from the local Chapter of ICWAI. Board's Circular No.258/92/96-CX dated 30.10.96, may be deemed to be modified accordingly so far as it relates to determination of cost of production for captively consumed goods. This Circular may be brought to the notice of the field formations. Suitable Trade Notices may be issued for the benefit of the Trade. Hindi version will follow. Receipt of these instructions may be acknowledged Annexure II EXTRACT OF SECTION 4 OF CENTRAL EXCISE ACT, 1944 4. Valuation of excisable goods for purposes of charging of duty of excise. (1) Where under....
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.... or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Annexure III CENTRAL EXCISE VALUAION (DETERMINATION OF PRICE OF EXCISABLE GOODS) RULES, 2000 Notification No. 45/2000-C.E. (N.T.) dated 30-6-2000 [Effective from 1-7-2000]. Amended by Notification No. 11/2003-C.E. (N. T.), dated 1-3-2003 Notification No. 60/2003-C.E. (N.T.), dated 05-08-2003 Notification No. 09/2007-C.E. (N. T.), dated 1-3-2007 [Issue by the Ministry of Finance (Department of revenue) vide F. No. 354/81/2000-TRU; Published in the Gazette of India Extraordinary Part II, Section 3, sub-section (i) dated 30.6.2000]. NOTIFICATION [NO. 45/2000- Central Excise (N.T.)] G.S.R.575 (E):- In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1of 1944), and in supersession of the Central Excise (Valuation ) Rules, 1975 except as respect things done or omitted to be done before such supersession, the Central Government hereby makes the following rules, namely:- 1. (1) These rules may be called the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. (2) T....
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....action value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation 1: For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely:- I. Value of materials, components, parts and similar items relatable to such goods; II. Value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods; III. Value of materials consumed, including packaging materials, in the production of such goods; IV. Value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of ....
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.... person who is related in the manner specified in either of sub clauses (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyer (not being related person); or where such goods are not sold to such 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 of goods shall be determined in the manner specified in rule 8. 10. When the assessee so arranges that the excisable goods are not sold by him except to or through an inter-connected undertaking, the value of goods shall be determined in the following manner, namely:- (a) If the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of Section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9. Explanation:- In ....
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....ection (1) of section 4 of the Act. Annexure-IV CASE NO.: Appeal (civil) 2947-2948 of 2001 PETITIONER: Commissioner of Central Excise, Pune RESPONDENT: M/s. Cadbury India Ltd. DATE OF JUDGEMENT: 01/08/2006 BENCH: Ashok Bhan & Markandey Katju JUDGEMENT: (with Civil Appeal Nos.1856-1857/2002, 5232-5233/2003,1425/2005 and 2878-2879/2005) MARKANDEY KATJU, J. Civil Appeals Nos. 2947-2948/2001 have been filed against the impugned final order dated 28.9.2000 passed by the Customs Excise and Gold (Control) Appellate Tribunal, West Regional Bench at Mumbai in Appeal No. E/1021, 1022/2000-MUN. Heard learned counsel for the parties. The question involved in these appeals is about the valuation of milk crumbs, refined milk chocolate and four other products manufactured by the respondent - M/s. Cadbury India Limited, in its factory at Induri, Pune and captively consumed in that factory and other factories of the respondent in the manufacture of chocolate. No part of these products are sold by the respondent. The respondent had sought valuation of these goods under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, which provides for basing the valuation on such goods on the "....
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....o be done according to Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975. Rule 6(b)(ii) reads as follows : "Rule 6 If the value of the excisable goods under assessment cannot be determined under Rule 4 or Rule 5, and (a) (b) (i) (ii) if the value cannot be determined under sub-clause (i), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods; " According to settled principles of accountancy only the elements that have actually gone into the manufacture/production of these intermediates i.e. sum total of the direct labor cost, direct material cost, direct cost of manufacture and the factory overheads of the factory producing such intermediate products are included in the cost of production. The Appellant produced alongwith the reply to the Show Cause Notice the following authoritative texts: Wheldon's Cost Accounting and Costing Methods, Cost Accounting methods by B K Bhar, Principles of Cost Accounting by N.K. Prasad, Glossary of Management Accounting Terms by ICWAI. In CCE v. Dai Ichi Karkaria Ltd., (1999) 7 SCC 448, at page 459 it has been held that the normal principl....
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.... been recognized by the Central Board of Excise and Customs vide Circular No. 692/8/2003 CX dated 13.2.2003. The circular requires the department to determine the cost of production of captively consumed goods strictly in accordance with CAS-4. The Tribunal in the case of BMF Beltings Ltd. v. CCE : 2005 (184) E.L.T. 158 (Tri. Bang.) for the period 1995 to 2000 has directed the department to apply CAS-4 for the determination of the cost of production of the captively consumed goods. In ITC v. CCE (190) ELT 119 the Tribunal held that the department has to calculate the cost of production in terms of CAS-4. Other decisions of the Tribunal, wherein it has directed that CAS-4 be applied for determination of the cost of production, are Teja Engineering v. CCE 2006 (193) ELT 100 (Tri-Chennai), Ashima Denims v. CCE 2005 (191) ELT 318 (Tri-Mumbai), and Arti Industries v. CCE 2005 (186) ELT 208 (Tri-Chennai). This is therefore a consistent view taken by the Tribunal. The department has not filed any appeal in these cases and accepted the legal position. Apart from this, in the light of several decisions of this Court, the Department is also bound by the said circular No.692/8/2003 CX dated....
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....insurance, local insurance) Other charges such as Cusatomms clearance etc 3. Less: Cenvat Credit (including CVD) Other rebates, benefits recovered/recoverable 4. Total (1 + 2 - 3) Above Duties/levies are indicative and actual may vary with reference to type of material imported. Illustration of landed cost of imported material: Sl. Particulars Rate Amount Rs. 1. Basic Value 100.00 2. Basic Custom Duty 5% 5.00 3. Sub Total (1 + 2) 105.00 4. CVD 8% 8.40 5. ED Cess on CVD 2% 0.17 6. SHE Cess on CVD 1% 0.08 7. Sub Total (3 to 6) 113.65 8. Custom Edu Cess 2% 2.27 9. Custom SHE Cess 1% 1.14 10. SAD (on 7 + 8 + 9) 4% 4.68 11. Total Landed Cost 121.74 12. Cenvat Available (4 + 5 + 6 + 10) 13.33 Annexure VI Name of the unit XYZ Name and address of the factory ABC, New Delhi Statement Showing the cost of Power produced and Consumed during the year …. S. No Particulars Qty (Kwh) 1. Installed Capacity 215136000 2. Quantiy Produced 13,60,73,501 3. Capacity Utilisation 63 4. Quantiy Re-circulated 5. Quantity purchased, if any 6. Internal consumption in power plant 1,21,46,703 7. Net unit available 12,39,26....
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....s in the assessable value. It has been brought to the notice of the Board by Maharashtra Chambers of Commerce & Industry that there is difficulty in determination of value of patterns used in foundry industry to be added in the cost of castings for arriving at the assessable value of the castings as the quantity of casting to be made out of a pattern cannot be anticipated and sometimes some modifications or repairs are also made in the pattern after some period of use. A survey was floated to ascertain the actual position in the field formations. From the reports received, it is observed that generally Commissioners are of the view that cost of the pattern should be added in the assessable value of the castings. However, in some Commissionerates, the proportionate value of the pattern is not being added in the assessable value of the casting if such patterns are supplied by the buyers of the castings. Generally Commissionerates find that there is no difficulty in apportioning the cost of pattern in the assessable value of the casting. However, a few Commissioners have expressed difficulty in apportionment of the cost in cases where old patterns are supplied by the buyers of the c....
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....t of production of Component A manufactured of during the period of 1st April ….. QTY Q1 Quantity Produced (Unit of Measure) 250 Q2 Quantity Despatched (Unit of Measure) Particulars Total cost (Rs) Cost /unit (Rs) 1 Material consumed 35,000 140.00 2 Direct Wages and Salaries 9,500 38.00 3 Direct Expenses 350 1.40 4 Works Overheads 1,500 6.00 5 Quality Control Cost 750 3.00 6 Research & Development Cost 90 0.36 7 Administrative Overheads (relating to production activity 35 0.14 8 Total (1 to 7) 47,225 188.90 9 Add : Opening stock of Work - in - progress - 0.00 10 Less : Closing stock of work -in -progress - 0.00 11 Total (8+9+10) 47,225 188.90 12 Less : Credit for Recoveries /Scrap/By-products/misc income - 0.00 13 Packing cost - 0.00 14 Cost of production 47,225 188.90 15 Add :Inputs received free of cost - 0.00 16 Add : Amortised cost of Moulds, Tools, Dies & Patterns etc received free of cost - 0.00 17 Cost of Production for goods produced for captive consumption (14+15+16) 47,225 188.90 18 Add : Opening stock of finished goods - 0.00 19 Less : Closing stock of finished goods - 0.00 20 C....
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....ard, the standard portions have been set in bold italic type. These should be read in the context of the background material which has been set in normal type. 1. Introduction The Cost Accounting principle for determination of cost of production is well established. Similarly, rules for levy of excise duty on goods used for captive consumption are also well defined. Captive Consumption means the consumption of goods manufactured by one division and consumed by another division(s) of the same organization or related undertaking for manufacturing another product(s). Liability of excise duty arises as soon as the goods covered under excise duty are manufactured but excise duty is collected at the time of removal or clearance from the place of manufacture even if such removal does not amount to sale. Assessable value of goods used for captive consumption is based on cost of production. According to the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the assessable value of goods used for captive consumption is 115%(now revised to 110%) of cost of production of such goods, and as may be prescribed by the Government from time to time. 2. Objective 2.....
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....ent. Trade discount, rebates and other similar items will be deducted for determining the cost of materials. Cenvat credit, credit for countervailing customs duty, Sales Tax set off, VAT, duty draw back and other similar duties subsequently recovered/ recoverable by the enterprise shall also be deducted. 5.2 Direct wages and salaries Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities. Direct wages and salaries include fringe benefits such as: (i) Contribution to provident fund and ESIS (ii) Bonus/ ex-gratia payment to employees (iii) Provision for retirement benefits such as gratuity and superannuation (iv) Medical benefits (v) Subsidised food (vi) Leave with pay and holiday payment (vii) Leave encashment (viii) Other allowances such as children's education allowance, conveyance allowance which are payable to employees in the normal course of business etc. 5.3 Direct Expenses Direct expenses are the expenses other than direct material cost and direct employees costs which can be identified with the product. Direct expenses include: (i) Cost of utilities suc....
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....es etc. Fixed overheads are the items whose value does not change with the change in volume of production such as salaries, rent etc. The variable production overheads shall be absorbed in production cost based on actual capacity utilisation. The fixed production overheads and other similar item of fixed costs such as quality control cost, research and development costs, administrative overheads relating to manufacturing shall be absorbed in the production cost on the basis of the normal capacity or actual capacity utilization of the plant, whichever is higher. 5.10 Valuation of Stock of work-in-progress and finished goods Stock of work-in-progress shall be valued at cost on the basis of stages of completion as per the cost accounting principles. Similarly, stock of finished goods shall be valued at cost. Opening and closing stock of work-in-progress shall be adjusted for calculation of cost of goods produced and similarly opening and closing stock of finished goods shall be adjusted for calculation of goods despatched. In case the cost of a shorter period is to be determined, where the figures of opening and closing stock are not readily available, the adjustment of figures ....
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.... case any input material, whether of direct or indirect nature, including packing material is supplied free of cost by the user of the captive product, the landed cost of such material shall be included in the cost of production. 5.15 Moulds, Tools, Dies & Patterns etc received free of cost The amortization cost of such items shall be included in the cost of production. 5.16 Interest and financial charges Interest and financial charges being a financial charge shall not be considered to be a part of cost of production. 5.17 Abnormal and non-recurring cost Abnormal and non-recurring cost arising due to unusual or unexpected occurrence of events, such as heavy break down of plants, accident, market condition restricting sales below normal level, abnormal idle capacity, abnormal process loss, abnormal scrap and wastage, payments like VRS, retrenchment compensation, lay-off wages etc. The abnormal cost shall not form the part of cost of production. 6. Cost Sheet The cost sheet should be prepared in the format as par Appendix - 1 or as near thereto as possible. The manufacturer will be required to maintain cost records and other books of account in a manner, which would facilita....