TaxTMI 
TaxTMI 
2023 (6) TMI 753
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....vely in the manufacture of textile machinery which is cleared on payment of duty. The assessable value adopted for payment of duty on Iron castings cleared to the sister unit is based on the cost of production declared by the appellant. 2. When the excisable gods (Iron castings in this case) are not sold by an assessee, but is captively consumed or used on their behalf in the manufacture of other products, the valuation of the goods for payment of central excise duty has to be made under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. 3. As per the provisions of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, where the excisable goods are not sold by an assessee, but are used for consumption by him or on his behalf in the manufacture of other articles, the value shall be 110% of the cost of manufacture of such goods. 4. In terms of the above, the Government of India, Ministry of Finance and Company Affairs, Department of Revenue, New Delhi, vide Circular No.692/8/2003-CX dated 13.2.2003, has clarified that the cost of production of captively....
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..../2016 dated 27.10.2016 SOD 02/2017 dated 14.11.2017 2 Order-in-Original No. and date O-in-O 2/2015 Commr dated 16.03.2015 O-in-O 24/2016 C.Ex[ADC] dated 23.12.2016 O-in-O 14/2017 C.Ex[JC] dated 29.11.2017 O-in-O 08/2018 C.Ex [JC] dated 31.05.2018 3 Order Passed by Commissioner Additional Commissioner Joint Commissioner Joint Commissioner 4 Demand - Duty Rs.5,05,59,795/- Rs.1,36,85,055/- Rs.1,27,62,476/- Rs.88,08,815/- 5 Penalty Rs.5,05,59,795 Sec 11AC Rs.13,68,850 Rule 25 CER 2002 Rs.13,00,000 Rule 25 CER 2002 Rs.13,00,000 Rule 25 CER 2002 6 Order-in-Appeal No. and date Not Applicable OIA 262-17 dated 09.10.2017 (dropped part of the demand) OIA 127....
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....9,16,256 6 Abnormal Ideal Capacity cost 2,71,38,816 58,57,869 50,50,180 34,24,820 Total 5,05,59,795 81,13,199 58,31,760 88,08,815 9. The Ld. Consultant submitted that the appellant is the Foundry Division and the rough castings manufactured by them are transferred to their own sister units, on payment of duty, for manufacture of finished products. The appellant adopted assessable value based on the cost of production, which is disputed by the department. The appellant's claim of exclusion of certain expenses to arrive at the cost of production has been rejected by the department. Thus, it is alleged that there is short payment of duty. 10. It is submitted by the Ld. Consultant that with regard to the first and second issue, Machine shop expenses and Notional power cost price expenses, the Commissioner (Appeals) set aside the demand for the year 2013-14 and held that these expenses are not to be included in the cost of production. Further for the period 2014-15, also the Commissioner (Appeals) vide OIA dt. 28.05.2018 has set aside the demands on these two heads. Again for the period 2014-15, the ....
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....cial year as the parts / spares used for repair has an estimated life of more than one year. The cost of such items has to be therefore apportioned over a period of 10 years. In other words, the expenses are to be deferred over a period of 10 years and in each year only the proportionate amount has to be added to the cost. So every year, the deferred amount of each year @ 10% for the period 2008-2009 was added. It is submitted that the adjudicating authority vide OIO dt. 28.02.2002 has correctly analyzed the issue, appreciated the contentions of the appellant and dropped the demand for the period 2014-2015. The Ld. Consultant prayed that the demand for other periods in respect of deferred revenue may be set aside. 13. The demand raised in respect of 'administrative overheads' was countered by the Ld. Consultant by referring to the discussion made by the Commissioner (Appeals) in para 20.3.1 of OIA dt. 09.10.2017. The appellant has explained before the authorities that these expenses are incurred for non-manufacturing activities and therefore are not includable in the cost of production. It is submitted that expenses in the nature of printing and sta....
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....t is argued by the Ld. Consultant that the table would show in the initial years, the factory was closed for few months. Slowly, appellant received orders. Due to lack of orders, the idle capacity shown in the table has to be considered as abnormal idle capacity and not to be included in the cost of production. 14.4 The Ld. Consultant relied on the judgments in the case of ITC Ltd. Vs CCE Chennai - 2015 (315) ELT 143 (Tri.-Chennai) to argue that abnormal idle capacity due to lack of orders also is not includable in the cost of production. 15. The Ld. Consultant submitted that the entire issue is revenue neutral. The demand is on account of valuation of goods that are transferred to their sister units. The duty paid by appellant would be eligible for credit for their sister units. In the case of Aglo French Textiles Vs CCE Puducherry - 2018 (360) ELT 1016 (Tri.-Chennai) the Tribunal set aside the demand on the ground of being revenue neutral. This decision was upheld by Apex Court as reported in 2018 (360) ELT A301 (SC). The decision in the case of Hyundai Motor India Ltd. Vs CCE & ST, LTU, Chennai - 2019 (29) ....
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....ntrary to the Section 11A and clearly unsustainable as the return referred to in Section11A is ER1 return only. Sub Rule (2) was introduced by Notification no 34/2004 C.E (N.T) dated 1.11.2004 to the effect that assessee has to submit Annual Financial Information Statement in form ER4 by 30th day of November of the succeeding year. Then a proviso was introduced to clause (a) of sub-rule (2) of Rule 12 by Notification No.20/2010-CE [N.T] dated 18.05.2010 to the effect that assessee who has paid total duty Rs.10,00,000/- or more in the preceding financial year has to file Annual Financial Information Statement electronically. Thereafter, by notification No. 8/2016-CE (NT) dated 1.3.2016 for the word "Annual Financial Information Statement" in clause (a) and (b) of sub rule (2) of Rule 12, the word "Annual Return" was substituted. Hence it is clear that during the period of dispute ER4 is not a return as held by the lower authorities as it is only an Annual Financial Information Statement. Therefore, the due date for filing the ER4 cannot be taken for the purpose of computing period of limitation. 17.4 As per sub-rule (3) of Rule 12, proper officer on the ba....
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....strative Overheads and f) Abnormal Idle Capacity 22. Machine shop expenses: and Notional Power cost expenses: The Commissioner (Appeals) vide OIA No.262/2017 dt. 09.10.2017 has set aside the demand for the period 2013-2014. So also for the period 2014-2015, the demand in respect of machine shop expenses and notional power cost expenses has been set aside by the Commissioner (Appeals) vide OIA No.295/2018 dt. 28.05.2018. Later, for the period 2015-2016 the demand raised in the SCN on these two expenses has been dropped by the adjudicating authority vide OIO 8/2018 dt.31.05.2018. It is not submitted that the department has filed any appeal against these issues. The department having accepted the view that machine shop expenses and notional power cost are not to be included in the cost of production for the period from 2013-14, 2014-15 and 2015-16, we are of the view that the demand confirmed for the period 2008-2013 in E/41271/2015 on Machine Shop expenses and Notional power cost requires to be set aside, which we hereby do. 23. Material transfer expenses : The demand has been confirmed for the period 20....
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....It is submitted by the Ld. Consultant that as per the accounting standards, replacement of parts and accessories of the capital goods is treated as revenue expenses and is shown as expenses in P&L account. However, as per the Cost Accounting Standards, they are treated as deferred expenses. 25.1 On perusal of the Cost Audit Report dt. 30.03.2013 the Dy. Director of Cost has stated that the practice adopted by the appellant is in order but requires reconcilation. The relevant part of the report reads as under : "8. They had deducted an amount of Rs.9668400 stating that those are deferred revenue expenses of repairs & maintenance. It was stated that they charge certain capital goods spares, components, etc., to Profit & Loss account as revenue expenditure whereas they were treated as deferred revenue expenses in Cost Accounting as per CAS4. It may please be noted that as per Chapter 7 of GACAP (generally accepted cost accounting principles) issued by the Institute of Cost Accountants of India Calcutta, this was in order. However, it should be reconciled with financial records and the reconciliation statement submitted to the department along with C....
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....the deferred revenue expenditure of Rs.79,96,539/-, based on the documents produced by 'the assessees'. ... ... .... .... ... .... 14. However, as the expenses are deferred in nature and as observed by Deputy Director (Cost), it is imperative that the said expenses have to be included in the cost of production proportionately over the lifetime of the spares / components. It is the claim of 'the assessees' that as the lifetime of the spares / components are 10 years, they have already included ten percent of the deferred revenue expenses 9termed as depreciation on deferred revenue xpenses0 of Rs.79,96,539/- in the cost of production for 2014-15, which forms part in the cumulative depreciation of Rs.99,18,014/-. The Annexure 4 to their letter dated 17.09.21 specifies the cumulative depreciation on deferred revenue expenses for the period from 2008-09 to 2014-15, which they claim as already included in the cost of production of the respective years. The year-wise break-up for Rs.99,18,014/- is also furnished by the assesses in their letter dated 17.09.21, which is reproduced in para 7 above. From the same, I find that 10% of Rs.79,96,....
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.... the cumulative depreciation of Rs.99,18,014/- was reduced from the deferred revenue expenses of Rs.79,96,539/- as reflected in Annexure I of the SOD and as was done in the Show Cause Notice for the period from 2008-09 to 2012-13, again there exists no cost which escaped inclusion in the cost of production. On this ground also, the demand fails." 25.3 While arguing the issue on deferred Revenue expenses, the Ld. Consultant has referred to the figures in para (j) of the above OIO. It was urged that the appellant had included depreciation on the deferred revenue expenses (Rs.99,18,014), but the department had failed to take note of this fact. Thus, it was argued that the appellant having included the depreciation on deferred revenue expenses (Rs.99,18,014), demand of duty again alleging that the deferred expenses (Rs.79,96,539/-) has to be included is not correct. It was submitted that both depreciation on deferred revenue expenses and deferred revenue expenses are not to be included in the cost of production. 25.4 On perusal of the SCNs it is seen that for the period 2008-09 the SCN has alleged only the difference of deferred revenue e....
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....ctivities shall be included in the cost of production. Administrative overheads in relation to activities other than manufacturing activities e.g. marketing, projects management, corporate office expenses etc. shall be excluded from the cost of production." 27. From the above, it can be seen that such expenses which are not in relation to the manufacturing activity and in the nature of marketing, projects management, corporate office expenses have to be excluded. The various expenses under dispute are printing, stationary, telegram, telephone etc. These are nothing but in the nature of corporate office expenses. Every manufacturing unit will require such expenses which are usually incurred in the day to day administration of the unit. The department has denied exclusion of such expenses for the reason that the appellant has availed credit on such expenses. It has to be understood that credit is availed on the basis of the law contained in CCR 2004. If the activity falls within the definition of "input services", the manufacturer will be eligible to avail credit. Repair and Maintenance of office works, courier services, marketing and promotion servic....
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.... (supra) has also been relied. In the said case the Tribunal in paras 7.3 & 7.4 observed as under : "7.3 It is seen that the "abnormal and non-recurring cost" includes abnormal idle capacity, which shall not form part of the cost of the production. Para 4.8 of CAS-2, the difference between practical capacity and normal capacity or actual capacity utilization whichever is higher, would be abnormal idle capacity. The 'practical or achievable capacity' as referred in clause 4.3 of CAS-2 indicated internal factors and external factors. The internal factors would include the causes internal to the plant. External factors include lack of orders, which does not consider in respect of practical capacity. It is clear that the claim of the appellant of causing reduction in production for lack of orders is the external factor as mentioned in "practical or achievable capacity". "Normal capacity" as referred in clause 4.4 and 7 of CAS-2, is determined after adjustment of external factors with practical capacity. Therefore, abnormal idle capacity as per clause 4.8 would be determined on practical capacity minus normal capacity or actual capacity utilization which is higher. It is alread....
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....duct the cost audit and this is not done with the approval of the Chief Commissioner. So also, the audit was conducted on account of audit point raised by Audit Group No.3. There was no enquiry or investigation by Assistant or Deputy Commissioner of Central Excise or any proceedings before Assistant or Deputy Commissioner of Central Excise. Therefore, the cost audit report called for is not as contemplated in Section 14A warranting for cost audit. So also, as per the cost audit report dated 30.03.2013, the approval was given by the Commissioner of Central Excise and not by the Chief Commissioner. Further, the audit was conducted by the department person i.e. Deputy Director (Cost) along with Superintendent (Audit) and not independently and thus have not followed the principles of natural justice of being heard. Thus, it is submitted by the Ld. Consultant that cost audit report is vitiated for not following the principles of natural justice. To support this contention, the following decisions were relied : (i) Berger Pains India Ltd. Vs CCE Calcutta II - 2017 (345) ELT 88 (Cal.) (ii) Larsen and Toubro Ltd. Vs Commissioner of VAT - 2014....
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.... We have, several times earlier have told the authorities concerned that we are ready to share our computer system with the department and in fact we have given in writing also. This possibility is also to be considered. Moreover, the duty paid at one unit is available as Cenvat credit at other units and we have a consolidated balance sheet for all the units of LMW. If such be the situation the department should come forward and accept our Activity Based Costing system." From the above letter, it is seen that appellant had failed to furnish CAS4 statement before the department. However complex may be the manufacturing activity of the appellant, they cannot deviate from the provisions of law and principles laid by the Department for calculation of assessable value when goods are cleared to sister units on stock transfer basis. The department therefore cannot be found fault for deputing a person to verify the correctness of the value adopted by the appellant for discharging duty when goods are stock transferred to their sister units. We find no merit in the argument put forward by the appellant on this ground. The decisions relied by the Ld. Consultant....