AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 753
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....y 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 consumed goods should be done strictly in accord....
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.... 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 127-18 dated 28.05.2018 (dropped part of the demand) OIA 025-19 dated 18.01.2019 7 Demand in Dispute Duty Rs.5,05,59,795/- Rs.81,13,199/- Rs.58,31,760/- Rs.88,08,8815/- 8 Interest Not quantified Not quantified Not quantified Not quantified 9 Penalty 5,05,59,795/- u/s 11AC 13,68,850/- u/r 25 Remanded for re-quantification 13,00.000/- u/r 25 E/41271/2105 E/40083/2018 E/42215/2018 E/40646/2019 S....
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....nses 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 adjudicating authority itself has dropped the demand relying upon the above orders passed by Commissioner (Appeals). The Ld. Consultant submitted that as for now only the demands for the period 2008-2013 stands confirmed as per the order passed by Commissioner vide OIO dated 16.03.2015. The demand for the said period also may be set aside. 11. The third issue is the demand for including material transfer expenses which is only for the period 2008-2009. The department has rejected the claim of the appellant that these expenses are not to be included in the cost of production alleging that excise duty has not been paid on these items when cleared to the sister units. The Ld. Consultant adverted to the list of materials transferred as shown in the report filed by the Dy. Director (cost) of the Department. Expenses 2008-09 2009-10 2011-12 2013-14 2014-15 Waste & Scrap 15509313 1148154 549569 1877670 2388433 Material transfer 1443....
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.... 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 stationary, postage, telegram and telephone, travelling expenses and maintenance of vehicles, licence and taxes, legal and professional charges, security expenses fall under 'administrative overheads'. The department has confirmed the demand so as to include such expenses in the cost of production alleging that the appellant has availed cenvat credit on these expenses as being in the nature of input services. It is urged by the appellant that the provisions of availing cenvat credit is contained in the Cenvat Credit Rules, 2004. The appellant has availed credit as per the CCR, 2004 and for this reason it cannot be said that such expenses are to be included in the cost of production. The Ld. Consultant referred to para 5.7 of the CAS-4 and submitted that only such administrative heads in relation to production activities are to be included in the cost of production. 14.1 The demand in regard to abnormal idle capacity has been confirmed by the department. Abnormal idle capac....
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.... in the case of Hyundai Motor India Ltd. Vs CCE & ST, LTU, Chennai - 2019 (29) GSTL 453 (Tri.-Chennai) was also relied. The said decision has also been upheld by the Apex Court as reported in 2020 (32) GSTL J154 (SC). 16. The Ld. Consultant has put forward arguments on the ground of limitation. The following table was furnished to argue that the entire demand is raised invoking the extended period of limitation : Sl.No Year Return Due date One year time limit SCN Date 1 2008-09 10.4.2009 10.4.2010 27.8.2015 2009-10 10.4.2010 10.4.2011 27.8.2015 2010-11 10.4.2011 10.4.2012 27.8.2015 2011-12 10.4.2012 10.4.2013 27.8.2015 2012-13 10.4.2013 10.4.2014 27.8.2015 2 2013-14 10.4.2014 10.4.2015 03.11.2015 3 2014-15 10.4.2015 10.4.2016 27.10.2016 4 2015-16 10.4.2016 10.4.2017 14.11.2017 17. It is pointed out that period of limitation was increased from one year to 2 years w.e.f. 16.05.2016 by amendment. The last period of dispute in the above table is 2015-16, which is before the amendment. Hence the limitation prior to amendment would apply. 17.1 The Ld. Con....
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.... necessary, scrutinize the correctness of the duty assessed by the assessee on the goods removed, in the manner to be prescribed by the Board. Sub-rule (1) prescribes for filing of monthly Return [ER1] on the goods removed. This return is to be filed within 10 days after the close of the month. Therefore, date of filing ER1 return is to be taken for computing the period of limitation and not ER4 as held by the lower authorities. 17.5 There is no evidence put forward by the department that there was any positive act on the part of the assessee to suppress facts with intent to evade payment of duty. All the SCNs were issued beyond the one year time limit in all these appeals. That the notices may be set aside as time barred. 18. The Ld. Consultant requested that demands may be set aside on merits as well as on limitation and allow all the appeals. 19. The Ld. A.R Sri M. Ambe supported the findings in the impugned order and also referred to para 1 of the CAS-4. It is submitted by the Ld. A.R that the appellant failed to file CAS-4 and also discharge the duty as per CAS-4. The Deputy Director (Cost) of the Department ....
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.....2014 pertaining to the period 2008-2013 the allegation raised is as under: Scrap & Wastes Expenses 2008-09 2009-10 2011-12 2013-14 2014-15 Waste & Scrap 15509313 1148154 549569 1877670 2388433 Material transfer 14438300 0 0 0 0 It is noted in the SCN, that the appellant has not produced any document to establish that the expenses need not be included in the cost of production. It is also stated that such material transfer is not reflected in P&L account of the year 2008-09. From the above table, it can be seen that the issue of noninclusion of material transfer expenses pertains to a single financial year (2008-09). 24. The Ld. Consultant has explained that the cost of raw material has been included in the cost of production. Part of the raw material was cleared as such and therefore needs to be excluded. Further that some of the items are non-duty items for which duty need not be paid when transferred to the sister unit. In page 4 of OIO dt. 16.03.2015 for the period 2008 to 2013 the adjudicating authority has held that the exclusion of Rs.14438300/- (2008-09) towards material transfer does not appear to be correct. It is also submitted....
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....tement, 'the assessees' had not included inter-alia, Rs.79,96,539/- being the Deferred Revenue Expenses, in the CAS 4 while computing the cost of production. It appeared that this has resulted in contravention of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 and resultant short payment of duty. These deferred revenue expense were incurred towards purchase of spares / components of machinery during their maintenance. It is the contention of 'the assessees' that as per the Accounting Standards issued by the Chartered Accountants of India, replacement of parts and accessories of the capital goods is treated as revenue expenses and as such, it is shown as an expanse in their P&L account; however as per the Cost Accounting Standards they are treated as deferred revenue expenses; as the spares / components have a life of ten years, the said expenses are absorbed as cost over the life time of the spares / components; as such, the cost of such items has to be apportioned over a period f 10 years and that only 10% of Rs.79,96,539/- are to be included in computation of cost of production for the year 2014-15, which they claim as already....
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....om the expenses which were not included in the cost of production. In view of the foregoing facts, I hold that the assessees have already included the depreciation on the deferred revenue expenditure of Rs.79,96,539/- amounting to Rs.7,99,654/- in the cost of production for 2014-15 and as such the demand of duty on the deferred revenue expenses of Rs.79,96,539/- does not survive. 15. Further, the assessees have repeatedly argued that the Department have demanded duty without taking into account the inclusion of cumulative depreciation of Rs.99,18,014/- in the cost of production for the year 2014-15. As this is the SOD under consideration, I refer to the Show Cause Notice Sl.No.13/2014 (Commr) dated 27.08.2014. The Show Cause Notice covered the period from 2008-09 to 2012-13. From Annexure I and Annexure II thereto, I find that the Show Cause Notice was issued inter-alia, only for non-inclusion of the 'Abnormal and Non-recurring Cost', which is arrived at after reducing the Depreciation on Deferred Revenue Expenses from the Deferred Revenue Expenses. For example for the year 2008-09, the Deferred Revenue Expenses amounted to Rs....
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....13323380 16668958 10885814 Less: Depreciation on Deferred Rev. Exp. -1798579 -2322641 -3654979 -5287710 -6643500 Net Expenses 16187215 2917978 9668401 11381248 4242314 The contention of the appellant that duty on the entire deferred revenue expenses has been proposed and confirmed is factually wrong. Indeed, in the SCN issued for the year 2014-2015 the demand was wrongly raised which has been set aside by the adjudicating authority as stated above. For the year 2015-2016 also, the demand has been confirmed observing that the appellant has not furnished documents for reconciliation of the depreciation on deferred revenue expenses. 25.5 On perusal of OIO for the year 2014-2015, it is seen that the appellant had furnished documents which were scrutinized and the demand was dropped by adjudicating authority in de novo proceedings. The appellant has to therefore produce documents to reconcile the demand on such expenses. We therefore are of the view that this issue for the period 2008-2013, 2013-14 and 2015-16 (except 2014-15) has to be remanded to the adjudicating authority for de novo consideration. 26. Administrative Overheads....
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....e administrative overheads in the assessable value cannot sustain and requires to be set aside, which we hereby do. 28. Abnormal Idle Capacity Para 5.17 of CAS-4 deals with Abnormal Idle Capacity which reads as under: "Abnormal and non-recurring cost arising due to unusual or unexpected occurrence of events, such as heavy breakdown of plants, accidents, 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 part of the cost of production." Chapter 6 of GACAP defines - "Abnormal Idle Capacity' is the difference between Practical Capacity and Normal Capacity or Actual Capacity Utilization whichever is higher" 'Practical or Achievable Capacity' is the maximum productive capacity of a plant reduced by the predictable and unavoidable factors of interruption pertaining to internal causes." 'Normal Capacity' is the production achieved or achievable on an average over a number of periods or seasons under normal circumstances taking into account the loss of capacity resulting fr....
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....have already held that the "abnormal idle capacity" would cover external factors including lack of orders. So the finding of the adjudicating authority that the appellant have not proved the idle capacity as arising due to any abnormal reason is not sustainable. Accordingly, the unabsorbed overheads referable to abnormal idle capacity for lack of order shall not form part of the cost of production and the demand of duty is not sustainable." 30. The table furnished by the appellant establishes that the actual production during the disputed period is much less than the capacity. It is also seen that for a few months the unit was closed. The authorities below have not considered these facts. After appreciating the provisions of CAS-4 as well as decision in ITC Ltd. (supra), we are of the view that the abnormal idle capacity claimed by the appellant has to be considered. We hold that the demand raised by not considering the claim of abnormal idle capacity cannot sustain and requires to be set aside, which we hereby do. 31. The Ld. Consultant has put forward arguments alleging that special audit was conducted without any authority. As per Section 14A of t....
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....d carefully. It is to be noted that prior to issuance of show cause notice, the appellant was directed to file CAS-4 with the Department to verify the correctness of the value adopted in respect of goods cleared to their sister unit on stock transfer basis. However, the appellant had claimed that they would follow dynamic costing on the lines of CAS-4. It was in this background that Dy. Director (Cost) of the Department was deputed to verify the correctness of the value adopted with reference to CAS-4. So the contention of the appellant that there is violation of principles of natural justice is without basis. 35. Further, in the letter dated July 21, 2009 issued to the Superintendent of Central Excise (Audit), Coimbatore, the appellant has stated as under : "You have enquired us about submission of CAS4 statement for the goods cleared by us to our own units. You have also informed us that cost construction is to be done strictly in accordance with CAS4. In this regard we would like to inform you that a similar issue was raised earlier and we have given a reply clarifying our stand. Please note we have got advanced system of cost managemen....