2005 (3) TMI 186 - AT - Central Excise

Valuation (Central Excise) - Period of removal of the goods for captive consumption - Departmental Clarifications - Whether Board s valuation Circular No. 692/8/2003 dated 13-2-2003 on valuation of captively consumed goods is applicable to all pending cases or is applicable only to goods removed for captive consumption from the date of issue of that Circular - HELD THAT - The revenue seeks to finalise pending valuations applying different costing principles on the plea that different criteria had been circulated from time to time. The assessees are contesting the correctness of that approach by contending that the instructions contained in the earlier circulars were not in conformity with the general principles of cost accounting and that the latest circular which incorporated correct principles should be followed in all pending cases. It is also to be noticed that the latest circular of 2003 specifically states that the earlier instructions have to be deemed to be modified by the later circular. Thus Revenue had no independently sustainable claim. Its claim is based entirely on circulars issued from to time. That too on incorrect costing principles. It would be wholly incorrect to apply old circulars without considering the modifications brought about by the latest circular particularly when as noted already it is well settled that assessees are not bound by any circular though at liberty to seek the benefit of circulars and a Court has to allow such a claim while Revenue is bound by its own circulars. Thus all the appeals are allowed by way of remand with the direction to the original authorities to decide valuation in terms of the Circular No. 692/8/2003 dated 13-2-2003.

Summary

The core legal question considered by the Tribunal is whether the Board's valuation Circular No. 692/8/2003 dated 13-2-2003, which prescribes the method of valuation for captively consumed goods, is applicable retrospectively to all pending cases irrespective of the date of removal of goods, or whether it applies only prospectively from the date of its issuance.

Another related issue is the legal effect of modifications made by the later Circular on earlier Circulars dealing with valuation, and whether the Revenue can insist on applying earlier Circulars without regard to such modifications. The Tribunal also examined the extent to which assessees can invoke the benefit of a later beneficial Circular in pending disputes, and the binding nature of Circulars on Revenue and assessees.

Regarding the principal issue of applicability of Circular No. 692/8/2003, the Tribunal analyzed the legal framework governing Circulars and their prospective or retrospective operation. It noted that it is generally well settled that Circulars issued by the Board are prospective in operation. The Revenue relied on this principle and on the Apex Court judgment in the case of CCE v. Eswaran & Sons Engineers Ltd. to argue that valuation should be governed by the Circular in force at the time of removal of goods, and that earlier Circulars should apply to removals prior to the 2003 Circular.

Conversely, the assessees contended that the 2003 Circular lays down the correct and authoritative method of costing based on general principles developed by the Institute of Cost & Works Accountants of India (ICWAI), and that it expressly states that earlier Circulars are deemed modified to the extent they relate to cost determination of captively consumed goods. They argued that the Circular applies to all pending cases and that assessees are entitled to claim the benefit of a later beneficial Circular even if the goods were removed prior to its issuance.

The Tribunal examined the text of the 2003 Circular, particularly paragraphs 3 and 4, which clarify that cost of production of captively consumed goods "will henceforth be done strictly in accordance with CAS-4" and that the earlier Circular No. 258/92/1996-C.X. "may be deemed to be modified accordingly" for cost determination purposes. The Tribunal interpreted the word "henceforth" as indicating a prospective application but emphasized that the deemed modification clause means that the earlier Circular cannot be applied without incorporating the modifications introduced by the 2003 Circular.

Further, the Tribunal emphasized the principle that general principles of costing, as developed by a competent authority such as ICWAI, provide guidance that is not confined by time and can be invoked by assessees in pending disputes. It held that assessees are entitled to have their disputes decided according to such general principles, and that the Revenue is bound by its own Circulars. The Tribunal also noted that assessees are free to contest the validity of Circulars and that Courts and Tribunals are not bound by Circulars if they are incorrect.

In addressing the Revenue's reliance on the Apex Court judgment in Eswaran & Sons Engineers Ltd., the Tribunal distinguished the facts and legal issues involved. The Eswaran case concerned whether a subsequently issued Circular could override a legally sustainable demand raised by the Revenue prior to the Circular's issuance. The Court held that such a demand could not be extinguished by a later Circular. However, in the present matter, the Revenue's claim is based solely on Circulars and their valuation instructions, not on an independent legally sustainable demand. Since the 2003 Circular expressly modifies earlier Circulars, the Tribunal held that the Revenue cannot apply earlier Circulars without incorporating the modifications.

The Tribunal also referred to authoritative precedents establishing that assessees can claim the benefit of beneficial Circulars in pending disputes, and that oppressive Circulars are to be applied prospectively. It cited the judgment of the High Court of Calcutta in Birla Jute and Industries Ltd. v. Assistant Collector and the Apex Court's approval of this principle in Eswaran & Sons Engineers Ltd.

On the application of the law to facts, the Tribunal found that since the goods in question were removed prior to the issuance of the 2003 Circular, but the valuation disputes were pending at the time of the Circular's issuance, the assessees were entitled to have their cases decided in accordance with the 2003 Circular. The Tribunal directed the original authorities to re-decide valuation in terms of Circular No. 692/8/2003 dated 13-2-2003.

Regarding competing arguments, the Tribunal rejected the Revenue's contention that each period's valuation must be governed strictly by the Circular in force during that period without regard to subsequent modifications. It held that such an approach would be incorrect, particularly when the later Circular expressly modifies earlier instructions. The Tribunal also rejected the suggestion that the 2003 Circular applies only prospectively from its date of issue without any retrospective effect on pending cases.

In conclusion, the Tribunal held that the 2003 Circular is applicable to all pending cases and that earlier Circulars must be deemed modified accordingly. The Revenue is bound by the Circulars it issues, and assessees are entitled to claim the benefit of a later beneficial Circular even if the goods were removed prior to its issuance. The appeals were allowed and the matter remanded for fresh valuation in accordance with the 2003 Circular.

Significant holdings include the following verbatim excerpts from the judgment:

"The cost of production of captively consumed goods will 'henceforth' be done strictly in accordance with CAS-4."

"Board's Circular No. 258/92/1996-C.X., dated 30-10-1996, may be deemed to be modified accordingly in so far as it relates to determination of cost of production for captively consumed goods."

"In pending matters, the assessee can seek determination of his case under a later beneficial circular by pointing out that instructions contained in the earlier circulars are incorrect and the matter should be settled according to 'general principles' developed by an authority competent to lay down standards."

"It is well settled that assessees are not bound by any circular, though at liberty to seek the benefit of circulars and a Court has to allow such a claim while Revenue is bound by its own circulars."

"The ratio of [Eswaran] judgment is that a legally sustainable claim, which had been raised by the Revenue prior to and independently of a circular, cannot be extinguished on a plea that a subsequently issued circular is prospective in operation. That is not the case in the present appeals."

"It would be wholly incorrect to apply old circulars without considering the modifications brought about by the latest circular."

"All the appeals are allowed by way of remand with the direction to the original authorities to decide valuation in terms of the Circular No. 692/8/2003, dated 13-2-2003."

The core principles established are that beneficial Circulars can be applied retrospectively to pending disputes; Circulars issued by the Board are binding on Revenue but not binding on assessees; and that subsequent Circulars which expressly modify earlier Circulars must be applied in preference to earlier instructions, even if the goods were removed prior to the later Circular's issuance. The Tribunal clarified that the principle in Eswaran & Sons Engineers Ltd. does not preclude application of a later beneficial Circular to pending cases where the Revenue's claim is not based on an independent legally sustainable demand but solely on Circular instructions.