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GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON COST OF PRODUCTION FOR CAPTIVE CONSUMPTION (CAS-4) - (Revised)

CAS - 04 - G Note - Rule - Companies Law - CAS - 04 - G Note - REVISED GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON COST OF PRODUCTION FOR CAPTIVE CONSUMPTION (CAS-4) Guidance Note on Cost Accounting Standard on Cost of Production For Captive Consumption (CAS-4) The Council of the Institute of Cost and Works Accountants of India has issued the Cost Accounting Standard 4 (CAS-4) for Determination of Cost of Production for Captive Consumption. This standard lays down the principles and methods for .....

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s per CAS-4. The Cost Accounting Standards have been 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 o .....

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) 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….." The above circular is reproduced as Annexure I. In view of above, CAS-4 is applicable from 13th February, 2003. The Department has, however, clarified that though CAS-4 was approved by the Government of India on 13.2.2003, cases pending fi .....

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gistered with Excise Department are exempt from payment of excise duty as per registration conditions. CHAPTER 1 INTRODUCTION The scheme of valuation of excisable goods is contained in Sec. 3A, Sec. 4 and Sec. 4A of the Central Excise Act, 1944. The goods manufactured have to be valued in a prescribed manner as per above provisions to determine the excise duty payable by the assessee. Section 3 provides that excise duties shall be levied and collected on all excisable goods which are produced or .....

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from time to time and on which retail price is required to be indicated under the provision of the Standard of Weights & Measures Act, 1976 and the Rules made there under. Section 4(1) (a) of Central Excise Act, 1944 deals with the Valuation of excisable goods when following requirements are satisfied: 1. Goods are sold at the time and place of removal from factory/warehouse; 2. The assessee and the buyer of the goods are not related; and 3. The price is the sole consideration of sale. Each .....

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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 a .....

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e goods are manufactured/produced within the factory unless exempted. Goods captively consumed in the same factory of the manufacturer are exempted from duty as per Notification No. 67/95-CE dt.16.03.1995, if duty is payable on the final product. For example, the manufacturer of motor vehicles manufactures various parts of the motor vehicles like brakes, panels etc. These parts are also excisable goods and have separate entry in the schedule to Central Excise Tariff Act, 1985. If these parts are .....

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ured sold to related party for captive consumption Goods manufactured, not sold but captively consumed: Rule 8 of the Central Excise Valuation Rules provides that where the excisable goods are not sold but are used for consumption by assessee or on his behalf in the production or manufacture of other articles, the value shall be 110% (as of now)of the cost of production or manufacture of such goods. (115% was substituted by 110% vide notification no. 60 / 2003 - CE (NT) dated 05-08-2003) In othe .....

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r Annexure I)). Judgement of Supreme Court dated 1.8.2006: In a landmark judgment dated 1.8.2006 in case No. Appeal (civil) 2947-2948 of 2001 Commissioner of Central Excise, Pune v. M/s Cadbury India Ltd. (Refer Annexure IV), Hon'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 de .....

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cular 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 .....

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ions of this Court, the Department is also bound by the said Circular No. 692/8/2003 CX dated 13.2.2003. issued by the CBEC." In view of the above judgement also, the cost of production for captively consumed goods is to be determined as per CAS-4. Valuation of Goods Partly Captively Consumed And Partly Sold: Where the goods to be valued are captively consumed in one's own factory, valuation will be done on the basis of 110% of the cost of production of goods. If the goods are partially .....

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manufacturer located at a different place. In such a situation also, the principle of rule 8 is applicable. The cost of production of good manufactured plus 10% thereof is to be adopted for determining the assessable value. Valuation of Goods sold to related party: Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 deals with sale to related person. Related person has been defined in Section 4(3)(b) of the Excise Act (Refer Annexure II). If a manufact .....

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e 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 determ .....

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re manufactured by third party in the factory of manufacturer. Free sample CBEC vide its circular No. 643/34/2002 CX dated 1.7.2002 had clarified that for excisable goods removed as free sample, provision of Rule 4 will not apply but excise duty will be paid on 110% of cost of production as per Rule 8. However on reconsideration, the CBEC has modified the above circular. As per revised circular No. 813/10/2005 CX dated 25.4.2005, value of free samples should be determined under Rule 4 of the Val .....

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ked as soon as assessee removes the manufactured goods for trial outside the factory. Since similar goods have been sold, the assessable value will be determined based on sale of such goods after making adjustment on account of difference in dates of delivery and the specification of goods. CHAPTER 2 DEFINITIONS The following terms are used in this guidance note with the meaning specified. Cost of Production: Cost of production shall consist of Material Consumed, Direct Wages and Salaries, Direc .....

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rganization or related undertaking for manufacturing another product(s). Normal Capacity is the production achieved or achievable on an average over a period or season under normal circumstances taking into account the loss of capacity resulting from planned maintenance. (CAS-2) CHAPTER 3 PRINCIPLES FOR DETERMINATION OF COST OF Production For Captive Consumption 5.1 Material Consumed Material Consumed shall include materials directly identified for production of goods such as: (a) indigenous mat .....

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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 mat .....

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be credited by the taxing authorities) that can be quantified with reasonable accuracy at the time of acquisition. The method of valuation of material consumed shall be as per financial accounts, i.e., First in First out (FIFO) or weighted Average Rate. LC charges/Bank charges will not form part of material cost. Normal loss or spoilage of material prior to reaching the factory will be absorbed in the cost of materials, after reducing the amounts chargeable to suppliers and recovery as scrap. Lo .....

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ENVAT credit account for inputs, and the like . In brief it is to be ensured that there is effective material management system, properly documented, correctly accounted for to arrive at quantity and cost of material consumed for different types of products produced/manufactured. The item-wise material consumption for major item is reconciled with financial account. The cost of material consumed is determined with respect to (i) the source/type of material consumed, and (ii) the method of valuat .....

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e 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 manufact .....

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all 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 cases, these items may get manufactured on job work basis from outside parties. In such cases, cost should consist of the cost of material supplied plus job work charges/processing charges paid to the job worker/processor. The incidental charges like freight, insurance, handling charges etc, if any, shall also form c .....

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material usage for the product. Method (ii): Based on any method other than actual e.g. Standard Under this method material is issued at Standard Bill of material. The standard cost for each direct material is defined at the beginning of the year. The variances from standard on account of price/usage and the like are adjusted to consumption at the end of the period. Some organizations follow "Back flush Costing" system for issue of material. As soon as a finished good is ready for stoc .....

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certify the quantitative requirement considered for calculation of material consumption as per Bill of Material. It may be ensured that usage variance is within reasonable limit and it should be adjusted in calculation of cost of production. Reconciliation of cost of material consumed - It is advisable that cost of the material consumed for working out cost of production is reconciled with financial books. For major direct materials, reconciliation is to be ensured both in quantity and value. 5. .....

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ncashment 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 benefi .....

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ayment, if any, shall not form part of cost of production. 5.3 Direct Expenses Direct expenses are the expenses other than direct material cost and direct employee's costs which can be identified with the product. Direct Expenses Include: I. Cost of utilities such as fuel, power, water, steam, etc II. Royalty based on production III. Technical Assistance/know-how fees IV. Amortized cost of moulds, patterns, patents etc V. Job charges VI. Hire charges for tools and equipment VII. Charges for .....

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r concern, the same shall be at landed cost. In case a utility cannot be identified with a product or service cost centre, the same may be treated as part of works overhead. If a utility is partly produced and partly purchased, it shall be charged on weighted average rate. A separate cost sheet for each of the utilities is to be prepared by the manufacturer. Illustrations of power and steam utility cost sheet are given at Annexure VI and VII. Royalty: Royalty is payable either in relation to pro .....

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should be apportioned to products for which it is payable based on the payment/provision for the relevant period as per agreement with the supplier 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 t .....

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here 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." Job/Processing charges: Job Work Charges/Processing Charges which are directly identified or linked with the products will form part of direct expenses. Hire char .....

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d with a particular product will form part of direct expenses. 5.4 Works Overheads: Works overheads are the indirect costs incurred in the production process. The term Works Overhead, Factory Overheads, Production Overheads and Manufacturing overheads denote the same meaning and are used interchangeably. Works overheads shall include administration cost relating to production, factory, works or manufacturing. Works overheads include the following expenses: I. Consumable stores and spares. II. De .....

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Pollution Control etc. These expenses are incurred in the production process or in rendering service. These are used for a type of cost that cannot be directly assigned to a cost centre or product, but can only be apportioned to cost units/cost object. Cost Accounting Standard 3, which deals with the methods of accumulation, allocation, apportionment of overheads to different cost centres and absorption thereof to products or services, should be followed. A reconciliation statement showing the a .....

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s 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 depreciati .....

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included in works overheads. However, insurance on loss of profit policy and finished goods in transit policy should not be part of works overhead. Lease rental on fixed asset shall be also considered under this head. 5.5 Quality Control Cost: The quality control cost is the expenses incurred relating to quality control activities for adhering to quality standard. These expenses shall include salaries & wages relating to employees engaged in quality control activity and other related expens .....

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l cost is to be shown separately in the cost sheet. 5.6 Research and Development Cost: The research and development cost incurred for development and improvement of the process or the existing product shall be included in the cost of production. Research and Development costs are the cost of undertaking research to improve quality of the present product or improve process of manufacture, develop a new product, etc. The R & D cost for the existing product/process shall be included in the cost .....

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on to production activities and other activities. Administrative overheads in relation to production activities 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. The role of administration is to facilitate the manufacturing, general policy making and marketing activities. The administrative overheads s .....

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• 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 a .....

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ial management; Operation/production planning Department; Human Resources, System Design & Development Set Up and the like are production related activities. Nomenclature or place where the activity takes place is not relevant. In such a situation, activities at Head Office/Corporate level are to be clearly demarcated and segregated so as to distinguish activities that contribute clearly and directly to production activities from general management and administration activities. It is necess .....

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ds) Rules, 2000, hence excluded from calculation of cost of production for CAS. 5.8 Packing Cost: If product is transferred/dispatched duly packed for captive consumption, cost of such packing shall be included. Packing cost includes both cost of primary and secondary packing required for transfer/dispatch of the goods used for captive consumption. Packing Cost includes: I. Cost of Packing Material used II. Job charges paid for manufacture of packing material, if any. III. Packing charges includ .....

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ed 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 volum .....

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ction cost on the basis of the normal capacity or actual capacity utilization of the plant, whichever is higher. Absorption of overheads: Based on behaviour, overheads are classified as variable overhead and fixed overhead. Variable Overheads comprise of expenses which vary in proportion to the change in the volume of production e.g. cost of utilities, royalty, job charges, etc. Fixed overheads comprise of expenses which do not vary with the change in volume of production such as of rent, insura .....

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ads. The variable production overheads shall be absorbed in cost of product, based on actual capacity utilization. The fixed production overheads shall be absorbed on normal capacity basis or actual capacity utilization whichever is higher. Normal Capacity is the production achieved or achievable on an average over a period or season under normal circumstances taking into account the loss of capacity resulting from planned maintenance. Normal capacity for a defined period is the practical capaci .....

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nciliation statement showing the amount incurred under different heads of overheads and amount absorbed by different products should be prepared for this purpose. The reconciliation will help in ensuring accuracy of cost of production in cost statements. 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 co .....

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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 b .....

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ts are allocated between the products on a rational and consistent basis. In case by-products are produced, the net realisable value of by-products is credited to the cost of production of the main product. For allocation of joint cost to joint products, the sales values of products at the split off point i.e. when the products become separately identifiable may be the basis. It may be allocated based on a measure of the number of units, weight or volume. Some other basis may be adopted. For exa .....

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e compared to the main product(s).It is difficult to determine the cost of by-product. By products are sold: (1) Either In original form without further processing; or (2) or processed in order to be saleable. In such case, the main product is credited with the sale realization (gross/net) as the case may be. In other words expenses incurred to bring byproduct to marketable conditions shall be adjusted from the sale of by product and net realizable value of by-product shall be credited to cost o .....

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hich such scrap or waste is recycled. The expenses incurred for making the scrap suitable for reprocessing 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 sc .....

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ast 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 not disposed off/sold during the period and lying in the stock, the realizable value of scrap can be calculated from the quotations/market rate. 5.13 Miscellaneous Income: Miscellaneous income relating to production shall .....

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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. Landed cost of inputs received free of cost should be calculated as per the guidelines given in para related to material cost. The cost of inputs received free of cost shall be included in the cost of production for captive consumption. 5.15 Moulds, Tools, Dies & Pa .....

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be maintained. The estimated life/estimated production may be certified by technical person. Where the dies, moulds etc are supplied by the customer, the necessary details may be obtained from the customer. In case of dies, moulds etc purchased/manufactured in-house, its cost should be ascertained and amortised over its useful life. 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. Interest and .....

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c 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 arise .....

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t of production. Further, expenses which are not related to manufacturing activity and which do not form part of the cost as per the generally accepted cost accounting principles may be excluded for this purpose e.g. -donations, loss on sale of fixed assets, etc. CHAPTER 4 COST SHEET The cost sheet should be prepared in the format as per Appendix-1 to the Standard or as near thereto as possible. The manufacturer will be required to maintain cost records and other books of account in a manner, wh .....

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ey also maintain cost accounting records in line with the records so prescribed as to facilitate determination and certification of cost of production. Separate cost sheet shall be prepared for each type/variety/description of product used for captive consumption. The cost sheet may be suitably modified to cover the special features, if any, of the industry. Where goods of different variety/type/size of a group of products are manufactured and the manufacturing process is the same, the cost of p .....

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cost of production for captive consumption shall verify and reconcile the product cost arrived at for the certification with that worked out to comply with provisions of under Section 209(1)(d) of the Companies Act, 1956. In case where the product is covered 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 .....

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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 Excise relating to receipt, purchases, manufa .....

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ther organisations. In case of organisations covered under above provisions, the Cost Accountant certifying the cost sheet of cost of production for captive consumption shall verify and reconcile the product cost arrived at for certification with that worked out to comply with provisions of Section 209(1)(d) of the Companies Act, 1956 and cost audit report thereof. Other organizations are: 1. Not covered under statutory maintenance of cost accounting records but have goods cost accounting system .....

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d may be decided keeping in view the type of organisations detailed above. Examine the material accounting systems from purchase to issue of material. Compare the norms of consumption of input of materials as mentioned in ER 4, 5 and ER 6. If the product is already being produced, consumption shall be compared with previous period. Test check some issue vouchers relating to raw material and process material. If breakup of material cost is not indicated in the cost statement, ask for separate det .....

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nd 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 manu .....

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AS-4 is to determine the cost of production for goods capitvely consumed and calculate deemed transaction value thereof. Therefore, valuation is required at the time of removal of the goods. If costing is for the future period, it will be done at projected costs, projected capacity utilisation. In such cases, valuation of opening and closing stock of WIP and finished stock is to be ignored. In case, when the normal capacity utilization is not quantifiable and/or actual capacity utilization is li .....

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concerned period which may materially affect the cost of production in terms of comparability with previous periods, the same should be disclosed. (i) If opening stock and closing stock of work-in-progress and finished goods are not readily available for certification purpose, the same should be disclosed. The cost accounting principles and methods adopted for determining the cost of production to be followed consistently from one period to subsequent period. If there is any change in the cost .....

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ment of Revenue Subject: Valuation of goods captively consumed. I am directed to say that on introduction of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, w.e.f. 1.7.2000, it was clarified by the Board vide Circular No.354/81/2000TRU dated 30.6.2000 (para 21) 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 .....

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ce 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 S .....

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he transaction value; b. In any other case, including the case where the goods are not sold be the value determined in such manner as may be prescribed. (2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3. (3) For the purposes of this section, - a. "assessee' means the person who is liable to pay the duty of excise under this Act and includes his agent: b. persons shall be deemed .....

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rade Practices Act, 1969; and (ii) "relative" shall have the meaning assigned to it in clause (41) of section 2 of the Companies act, 1956; (a) "Place of removal" means- I. a factory or any other place or premises of production or manufacture of the excisable goods; II. A warehouse or any other pace or premises wherein the excisable goods have been permitted to be deposited without payment of duty; from where such goods are removed; (b) "transaction value" means the .....

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, commission 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.), .....

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rsession, 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) They shall come into force on and from the 1st day of July, 2000. CHAPTER I PRELIMINARY 2. In these rules, unless the context otherwise requires:- (a) "Act" means the Central Excise Act, 1944 (1of 1944) (b) "normal transaction value" means the transaction value at which the greate .....

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s shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. 5. Where any excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstance .....

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generally accepted principles of costing. Explanation 2: For removal of doubts, it is clarified that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal, shall not be excluded for the purposes of determining the value of excisable goods. 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance in where the price is not the sole consideration .....

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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 .....

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be added to the value unless the Central Excise Officer have evidenced to the effect that the advance received has influenced the fixation of price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit. Illustration 1: X an assessee, sells his goods to Y against full advance payment at ₹ 100 per piece. However, X also sells such goods to Z without any advance payment at the same price of ₹ 100 per piece. No .....

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no notional interest on the advance received shall be added to the transaction value. 7. Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and .....

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er cent of the cost of production or manufacture of such goods. 9. When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a 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 .....

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ed 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 this clause "holding company" and "subsidiary company" shall have the same meanings as in the Companies Act, 195 .....

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uyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer; (ii) In a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principa .....

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cable, shall mutatis mutandis apply for determination of the value of the excisable goods: Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods. Explanation - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer o .....

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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 f .....

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ofits, if any, the assessee would have earned in the sale of such goods." The assessee had showed the price of these goods supported by a statement verified by a chartered accountant. The statement indicated the cost of edible and packing material used in the manufacture including its overheads. A separate statement in support of the profit added was formulated and these assessments were provisionally approved. At the time of the finalization of the assessment, the department took the view .....

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In appeal the Commissioner (Appeals) upheld the order of the Assistant Commissioner. He held that since Rule 6(b)(ii) itself specified including the profit on the goods captively consumed hence this indicated the intention in the rule that the valuation should be brought to the level of the sale value of the goods and hence this includes all expenses referred to above. The Commissioner (Appeals) also relied on the circular dated 30.10.1996 issued by the Board relating to captively consumed good .....

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fit would not be includible in the assessable value. The issue in the present case is about the value of the goods captively consumed by the respondent. The assessee has contended that there is no dispute that these intermediate goods are not marketable and are not bought and sold in the market. Hence the valuation of these intermediate goods has to 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 .....

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ial 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 pag .....

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he Income Tax Act. "Written-down value" depended upon the "actual cost" of the assets to the assessee. The expression "actual cost" had not been defined in the Income Tax Act, 1922 and the question was whether the interest paid before the commencement of production on the amount borrowed for the acquisition and installation of the plant and machinery could be considered to be a part of the "actual cost" of the assets to the assessee. As the expression &quo .....

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include all expenditure necessary to bring such assets into existence and to put them in a working condition. That rule of accountancy had to be adopted for determining the "actual cost" of the assets in the absence of any statutory definition or other indication to the contrary." Subsequent to the filing of these appeals, the Institute of Cost and Works Accountants of India (ICWAI) has laid down the principles of determining cost of production for captive consumption and formula .....

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s 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 t .....

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. 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 13.2.2003 issued by the CBEC. As such it cannot now take a contrary stand. It may be noted that in the present case the intermediate products (milk crumbs, refined milk chocolate and four other intermediate products) are captively consumed in the Respondent's own factory. These Intermediate products are not sold nor are marketable. Hence there can be no .....

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these appeals are accordingly dismissed. No costs. Annexure-VA & VB Illustration of Landed cost of Indigenous/Imported Material Annexure VA Indigenous Material: The landed cost of indigenous material shall be calculated in the following manner: 1. Basic Material cost ( after deducting discounts, if any) 2. Add: Excise Duty VAT/Sales Tax Turnover tax Surcharge such Education cess and the like Octroi/Entry Tax Other levies, if any Total 3. Less Cenvat credit Sales Tax/VAT set off Other set of .....

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ss : VAT (6) 5,996 11. Net Cost (8-9-10) 1,44,300 Annexure-VB Landed cost of Imported Material Imported Material The landed cost of imported material shall be calculated in the following manner: 1. CIF Value of material 2. Add Custom Duty Surcharge Additional Duty/Countervailing Duty Special Additional Duty Protective Duty Anti Dumping Duty Octroi/Entry Tax Other levies Other Expenses directly attributable to procurement(freight inwards, Local freight, transit insurance, local insurance) Other c .....

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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 .....

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ect expenses - 6. Consumable Stores & Spares 38,41,898 0.03 7. Repairs and Maintenance 82,74,080 0.07 8. Depreciation 4,27,45,759 0.34 9. Insurance 61,99,660 0.05 10. Fly Ash Disposal Cost 11,28,241 0.01 11. Other Works Overhead 28,75,377 0.02 12. Sub-total (1 to 10) 65,61,20,519 5.29 13. Less : Credit , if any - 14. Total Cost 65,61,20,519 5.29 B. Apportioned to product Units Amount Product A 12,15,22,526 64,33,01,484 Product B 4,35,029 23,02,905 Product c 19,34,644 1,02,41,388 Product D 34 .....

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xed Cost 1. Personnel Rs 1202500 8.91 2. Stores Rs 2564500 19.00 3. Repairs & Maintenance Rs 454650 3.37 4. Others Rs 39000 0.29 5. Depreciation Rs 226050 1.67 Total - B 4486700 33.23 Total cost (A+B) 236891600 1754.75 Steam utilized QTY MT Amount Rs Department A 35000 61416341 Department B 87000 152663476 Department C 13000 22811784 Total 135000 236891600 Annexure VIII Circular: 170/4/96-CX dated 23-Jan-1996 Valuation of castings - Patterns supplied by the buyers required to be included Cir .....

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st 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, .....

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en patterns are returned back to the buyers. The matters has been examined and it is hereby clarified that the proportionate cost of pattern has to be included in the assessable value of the casting even in cases, where such patterns are being supplied by the buyers of the casting or are got prepared/manufactured by the job worker at the cost of the buyer. In cases where there is difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capabili .....

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k Carrier 53 Nos. Bulk Carrier Production during 2007-08 was lower due to strike by contract labour for 5 months which resulted in loss of production. Therefore it was decided by the management to remove portion of fixed overheads incurred during the strike period and the same was shown as a reconciliation item (Abnormal Overhead) in the Profit Reconciliation Statement for Profit as per Cost Accounts and Profit as per financial Account. Detailed working is as under: Variable Overheads for 53 Bul .....

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d unabsorbed (treated as an item of reconciliation between Costing P&L A/c & Financial A/c ₹ 7,85,400 ANNEXURE XA Name of the Manufacturer Address of the Manufacturer Registration No of Manufacture ABC Ltd GT Road, Ghaziabad ABB75 Description of product captive Excise Tariff Heading: Component XK7 Statement of Cost 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 Mea .....

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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 Cost of production for goods dispatched (17+18-19) .....

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n of product captively consumed Excise Tariff Heading Processed cloth Statement of Cost of production of xyz manufactured of during the period of 1Apt -31March 2008 QTY Q1 Quantity Produced (Unit of Measure) 34000 Q2 Quantity Despatched (Unit of Measure) 34150 Particulars Cost details Total cost (Rs) Cost /unit (Rs) 1 Material consumed : Grey cloth Colours & Chemicals 827560 100182 24.34 2.95 2 Direct Wages and Salaries : 6460 0.19 3 Utility : Power Steam Cost Heat Cost 27200 44604 14620 0.8 .....

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Add : Amortised cost of Moulds, Tools, Dies & Patterns etc received free of cost - 17 Cost of Production for goods produced for captive consumption (14+15+16) 18 Add : Opening stock of finished goods 6558 0.19 19 Less : Closing stock of finished goods 6176 0.18 20 Cost of production for goods dispatched (17+18-19) 1057926 30.98 Annexure XI COST ACCOUNTING STANDARD ON COST OF PRODUCTION FOR CAPTIVE CONSUMPTION (CAS-4) The following is the text of the COST ACCOUNTING STANDARD 4 (CAS-4) issued .....

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arly, 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 su .....

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methods used for determining the cost of production of excisable goods used for captive consumption. 2.2 The cost statement prepared based on standard will be used for determination of assessable value of excisable goods used for captive consumption. 2.3 The standard and its disclosure requirement will provide better transparency in the valuation of excisable goods used for captive consumption. 3. Scope 3.1 The standard is to be followed for determining the cost of production to arrive at an ass .....

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inistrative Overheads relating to production. To arrive at cost of production of goods dispatched for captive consumption, adjustment for Stock of work-in-Process, finished goods, recoveries for sales of scrap, wastage etc shall be made. 4.2 Captive Consumption: Captive Consumption means the consumption of goods manufactured by one division or unit and consumed by another division or unit of the same organization or related undertaking for manufacturing another product(s). 4.3 Normal Capacity is .....

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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 dr .....

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tuity 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 such as fue .....

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g etc (iii) Lease rent of production assets (iv) Repair and maintenance of plant and machinery, factory building etc (v) Indirect employees cost connected with production activities (vi) Drawing and Designing department cost. (vii) Insurance of plant and machinery, factory building, stock of raw material & WIP etc (viii) Amortized cost of jigs, fixtures, tooling etc (ix) Service department cost such as Tool Room, Engineering & Maintenance, Pollution Control etc 5.5 Quality Control Cost T .....

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eads need to be analysed in relation to production activities and other activities. Administrative overheads in relation to production activities 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. 5.8 Packing Cost If product is transferred/dispatched duly packed for captive consumption, cost of such pac .....

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ent 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 .....

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d closing stock are not readily available, the adjustment of figures of opening and closing stock may be ignored. 5.11 Treatment of Joint Products and By-Products A production process may result in more than one product being produced simultaneously. In case joint products are produced, joint costs are allocated between the products on a rational and consistent basis. In case by-products are produced, the net realisable value of by-products is credited to the cost of production of the main produ .....

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may generate scrap or waste. Realized or realizable value of scrap or waste shall be credited to the cost of production. In case, scrap or waste does not have ready market and it is used for reprocessing, the scrap or waste value is taken at a rate of input cost depending upon the stage at which such scrap or waste is recycled. The expenses incurred for making the scrap suitable for reprocessing shall be deducted from value of scrap or waste. Illustration A production process has three stages. S .....

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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. 5.13 Miscellaneous Income Miscellaneous income relating to production shall be adjusted in the calculation of cost of production, for example, income from sale of empty containers used for despatch of the captively consumed goods produced under reference. 5.14 Inputs received free of cost In case any input material, whether of direct or indirect nature, .....

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st 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 .....

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However, for manufacturers not covered under Section 209(1)(d) of the Companies Act, 1956, it is desirable that they also maintain cost accounting records in line with the records so prescribed as to facilitate determination and certification of cost of production. 7. Disclosure (i) If there is any change in cost accounting principles and practices during the concerned period which may materially affect the cost of production in terms of comparability with previous periods, the same should be d .....

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