TMI Blog2015 (11) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. In fact, from May, 2001 onwards, respondent-assessee has accepted 1996 circular, paid differential duty and took credit of same in other plant. However, it is not clear whether entire differential duty was paid or only part of it was paid. If entire duty was paid and credit thereof taken in other plant, those assessment need not be disturbed. However, if not, respondent-assessee will be required to submit the CAS-4 certificate from Cost Accountant supported by the details which may be examined by the Commissioner. Commissioner is free to take necessary help from Asstt. Director (Cost), if considered necessary. If the monthwise duty paid (and credit taken) is more than computed as per CAS-4, same need not be disturbed at this stage. Extended period of limitation - Held that:- Since the respondent-assessee themselves are following the circular of 1996 and were not disputing any part of the circular, it was their boundan duty to compute the value strictly as per the circular. In the present facts and circumstances of the case, we find that though the respondent-assessee was purportedly following the circular but were including only few components in the category of overhea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort-levy as proposed in the show cause notice will stand confirmed. No penalty under Section 11AC/Rule 173Q/Rule 25 will be impossable. - confiscation is not warranted. Similarly, penalties in other notices are also not warranted. - Decided substantially against the assessee. - APPEAL NOS: E/3209/2004 & E/3308/2005 & Cross-Objection No: E/CO-663/2004 - A/2397-2399/15/EB - Dated:- 4-8-2015 - Shri P.K. Jain, Member (Technical) And Shri S. S. Garg, Member (Judicial) For the Petitioner : Shri Hitesh Shah, Commissioner (AR) For the Respondent : Shri V. Sridharan, Sr. Advocate with Shri Prakash Shah, Advocate ORDER Per: P.K. Jain: These two appeals are filed by the Revenue against Order Nos. 11/KKS/2003-04 dated 30/09/2003 07/KKS/2004 dated 17/08/2004 passed by the Commissioner of Central Excise, Mumbai III. The second order has been passed consequent to an issue arising from the partial payment of duty demanded in the demand notice corresponding to the first order-in-original and availment of credit of duty so paid through supplementary invoices. Hence the two orders-in-original are linked and are being taken up together for consideration and disposal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of duty. A part of the goods so manufactured are cleared to the first manufacturing unit or Plant 1 located nearby and the remaining goods are cleared to two independent units located in Hyderabad. These, two independent units located in Hyderabad are job-workers for respondent-assessee. As far as Excise department is concerned, these two job-workers are independent manufacturing units inasmuch as they avail CENVAT credit and they pay the duty on the final products. Similarly, the third manufacturing unit or Plant III of the respondent-assessee manufacture goods viz. wax paper and lanolin wax. Here again, after the manufacture of the said goods, they cleared it on payment of duty and as in the case of the second manufacturing unit, part of the goods are cleared to first manufacturing unit which is located nearby and the remaining goods are cleared to two job-workers located in Hyderabad. Manufacturing unit or plant 1 and two independent job-workers avail CENVAT credit on various inputs including the goods received from Plant II and III and also pay the duty on the finished goods. 4.2. Since the goods produced in second and third manufacturing units are not formally sold to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2003 on the issue of extended period of limitation and penalty. Consequently, respondent-assessee has filed cross-objection on merits of the issue. 4.6. The respondent-assessee paid certain amounts in respect of second and third manufacturing units during investigations and before adjudication and issued supplementary invoices. These payments were for normal period of limitation. Based upon these supplementary invoices, first manufacturing unit took the credit of the duty so paid. 4.7. Show cause notices dated 01/05/2003 and 24/07/2003 were issued to the first manufacturing unit I of respondent-assessee for denial of the CENVAT credit under Rule 7(1)(b) of the CENVAT Credit Rules, 2001/2002. The show cause notices were issued as Revenue was of the view that this is a case of willful mis-statement and suppression of facts and, therefore, the respondent-assessee could not have taken the credit on the basis of supplementary invoices. The case was adjudicated vide order dated 30/09/2003 and the Commissioner dropped the proceedings on the ground that he has already upheld that there was no suppression of facts or willful mis-statement so as to invoke the extended period of limita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the same are correctly apportioned on reasonable basis from expenditures booked in respective heads for VML as a whole. Hence, as per the Commissioners findings the assessee is guilty of suppression because inspite of fully understanding the Circular of 30.10.96 which clearly says at para 3 that all elements which are otherwise includible in Section 4(1)(a) price have to be included in the cost of production they did not include them and rather concocted a certificate to be signed by a hired CA. No details of overheads were given uptil March 2001. It was only when AD (Cost) verified the records of the assessee that the suppression was detected. No productwise/plant wise details of expenditure /cost has been submitted till date and also to the Commissioner during adjudication as recorded by him. Although claim has been made that the valuation and quantification in the SCN is bad because the cost of CRSS( inclusive of Gross Profit and Overheads) as per Price List of 1993, is taken as the base for calculation, Yet, the assessee has not produced any authentic record of cost for the period 1997 to 2001 by which the demand in the SCN can be rebutted. Hence, the quantification for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Ltd. 2005 (179) ELT 21 (SC-LB) and a 3-Judge bench of he Supreme Court in the case of Dharampal Satyapal 2005 (183) ELT 241 (SC). In addition to the above it was submitted that the cost of production of manufacture as prescribed in Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 or Rule 8 of Rules, 2000 is the actual cost of production or manufacture and it includes all costs as prescribed by the circular dated 30/10/1996. It was further submitted that the honble Supreme Court in the case of Die Ichhi Karkaria reported in 1999 (112) ELT 353 (SC) and Union Carbide India Ltd. 2003 (158) ELT 15 (SC) has held that cost of production or manufacture refers to actual cost to the manufacture and has relied upon its judgment in Challapalli Sugars Ltd. vs. CIT 1975 AIR 97 (SC). It was also submitted that the term actual cost is not statutorily defined and is to be understood as a man of commerce understand it. It was also submitted that in the case of Challapalli Sugars Ltd. (supra) the Court held that interest paid for borrowing capital for both the initial setting up of a plant before production as well as for borrowing funds during the course of manufacture/ production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Kar) and decisions following it, holding that Rule 7 of the CCR ,2002 is illustrative and cannot place any fetters on Rule 3 thereof, relied upon by the assessee is not binding as it is contrary to the decisions of the Supreme Court and other High Courts on the issue as follows: (i) The decision in Ballarpur Industries Ltd. 2001(138) ELT 94 (T) is revered by the Supreme Court in 2007 (215) ELT 489(SC); (ii) Rule 57G of the CER 44 was amended by Notification No. 28/95 CE (NT) to introduce a time limit of 6 months for taking credit. This was assailed on the ground that it placed fetters on the inherent right to take MODVAT credit under Rule 57A. The Honble Supreme Court in Osram Surya Ltd. 2002 (142) ELT 5 (SC) upheld a 5 Member Bench decision of CESTAT in Kusum Ingots Alloys Ltd 2000(120) ELT 214 (T-LB) that right to credit under Rule 57A is controlled by the procedure under Rule 57G; (iii) Similarly from 1.4.2000 onwards Rule 57AC controls eligibility to credit under Rule 57AA as held in CCE Vs. Saurashtra Chemicals Ltd. 2007 (212) ELT 7 (SC) and UOI Vs Jindal Praxair Oxygen Co. Ltd 2014(301) ELT 49 (Kar.); (iv) Rule 57G controls Rule 57A Qamar Steel Tubes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (SC). It was submitted that the honble Supreme Court has approved the judgment of the Tribunal by writing a detailed judgment. It was further submitted that, meaning of the term cost of production or manufacture as per well settled principles of cost accountancy has to be taken. It was submitted that CAS-4 clearly specifies in heading 5.7 administrative overheads and heading 5.16 interest and financial charges. Thus, interest and financial charges shall not be considered to be a part of cost of production. It was submitted that it would be seen that from Cost Audit (Report) Rules, 1996 and Cost Audit (Report) Rules, 2001 issued under Companies Act, 1956 which prescribes proforma for computing the cost of production, cost of sales, etc., that interest and selling and distribution expenses are items after cost of production forming part of cost of sales and not forming part of cost of production. It was submitted that these proformas would clarify that interest and financial charges are not considered as the cost of production. Similar position emerges from the Standard text book titled Cost Accounting by M.Y. Khan and P.K. Jain. It was further submitted that following judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Central Excise (supra); (d) Hindustan Zinc Limited vs. Commissioner of Central Excise -2011 (273) E.L.T. 405 (Tri. - Del.) 17. It was, therefore, submitted that the assessable value of captively consumed goods as determined by the learned Commissioner by following Circular dated 30/10/1996 is erroneous. It was further submitted that the expenses incurred for the company as a whole cannot be considered for determination of cost of production of goods in question. In support of this contention learned sr. counsel relied upon the judgment of the honble Supreme Court in the case of Cadbury India (supra) and in the case of Commissioner of Central Excise vs. Raymond Ltd. 2006 (204) ELT 3 (SC). It was further submitted that the only case in the show cause notice is that all the expenses appearing in the profit and loss account should be taken into account for calculating the cost of production and since this basis is incorrect, proceedings have to be terminated. 18. It was also submitted that in any event, the goods were removed from manufacturing unit II to manufacturing unit I are exempt from duty under Notification 67/1995. As far as limitation is concerned it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first show cause notice and thus no suppression can be alleged either for prior or post period of dispute. 22. It was also submitted that the statements of Shri A.K. Jain, Chartered Accountant, if read together totally support the case of the respondent-assessee. He has specifically stated that interest, selling and distribution expenses, etc. do not form part of cost of production as per accounting practice as per Companies Act. It was submitted that the certificate dated 19/05/1993, 07/07/1998 and 05/03/1999 have been signed by other Chartered Accountants and the department has not recorded any statement from other Chartered Accountants. 23. It was further submitted by the learned sr. counsel that the whole exercise is revenue neutral as the duty-paid in Plant II and III are available to Plant I and to the job-workers as CENVAT credit. It was submitted that Plant I has paid duty in cash far in excess of the duty now sought to be demanded. Learned sr. counsel also rely upon para 7 and 8 of the honble Supreme Courts decision in the case of Nirlon Ltd. vs. Commissioner of Central Excise 2015-TIOL-96-SC-CX. It was also submitted that the case of Dharampal Satyapal (supra) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of supplementary invoices. It was submitted that Rule 57E of Central Excise Rules, 1944 as effective up to February, 1997 did not provide that the credit of the additional duty paid by the supplier factory subsequently which became recoverable from the supplier factory due to suppression will not be available to the recipient factory. It was submitted that the said rule was amended vide Notification 6/97-CE dated 01/03/1997. It was submitted that even after the amendment, on reading clause (2) with clause (3) the bar contained in clause (3) of amended Rule 57E shall apply only in case of sale and no inter unit transfer. It was submitted that vide Notification 27/2000-CE dated 31/03/2000 Rule 57AE came into existence and it would be seen from the said rule that there was no bar from 01/03/2000 to 28/02/2001 to take credit of additional duty paid by the supplier unit even if the additional amount of duty was recoverable by reason of suppression etc. either in Rule 57E or Rule 57AE. Rule 57AE was further amended vide Notification No. 6/2001 (NT) dated 01/03/2001 and clause (i) was introduced. Even after this amendment, if there was no sale the credit was allowed. Thus, the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that nearest ascertainable equivalent thereof implies nearest to normal value as per Section 4(1)(a).In pursuance of the said section the Central Excise (Valuation) Rules, 1975 details how to determine the value and Rule 6(b) which is the relevant sub-rule, is reproduced below: Rule 6 If the value of the excisable goods under assessment cannot be determined under rule 4 or rule 5, and (a) (b) Where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based (i) On the value of the comparable goods produced or manufactured by the assessee or by any other assessee; Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods; (ii) If the value cannot be determined under sub-clause (i), on the cost of production or manufacture including profits, if any, which the assessee would have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d below: Circular No. 258/92/96-CX dated 30/10/96 F.No. 6/28/94-CX.1 Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs, New Delhi Subject: Assessable Value in the case of Goods captively consumed-Addition of Profit- Reg. I am directed to refer to instructions contained in Board's letter F.No. 6/64/80-CX.1 dated 6.12.80, Circular F.No. 6/72/85-CX.1 dated 11.3.86 and Issue 'A' of Section 37B order No. 24/14/93 dated 31.12.93 regarding the method to be followed for determining assessable value of goods captively consumed. The Board in its order dated 31.12.93 issued under section 37-B has clarified that for the purpose of assessment of goods captively consumed, value should be arrived at by adding previous year's gross profit, if any, of the assessee as per their audited balance sheets. 2. Subsequently, a doubt has been raised as to which profit whether Gross Profit (i.e. profit before depreciation taxation) or Profit before tax or any other profit has to be taken into consideration for determination of assessable value of the goods captively consumed. Another doubt has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be as per the said circular. Even at the time of adjudication, there has been no claim whatsoever that the circular is not correct or is not required to be used in their case. The case was adjudicated on the basis of the said rule and the circular. Even after the Revenue has filed an appeal, the respondent-assessee has filed the cross-objection and even in the cross-objection there is no claim that the said circular is in any way incorrect or is not required to be followed. In 2002 during investigation, at some stage, the respondent-assessee made certain payments in relation to the clearance made between May, 2001 onwards following the said circular but as per Departments interpretation. It also appears that May 2002 onwards, they themselves paid the duty as per the said circular and Departments interpretation as there is no demand notice after that. We note that it is only at the time of final arguments that learned sr. counsel has raised the question of includability of various components under the Circular of 1996 vs. CAS-4 and wants case to be remanded for determination as per CAS-4. 34. In 2000, the said Section 4 was replaced by a new Section wherein the concept of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. After introduction of the new rules, the Board vide Circular No. 354/81/2000-TRU dated 30/06/2000 in para 21 clarified that for valuing goods which are captively consumed, the general principles of costing would be adopted for applying Rule 8. However, no detailed circular of how to determine the value following the general principles of costing or what exactly are these general principles of accounting was issued. It was only vide Circular No. 692/8/2003 dated 13/02/2003 that a new circular was issued after the Institute of Cost and Works Institute of India developed cost accounting standard CAS 2, 3 and 4 on capacity determination, overheads and cost of production for captive consumption, respectively, and the Board, thereafter directed that the cost of production of captively consumed goods will henceforth will be done strictly in accordance with CAS-4. 38. It would thus be seen from 01/07/2000 onwards, the concept of nearest ascertainable equivalent thereof is not there in the Section 4 of the Act and the Rule 8 also states that the value will be 115/110% of the cost of production or manufacture of such goods without specifying how the cost of production or manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in this case reported in 2006 (200) ELT 353 (SC) has observed: 15. 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 Respondents own factory. These intermediate products are not sold nor are marketable. Hence there can be no question of including the expenses of the factory which produces the final product namely the chocolate e.g. advertising, insurance and other expenses in their valuation as was sought to be added by the Commissioner (Appeals) and the Assistant Commissioner. 40. We may add here that, at times, it may not be practically possible for the manufacturer assessee to segregate and provide the details of a particular component of cost of production in respect of the intermediate goods being valued under Rule 6(b)(ii) but are available for all the goods being produced and in such a situation the only way left for the Revenue would be to take the expenditure incurred by the assessee as a whole. Similarly, many a times, a manufacturer may have number of plants and the goods being valued may be produced in one plant but certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant, who has signed one of such certificates. Commissioner in his findings in the impugned order has analysed each of these expenses and has come to the conclusion that the expenditure incurred in respect of the above mentioned items needs to be included. It also appears to us, during investigation and before adjudication of the case, respondent-assessee has agreed to the same and in fact has paid certain amounts in respect of the clearances made from May 2001 to May 2002. We may add that the demands made and the amounts paid do not appear to be tallying and it is not clear to us whether the respondent-assessee agreed for all the nine items or agreed for few of them. It is possible that figures available may be relating to goods transferred from manufacturing Unit II and III to Unit I only. There may be similar payments for goods transferred to two job workers in Hyderabad. Be that as it may be, we find that the respondent-assessee did not file any appeal against the Commissioners order. We find, in the cross-objection filed by the respondent-assessee, it is stated that with a view to avoid litigation with the department and since the entire amount was available as credit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real life if the goods were to be sold, manufacturer will include these components. 44. It is also submitted by the respondent-assessee that the appellant-Commissioner erred in including the entire overheads of the company as it will include the expenses of other factory and unrelated to the manufacture of the goods under assessment. We have already indicated that the overheads relating to other manufacturing units cannot be added for arriving at the assessable value. Similarly, if there is any overhead which is unrelated and totally unconnected to the manufacture of the goods in dispute the same needs to be excluded. We find from the report of the Asstt. Director (Cost) in the impugned order that assessee was not able to give the details plant-wise or the intermediate productwise and it is under those circumstances Revenue was left with no option but include the entire overheads viz. for all plants together. In a situation like the present one, the details has to come from the respondent-assessee alone and he is required to satisfy the jurisdictional authorities with the details and it is only thereafter that the respondent-assessee can claim the benefit. Since the respondent- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed it and submitted that the balance sheet and profit and loss account, etc. were all available with the department and under the circumstances, it cannot be said that there was a suppression of fact or willful mis-statement. Learned sr. counsel has also submitted that this is a case of revenue neutrality and under the circumstances it cannot be said that there is willful mis-statement or suppression of fact. We have considered the arguments of both the sides. In our view, since the respondent-assessee themselves are following the circular of 1996 and were not disputing any part of the circular, it was their boundan duty to compute the value strictly as per the circular. In the present facts and circumstances of the case, we find that though the respondent-assessee was purportedly following the circular but were including only few components in the category of overheads and were excluding other components, some of which were specifically listed in the circular and were to be included as per the circular of 1996 and these facts were in the exclusive knowledge of the respondent-assessee. In fact, it also appears that after computing the overheads in percentage in the above manner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goods were also going to two job-workers located in Hyderabad. Theory that they are eligible for CENVAT credit, would be true in case of all captive consumption cases and therefore one can take a view there is no need even to compute the cost of production, etc. However, this is not permitted under law. We, therefore, hold that extended period of limitation and consequently penalty under Section 11AC is invokable. We accordingly, set aside the order of the Commissioner as far as invocation of the extended period of limitation and penalty under Section 11AC are concerned. 49. However, as we ordered above, from 01/07/2000 the value can be computed in terms of CAS-4. The demand of duty as also the penalty under Section 11AC required to be computed as far as first show cause notice dated 28/02/2002 is concerned. 50. We find that, with the issuance of first show cause notice all the facts had come to the notice of the department and subsequent show cause notices were issued with the same or similar set of information and in our view, charge of suppression of facts cannot be invoked in respect of the show cause notices issued subsequent to the show cause notice dated 28/02/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said provision would become redundant in case of instances of stock transfer not involving sale. Learned (AR) further submitted a catena of judgments to support the contention that one rule of the CENVAT credit can whittle down the other rule and in view of this submission supported by catena of judgments the judgment of the hon ble High Court of Karnataka should not be taken as precedent. We have considered the submissions of both the sides and gone through the judgment of the hon ble High Court of Karnataka. We find that the judgment of the hon ble High Court of Karnataka is squarely on the point under consideration. In fact, the hon ble High Court has upheld the decision of this Tribunal. The hon ble High Court of Karnataka in para 40 of the said judgment has observed as under: 40. We are of the considered opinion that Rule 7 is illustrative in nature and it cannot place any fetters on Rule 3. The additional duty has been paid under re-assessment or on being detected by the department and such duty paid is available as credit under Rule 3 of CENVAT Credit Rules to the assessee it cannot be allowed to be whittled down by Rule 7(1)(b). Thus, principles enunciated in Balla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary certificate from the Cost/Chartered Accountant along with details which will be examined by the Commissioner as per our directions in earlier part of this order. The quantum of short-levy (from July 2000 to March, 2001) will there after be arrived. Respondent-assessee will be liable to penalty equal to the amount of short-levy so determined under Section 11AC/173Q. In case, respondent-assessee fails to produce details as per CAS-4 short-levy as proposed in the show cause notice along with penalty will stand confirmed. 57. As far as second and subsequent show cause notices are concerned, value is to be determined as per CAS-4 and thereafter duty leviable. If there is short-levy, the same will be paid by the respondent-assessee. In case, respondent-assessee fails to produce details as per CAS-4, short-levy as proposed in the show cause notice will stand confirmed. No penalty under Section 11AC/Rule 173Q/Rule 25 will be impossable. 58. Interest in respect of demands as per para 56 and 57 above would also be chargeable. Keeping in view facts and circumstances, in our view, confiscation is not warranted. Similarly, penalties in other notices are also not warranted. 59. As f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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