TMI Blog2023 (6) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... 014-2015, it is seen that the appellant had furnished documents which were scrutinized and the demand was dropped by adjudicating authority in de novo proceedings. The appellant has to therefore produce documents to reconcile the demand on such expenses - this issue for the period 2008-2013, 2013-14 and 2015-16 (except 2014-15) has to be remanded to the adjudicating authority for de novo consideration. Administrative Overheads - HELD THAT:- It has to be understood that credit is availed on the basis of the law contained in CCR 2004. If the activity falls within the definition of input services , the manufacturer will be eligible to avail credit. Repair and Maintenance of office works, courier services, marketing and promotion services etc. are eligible for credit. However, para 5.7 of CAS-4 states that expenses in the nature of marketing and corporate office expenses are not to be included. This means that expenses under administrative overheads which are directly and exclusively used for manufacturing activity only have to be included in the cost of production - the demand raised by including the administrative overheads in the assessable value cannot sustain and requires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re able to persuade ourselves to hold that the SCNs are time barred. The issue in regard to demand, interest and penalty raised in respect of Material Transfer Expenses and Deferred Revenue Expenses is remanded to the adjudicating authority for de novo consideration - The demand in respect of Machine Shop Expenses, Notional Power Cost Expenses, Administrative Overheads and Abnormal Idle Capacity is set aside. The impugned orders are modified accordingly. Appeal disposed off. - Excise Appeal No.41271 of 2015, Excise Appeal No.40083 of 2018, Excise Appeal No.42215 of 2018, Excise Appeal No.40646 of 2019 - FINAL ORDER No. 40444 40447/2023 - Dated:- 16-6-2023 - MS. SULEKHA BEEVI, MEMBER (JUDICIAL) AND MR. M. AJIT KUMAR, MEMBER (TECHNICAL) Mr. M. Saravanan, Consultant For the Appellant Mr. S. Balakumar, Assistant Commissioner (A.R) For the Respondent ORDER The issue involved in all these appeals being the same they were heard together and are disposed of by this common order. 1. The appellant, M/s. Lakshmi Machine Works, Foundry Division is engaged in manufacture of Iron castings and are registered with the Central Excise Department. They cleared the Iro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above expenses in the cost of production except material transfer, as there was no such expenses incurred in these years. The adjudicating authority confirmed the demands for the period 2013-14 and 2014-15 along with interest and imposed penalty. For the period 2015-16, the adjudicating authority dropped the demand on machine shop expenses and notional power cost expenses by relying on the order passed by Commissioner (Appeals) vide OIA dt. 09.10.2017 for the year 2013-14 in the appellant s own case. The demand in respect of other heads were confirmed with interest and penalties. Aggrieved by such orders of confirmation of demands the appellant is now before the Tribunal. 8. The Ld. Consultant Sri M. Saravanan appeared and argued for the appellant. The details of the appeal discussed in this order are furnished as under : E/41271/2105 [1] E/40083/2018 [2] E/42215/2018 [3] E/40646/2019 [4] S. N o. Particulars 2008-2013 2013-2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E/40083/2018 E/42215/2018 E/40646/2019 Sl. No Period 2008-09 to 2012-13 2013-2014 2014-2015 2015-2016 1 Machine Shop expenses Demand Confirmed Set aside by Comm (A) Set aside by Comm (A) Demand Dropped by JC 2 Notional Power Cost expenses Demand Confirmed Set aside by Comm (A) Set aside by Comm (A) Demand Dropped by JC 3 Material Transfer expense Demand Confirmed No Material Transfer No Material Transfer No Material Transfer 4 Deferred Revenue expenses Demand Confirmed Confirmed By Comm (A) Remanded by Comm (A). Dropped in Denova OIO dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusion of certain expenses to arrive at the cost of production has been rejected by the department. Thus, it is alleged that there is short payment of duty. 10. It is submitted by the Ld. Consultant that with regard to the first and second issue, Machine shop expenses and Notional power cost price expenses, the Commissioner (Appeals) set aside the demand for the year 2013-14 and held that these expenses are not to be included in the cost of production. Further for the period 2014-15, also the Commissioner (Appeals) vide OIA dt. 28.05.2018 has set aside the demands on these two heads. Again for the period 2014-15, the adjudicating authority itself has dropped the demand relying upon the above orders passed by Commissioner (Appeals). The Ld. Consultant submitted that as for now only the demands for the period 2008-2013 stands confirmed as per the order passed by Commissioner vide OIO dated 16.03.2015. The demand for the said period also may be set aside. 11. The third issue is the demand for including material transfer expenses which is only for the period 2008-2009. The department has rejected the claim of the appellant that these expenses are not to be included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deferred amount of each year @ 10% for the period 2008-2009 was added. It is submitted that the adjudicating authority vide OIO dt. 28.02.2002 has correctly analyzed the issue, appreciated the contentions of the appellant and dropped the demand for the period 2014-2015. The Ld. Consultant prayed that the demand for other periods in respect of deferred revenue may be set aside. 13. The demand raised in respect of administrative overheads was countered by the Ld. Consultant by referring to the discussion made by the Commissioner (Appeals) in para 20.3.1 of OIA dt. 09.10.2017. The appellant has explained before the authorities that these expenses are incurred for non-manufacturing activities and therefore are not includable in the cost of production. It is submitted that expenses in the nature of printing and stationary, postage, telegram and telephone, travelling expenses and maintenance of vehicles, licence and taxes, legal and professional charges, security expenses fall under administrative overheads . The department has confirmed the demand so as to include such expenses in the cost of production alleging that the appellant has availed cenvat credit on these expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.983 18000 72.13% 27.87% 2015-2016 14.812 18000 82.29% 17.71% 14.3 It is argued by the Ld. Consultant that the table would show in the initial years, the factory was closed for few months. Slowly, appellant received orders. Due to lack of orders, the idle capacity shown in the table has to be considered as abnormal idle capacity and not to be included in the cost of production. 14.4 The Ld. Consultant relied on the judgments in the case of ITC Ltd. Vs CCE Chennai - 2015 (315) ELT 143 (Tri.-Chennai) to argue that abnormal idle capacity due to lack of orders also is not includable in the cost of production. 15. The Ld. Consultant submitted that the entire issue is revenue neutral. The demand is on account of valuation of goods that are transferred to their sister units. The duty paid by appellant would be eligible for credit for their sister units. In the case of Aglo French Textiles Vs CCE Puducherry - 2018 (360) ELT 1016 (Tri.-Chennai) the Tribunal set aside the demand on the ground of being revenue neutral. This de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held that suppression of facts with an intent to evade payment of duty is not involved in this SOD as notice was issued for the earlier period on the same issue. Same findings are recorded in other orders passed by adjudicating authority. Hence the adjudicating authority himself admits that extended period is not invokable. 17.3 However, both the lower authorities had taken the due date for filling ER 4 as the relevant date and computed the limitation period from this date and held that SOD was issued within the one year time limit. This finding is contrary to the Section 11A and clearly unsustainable as the return referred to in Section11A is ER1 return only. Sub Rule (2) was introduced by Notification no 34/2004 C.E (N.T) dated 1.11.2004 to the effect that assessee has to submit Annual Financial Information Statement in form ER4 by 30th day of November of the succeeding year. Then a proviso was introduced to clause (a) of sub-rule (2) of Rule 12 by Notification No.20/2010-CE [N.T] dated 18.05.2010 to the effect that assessee who has paid total duty Rs.10,00,000/- or more in the preceding financial year has to file Annual Financial Information Statement electronically. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration is whether the following expenses have to be included in the cost of production to arrive at the assessable value of goods (Iron castings) for paying excise duty while clearing them to their sister units The expenses under dispute in these appeals are as under : a) Machine Shop Expenses b) Notional Power Cost Expenses c) Material Transfer Expenses d) Deferred Revenue Expenses e) Administrative Overheads and f) Abnormal Idle Capacity 22 . Machine shop expenses: and Notional Power cost expenses: The Commissioner (Appeals) vide OIA No.262/2017 dt. 09.10.2017 has set aside the demand for the period 2013-2014. So also for the period 2014-2015, the demand in respect of machine shop expenses and notional power cost expenses has been set aside by the Commissioner (Appeals) vide OIA No.295/2018 dt. 28.05.2018. Later, for the period 2015-2016 the demand raised in the SCN on these two expenses has been dropped by the adjudicating authority vide OIO 8/2018 dt.31.05.2018. It is not submitted that the department has filed any appeal against these issues. The department having accepted the view that machine shop expenses and notio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the appellant is to be considered. We therefore are of the considered opinion that this issue of material transfer of Rs.14438300/- requires to be remanded to the adjudicating authority. 25. Deferred Revenue Expenses: For the period 2014-2015 the Commissioner (Appeals) vide OIA No.127/2018 dated 28.05.2018 has remanded this issue to the adjudicating authority for de novo consideration. In such de novo order No.103/2022 dated 28.12.2022 the adjudicating authority has dropped the demand. The Ld. Consultant has explained the nature and accounting pattern of this expenses. It is submitted by the Ld. Consultant that as per the accounting standards, replacement of parts and accessories of the capital goods is treated as revenue expenses and is shown as expenses in P L account. However, as per the Cost Accounting Standards, they are treated as deferred expenses. 25.1 On perusal of the Cost Audit Report dt. 30.03.2013 the Dy. Director of Cost has stated that the practice adopted by the appellant is in order but requires reconcilation. The relevant part of the report reads as under : 8. They had deducted an amount of Rs.9668400 stating that those are deferred r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f production for the year 2014-15. In short, it is their contention that the entire deferred revenue expenses incurred during 2014-15 is not to be added in the cost of production for 2014-15, rather, only the cumulative depreciation on the deferred revenue expenses has to be added to the cost of production for 2014-15. 11. . . In view of the above, even though the deferred revenue expenditure is excludible in principle from the cost of production, I have been directed to decide the excludability of the deferred revenue expenditure of Rs.79,96,539/-, based on the documents produced by the assessees . . . . 14. However, as the expenses are deferred in nature and as observed by Deputy Director (Cost), it is imperative that the said expenses have to be included in the cost of production proportionately over the lifetime of the spares / components. It is the claim of the assessees that as the lifetime of the spares / components are 10 years, they have already included ten percent of the deferred revenue expenses 9termed as depreciation on deferred revenue xpenses0 of Rs.79,96,539/- in the cost of production for 2014-15, which forms part in the cumulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production for 2009-10. Similar is the case for the period from 2010-11 to 2012-13. Whereas, in the SOD under consideration, unlike the Show Cause Notice, it is alleged that the entire deferred revenue expenses of Rs.7,96,539/- without reducing therefrom the depreciation on deferred revenue expenses amounting to Rs.99,18,014/-, was not included in the cost of production. Had the cumulative depreciation of Rs.99,18,014/- was reduced from the deferred revenue expenses of Rs.79,96,539/- as reflected in Annexure I of the SOD and as was done in the Show Cause Notice for the period from 2008-09 to 2012-13, again there exists no cost which escaped inclusion in the cost of production. On this ground also, the demand fails. 25.3 While arguing the issue on deferred Revenue expenses, the Ld. Consultant has referred to the figures in para (j) of the above OIO. It was urged that the appellant had included depreciation on the deferred revenue expenses (Rs.99,18,014), but the department had failed to take note of this fact. Thus, it was argued that the appellant having included the depreciation on deferred revenue expenses (Rs.99,18,014), demand of duty again alleging that the deferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense and Taxes, Legal and Professional charges etc. have been ordered to be included in the cost of production. It is submitted that these are non-manufacturing activities and as per para 5.7 of the CAS-4 such expenses do not require to be included in the value for the purpose of discharging duty. For ease of reference, para 5.7 pf CAS-4 is reproduced : 5.7 Administrative Overheads Administrative overheads needs 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. 27. From the above, it can be seen that such expenses which are not in relation to the manufacturing activity and in the nature of marketing, projects management, corporate office expenses have to be excluded. The various expenses under dispute are printing, stationary, telegram, telephone etc. These are nothing but in the nature of corporate office expenses. Every manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was closed for few months. The table has been furnished by the Ld. Consultant for appellant to contend that the unit was not functioning in its practical and annual capacity due to various reasons. The department has denied exclusion claimed by the appellant under abnormal idle capacity alleging that such exclusion can be granted only if abnormal and non-recurring cost arises on unusual and unexpectable events. The decision in the case of ITC Ltd. (supra) has also been relied. In the said case the Tribunal in paras 7.3 7.4 observed as under : 7.3 It is seen that the abnormal and non-recurring cost includes abnormal idle capacity, which shall not form part of the cost of the production. Para 4.8 of CAS-2, the difference between practical capacity and normal capacity or actual capacity utilization whichever is higher, would be abnormal idle capacity. The practical or achievable capacity as referred in clause 4.3 of CAS-2 indicated internal factors and external factors. The internal factors would include the causes internal to the plant. External factors include lack of orders, which does not consider in respect of practical capacity. It is clear that the claim of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturer, he may with the approval of the Chief Commissioner of Central Excise direct such manufacturer to get his accounts audited by a Cost Accountant or a Chartered Accountant nominated by the Chief Commissioner of Central Excise in this behalf. 32. It is submitted by the Ld. Consultant that in the present case the Commissioner of Central Excise has directed the Deputy Director (Cost), Trichy to conduct the cost audit and this is not done with the approval of the Chief Commissioner. So also, the audit was conducted on account of audit point raised by Audit Group No.3. There was no enquiry or investigation by Assistant or Deputy Commissioner of Central Excise or any proceedings before Assistant or Deputy Commissioner of Central Excise. Therefore, the cost audit report called for is not as contemplated in Section 14A warranting for cost audit. So also, as per the cost audit report dated 30.03.2013, the approval was given by the Commissioner of Central Excise and not by the Chief Commissioner. Further, the audit was conducted by the department person i.e. Deputy Director (Cost) along with Superintendent (Audit) and not independently and thus have not followed the principles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise is concerned we workout 110% of such cost and pay excise duty on such cost for out inter u nit transfers which has more perfection than the CAS4. In fact, the cost as per Activity Based Costing is higher than the CAS4 statement for a particular item. We have, several times earlier have told the authorities concerned that we are ready to share our computer system with the department and in fact we have given in writing also. This possibility is also to be considered. Moreover, the duty paid at one unit is available as Cenvat credit at other units and we have a consolidated balance sheet for all the units of LMW. If such be the situation the department should come forward and accept our Activity Based Costing system. From the above letter, it is seen that appellant had failed to furnish CAS4 statement before the department. However complex may be the manufacturing activity of the appellant, they cannot deviate from the provisions of law and principles laid by the Department for calculation of assessable value when goods are cleared to sister units on stock transfer basis. The department therefore cannot be found fault for deputing a person to verify the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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