2005 (3) TMI 602 - AT - Central Excise

Summary

Issues:
Undervaluation of goods for payment of duty; Inclusion of notional profit in assessable value; Excisability of goods; Valuation issue.

Analysis:
The case involved a dispute regarding the undervaluation of goods by the Tamil Nadu State Electricity Board (TNEB) for the purpose of payment of duty. TNEB had not included the margin of profit in the assessable value of the goods, which was detected by the department. The original authority raised a demand for the payment of the differential duty on TNEB, stating that a notional profit of 10% should have been included in the cost of production of the goods as per Rule 6(b) of the Central Excise Valuation Rules, 1975, read with Section 4 of the Central Excise Act. The first appellate authority upheld this decision, leading to TNEB filing an appeal.

During the hearing, the Chartered Accountant representing TNEB argued that the goods in question were not marketable as they were intended for captive use only, and thus, no duty should be demanded. The CA contended that adding a notional profit of 10% to the cost of production was unreasonable, especially considering that TNEB was operating at a loss. Reference was made to a previous case involving the Andhra Pradesh State Electricity Board, where the Tribunal had reduced the notional profit margin to be added to the assessable value from 10% to 2% of the cost of production.

The Departmental Representative reiterated the findings of the Commissioner (Appeals) and argued that TNEB could not raise the issue of excisability at a late stage since it was not brought up before the lower appellate authority. Upon examination of the submissions, it was revealed that the only issue raised before the lower appellate authority was related to the valuation of the goods, not their excisability. The Tribunal then focused solely on the valuation issue, specifically whether a notional profit should be added to the assessable value of the goods manufactured by TNEB for captive use. The Tribunal concluded that a profit margin of 2% of the cost of production was reasonable based on precedents, modifying the impugned order accordingly. The original authority was directed to recalculate the duty demand based on this revised profit margin.

In conclusion, the appeal was disposed of with the modification of the profit margin to be included in the assessable value of the goods, emphasizing the importance of adhering to the Central Excise Valuation Rules in determining duty liabilities.