2007 (2) TMI 545 - AT - Central Excise

Summary

Issues involved: Determination of assessable value of physician's samples for the purpose of levy of Central Excise duty based on cost of production, application of Board's Circular, disagreement on method of computation between assessee and Revenue, adherence to CAS-4 for determining cost of production.

Summary:

1. The respondents, manufacturers of medicaments, cleared a major part of their production on payment of duty and supplied the remaining part as samples to physicians free of cost for promotion. A dispute arose when the assessable value of the physician's samples was reworked based on a Board's Circular, resulting in a claim for refund of excess duty paid. The Deputy Commissioner redetermined the assessable value, leading to a partial refund claim rejection. The Commissioner (Appeals) allowed the appeal, prompting the Revenue to file the present appeal.

2. The dispute centered around the method of arriving at 115% of the cost of production for physician's samples. The assessee advocated for "forward working," adding factory overheads to material cost, while the Revenue proposed "backward working," subtracting selling and distribution expenses from the assessable value of identical goods sold in the market. The Board's Circular specified the assessable value as 115% of the cost of production, leading to differing refund amounts based on the computation method.

3. The principles of determining cost of production for captive consumption under CAS-4 were referenced, emphasizing the additive method of determining production-related expenses. The appellant's method of subtracting selling and distribution expenses was deemed inconsistent with CAS-4 and the costing standards. Citing a Supreme Court case, it was established that CAS-4 should be strictly applied to determine the cost of production, rejecting the Revenue's contention.

4. While the original authority sanctioned a refund, discrepancies arose in the computation of the refundable amount by the appellant. The lack of clarity in accounting for factory overheads indicated the need for a fresh valuation of the physician's samples in accordance with CAS-4 and the Board's Circular. The appeal was allowed for remand to the original authority for reevaluation.

5. The orders of the lower authorities were set aside, and the appeal was allowed for de novo adjudication in line with the order and legal requirements, ensuring a fair hearing for the assessee.

*(Operative portion of the order pronounced in open court on 23-2-2007)*