2009 (2) TMI 637 - AT - Central Excise

Valuation - Captive consumption - Held that - in Circular No. 692/ 8/2003-CX dated 13-2-2003 it has been held that cost of production of captively consumed goods will be done strictly in accordance with CAS-4 principles of accountancy - as per Para 5.7 of the CAS-4 such expenses are not includible and there is not challenge to these observations in the revenue s appeals. Appeal dismissed - decided against Revenue.

Summary

Issues: Determination of assessable value for excisable goods based on cost of production method, inclusion of marketing and advertising expenses in cost of production, applicability of CEGAT and Supreme Court judgments, adherence to CAS-4 principles of accountancy.

Analysis:
1. Assessable Value Calculation: The case involved the determination of assessable value for excisable goods by M/s. Bombay Dyeing & Mfg. Co. Ltd. using the cost of production method as per Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975. The company was captively consuming yarn for further manufacturing of fabrics and transferring quantities to another unit. The revenue issued show cause notices for non-inclusion of various elements in the cost of production, including selling and distribution expenses. The Dy. Commissioner confirmed duty demands, but the Commissioner (Appeals) set aside these orders.

2. Applicability of Judgments: The revenue contended that marketing and advertising expenses should be included in the cost of production based on CEGAT judgments. However, the advocate for the respondent cited the Supreme Court decision in the Cadbury India Ltd. case, which held that such expenses are not includible in the assessable value of intermediate products. The advocate also highlighted the revision of instructions by the Board in Circular No. 692/8/2003-CX, emphasizing adherence to CAS-4 principles of accountancy for determining the cost of production of captively consumed goods.

3. Supreme Court Rulings: The Tribunal noted that the Supreme Court's decision in the Cadbury India Ltd. case, which disposed of the appeal against the Tribunal's decision in the Mafatlal Industries case, established that marketing and distribution expenses are not to be included in the cost of production. This decision was supported by the Board circular of 2003, aligning with CAS-4 principles. Consequently, the Tribunal found no merit in the revenue's appeals and dismissed them.

In conclusion, the Tribunal's judgment upheld the exclusion of marketing and advertising expenses from the assessable value of excisable goods, in line with the Supreme Court's ruling and the principles of accountancy outlined in CAS-4. The decision provided clarity on the inclusion of costs in the cost of production method, emphasizing the importance of adhering to established legal precedents and accounting principles in such matters.