2017 (1) TMI 1457 - AT - Central Excise

Valuation - goods cleared to sister units - profit element - includibility - whether the assessee has undervalued the goods i.e. Sponge iron by not including the profit element? - Held that - The CBEC initially issued circular No. 354/81/2000-TRU dated 30.06.2000 wherein how to arrive at the value has been explained in Para 21. This was further clarified vide circular No. 692/8/2003-CX dated 13.02.2003 to work out the cost of production for captive consumption in accordance with CAS-4. Therefore the objection raised by audit is not correct as the goods were consumed under Notification No. 67/95-CE dated 16.03.1995 and in these cases value of goods cannot be determined under Rule 8 of the Central Excise Valuation (Determination of Price of Excisable goods) Rules 2000. Valuation - captive consumption - whether the assessee has failed to include the cost of packing materials in respect of Sponge iron captively consumed? - Held that - the cost of packing materials has already been taken in excess when compared to the assessable value of packing material according to Audit Report - the charges made in the show cause notice regarding Undervaluation of the Sponge Iron captively used and there-by value of final product has been suppressed is not sustainable and is liable to be dropped. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Undervaluation of goods - Sponge iron by not including the profit element.
2. Failure to include the cost of packing materials in respect of Sponge iron captively consumed.

Analysis:

Issue 1 - Undervaluation of goods - Sponge iron by not including the profit element:
The dispute revolved around whether the assessee undervalued goods, specifically Sponge iron, by not including the profit element. The Commissioner elaborately discussed the issue and referred to Rule 8 and Rule 9 of the Central Excise Valuation Rules, 2000. The Commissioner found that the assessee appropriately determined the value of goods for captive consumption. The Circular No. 643/34/2002-CX clarified the valuation process for captive consumption within the same factory. The Commissioner concluded that the objection raised by the audit was not correct as the goods were consumed under a specific notification, and their value could not be determined under Rule 8 of the Valuation Rules.

Issue 2 - Failure to include the cost of packing materials in respect of Sponge iron captively consumed:
The second issue involved whether the assessee failed to include the cost of packing materials in Sponge iron captively consumed. The Commissioner analyzed this issue extensively and observed that the Sponge iron was sold based on transaction value, which was also used for valuing goods cleared for captive consumption. The costing data submitted by the assessee revealed that the prices of Sponge iron for captive consumption exceeded the cost of production as per CAS-4 standards. The Commissioner noted that the cost of packing materials had already been taken into account, as confirmed by a certificate from a Cost Accountant. The verification reports from Range-Superintendent and Assistant Director supported the inclusion of packing material costs in the value of Sponge iron. Consequently, the Commissioner held that the demand raised in the show cause notice was incorrect and unsustainable on merits.

In conclusion, after a thorough review of the case, the Tribunal upheld the Commissioner's order, finding it in accordance with the law. The Revenue's appeal was dismissed, and the cross objection was disposed of accordingly.

This judgment highlights the importance of correctly valuing goods for excise duty purposes and the significance of adhering to relevant valuation rules and circulars to avoid disputes and erroneous demands.