2011 (2) TMI 1006 - AT - Central Excise

Assessable value - Captive consumption of the zinc and lead concentrates - whether the cost of interest and cost of loss of raw materials was to be included in the cost of ore concentrates? Held that - Coming to the first question of interest cost, in terms of the Board's Circular No.6/29/2002-CX.I dated 13.02.2003, the cost of the goods cleared for captive consumption must be determined in accordance with the general principle of costing and accordingly for this purpose, CAS-4 Standard is to be adopted. As per CAS-4, for determining the cost of goods, the interest cost is not to be included. As regards the loss of raw materials, the appellant's plea is that materials loss referred in the Balance Sheet is ore concentrates loss and since duty is being demanded in respect of ore concentrates, its cost cannot be included. Even in reply to the show cause notice, the appellant had clarified the loss of raw materials referred to in the balance sheet is the loss of ore concentrates and since the duty has been paid on the ore concentrates, the loss of cost of ore concentrates cannot be taken into account for determining its cost. Thus if the department's allegation is that the loss of raw materials referred to in the balance sheet refers to loss of ores or other raw materials not of ore concentrates, the burden of proving this would be on the department, but no evidence in this regard has been produced. In view of this, the Commissioner (Appeals)'s finding that the cost of the loss of raw materials should have been included while determining the cost of production of ore concentrates is not sustainable. Decided in favour of assessee.

Issues:
1. Dispute over assessable value of zinc and lead concentrates.
2. Inclusion of interest cost and loss of raw materials in the cost of production.
3. Applicability of Board's Circular dated 13.02.2003.
4. Time-barred demand and penalty imposition.
5. Burden of proof on department regarding loss of raw materials.

Analysis:
1. The dispute revolved around the assessable value of zinc and lead concentrates manufactured by the appellant and cleared to their smelting units. The assessable value was to be determined under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 based on the cost of production.

2. Regarding the inclusion of interest cost and loss of raw materials in the cost of production, the appellant argued that interest on loans need not be included as per CAS-4 accounting standard. The department contended that Circular dated 13.02.2003 applied prospectively, but the Supreme Court held that CAS-4 principles must be adopted for determining the cost of production.

3. The Board's Circular dated 13.02.2003 mandated determining the cost of goods cleared for captive consumption based on CAS-4 standards. The Tribunal and Supreme Court decisions supported this approach, emphasizing the principles of costing for assessing the value of goods.

4. The appellant claimed the demand was time-barred as there was no suppression or misstatement. The Commissioner (Appeals) found no misdeclaration in the price declaration filed under Rule 173C. The Tribunal held that the demand was not sustainable and set aside the order, allowing the appeal.

5. The burden of proof regarding the loss of raw materials lay with the department. The appellant clarified that the loss referred to in the balance sheet pertained to ore concentrates, and the duty had been paid on them. Without evidence from the department proving otherwise, the Commissioner (Appeals)'s finding on including the cost of loss of raw materials was deemed unsustainable.

In conclusion, the Tribunal found in favor of the appellant, setting aside the impugned order due to the unsustainable nature of the Commissioner (Appeals)'s findings. The judgment highlighted the importance of adhering to accounting standards and principles in determining the cost of production for excisable goods.

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