2013 (3) TMI 188 - AT - Central Excise

Valuation of intermediate product used for captive consumption - Circular No. 258/92/96-CX. dated 30-10-1996 and instruction No. 133/96, dated 27-11-1996 disobeyed - Differential excise duty - as per the department assessee while computing the provisional valuation took into account the margin of profit of spinning division only and ignoring weaving division - Held that - As decided in CCE, AURANGABAD versus RAYMONDS LTD 2006 (10) TMI 7 - SUPREME COURT OF INDIA for determination of valuation of intermediate product apart from the profit of manufacturing division of the intermediate product is to be taken into account and not the profit of all the divisions of respondent factory. No merit in the appeals filed by Department. Thus Commissioner (Appeals) allowing the appeals of the respondent with consequential relief can be computed only if an evasion of valuation of intermediate product i.e. yarn is undertaken by the jurisdictional authority to calculate the incidence of excise duty. Accordingly, the jurisdictional Assistant Commissioner directed to recalculate the differential excise duty, if any, payable by the assessee in terms of the observation made in this order.

Summary

Issues:
Valuation of intermediate product for excise duty - Profit margin consideration - Application of Rule 6(b)(ii) of Central Excise (Valuation) Rules, 1975.

Analysis:

Issue 1: Valuation of Intermediate Product for Excise Duty
The case involved the valuation of yarn manufactured for captive consumption by a company for excise duty purposes. The company used a provisional basis for excise duty payment when the ex-factory price was unavailable. The Department raised demands based on valuation discrepancies, leading to appeals by the company challenging the final valuation.

Issue 2: Profit Margin Consideration
The core contention was whether the profit margin for valuation under Rule 6(b)(ii) should consider the profit of the spinning division only or the profit of the entire manufacturing unit, including the spinning and weaving divisions. The Department argued for the latter, while the company advocated for considering only the profit margin of the spinning division.

Detailed Analysis:
The Tribunal analyzed Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, which mandates determining the value of intermediate products cleared for captive consumption based on the cost of production or manufacturing, including reasonable profit the manufacturer would have earned. The term "profit" in the rule was interpreted to pertain to the profit concerning the intermediate product itself, not the final product resulting from its use.

The Tribunal referred to Circular No. 258/92/96-CX, which clarified the application of Rule 6(b)(ii) for captive consumption goods' valuation. The Circular highlighted the inclusion of various cost elements in determining the cost of production and emphasized using the profit before tax for valuation, aligning with the rule's requirements.

Regarding the profit margin consideration, the Tribunal cited a previous judgment involving Raymonds Ltd., where it was established that only the profit of the manufacturing division of the intermediate product should be factored into valuation, not the profit of all divisions of the factory. The Supreme Court's decision reinforced this principle, emphasizing the need to consider the profit of the specific manufacturing division.

In conclusion, the Tribunal dismissed the appeals by the Department, affirming that the profit margin of the spinning division alone should be considered for valuation under Rule 6(b)(ii). It directed the Assistant Commissioner to recalculate any differential excise duty payable by the company in line with the clarified valuation principles.

Overall, the judgment provided clarity on the valuation methodology for intermediate products used for captive consumption, emphasizing the specific profit margin consideration and aligning with the relevant legal provisions and precedents.