2013 (4) TMI 29 - AT - Central Excise

Central Excise Captive Consumption - Enhancement of Duty - Valuation - CAS 4 - inclusion of interest on loan - Appellant, pleaded that the impugned order of the Commissioner confirming the duty demand by including the interest on loans in cost of the castings is not sustainable for the reason that the same is not required to be included in the cost. That in this regard, reliance is placed on the judgment of the Tribunal in the case of Nirma Ltd. v. C.C.E. reported in 2005 (8) TMI 337 - CESTAT, MUMBAI and of Hon ble Supreme Court s judgment in the of C.C.E., Pune v. Cadbury India Limited reported in 2006 (8) TMI 2 - SUPREME COURT OF INDIA . Held that - The impugned order confirming duty demand on the basis that costing of the product would also include the interest cost, even though it is not required to be included as per CAS-4, is not sustainable. The same is set aside. The appeal is allowed.

Summary

Issues:
Interpretation of Central Excise (Valuation) Rules regarding inclusion of interest on loans in the cost of production for duty calculation.

Analysis:
The appellant manufactured castings of iron and steel for motor vehicle parts, clearing them to another unit for captive consumption based on 115% of the cost of production under Rule 8 of Central Excise (Valuation) Rules. The department demanded duty, including interest on loans in the cost, leading to a dispute. The Commissioner confirmed the duty demand and imposed a penalty, prompting the appeal.

The appellant argued that interest on loans should not be part of the cost, citing Accounting Standard CAS-4 and a Board Circular on costing for captive use. The department contended that the Circular had prospective validity, relying on a Supreme Court judgment. The Tribunal analyzed the issue, focusing on the Circular's applicability and the principles of costing under CAS-4.

The Tribunal referred to the Supreme Court's ruling on determining production cost strictly as per costing principles, specifically CAS-4, even for periods predating relevant Circulars. It emphasized that only direct production costs should be included, as per established accounting principles and ICWAI standards. Recognizing the Circular's alignment with CAS-4, the Tribunal set aside the duty demand, ruling in favor of the appellant based on the Supreme Court's precedent.

In conclusion, the Tribunal allowed the appeal, overturning the duty demand decision that incorrectly included interest on loans in the cost of production. The judgment clarified the application of CAS-4 standards and the necessity to adhere to costing principles, irrespective of Circulars' prospective nature, in determining duty calculations under the Central Excise (Valuation) Rules.