2015 (3) TMI 1044 - SC - Central Excise

Valuation of goods - Captive consumption - Calculation of excise duty - The respondent Department felt that the aforesaid method adopted by the appellant assessee in calculating the excise duty and paying the same in respect of the captive consumption was in-appropriate. As per the Department such a duty should have been paid on the same price at which the unit was sold by the appellant in the market. - period 1.4.1994 to 1.6.1998 - Held that - As it is clear from the reading of the Section 4, clause (b) which is attracted in the present case stipulates that in a case like this, the value has to be determined in such a manner as may be prescribed. This manner is prescribed in Rule 6 (b)(i) of the Central Excise (Valuation) Rules, 1975. A bare reading of Rule 6(b) manifestly points out that in those cases where the excisable goods are not sold by the assessee but are consumed by assessee himself, namely, in case of the captive consumption, the value of comparable goods produced or manufactured by the assessee or by any other assessee is to be taken into consideration. However, the proviso to this clause (i) of sub-rule (b) provides that in determining the value in the aforesaid sub-clause the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors, and in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods. From the process explained by the appellant itself it is clear that up to the stage (iv) above, the process is common in respect of the production of the yarn whether it is to be consumed by the appellant itself or it is to be sold in the market. It is, thereafter, when it comes to process mentioned at serial nos. (v) and (vi), the same is necessitated for the purpose of sale in the open market and therefore costs incurred while undertaking these processes has to be excluded in arriving at the value at which excise duty is payable for the yarn domestically consumed. - appellant shall be entitled to adjust the cost which is incurred as mentioned in process (v) & (vi) of the sales in selling costs. Since this benefit is wrongly denied to the appellant by all the authorities below, for this limited purpose we remand the case back to the adjudicating authority. Before the Adjudicating authority it would be permissible for the appellant to supply the figures of the cost incurred on the aforesaid processees and after verifying the same himself about the genuineness of such cost incurred, the adjudicating authority shall recalculate the value for the purposes of excise duty while giving adjustment of the aforesaid costs and raise fresh demand on that basis. - Decided in favour of assessee.

Summary

Issues:
1. Calculation of excise duty on captive consumption of yarn.
2. Interpretation of Section 4(1)(b) of the Central Excise Act.
3. Application of Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975.
4. Adjustment of costs for captive consumption of goods.
5. Entitlement to penalty and adjustment of deposited amount.

Analysis:
1. The appellant, involved in yarn manufacturing, faced a dispute regarding excise duty calculation for captive consumption. The Department challenged the method used by the appellant, resulting in show cause notices and a demand for payment. Despite the appellant's defense, the Commissioner of Central Excise upheld the demand. The Customs Excise and Gold (Control) Appellate Tribunal (CEGAT) affirmed this decision, leading to the current appeal.

2. The valuation of yarn, even for captive consumption, falls under Section 4(1)(b) of the Act. The section mandates determining value as prescribed. Rule 6(b)(i) of the Valuation Rules specifies considering comparable goods' value in cases of captive consumption. The appellant argued for adjustments in costs like winding, warping, and packing, emphasizing differences between captive consumption and market sale values.

3. Rule 6(b) directs valuation based on comparable goods' value or cost of production if the former is unavailable. The proviso requires reasonable adjustments considering relevant factors. The appellant contended for adjustments reflecting costs incurred in preparing yarn for market sale, distinct from captive consumption. The Tribunal's dismissal without addressing these submissions was criticized.

4. The appellant detailed the yarn manufacturing process, highlighting stages common for captive consumption and market sale up to a point. Costs incurred post that stage, like sizing and packing for market sale, should be excluded from captive consumption valuation. The Circular No.258/92/96-CX supported adjusting costs related to selling processes for captive consumption valuation.

5. The Supreme Court remanded the case for recalculating excise duty, allowing adjustments for costs incurred in market sale preparation. The penalty was set aside, and the appellant's deposited amount could be adjusted based on the recalculated demand. The adjudicating authority was tasked to complete this process within three months, ensuring any excess amount was promptly reimbursed to the appellant.

The judgment clarified the valuation process for excise duty on captive consumption, emphasizing adjustments for costs related to market sale preparation and rejecting the imposed penalty.