2015 (4) TMI 816 - SC - Central Excise

Valuation of goods - Captive consumption - Misdeclaration of value of goods - Non inclusion of value of administrative overheads, bonus, gratuity, interest, conversion charges and depreciation charges in the assessable value of the yarn - Held that - While issuing the clarification as to how the Gross Profit, i.e., profit before depreciation and taxation or Profit before tax or any other profit has to be arrived at, it is also clarified that for the purposes of calculation of value of goods captively consumed under Rule 6(b)(ii) of Central Excise (Valuation) Rules, 1975, certain steps are to be taken. - The clarification, pertains to calculation of value of goods captively consumed under Rule 6(b)(ii). It is this Rule which is undoubtedly applicable in the present case. Thus, for the first time, only in October, 1996, it was clarified that the cost of material, labour cost and overheads including administrative cost, advertising expenses, depreciation, interest, etc., would be included in the cost of production. The period with which we are concerned is prior to October, 1996, i.e., April, 1994 to September, 1996. It, therefore, cannot be said that the respondents-companies made intentional misdeclaration with the purpose to avoid payment of correct excise duty. We thus, find that the CESTAT was right in holding that extended period of limitation would not be applicable in the present case. - Decided against Revenue.

Summary

Issues:
Extended period of limitation for duty evasion in the manufacturing of yarn and fabrics.

Analysis:
The case involved the respondents engaged in manufacturing yarn and fabrics, consuming yarn captively in fabric production. The Department alleged incorrect valuation of captively consumed yarn during 1994-95 to 1996-97, not including administrative overheads, bonus, gratuity, interest, conversion charges, and depreciation in assessable value. Show cause notices in 1999 demanded differential duty and interest for duty evasion, confirmed by the Commissioner of Central Excise, Ahmedabad. The Commissioner included administrative and overhead expenses in assessable value and invoked extended limitation only for administrative expenses. Respondents appealed to CESTAT, which in 2004 set aside duty demands, stating the extended limitation was inapplicable. CESTAT held cost accountants' certified statements were valid, errors not grounds for criminal action.

The main issue was whether the extended limitation could be applied, considering notices issued in 1999 for the period of April 1994 to September 1996, beyond the six-month limit under Section 11A of the Central Excise Act. The Department argued for extended limitation due to intentional misstatements by respondents to evade taxes, but CESTAT disagreed. CESTAT noted respondents' declarations were based on rules mandating inclusion of costs, and any errors were bona fide, not for tax evasion. The Court agreed with CESTAT, finding respondents' submissions correct and extended limitation inapplicable.

Regarding the inclusion of costs, the Court analyzed the Cost Accounting Records (Textile) Rules, 1977, which specified overheads, yarn/cloth costs, and cost statements for production and sale. The Court noted a distinction between costs for production and sale, highlighting the necessity of including bonus, interest, and gratuity for the cost of sales, not production. The Court referred to a 1996 circular clarifying the calculation of captively consumed goods' value, which included overheads like administrative costs, advertising expenses, and interest in production costs. This clarification postdated the period in question, indicating respondents' compliance with the rules.

In conclusion, the Court dismissed the appeals, upholding CESTAT's decision that the extended limitation did not apply. The dismissal of subsequent appeals was based on the same reasoning as the first set of appeals. The judgment clarified the correct application of rules for valuing captively consumed goods, emphasizing the distinction between costs for production and sale and the necessity of including specific expenses in the assessable value.