2015 (10) TMI 1990 - AT - Central Excise

Valuation of goods - Captive consumption - duty to be levied on the basis of 110% of the cost of production - Determination of assessable value - Clearances of de-natured rectified spirit - Held that - prima facie, the expenses on account of salaries and wages, direct expenses, depreciation, works over heads and administrative over heads are to be absorbed in cost on the basis of the normal capacity utilization, as in the present case the actual production was much lower than the production based on the normal capacity utilization and prima facie, this is what the appellant had done. However, we find that there are considerable expenses each year on utilities which in terms of the para 5.9 of the CS Format guidelines are to be treated as variable over heads and the cost of variable over heads is to be absorbed in costing based on the actual captive utilization while this is the cost of utilities have been absorbed by the appellant on the basis of normal capacity utilization which prima facie is not correct and on this point, the department has a case. Therefore, out of the total duty demand confirmed by the Commissioner in our prima facie view, at least, the duty demand based on the absorption of cost of utilities in the costing may be upheld. As regards, the plea of the Appellant regarding Revenue, the neutrality, prima facie we are not convinced with this plea. In view of the above discussion we are of the view that this is not the case for total waiver. - Partial stay granted.

Summary

Issues involved:
Dispute over clearances of de-natured rectified spirit between two manufacturing units for captive consumption, calculation of cost of production based on CAS-IV format, disagreement on absorption of expenses, duty demand confirmation, plea for waiver, and determination of pre-deposit amount.

Analysis:
The judgment concerns a dispute between two manufacturing units of the same company regarding the clearances of de-natured rectified spirit for captive consumption. The Gorakhpur unit was discharging duty liability based on 110% of the cost of production under Rule 8 of the Central Excise Valuation Rules, 2000. The disagreement arose over the calculation of the cost of production using the CAS-IV format. The appellant divided expenses differently, with some based on normal capacity utilization and others on actual capacity utilization. The Commissioner confirmed a duty demand against the appellant, leading to the appeal and stay application.

The appellant argued that they followed costing guidelines, absorbing fixed overheads based on normal capacity utilization and variable costs on actual capacity utilization. They contended that the Commissioner's order deviated from costing principles. Additionally, they claimed that any duty payable by the Gorakhpur unit was offset by CENVAT Credit at the Kashipur Unit, resulting in a revenue-neutral situation. The appellant sought a waiver from pre-deposit due to a strong prima facie case in their favor.

The Department opposed the stay application, asserting that utilities expenses should be absorbed based on actual capacity utilization, not normal capacity utilization. They highlighted a change in the treatment of expenses when a new cost accountant joined. Moreover, they pointed out an email indicating undervaluation of the de-natured rectified spirit, suggesting deliberate evasion of duty.

The Tribunal considered both arguments and examined the records. It noted that the dispute pertained to the assessable value of the de-natured rectified spirit and the application of the CAS-IV format for cost calculation. The judgment emphasized the distinction between variable and fixed overheads, stating that variable costs should be absorbed based on actual capacity utilization while fixed costs on normal capacity utilization, whichever is higher. The Tribunal found the appellant's treatment of utilities expenses based on normal capacity utilization prima facie incorrect. Consequently, it upheld the duty demand related to the absorption of utility costs in the costing.

Regarding the plea for revenue neutrality, the Tribunal was not convinced and directed the appellant to deposit a specified amount within six weeks. Upon compliance, the requirement of pre-deposit, balance duty demand, interest, and penalty would be waived. The judgment emphasized the importance of compliance by a specific date.

In conclusion, the judgment addressed the dispute over cost calculation, absorption of expenses, duty demand confirmation, and the requirement for pre-deposit, providing detailed reasoning for each aspect and issuing a directive for compliance.