2016 (9) TMI 1175 - AT - Central Excise

Valuation - captive consumption - Frequency or periodicity of costing in terms of CAS-4 - whether the CAS 4 based costing of Iron Ore Concentrate is to be done on an annual basis or for a lesser durations of 2/4/5 months as and when the raw material costs varied - no sale of iron ore concentrate by the appellant - clearance to sister unit for further use is subjected to excise duty and valuation for such duty has to be worked out in terms of Rule 8 of Valuation Rules 2000 - appellants followed different value during the same financial year based on revision of costing within the year more than once. Held that - it is an admitted fact that the appellants themselves did not follow costing to arrive at deemed transaction value for each clearance. They have considered a period of many months and worked out the costing in terms of CAS-4 for that period and paid duty. Thereafter they revised said costing when there are changes in raw material cost. That being the case we find that the reliance placed by the appellant on the principle that time of removal is relevant and hence annual costing is not tenable is unsustainable. The fact remains that while the duty liability has to be discharged at the time of removal of excisable goods in a situation where there is no sale transaction and known value the deemed transaction value has to be constructed based on costing method which necessarily will involve an averaging of cost for a period considering all the parameters. It is neither the case of the appellant nor there is such an approved standard for arriving at cost of excisable goods for each individual clearance. When at the time of each clearance of excisable goods for captive consumption the exact transaction value could not be arrived at the relevant time the duty has to be paid on a provisional basis and upon arriving at the costing applying CAS-4 and the assessable value in terms of Rule 8 of Valuation Rules final determination of duty liability has to be made. In the present case admittedly no provisional assessment was resorted to by the appellant. Hence the determination of actual cost much later on the clearance resulted in certain adjustments and payments by the appellant. Para 8 of guidelines issued by the Institute of Cost & Works Accountants of India on CAS-4 deals with periodicity of CAS-4 Certificates. On perusal of the guidelines by the ICAI we find while arriving at costing based on CAS-4 the correct method will be to determine the same based on actual audited data as per the account year of the company. To that extend we find the CAS-4 cost price arrived at on annual basis by the Revenue is correct procedure. Quantification of differential duty - duty paid in excess in certain months has been availed as credit by sister unit - time barred - Held that - even though there is no provisional assessment in the present case the duty determination on the inter-unit transfer is made on annual costing. As such when the Department arrived at cost on annual average basis the duty liability excess or shortage has also to be determined on such basis. It is not tenable while for arriving at per unit duty liability the whole year data is considered for costing for total duty liability only months when short payment was noticed were considered. In other words when CAS-4 based annual costing formed basis for arriving transaction value the overall duty liability/short payment should be arrived at after considering duty already paid during that year on such goods. We find the reasoning given by the Original Authority against adjustment of already paid duty as untenable. Section 11B has no application in such situation when the appellants duty liability is determined on annual CAS-4 the duty already paid during said period has to be adjusted. The question of unjust enrichment has no relevance here. There is no refund considered here. The point that the duty paid in excess in certain months has been availed as credit by sister unit hence cannot be adjusted towards short payment also not tenable. The demand arose based on annual costing. Such cost price in terms of Rule 8 will apply to all clearances made during the relevant year. Admittedly duty already discharged has to considered for arriving at overall short payment. Selectively applying the said cost price only for months when the clearances were below such cost price is not legally sustainable. It is found that the Original Authority has not fully examined the issue of time bar raised by the appellant. Intimations of price revision followed by CAS-4 Certificates have been given to the Department. Monthly statutory returns with duty payment details have been filed. The existence of more than one cost certificates during different months in one financial year is apparently in the knowledge of the Department. Hence the question of time bar requires closer scrutiny. Since we intend to remand the case to the Original Authority on the quantification of duty demand this aspect also has to considered by the Original Authority for a clear finding. - Appeal partly allowed by way of remand

Summary

Issues:
1. Dispute over periodicity of costing for valuation under Rule 8 of Central Excise Valuation Rules, 2000.
2. Allegation of short payment of duty during specific periods.
3. Legal sustainability of demand raised by Revenue.
4. Applicability of CAS-4 certificates for determining cost of production.
5. Time-barred nature of the demand.
6. Adjustment of differential duty and unjust enrichment.
7. Examination of the issue of time bar by the Original Authority.

Issue 1: Dispute over periodicity of costing for valuation under Rule 8:
The appeal contested the method of periodic costing adopted by the appellant for Iron Ore Concentrate valuation under Rule 8. The Revenue claimed short payment of duty during specific periods due to alleged undervaluation. The main contention was whether the costing should be done annually or at shorter intervals based on CAS-4 certificates reflecting raw material cost variations. The Tribunal analyzed the necessity of averaging costs for valuation, considering the lack of sale transactions and known values at the time of clearance.

Issue 2: Allegation of short payment of duty:
The Revenue alleged short payment of duty by the appellant during certain periods, initiating proceedings to demand duty recovery. The Original Authority confirmed the duty and imposed a penalty under Section 11AC of the Central Excise Act, 1944. The appeal challenged this order, arguing against the legal sustainability of the demand on various grounds, including the method of computation of value and reliance on circulars.

Issue 3: Applicability of CAS-4 certificates for determining cost of production:
The appellant argued that the actual cost of production at the time of goods removal should be accepted based on CAS-4 certificates, rather than average costs during the financial year. The Tribunal examined the guidelines by the Institute of Cost & Works Accountants of India on CAS-4, emphasizing the importance of determining costs based on actual audited data for each period, supporting the Revenue's annual cost calculation approach.

Issue 4: Time-barred nature of the demand:
The appellant claimed that the demand was time-barred, highlighting the regular intimation of price revisions and filing of statutory returns with the Department. The Tribunal noted the need for a closer examination by the Original Authority on the time bar issue, alongside the quantification of duty demand.

Issue 5: Adjustment of differential duty and unjust enrichment:
The Tribunal addressed the quantification of differential duty, emphasizing the need for adjustments based on the duty already paid during the relevant period when determining the total duty liability. It rejected the Revenue's selective application of cost price for months with short payments and stressed the adjustment of excess duty paid against the total duty liability.

Issue 6: Examination of the issue of time bar by the Original Authority:
The Tribunal found that the Original Authority had not fully examined the time bar issue raised by the appellant. Given the multiple cost certificates in one financial year and the Department's knowledge, a detailed scrutiny of the time bar aspect was deemed necessary. Consequently, the case was remanded back to the Original Authority for a fresh determination on time bar and quantification of short payment.

In conclusion, the Tribunal partially allowed the appeal by remanding the case for a fresh finding on the issues discussed above, while upholding the annual cost price calculation based on CAS-4 for Rule 8 of Valuation Rules.