2017 (7) TMI 485 - AT - Central Excise

Valuation - includibility - conversion cost upto the stage of spinning and cone-winding - Held that - all costs only upto the spindle stage when excisable product comes into existence should be included in the assessable value and the costs of processes after that stage like winding, warping, weaving, sizing etc., should not be included - there is no merit in the grounds raised by the department. The impugned order calls for no interference - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Valuation of captively consumed yarn for duty payment.
2. Application of Central Excise Valuation Rules.
3. Discrepancies in the costing method.
4. Differential duty demand and penalty imposition.
5. Tribunal's decision in Mafatlal Industries case.
6. Commissioner (Appeals) setting aside the duty demand.
7. Department's appeal against the Commissioner's decision.
8. Lack of appearance by the respondents.
9. Finality of the Tribunal's decision.

Valuation of Captively Consumed Yarn for Duty Payment:
The case involved a composite mill manufacturing cotton yarn and fabrics, where the respondents followed a specific formula to determine the value of yarn for discharging duty on captively consumed yarn. The issue arose when discrepancies in the costing method were found during a cost audit, leading to show cause notices for demanding differential duty and imposing penalties.

Application of Central Excise Valuation Rules:
The department contended that the valuation of captively consumed yarn should adhere to Rule 6(b) of Central Excise Valuation Rules, 1975 for the period up to 01.07.2000 and Rule 8 of Central Excise Valuation Rules, 2000 post that date, following CAS-4 principles. The argument focused on the alleged under-valuation of certain yarn counts compared to certified costs, resulting in short payment.

Discrepancies in the Costing Method:
After a thorough examination of the cost audit report, discrepancies in the costing method adopted by the respondents were identified, leading to the issuance of show cause notices for demanding differential duty and imposing penalties. The department raised concerns regarding the accuracy and completeness of the cost calculation process.

Differential Duty Demand and Penalty Imposition:
Following the discrepancies in the costing method, the department confirmed the demand for differential duty and imposed penalties on the respondents. This decision was challenged by the appellants, leading to a series of appeals and a subsequent review by the Tribunal.

Tribunal's Decision in Mafatlal Industries Case:
The Tribunal referred to its earlier decision in the case of Mafatlal Industries Vs. CCE, Mumbai, where it was established that only costs up to the spindle stage should be included in the assessable value of the yarn captively consumed. Costs incurred after this stage, such as winding, warping, weaving, and sizing, should not be factored into the valuation process.

Commissioner (Appeals) Setting Aside the Duty Demand:
In alignment with the Tribunal's decision and the principles established in the Mafatlal Industries case, the Commissioner (Appeals) set aside the demand for differential duty, interest, and penalties imposed on the respondents. This decision was based on the application of relevant legal precedents and valuation rules.

Department's Appeal Against the Commissioner's Decision:
The department appealed against the Commissioner (Appeals) decision, arguing that the valuation of captively consumed yarn should consider all costs incurred up to the spindle stage, as mandated by the Central Excise Valuation Rules. The department highlighted alleged discrepancies in the respondents' valuation approach, leading to under-valuation and subsequent duty shortfalls.

Lack of Appearance by the Respondents:
Despite notices being issued, no representation was made on behalf of the respondents during the proceedings. The case was heard based on the arguments presented by the department's Assistant Commissioner and a review of the available records.

Finality of the Tribunal's Decision:
The Tribunal's decision to dismiss the department's appeals and uphold the Commissioner (Appeals) decision was deemed final, with no merit found in the department's grounds for appeal. The order pronounced in open court reaffirmed the dismissal of all three appeals filed by the Revenue, emphasizing the lack of justification for interference with the impugned order.

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