2017 (7) TMI 488 - AT - Central Excise

Valuation of intermediate products - captive consumption - administrative expense - advertisement expense - interest expense - includibility - Held that - the respondent has not been put to notice regarding this aspect and the issue at that time was only with regard to non-inclusion of administrative expense, advertisement expense, interest expense in the cost of production. The Commissioner (Appeals) has also stated that the rate arrived by the department on the basis of Trial Balance of the unit is incorrect, for the reason that what is to be taken into account for finding out the cost of production on the intermediate goods is only the related expenditure incurred for the said intermediate products. If the entire expenditure shown in the Trial Balance is taken for arriving at the overhead rate, then this will definitely reflect the overhead for the manufacture of the final product viz., Tyre in this case and will not represent the overhead rate for the intermediate goods - appeal dismissed - decided against appellant.

Summary

Issues:
1. Inclusion of administrative expenses, advertisement expenses, and interest expenses in the cost of production for provisional assessment.
2. Appeal filed by the department against the order-in-original dated 18.11.2003.
3. Doctrine of merger in relation to the appeal filed by the department.
4. Verification of the worksheet submitted by the respondents and acceptance of the overhead rate.

Analysis:

Issue 1:
The respondents, manufacturers of tyres and tubes, cleared goods to their sister units under provisional assessment. The department requested quantification of differential duty based on CAS-4, including administrative, advertisement, and interest expenses. The Assistant Commissioner demanded a higher duty amount, incorporating these expenses. The Commissioner (Appeals) held that such expenses are not includible in the cost of production, leading to the respondents' appeal.

Issue 2:
The department appealed against the order-in-original, arguing that the respondent's working sheet was not certified by a Chartered Accountant and the method used for factory overhead calculation was incorrect. The Commissioner (Appeals) held that the appeal was not maintainable due to the doctrine of merger, as the respondent's appeal had already been disposed of. However, the Commissioner also addressed the merits and dismissed the department's appeal, leading to the department approaching the Tribunal.

Issue 3:
The Tribunal noted the department's appeal timing and the Commissioner's consideration of the grounds raised. The Commissioner found the respondent's overhead calculation method acceptable based on accounting principles and correspondence with the department. The Tribunal agreed with the Commissioner's findings, highlighting discrepancies in the department's approach to overhead calculation and the lack of notice to the respondent regarding revisions. The Tribunal upheld the Commissioner's decision to dismiss the appeal.

Issue 4:
The Tribunal expressed surprise at the Commissioner's acceptance of the department's appeal post respondent's disposal. It noted the respondent's correct application of overhead calculation principles and the lack of departmental proposals for revision during hearings. The Tribunal concurred with the Commissioner's detailed analysis of the case and found no grounds to interfere, ultimately dismissing the appeal.

This detailed analysis covers the issues of inclusion of expenses in cost of production, the department's appeal, the doctrine of merger, and the verification of overhead rates, providing a comprehensive understanding of the legal judgment.