2018 (12) TMI 660 - AT - Central Excise

Valuation - inclusion of selling and distribution charges and administrative expenses in the cost of production - goods transferred to sister concern or captively consumed - Held that - Undisputedly, under CAS-4 method, the aforesaid expenses are held to be not part of the cost of production of the goods captively consumed - CAS- 4 method of computation of production cost is retrospectively applicable - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether selling and distribution expenses and administrative costs should be included in the cost of production for determining the assessable value of goods transferred or captively consumed.

Analysis:

Issue 1: Inclusion of Selling and Distribution Expenses and Administrative Costs in Cost of Production

The appeal was filed against an order-in-original passed by the Commissioner of Central Excise, Customs & Service Tax, Nagpur. The respondent, engaged in manufacturing tractors and parts, had filed price declarations for clearance of parts from July 1997 to June 2000. The dispute arose when the Revenue alleged that the cost of production declared by the respondent was incorrect as it did not include selling and distribution charges and administrative expenses. The Revenue issued a demand notice for recovery of differential duty, interest, and penalty, which was later dropped after adjudication. The Revenue contended that these expenses should be included in the cost of production, referring to Circulars and a Tribunal order. On the other hand, the respondent argued that as per the CAS-4 method, these expenses should not be part of the cost of production. The respondent also cited previous Tribunal decisions supporting their stance and highlighted that there was no substantial difference in the cost of production determination before and after an amendment to the Central Excise Act, 1944.

Analysis of Judgment:

Upon hearing both sides and examining the records, the Tribunal focused on the key issue of whether selling and distribution expenses and administrative costs should be considered in the cost of production for determining the assessable value of goods transferred or captively consumed. The Tribunal noted that under the CAS-4 method, these expenses were not considered part of the cost of production for goods captively consumed. The Revenue argued that the CAS-4 method could not be applied retrospectively before 1.7.2000. However, the Tribunal disagreed with this argument, stating that the CAS-4 method was retrospectively applicable, as consistently held in previous cases. Consequently, the Tribunal dismissed the Revenue's appeal, affirming that the selling and distribution expenses and administrative costs should not be included in the cost of production for the relevant period.

In conclusion, the judgment clarified the application of the CAS-4 method in determining the cost of production and emphasized that selling and distribution expenses, along with administrative costs, should not be part of the cost calculation for goods transferred or captively consumed. The decision was based on a thorough analysis of the arguments presented by both parties and previous Tribunal rulings, ensuring a fair and reasoned outcome in the case.