2023 (10) TMI 315 - AT - Central Excise

Method of Valuation of goods for finalization of the provisional assessments - cigarettes and Packaging Materials cleared for captive consumption - Revenue's contention is that while computing the cost of production it is not correct to exclude the unabsorbed overheads. HELD THAT - It is observed that whether unabsorbed overheads are includable in the cost of production or not is a legal principle that is to be decided by an expert. In this case, for the purpose of arriving at the cost of production, Cost Audit under Section 14 A of the Central Excise Act, 1944 by an independent Cost Accountant was ordered by the Chief Commissioner. In addition to this, the Chief Commissioner, Central Excise, Ranchi Zone, Patna has also constituted a special team to finalize the provisional assessment. On 14.11.07, the special team submitted their report. Though they were not professionally qualified to study the issue and submit a report, a sincere effort has been made to adopt the broad principles of CAS-4 to arrive at the cost of production. It was also observed by the special team that the cost incurred against the expenditure under unabsorbed overheads has not been considered while calculating the cost of production. It is observed that when the Special team submitted their report and made an observation regarding non-inclusion of certain elements in cost of production as per CAS-4 principles, the Appellant submitted the clarifications/explanation wherein they categorically stated that the cost of production has been arrived at as per the principles adopted in CAS- 4 - There is nothing on record to Show that there were any deficiencies in the Report of the Special Audit Team. Neither the Authority who constituted the Special Audit Team nor the Reviewing Commissioner has expressed any lacunae in the Report. The Lower authority has gone by the Report and finalized the pending Provisional Assessments - the Deputy Commissioner has finalized the provisional assessments by adopting the principles of CAS-4 to arrive at the cost of production and the assessable value for the purpose of payment of duty has been correctly determined in the Order-in-Original dated 12.12.2007. The method of valuation adopted by the adjudicating authority is as per the principles enshrined in CAS-4 and it does not warrant any intervention - Matter remanded for fresh adjudication for determining the valuation issue afresh - appeal allowed by way of remand.

Summary

Issues Involved:
1. Method of Valuation for Finalization of Provisional Assessments
2. Eligibility of Modvat Credit

Summary:

1. Method of Valuation for Finalization of Provisional Assessments:

The core dispute in this appeal revolves around the method of valuation adopted by the Deputy Commissioner for finalizing the provisional assessments for the period 1982-83 to 2004-05. The Deputy Commissioner determined a differential duty of Rs.3,99,41,490/- based on the cost of production as per CAS-4 principles, adding 10% to the cost of production. However, the Appellant did not contest the additional 15% notional cost added for the period 2000-2003. The Revenue challenged this valuation method, arguing that unabsorbed overheads were not included in the cost of production, contending that it is incorrect to exclude such overheads.

The Commissioner (Appeals) agreed with the Revenue, noting that both the Special Audit Team and the Lower Adjudicator failed to provide a detailed analysis of the accounting figures and compliance with CAS-4 norms. Consequently, the Commissioner (Appeals) remanded the matter for fresh adjudication, directing the assessee to furnish detailed compliance with CAS-4 and CAS-2 norms.

The Appellant argued that unabsorbed overheads, representing idle machine time, should not be included in the cost of production as per CAS-4 standards. They contended that the Deputy Commissioner had thoroughly examined the cost figures and made a conscious decision to exclude unabsorbed overheads. The Appellant further argued that the Commissioner (Appeals) failed to appreciate the thorough scrutiny by the Department's Special Team and the independent Cost Accountant, and that the remand order disregarded the extensive efforts made by both parties.

Upon review, the Tribunal observed that the Deputy Commissioner had followed CAS-4 principles and that the Special Team's report, although not professionally qualified, made a sincere effort to adopt these principles. The Tribunal found no evidence supporting the Revenue's contention that unabsorbed overheads should be included. Consequently, the Tribunal held that the Deputy Commissioner correctly finalized the provisional assessments as per CAS-4 principles and set aside the Commissioner (Appeals)'s order remanding the matter for fresh adjudication.

2. Eligibility of Modvat Credit:

The Commissioner (Appeals) allowed the Modvat credit to the Appellant, and this aspect of the order was not disputed. The Tribunal upheld the impugned order regarding the allowance of Modvat credit.

Conclusion:

The Tribunal upheld the method of valuation adopted by the adjudicating authority in finalizing the provisional assessments and set aside the Commissioner (Appeals)'s order remanding the valuation matter for fresh adjudication. The appeal was disposed of on these terms, and the allowance of Modvat credit was upheld.