2001 (7) TMI 169 - AT - Central Excise

Summary

Issues:
Determining assessable value of excisable goods captively consumed by M/s. Eicher Tractors.

Analysis:
The appeals filed by M/s. Eicher Tractors involved the determination of the assessable value of excisable goods captively consumed by them. The appellants manufacture I.C. Engines transferred to another factory for use in agricultural tractors. The Commissioner finalized assessments based on Cost Certificate and profits from tractor sales. Subsequently, show cause notices were issued for demanding duty on the grounds of excluding selling and distribution expenses from the cost of manufacture. The Tribunal's decision in C.C.E., Madras v. Lucas TVS Ltd. emphasized including various expenses in computing gross profits. The argument was made to adopt profit margins from final products for intermediate goods, citing cases like National Litho Press v. C.C.E., Madurai. It was contended that profit on tractor sales should not influence the assessable value of I.C. engines, as per Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975.

In response, the Revenue argued that selling and distribution expenses should be included in the cost of production to determine the margin of profit consistently. Failure to include these expenses could lead to increased excise duty liability. The Tribunal considered both sides' submissions and noted that the issue was not the computation of the cost of manufacture but the determination of profit margin on tractor sales affecting the assessable value of I.C. Engines. The Tribunal found that the inclusion of freight costs to the nearest market for I.C. Engines was beyond the scope of the show cause notices, as there was no evidence of I.C. Engines being sold at that location.

The Tribunal highlighted that the Revenue's focus on deducting selling and distribution expenses for I.C. Engines overlooked that the appellants were not selling these engines. The margin of profit was based on the final product, agricultural tractors, and was added to determine the assessable value of I.C. Engines. The Tribunal referenced the Lucas TVS Limited case, emphasizing that various expenses contribute to determining gross profit, and a comprehensive view is necessary for profit calculation. The Tribunal also cited cases like Tata Chemicals Ltd. and National Litho Press, where adjustments to profit margins were deemed necessary for intermediary products. Ultimately, the impugned order was set aside, and both appeals were allowed.