2004 (8) TMI 298 - AT - Central Excise

Undervaluation of goods transferred between two units of the same manufacturer - determination of correct duty - inclusion of selling and distribution expenses in assessable value - HELD THAT - Before the lower authority, the appellants had only pleaded that the price was not hypothetical one and was based on the costing of raw materials, labour cost, electricity cost, packing cost etc. and if viewed without loading the overheads factors, it would be very nearer to the calculations as arrived at. We find that the Commissioner in his Order-in-Original has found that BMF-I has not calculated certain components prescribed by the Board and also not filed price declarations. From the order of the Commissioner, it is not possible to us to know whether the cost of production taken by the investigating authority contains administrative overheads in relation to activity other than manufacturing activities like marketing, project management, corporate office expenses, etc. which are required to be excluded as per CAS-4 (Cost Accounting Standard-4). There cannot be sale to self. Therefore selling expenses are to be excluded. The appellants have not shown that how they are concluding that the selling distribution overheads are included in the cost. In the absence of any evidence, it is not possible for us to come to a definite conclusion. We, therefore, remand the case back to the Commissioner to re-calculate the assessable value of the goods as per CAS-4. The appeal is allowed by way of remand.

Summary

Issues involved: Undervaluation of goods transferred between two units of the same manufacturer, determination of correct duty, inclusion of selling and distribution expenses in assessable value.

In the present case, the appellants, a manufacturing company, were transferring goods from one unit to another and were accused of undervaluing the goods transferred, leading to a demand for duty payment. The Commissioner imposed penalties under Section 11AC and Rule 173Q of the Central Excise Rules, 1944.

Undervaluation of goods transferred:
The appellant contended that the goods in question were not marketable and that the transfer to another unit of the same manufacturer should be considered revenue neutral, citing a precedent. They argued that the cost of production should not include selling and distribution expenses, and that the value determined by the Department was incorrect.

Determination of correct duty:
The Revenue argued that the appellants had undervalued the goods and suppressed the correct assessable value to evade duty payment. They referenced legal precedents and asserted that selling and distribution expenses should be included in the assessable value.

Inclusion of selling and distribution expenses:
The Tribunal found that the issue was one of undervaluation rather than excisability, as the goods were being transferred internally. The appellants had not filed price declarations and had undervalued the goods for five years. The Commissioner's order was based on the cost data and Board's Circular, but it was unclear if administrative overheads unrelated to manufacturing activities were included in the cost of production.

In conclusion, the Tribunal remanded the case back to the Commissioner to recalculate the assessable value of the goods in accordance with CAS-4, emphasizing the exclusion of selling and distribution expenses. The appeal was allowed by way of remand.