CAS-4 apply prospectively and also for the period prior to issue of Board’s Circular

[Rakesh Singh]

Provisions of CAS-4 apply prospectively and also for the period prior to issue of Board’s Circular

CCE Nashik Versus Mahindra & Mahindra Ltd. 2015 (12) TMI 1353 - CESTAT MUMBAI

ISSUES:

1. Inclusion of selling and distribution of expenses and the corporate office expenses during the period October 1997 to June 2000 to clear parts of motor vehicle to their own sister concern;

2. It was the case of the Revenue that respondent should have included the cost of selling and distribution expenses and expenses incurred by the corporate office in the assessable value;

Held:

1. . We find that the issue is no more res integra inasmuch as in the recipient’s own case for the earlier period, this Bench on an appeal filed by Revenue on identical issue, held that the provisions of CAS-4 will apply not only prospectively but also for the period prior to issue of Board’s Circular dated 13.02.2003. We reproduce the relevant paragraphs.

“ The case was adjudicated by the Commissioner of Central Excise, Nasik vide order dated 27.04.06 (referred supra). The learned Commissioner observed that the Institute of Chartered Accountants of India had issued Accounting Standards 2 (AS 2) for the purposes of determination of cost of production in a case of stock transfer of goods. Similarly the Institute of Cost and Works Accountants of India had also issued guidelines (CAS 4) for determination of cost of production wherever the goods are captively consumed are not sold. As per these guidelines, especially CAS-4, can be included in the cost of production is the cost of Material Consumed, Direct Wages and Salaries, Direct Expenses, Works Overheads, Quality Control Cost, Research & Development Cost, Packing cost, and Administrative Overheads relating to production. Administrative Overheads relating to other activities such as marketing, projects management, corporate office expenses etc. cannot be included in the cost of production. The CBEC itself had issued a Circular No. 692/08/2003-CX dated 13.2.2003 wherein they had directed that cost of production of captively consumed goods will henceforth be done strictly in accordance with CAS-4,. On this basis, the learned Commissioner came to the conclusion that Head office administrative expenses, selling and distribution costs, interest etc. are not includable in the assessable value of product used in captive consumption. As regards expenses on account of research and development charges, the same is includable in the cost of production as per the Chartered Accountant Certificate produced by the assessee. The same cost has already been included in the cost of vehicle which is the final product and not included in the cost of individual component. In this view of the matter the Commissioner dropped the demand raised in the show-cause notice and also dropped the charges of penalty and recovery of interest. The department is in appeal before us against that order.

The only argument adduced is that the CBEC Circular dated 13.2.2003 is applicable only prospectively and not retrospectively and prior to 13.2.2003, the cost has to be computed on the basis of Circular dated 13.10.96 and, therefore, head office administrative expenses, interest charges and selling and distribution expenses are includable in the assessable value. In other words what is stated is that CAS-4 provisions will not apply prior to 1.3.2003.”

2. In view of the foregoing, we hold that the impugned order is correct and legal and does not suffer from any infirmity. The appeal is devoid of merits and is rejected. Cross Objection filed by the respondent is also disposed of.

Note by the author:

In this context a clarification was issued by the Chief Commissioner, Chennai, Zone stating that cases which have been finalized prior to 13.2.2003 should not be opened for application of CAS-4. The extracts of the letter is being reproduced below in order to take note of the same:

‘Copy of letter C.No. IV/16/92/2003-Cx.Pol dated 05.09.2003 of this office.

Please refer to the Board’s circular No. 692/8/2003-CX-I (F.No. 6/29/2002- CX-I) dated 13.02.2003 communicating acceptance of cost Accounting Standard-4 (CAS-4) for the purpose of valuation of the excisable goods which are captively consumed under Rule 8 of Central Excise Valuation (Determination of price of Excisable goods) Rules, 2000.

The field formations have raised certain doubts as to whether the above said CAS-4 could be applied to all pending assessments. It is observed from the above cited circular of the Board that the principles of CAS costing are to be adopted w.e.f, 13.2.2003 and therefore the assessments pending finalization on 13.02.2003 will also be covered under CAS-4. Assessments already finalized prior to 13.02.2003 on the basis of Board’s Circular 258/92/96 CX dated 30.10.96 are not required to be reopened. The field officers in this Commissionerates have been advised accordingly. Kindly confirm.’