Valuation of intermediate products used for captive consumption - Frequency or periodicity of costing in terms of CAS-4

[CA Surender Gupta]

In the present case, there is no sale of iron ore concentrate by the appellant and clearance to sister unit for further use is subjected to excise duty and valuation for such duty has to be worked out in terms of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The central point of dispute is the frequency or periodicity of costing in terms of CAS-4.

Point of difference:

-     Manufacturer followed different value during the same financial year based on revision of costing within the year more than once.

-     Revenue contended that the costing should be annual basis and, hence, during whichever month the value happens to be less than the average annual cost, duty was confirmed.

Who is correct?

Institute of Cost & Works Accountants of India (ICAI) has issued guidelines on CAS-4 as:-

The guidelines states that the frequency of revising the certificate of cost of production will depend upon the significance in the changes in the cost due to various factors like input cost fluctuations, changes in the employee cost and other expenses. It further notes that where goods are cleared on cost of production worked out as per the audited accounts of the previous audited period, it is advisable to prepare a fresh certificate of cost of production based on the audited accounts of the period for which the goods are cleared and the differential duty is paid or taken credit of as the case may be. In such circumstances, it is advisable to compute the actual material cost as per the issue valuation adopted by the assessee for material issues. Further, in the FAQ on CAS-4 the ICAI clarified that cost determination of a product is always for a period and computed on the basis of actual accounts of the company. The costs so determined should be actual cost reconciled with the audited accounts of the company after the accounts for the period is audited.

Accordingly tribunal [2016 (9) TMI 1175 - CESTAT NEW DELHI] observed that:

On perusal of the guidelines by the ICAI, we find while arriving at costing based on CAS-4 the correct method will be to determine the same based on actual audited data as per the account year of the company. To that extend we find the CAS-4 cost price arrived at on annual basis by the Revenue is correct procedure.

See:- M/s Essar Steel India Limited Versus CCE, Raipur - 2016 (9) TMI 1175 - CESTAT NEW DELHI

Other cases involving the issue of Valuation as per CAS-4 on annual bases and raising demand of duty or claiming refund of excess paid duty are:

M/s. Godrej Consumer Products Ltd. Versus CCE &ST, Indore [2015 (2) TMI 1075 - CESTAT NEW DELHI]

Commissioner of Central Excise, Goa Versus Finolex Cables Ltd. [2015 (2) TMI 792 - CESTAT MUMBAI]

M/s INTERFIT INDIA LTD Versus COMMISSIONER OF CENTRAL EXCISE [2014 (2) TMI 969 - CESTAT CHENNAI]

Discussions to this article

[Ganeshan Kalyani]

Nice article sir.

Sir when the provision is clear in view of ICWAI guidance, then the same should be followed l.

[Allada Ravindra Babu]

Dear Sir,

The annual average value is always less than the provisional value adopted by the most of the industries.

In this case one more issue has also decided by the CESTAT, about the quantification of differential duty. The Department has arrived at cost on annual average basis. However, duty already discharged for the entire year has not been considered for arriving at overall short payment. Selectively applying the said cost price only for months when the clearances were below such cost price is not legally sustainable. Resulting into excess payment of duty as compared to annual average cost price by the assesse.

[YAGAY AND SUN]

nice interpretation in lucid language.

[Himansu Sha]

It should be quarterly, somewhere the clarifications issued