2013 (11) TMI 1147 - AT - Central Excise

Printed Cartons and Packing Materials cleared for Captive consumption under Rule 8 of Valuation Rules Waiver of Pre-deposit - Mode of Computation of value - Intermediate products manufactured and transferred the applicant while computing the assessable value considered 100% of the cost of production of Badrachalam Unit and not invoice value, which was 115%/110% of cost of production - Rule 8 of the Valuation Rules, 2000 provides that value is to be determined on the 115%/110% of cost of production and, therefore, 15%/10% is notional margin - the issue is required to be considered on the basis of Rule 8 and in the light of provision of CAS-4, which will be looked into at the time of appeal hearing in detail - the applicant had already paid excess amount against the finalisation of three assessment orders Prima facie, the applicant has made out a case in their favour - Pre-deposit of entire amount of duty along with interest and penalty waived till the disposal of the appeal Stay granted. Debit notes part of Assessable value or not - Held that - There is no sale involved in the transfer of goods to other division of ITC, the valuation would be under Rule 8 of the Valuation Rules, by adopting 115% of cost of production - the amount of Debit Notes would not be included while determining assessable value at Badrachalam Unit - Then, it is difficult to accept that the said amount of Debit Notes would be included in the assessable value of the applicant - Prima facie, there is no reason to include the amount of Debit Note in the assessable value at the hand of the applicant.

Issues Involved:
1. Inclusion of Debit Notes (IDSC & ICNC) in the cost of production as per CAS-4 standards.
2. Exclusion of 15%/10% from the invoice value of the Badrachalam Unit.
3. Demand on unabsorbed overheads not included in the cost of production.
4. Difference in valuation of closing stock due to different accounting methods.

Detailed Analysis:

1. Inclusion of Debit Notes (IDSC & ICNC) in the cost of production as per CAS-4 standards:
The primary issue is whether the Debit Notes raised by the Badrachalam Unit should be included in the cost of production for determining the assessable value. The applicant argued that these Debit Notes, which indicate the difference between the price at which goods were sold to outside customers and the invoice price for inter-unit transfers, are based on notional prices as per Accounting Standard 17 (AS-17) for segment reporting and should not be included in the assessable value. The Commissioner, however, included these Debit Notes in the assessable value, arguing that they reflect actual costs. The Tribunal noted that CAS-4, which is used for determining the cost of production for captive consumption, does not provide for the inclusion of notional amounts from AS-17. The Tribunal found no reason to include the amount of Debit Notes in the assessable value at the applicant's end.

2. Exclusion of 15%/10% from the invoice value of the Badrachalam Unit:
The second issue involves the exclusion of 15%/10% from the invoice value of the Badrachalam Unit while determining the cost of production. The applicant argued that Rule 8 of the Valuation Rules, 2000, which requires the value to be 110% or 115% of the cost of production, implies that the notional margin should be excluded. The Revenue contended that the applicant availed the entire amount of CENVAT credit based on the invoices issued and excluding 15%/10% is contradictory. The Tribunal acknowledged that this issue requires further consideration based on Rule 8 and CAS-4 provisions, and will be examined in detail during the appeal hearing.

3. Demand on unabsorbed overheads not included in the cost of production:
An amount was demanded on unabsorbed overheads, which were not included in the cost of production and treated as abnormal production costs. The Tribunal did not provide a detailed analysis of this issue in the interim order but indicated that it would be considered during the appeal hearing.

4. Difference in valuation of closing stock due to different accounting methods:
A small amount was demanded due to differences in the valuation of closing stock, attributed to the methods used in financial and cost accounting. Again, the Tribunal did not delve deeply into this issue in the interim order but noted that it would be addressed in the detailed appeal hearing.

Conclusion:
The Tribunal found that the applicant made a prima facie case for the waiver of pre-deposit of the entire amount of duty, interest, and penalty, considering that the applicant had already paid an excess amount of Rs.12.24 crores. The appeal was scheduled for an out-of-turn hearing. The Tribunal's analysis emphasized the need to consider the specific provisions of CAS-4 and Rule 8 of the Valuation Rules, 2000, and the distinction between notional and actual costs.

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