2018 (6) TMI 175 - AT - Central Excise

Valuation - apportionment/amortization of costs - apportioning the cost of patterns to assessable value of castings made from patterns - captive consumption of tools for which tooling costs received - CBEC in Circular dt. 23.01.1996 - Department alleged that the element of cost of tooling had not been included and apportioned in the assessable value of their final products - Held that - The issue of apportioning the cost of patterns to assessable value of castings made from patterns was considered by CBEC in Circular dt. 23.01.1996, where it was laid down that the proportionate cost of pattern has to be included in the assessable value of the casting even in cases, where such patterns are being supplied by the buyers of the casting or are got prepared/manufactured by the job workers at the cost of the buyer. The issue of apportionment of the cost of moulds and dies, where the use of moulds and dies is spread over long period was dealt by this Tribunal in the case of Flex Industries Ltd. 1997 (1) TMI 173 - CEGAT, NEW DELHI , wherein this Tribunal after considering the aforesaid Board s Circular dt. 23.01.1996 has held that the conclusion arrived at by the lower authorities that entire value of the cylinders is to be added to the value of printed pouches manufactured during the relevant period without reference to the expected life and capability of the cylinders has to be set aside and the matter has to be considered afresh by the respective adjudicating authorities. There is an element of surmise or presumption in the order of the Commissioner (Appeals), wherein he says that even they have not paid 50% of the duty in the above period of six years and on that basis, without testing the assertions made by appellants in their submissions and documentation before him, concludes that amortization was done incorrectly - the stand of the Commissioner (Appeals) that the appellants should have amortized the entire cost of tools by taking into account the ordered quantity of the goods appears to be fallacious. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Duty demand on tooling cost not included in assessable value of final products
- Correct calculation of amortization of tooling cost
- Applicability of Board Circular on apportioning cost
- Competency of Chartered Engineer's opinion vs. Cost Accountant's certificate

Analysis:
- The case involved an appeal against a duty demand on tooling cost not included in the assessable value of final products manufactured by the appellants. The Department alleged a violation of Section 4 of the Central Excise Act, 1944, for not including the cost of tools in the assessable value. The initial order confirmed the duty demand and imposed penalties, leading to an appeal by the appellants against the Order-in-Original.
- The main contention revolved around the correct calculation of amortization of the tooling cost. The appellants argued that they followed a formula based on the expected life span of tools, as laid down in a previous Tribunal judgment. They presented calculations and invoices to support their method, emphasizing the role of a Chartered Engineer in determining the tools' life span.
- The issue of apportioning the cost of patterns and molds to assessable value was addressed through a Board Circular and a Tribunal judgment. The Circular emphasized the inclusion of pattern cost in casting assessable value, with a requirement for a Cost Accountant's certificate. The Tribunal judgment discussed the apportionment of cylinder cost in manufacturing printed pouches over a period, emphasizing a realistic estimate of the expected life and capability of the tools.
- The competency of a Chartered Engineer's opinion versus a Cost Accountant's certificate was raised during the proceedings. While the appellants relied on the Chartered Engineer's expertise for determining tool life span, the Revenue argued for adherence to the Board Circular requiring a certificate from a Cost Accountant. Relevant case laws were cited by both sides to support their arguments.

In the final decision, the Tribunal found in favor of the appellants, allowing their appeal. The Tribunal concluded that the appellants correctly followed the formula for amortization as per the previous judgment, rejecting the Commissioner (Appeals)'s stance on amortizing the entire tool cost based on ordered quantity. The Tribunal also distinguished the applicability of cited case laws, stating that the judgment of Blue Stampings & Forgings Ltd. was not relevant to the case, and the Mutual Industries Ltd. decision did not address the specific issue at hand. Ultimately, the Tribunal set aside the Commissioner (Appeals)'s order, emphasizing the correctness of the appellants' approach in calculating the tooling cost per unit.