2019 (5) TMI 576 - AT - Central Excise

Valuation - Cylinder - inclusion of amortization cost in the assessable value - HELD THAT - As per Rule 6 of Central Excise Valuation Rules, since the cylinder was owned by the buyer of the finished goods which were used by the appellant, its amortization cost is to be added in the value of the goods i.e. plastic pouches. As per the facts of the case, Revenue has demanded the duty on the entire value of the cylinder, which is not correct and legal, and only amortised cost of each product is to be added and on that basis first, amortized cost according to the capacity of the cylinder has to be worked out and the said amortised cost can only be added in respect of number of products manufactured and cleared by the appellant. Therefore, the method adopted i.e. demand on the entire value of cylinder is incorrect. For the purpose of amortization cost, Chartered Engineer can certify the capacity of the cylinder and corresponding amortization cost per piece of product. Since the said exercise was not carried out and the demand was confirmed on the basis of value of cylinder, it is not correct and legal. Matter remanded to Adjudicating Authority to decide the matter afresh after ascertaining the correct amortized cost of the cylinder - appeal allowed by way of remand.

Summary

Issues:
- Whether duty is required to be paid on the total value of the cylinder used in the manufacture of plastic pouches.
- Acceptability of the Cost Accountant's certificate justifying the inclusion of amortization cost in the value of the goods.
- Correct method for determining the amortized cost of the cylinder and its impact on duty payment.

Analysis:
The case involved a dispute regarding the duty payment on the total value of cylinders used in the manufacturing process of plastic pouches. The appellant contended that the amortization cost, as justified by a Cost Accountant's certificate, should be considered in the valuation of the goods. The Revenue, however, relied on various judgments to support their claim for duty on the entire value of the cylinder.

Upon careful consideration, the Tribunal referred to Rule 6 of the Central Excise Valuation Rules, highlighting that since the cylinder's ownership remained with the buyer of the finished goods, only the amortized cost should be added to the value of the plastic pouches. The Tribunal emphasized that the demand for duty on the entire value of the cylinder was incorrect and legally flawed. The correct approach required determining the amortized cost per product based on the cylinder's capacity and then adding this cost only for the number of products manufactured and cleared by the appellant.

The Tribunal noted that the Cost Accountant's certificate provided by the appellant was not acceptable as it did not certify the cylinder's capacity, which is crucial for determining the correct amortized cost. It was mentioned that a Chartered Engineer could certify the capacity of the cylinder and the corresponding amortization cost per product. Since this crucial exercise was not conducted, the demand based on the cylinder's value was deemed incorrect and illegal.

Consequently, the Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for a fresh decision after accurately ascertaining the amortized cost of the cylinder. The appeal was allowed on the grounds of remand, emphasizing the importance of determining the correct amortized cost for duty calculation purposes.