2024 (3) TMI 554 - AT - Central Excise

Recovery of short paid duty alongwith interest and penalty - clearances effected on clearances of a category between July 2000 and March 2002 and between April 1999 and March 2002 - non-inclusion of royalty and administrative overheads in computation of cost of production computation - alleged misclassification enabling abatement in retail sale price under section 4A of Central Excise Act, 1944 - HELD THAT - It is evident from the submissions of Learned Chartered Accountant that rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2002 is appropriate recourse for valuation of clearances in the impugned circumstances. It is no less apparent that CAS4 is to be the basis of computation for which purpose the insight afforded by the Guidance Notes is adequate justification. That this aspect was not considered by the adjudicating authority at all, insofar as the two additions supra are concerned, is amply evident and, for remedying that want in fresh proceedings, it is necessary that the impugned order be set aside. Appeal allowed by way of remand.

Summary

Issues involved: Dispute over recovery of short-paid duty under section 11A of Central Excise Act, 1944, non-inclusion of 'royalty' and 'administrative overheads' in cost of production computation, misclassification enabling abatement in 'retail sale price' under section 4A, irregular availment of CENVAT credit.

Summary:

Recovery of Short-Paid Duty:
The dispute arose from a show cause notice issued to a company for recovery of short-paid duty under section 11A of Central Excise Act, 1944. The amount in question was reduced after adjudication to &8377; 66,37,251, with additional penalties and interest imposed under relevant sections of the Act.

Cost of Production Dispute:
The appellant's manufacturing units were involved in producing downstream hydrocarbon products, including lubricating oil. The valuation of goods was disputed due to the non-inclusion of 'royalty' and 'administrative overheads' in the cost of production, as required by rule 8 of Central Excise Valuation Rules.

Inclusion of Royalty:
The appellant argued that 'royalty' paid to distributors should not be included in the cost of production as it only becomes payable upon sale in the market, not before further manufacturing processes. Reference was made to CAS4 Guidance Note and a previous Tribunal decision to support this argument.

Administrative Overheads Dispute:
The inclusion of 'administrative overheads' such as 'house rent allowance' and 'staff welfare expense' was challenged on the grounds that there must be a nexus with production, as per CAS4 principles. Procedural issues were also raised by the appellant.

Judgment:
The Tribunal found that the valuation should be based on rule 8 of Central Excise Valuation Rules and CAS4 principles. The adjudicating authority had not considered these aspects properly, leading to the order being set aside for fresh proceedings.

Conclusion:
The appeal was allowed by way of remand to the original authority for reevaluation based on proper valuation rules and principles.

(Order pronounced in the open court on 12/03/2024)