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TMI Blog2016 (4) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of captively consumed goods. Loading of a percentage of the cost of production (mandated by Rule 8 of the Valuation Rules) is clearly not a requirement of CAS -4. The cost of production must therefore be computed strictly and invariably only under CAS -4. On the aforesaid analyses, we are compelled to the conclusion that in determining the cost of production of packaging material, the cost of paper and paper board (the raw material procured from the Bhadrachalam unit of the appellant for captive consumption at the Chennai unit) must be taken as the actual cost of production determined in terms of CAS -4 and as set out in Appendix-I of the said standard; and would not include loading of the notional amount, of 15%/10% to the cost of production of the raw material, which loading is solely pursuant to mandate of Rule 8 of the Valuation Rules and for remittance of excise duty by the Bhadrachalam unit. This loading would not constitute the procurement cost of the raw material manufactured by the Bhadrachalam unit, for the Chennai unit, which used these goods for manufacture of the packaging material. In the case of Inter-unit transfer of goods for captive consumption, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the another unit (who used the goods in the manufacture of another article) for the purpose of determining value under Rule 8 of Valuation Rules and CAS -4 issued by ICWAI , for transferring the goods to their other unit for further use. (ii) Whether the decision of Chennai Bench in the case of CCE Vs Eveready Industries Ltd. - 2011 (274) ELT 564 (OR) the decision of Mumbai Bench in the case of Tata Iron and Steel Co. Ltd. Vs CCE - 2013-TIOL-770 (It should be : Editor) had enunciated the correct position of law on the above issue. 2. The appellant is M/ s.I.T.C Ltd. (Packing and Printing Division), Chennai, a unit of M/ s.I.T.C . Ltd. The appellant is engaged in the manufacture of packaging material, The substantive raw material for manufacture of the appellant's goods is paper and paper board. This raw material is procured from appellant's other unit - M/ s.Bhadrachalam Paper and Paper Board Unit, Andhra Pradesh. 2.1 The Bhadrachalam unit stood merged with the corporate entity M/ s.I.T.C - Ltd. w.e.f . 1.4.2001. The transactions in issue are post-merger. 2.2 Bhadrachalam unit of ITC Ltd. supplied paper and paper board to the appellant for captive cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire value (115% or 110%) of the cost of production of the supplied raw material, incurred by the Bhadrachalam unit must be taken into account for arriving at the cost of raw material of the appellant (or) whether the cost of appellant's production of such raw material must be reckoned as only the cost of production thereof at the Bhadrachalam unit i.e. excluding the notional loading of 15%/10%, as claimed by the appellant; (c) Whether certain overheads escaped inclusion in the appellant's cost of production; and (d) Whether the extended period of limitation under the proviso to Section 11A (1) of the Act should be invoked and there was no revenue-neutrality involved in the transaction. 2.8 On issues (a) and (c), the learned Division Bench held in favour of the appellant/assessee On issue (a), the order concluded that the value of IDSC / ICNC debit notes is merely notional in nature and cannot be considered as cost of the raw material for the purpose of determining the value under Rule 8 of the Valuation Rules for captive consumption. On issue (c), it held that the finding of the adjudicating authority (that the appellant failed to establish that the idle cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f production. There is no sale and only the total amount has been remitted by them to Unit -II by way of issuing debit notes solely for accounting purposes. He relied on the following decisions:- (1) Final Order No. 542/2010 dt. 11.5.2010 (unreported) in the case of CCE Vs Eveready Industries India Ltd. (2) CCE Chennai Vs Eveready Industries (I) Ltd. - 2011 (274) ELT 564 (Tri-Chennai) (3) CCE Pune Vs Dai Ichi Karkaria Ltd . - 1999(112) ELT 353 (SC) (4) Union Carbide India Ltd, Vs CCE Calcutta 2003 (158) ELT 15 (SC) 2.10 Shri Raghavan Ramabadran , Advocate representing the Bar as intervener submitted his written submissions, a paper book of citations and reiterated the same contentions. He drew our attention to Rule 9 and urged that under the provision every person having one or more premises shall register with Central Excise. He submits that the entity is only one i.e. ITC Ltd. For the purpose of central excise, Unit I and Unit II have taken registration as per Rule 9 of C.E.R . In this regard, he relied on the following decisions:- (1) U.P . State Cement Corporation Ltd, Vs CSV -(pages 131 to 133) (2) Challapalli Sugars Ltd. And Others Vs CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that Rules should be interpreted in a homogenous manner and that not adopting this procurement price as the cost of procurement of the raw material will lead to an anomaly. He particularly relied the following decisions:- (1) Oswal Agro Mills Ltd. Vs CCE 1993 (66) ELT 37(SC) (2) Balwant Singh Vs Jagdish Singh 2010 (262) ELT 50 (SC) (3) Eicher Motors Ltd. Vs CCE Indore 2008 (228) ELT 43 ( Tri.- LB ) 4. We have heard the respective parties and the counsel appearing on behalf of the Bar and have carefully considered the submissions and have perused the records. 4.1. Reference of the singular issue for resolution by the Larger Bench is occasioned (as per the order of reference) due to the conflict between two Division Bench decisions of the Tribunal. We shall deal with these conflicting rationes during the course of analyses of the issue referred for our consideration. 4.2. On the admitted factual scenario, raw material such as paper and paper board manufactured by assessee's Bhadrachalam unit is stock transferred to the assessee's Chennai unit and this raw material forms a substantive component of the input for the Chennai unit's manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es but are used for consumption by him or on his behalf in the production or manufacture of other articles, live value shall be one hundred and ten per cent (one hundred and fifteen percent, upto 04.08.2003 of the cost of production or manufacture of such goods. 5. Board Circular No.692 /08/2003-CX dated: 13.2.2003 issued clarification on the valuation of goods captively consumed. This clarification noticed that ICWAI , subsequent to its previous circular dt. 30.6.2000, had developed Cost Accounting Standards ( CAS ) Nos.2 , 3 and 4 of capacity determination, overheads and cost of production for captive consumption respectively. The Board's circular dt. 13.2.2003 therefore clarified that cost of production of captively consumed goods will hence forth be done strictly in accordance with CAS -4. 6. CAS -4 sets out Cost Accounting Standards for the cost of production for captive consumption. To the extent relevant and material for the purposes of our primary analysis of the scope of Rule 8 of the Valuation Rules and in the context of the Board circular (supra), suffice it to note that CAS -4 was developed to bring about uniformity in principles and methods used for determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of such self manufactured items shall be considered as material cost for the subsequent product, after considering inward freight, octroi , etc., as applicable. Intermediate products/goods transferred by another unit of the same manufacturer etc. shall be based on cost of production as per CAS -4 8. Since Bhadrachalam unit of ITC Ltd. was not selling raw material but was captively consuming these goods at its Chennai unit. Section 4 (1) (b) of the Act and Rule 8 of the Valuation Rules becomes applicable, as already considered. In view of mandate of Rule 8, Bhadrachalam unit was remitting excise duty at the time of clearance of such raw material, at 115% / 110% of the cost of production of such raw material. Until 4.8.2003, Rule 8 required value of such goods to be reckoned as 115% of the cost of production and since 5.8.2003 at 110% of such cost for remittance of excise duty. The Bhadrachalam unit was remitting excise duty accordingly and undisputedly. 9. The issue is whether the cost of production of the goods -the packaging material that is manufactured by the Chennai unit of the appellant should be computed at 115%/110% of the cost of production/manufacture of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore the inference is compelling that what is envisaged under the CAS -4 for self-manufactured items is only the material cost and not the notional amount which is not incurred by the appellant. 13. In this regard, the guidance provided by the decision of the Hon'ble Supreme Court in Union Carbide of India Vs CC (supra) is of considerable value. The apex Court has discussed the actual cost with reference to Rule 6 of Valuation Rules and referred to and relied on the earlier decision in CCE Vs Dai Ichi Karkaria Ltd . (supra). The relevant paragraphs are reproduced as under:- 6. We are of the opinion that some meaning must be given to the phrase 'cost of production' in the said sub-rule. Had actual cost not been a factor to be taken into consideration for determining the value of the excisable goods, the sub-rule could have merely stated that the value would be determined on the price which the excisable commodity would fetch had it been sold. 7. In this case, the appellant had already purchased or otherwise procured the inputs for manufacturing the sheets (the excisable goods in question) and had included the cost of the entire amount of granules which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by Government or by any public or local authority, and any allowance in respect of any depreciation carried forward under clause (b) of the proviso to clause (vi) of sub-section (2) shall be deemed to be depreciation 'actually allowed'. It has not been disputed that so far as the question before us is concerned the legal position for determining the actual cost for the purpose of development rebate is the same as for the purpose of depreciation. It would appear from the above that while considering the question of deduction on account of depreciation and development rebate, we have to take into account the written down value. Written down value in its turn depends upon the actual cost of the assets to the assessee. The expression actual cost has not been defined in the Act, and the question which engages our attention is whether the interest paid before the commencement of production on the amount borrowed for the acquisition and installation of the plant and machinery can be considered to be part of the actual cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Chennai Bench in Eveready Industries or to refer the issue to a Larger Bench. The present reference would in the circumstances been avoided. Be that as it may. 16. We shall now consider the divergent views recorded by co-ordinate Division Benches of the CESTAT, one in Revenue's appeal preferred against M/ s.Eveready Industries Ltd. [Final Order No.542 /2010 dt. 11.5.2010] and the decision reported in 2011 (274) ELT 564 (Tri-Chennai). These decisions in identical factual matrices concluded that in captive consumption circumstances the value of goods procured from another unit of the same assessee captively consumed in the second unit and in circumstances where goods manufactured by the second unit are also supplied to a third unit of the same entity for captive consumption at such unit are to be valued for the purpose of remittance of excise duty (on goods manufactured by the second unit) by computing the value of captively consumed raw material at its actual cost of production in the first unit and not at the value of such goods reckoned for remittance of excise duty by the first unit. The decision of the Mumbai Bench in TISCO Ltd. recorded a diametrically a contrary v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(ii) envisages inclusion of notional profit which is not relevant to this case which is covered under Rule 8 of the Valuation Rules, 2000 and the provisions of Rule 6(b)(ii) are not similar to the provisions of Rule 8 of the Valuation Rules as claimed by the appellants. Similarly, the Tribunal's decision in the case of Rajasthan Spinning Weaving Mills v. CCE (supra) cited by the appellants, relates to Rule 6(b)(ii). Similarly, the Hon'ble Supreme Court's decision in the case of HBL Aircraft Batteries v. CCE (supra) relates to valuation relating to contract prices in case of different class of buyers and is not relevant to this case. In the case of Hindustan Polymers v. CCE (supra), the question before the Hon'ble Supreme Court was regarding deduction of packing cost while determining the value and hence the case law is not relevant to the present case. Further in para 6.2, the Tribunal provided the following reasoning: 6.2 As already discussed above, the value of goods cleared for captive consumption would be 115/110% of the cost of production or manufacture of such goods and as per the Board circular dated 13-2-2003, the cost of production of captive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context of those facts that since wire rods are not sold by the Mumbai unit of TISCO but are used for consumption by TISCO (at Borivali ) for production or manufacture of other articles, the value [for remittance of excise duty] shall be 110% (115% during the earlier period upto 4.4.2003) of the cost of production of manufacture of wire rods . Neither textually not on legitimate inferences from the context of Rule 8 does it follow that the value (for remittance of excise duty) on wire rods is mandated to be 110% (or 115%, as the case may be) of value of production or manufacture of such goods. The loading of the specified percentage for the remittance of excise duty is not on the excisable value of the raw material but on the cost of the raw material which goes into the cost of manufacture of wire rods by the second (Mumbai) unit for stock transfer to the third ( Borivelli ) unit of the same entity. This in our respectful view is the fallacy in the reasoning in TISCO judgement. In para 6.2, the conclusion as already discussed above the value of goods cleared for captive consumption would be 115%/110% of the cost of production or manufacture of such goods and as per the Board&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d would not include loading of the notional amount, of 15%/10% to the cost of production of the raw material, which loading is solely pursuant to mandate of Rule 8 of the Valuation Rules and for remittance of excise duty by the Bhadrachalam unit. This loading would not constitute the procurement cost of the raw material manufactured by the Bhadrachalam unit, for the Chennai unit, which used these goods for manufacture of the packaging material. 20. In the fight of our foregoing analyses, discussion and reasons, we answer the reference as under: (a) In the case of Inter-unit transfer of goods for captive consumption, the actual cost of production (100% of the cost of production), of the raw material procured from the Bhadrachalam unit of the appellant [excluding the national loading under Rule 8 - 15%/10%] is the cost of raw material in the hands of the Chennai unit, for determining the cost of production of packaging material manufactured by the Chennai unit. The percentage of loading on such cost of production, mandated by provisions of Rule 8 for remittance of excise duty by the Bhadrachalam unit cannot not however be considered as comprised in the cost of the raw material ..... 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