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TMI Blog2023 (6) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant is to be considered - it is thus opined that this issue of material transfer of Rs.14438300/- requires to be remanded to the adjudicating authority. Deferred Revenue Expenses - HELD THAT:- On perusal of OIO for the year 2014-2015, it is seen that the appellant had furnished documents which were scrutinized and the demand was dropped by adjudicating authority in de novo proceedings. The appellant has to therefore produce documents to reconcile the demand on such expenses - this issue for the period 2008-2013, 2013-14 and 2015-16 (except 2014-15) has to be remanded to the adjudicating authority for de novo consideration. Administrative Overheads - HELD THAT:- It has to be understood that credit is availed on the basis of the law contained in CCR 2004. If the activity falls within the definition of input services , the manufacturer will be eligible to avail credit. Repair and Maintenance of office works, courier services, marketing and promotion services etc. are eligible for credit. However, para 5.7 of CAS-4 states that expenses in the nature of marketing and corporate office expenses are not to be included. This means that expenses under administrative overheads wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment.They had deviated from filing CAS-4 statements and had adopted their own method contending that the filing of CAS-4 would be humungous due to volume of materials, clearances involved. We are not therefore able to persuade ourselves to hold that the SCNs are time barred. The issue in regard to demand, interest and penalty raised in respect of Material Transfer Expenses and Deferred Revenue Expenses is remanded to the adjudicating authority for de novo consideration - The demand in respect of Machine Shop Expenses, Notional Power Cost Expenses, Administrative Overheads and Abnormal Idle Capacity is set aside. The impugned orders are modified accordingly. Appeal disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... duction except material transfer, as there was no such expenses incurred in these years. The adjudicating authority confirmed the demands for the period 2013-14 and 2014-15 along with interest and imposed penalty. For the period 2015-16, the adjudicating authority dropped the demand on machine shop expenses and notional power cost expenses by relying on the order passed by Commissioner (Appeals) vide OIA dt. 09.10.2017 for the year 2013-14 in the appellant's own case. The demand in respect of other heads were confirmed with interest and penalties. Aggrieved by such orders of confirmation of demands the appellant is now before the Tribunal. 8. The Ld. Consultant Sri M. Saravanan appeared and argued for the appellant. The details of the appeal discussed in this order are furnished as under : E/41271/2105 [1] E/40083/2018 [2] E/42215/2018 [3] E/40646/2019 [4] S. N o. Particulars 2008-2013 2013-2014 2014-2015 2015-2016 1 Show Cause Notice No. / Statement of Demand No and date SCN 13/2014 Dated 27.08.2014 SOD 20/2015 dated 03.11.2015 SOD 05/2016 dated 27.10.2016 SOD 02/2017 dated 14.11.2017 2 Order-in-Original No. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,16,256 6 Abnormal Ideal Capacity cost 2,71,38,816 58,57,869 50,50,180 34,24,820 Total 5,05,59,795 81,13,199 58,31,760 88,08,815 9. The Ld. Consultant submitted that the appellant is the Foundry Division and the rough castings manufactured by them are transferred to their own sister units, on payment of duty, for manufacture of finished products. The appellant adopted assessable value based on the cost of production, which is disputed by the department. The appellant's claim of exclusion of certain expenses to arrive at the cost of production has been rejected by the department. Thus, it is alleged that there is short payment of duty. 10. It is submitted by the Ld. Consultant that with regard to the first and second issue, Machine shop expenses and Notional power cost price expenses, the Commissioner (Appeals) set aside the demand for the year 2013-14 and held that these expenses are not to be included in the cost of production. Further for the period 2014-15, also the Commissioner (Appeals) vide OIA dt. 28.05.2018 has set aside the demands on these two heads. Again for the period 2014-15, the adjudicating authority itself has dropped the demand relying upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portioned over a period of 10 years. In other words, the expenses are to be deferred over a period of 10 years and in each year only the proportionate amount has to be added to the cost. So every year, the deferred amount of each year @ 10% for the period 2008-2009 was added. It is submitted that the adjudicating authority vide OIO dt. 28.02.2002 has correctly analyzed the issue, appreciated the contentions of the appellant and dropped the demand for the period 2014-2015. The Ld. Consultant prayed that the demand for other periods in respect of deferred revenue may be set aside. 13. The demand raised in respect of 'administrative overheads' was countered by the Ld. Consultant by referring to the discussion made by the Commissioner (Appeals) in para 20.3.1 of OIA dt. 09.10.2017. The appellant has explained before the authorities that these expenses are incurred for non-manufacturing activities and therefore are not includable in the cost of production. It is submitted that expenses in the nature of printing and stationary, postage, telegram and telephone, travelling expenses and maintenance of vehicles, licence and taxes, legal and professional charges, security expenses fall unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgments in the case of ITC Ltd. Vs CCE Chennai - 2015 (315) ELT 143 (Tri.-Chennai) to argue that abnormal idle capacity due to lack of orders also is not includable in the cost of production. 15. The Ld. Consultant submitted that the entire issue is revenue neutral. The demand is on account of valuation of goods that are transferred to their sister units. The duty paid by appellant would be eligible for credit for their sister units. In the case of Aglo French Textiles Vs CCE Puducherry - 2018 (360) ELT 1016 (Tri.-Chennai) the Tribunal set aside the demand on the ground of being revenue neutral. This decision was upheld by Apex Court as reported in 2018 (360) ELT A301 (SC). The decision in the case of Hyundai Motor India Ltd. Vs CCE & ST, LTU, Chennai - 2019 (29) GSTL 453 (Tri.-Chennai) was also relied. The said decision has also been upheld by the Apex Court as reported in 2020 (32) GSTL J154 (SC). 16. The Ld. Consultant has put forward arguments on the ground of limitation. The following table was furnished to argue that the entire demand is raised invoking the extended period of limitation : Sl.No Year Return Due date One year time limit SCN Date 1 2008-09 10.4.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " in clause (a) and (b) of sub rule (2) of Rule 12, the word "Annual Return" was substituted. Hence it is clear that during the period of dispute ER4 is not a return as held by the lower authorities as it is only an Annual Financial Information Statement. Therefore, the due date for filing the ER4 cannot be taken for the purpose of computing period of limitation. 17.4 As per sub-rule (3) of Rule 12, proper officer on the basis of information contained in the return filed by the assessee under sub-rule (1) and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee on the goods removed, in the manner to be prescribed by the Board. Sub-rule (1) prescribes for filing of monthly Return [ER1] on the goods removed. This return is to be filed within 10 days after the close of the month. Therefore, date of filing ER1 return is to be taken for computing the period of limitation and not ER4 as held by the lower authorities. 17.5 There is no evidence put forward by the department that there was any positive act on the part of the assessee to suppress facts with intent to evade payment of duty. All the SCNs were issued beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period 2008-2013 in E/41271/2015 on Machine Shop expenses and Notional power cost requires to be set aside, which we hereby do. 23. Material transfer expenses : The demand has been confirmed for the period 2008-2009 (E/41271/2015). It is submitted by the Ld. Consultant that this issue pertains to only the above period and thereafter the issue has not been raised in subsequent SCNs. In the SCN dt. 27.08.2014 pertaining to the period 2008-2013 the allegation raised is as under: Scrap & Wastes Expenses 2008-09 2009-10 2011-12 2013-14 2014-15 Waste & Scrap 15509313 1148154 549569 1877670 2388433 Material transfer 14438300 0 0 0 0 It is noted in the SCN, that the appellant has not produced any document to establish that the expenses need not be included in the cost of production. It is also stated that such material transfer is not reflected in P&L account of the year 2008-09. From the above table, it can be seen that the issue of noninclusion of material transfer expenses pertains to a single financial year (2008-09). 24. The Ld. Consultant has explained that the cost of raw material has been included in the cost of production. Part of the raw material was clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records and the reconciliation statement submitted to the department along with CAS4." 25.2 The observation of the adjudicating authority who dropped the demand for the year 2014-15 vide OIO No.3/2022 dt. 28.02.2022 is as under : "10. The issue involved is that during 2014-15, on comparing the P&L account with that of CAS 4 statement, 'the assessees' had not included inter-alia, Rs.79,96,539/- being the Deferred Revenue Expenses, in the CAS 4 while computing the cost of production. It appeared that this has resulted in contravention of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 and resultant short payment of duty. These deferred revenue expense were incurred towards purchase of spares / components of machinery during their maintenance. It is the contention of 'the assessees' that as per the Accounting Standards issued by the Chartered Accountants of India, replacement of parts and accessories of the capital goods is treated as revenue expenses and as such, it is shown as an expanse in their P&L account; however as per the Cost Accounting Standards they are treated as deferred revenue expenses; as the spares / components have a life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.79,96,539/-, that is Rs.7,99,654/- is already included in the cumulative depreciation of Rs.99,18,014/-. Further, the fact of inclusion of the said Rs.99,18,014/- in the cost of production for the year 2014-15 is specifically acknowledged in Annexure I to the SOD itself, by way of reduction from the expenses which were not included in the cost of production. In view of the foregoing facts, I hold that the assessees have already included the depreciation on the deferred revenue expenditure of Rs.79,96,539/- amounting to Rs.7,99,654/- in the cost of production for 2014-15 and as such the demand of duty on the deferred revenue expenses of Rs.79,96,539/- does not survive. 15. Further, the assessees have repeatedly argued that the Department have demanded duty without taking into account the inclusion of cumulative depreciation of Rs.99,18,014/- in the cost of production for the year 2014-15. As this is the SOD under consideration, I refer to the Show Cause Notice Sl.No.13/2014 (Commr) dated 27.08.2014. The Show Cause Notice covered the period from 2008-09 to 2012-13. From Annexure I and Annexure II thereto, I find that the Show Cause Notice was issued inter-alia, only for non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t part of the SCN would make it more clear : Expenses- Item 2008-09 2009-10 2010-11 2011-12 2012-13 Deferred Revenue Exp. - Maintenance 17985794 5240619 13323380 16668958 10885814 Less: Depreciation on Deferred Rev. Exp. -1798579 -2322641 -3654979 -5287710 -6643500 Net Expenses 16187215 2917978 9668401 11381248 4242314 The contention of the appellant that duty on the entire deferred revenue expenses has been proposed and confirmed is factually wrong. Indeed, in the SCN issued for the year 2014-2015 the demand was wrongly raised which has been set aside by the adjudicating authority as stated above. For the year 2015-2016 also, the demand has been confirmed observing that the appellant has not furnished documents for reconciliation of the depreciation on deferred revenue expenses. 25.5 On perusal of OIO for the year 2014-2015, it is seen that the appellant had furnished documents which were scrutinized and the demand was dropped by adjudicating authority in de novo proceedings. The appellant has to therefore produce documents to reconcile the demand on such expenses. We therefore are of the view that this issue for the period 2008-2013, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are of the considered view that the demand raised by including the administrative overheads in the assessable value cannot sustain and requires to be set aside, which we hereby do. 28. Abnormal Idle Capacity Para 5.17 of CAS-4 deals with Abnormal Idle Capacity which reads as under: "Abnormal and non-recurring cost arising due to unusual or unexpected occurrence of events, such as heavy breakdown of plants, accidents, market condition restricting sales below normal level, abnormal idle capacity, abnormal process loss, abnormal scrap and wastage, payments like VRS, retrenchment compensation, lay off wages etc. The abnormal cost shall not form part of the cost of production." Chapter 6 of GACAP defines - "Abnormal Idle Capacity' is the difference between Practical Capacity and Normal Capacity or Actual Capacity Utilization whichever is higher" 'Practical or Achievable Capacity' is the maximum productive capacity of a plant reduced by the predictable and unavoidable factors of interruption pertaining to internal causes." 'Normal Capacity' is the production achieved or achievable on an average over a number of periods or seasons under normal circumstances taking into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the appellant. We have already held that the "abnormal idle capacity" would cover external factors including lack of orders. So the finding of the adjudicating authority that the appellant have not proved the idle capacity as arising due to any abnormal reason is not sustainable. Accordingly, the unabsorbed overheads referable to abnormal idle capacity for lack of order shall not form part of the cost of production and the demand of duty is not sustainable." 30. The table furnished by the appellant establishes that the actual production during the disputed period is much less than the capacity. It is also seen that for a few months the unit was closed. The authorities below have not considered these facts. After appreciating the provisions of CAS-4 as well as decision in ITC Ltd. (supra), we are of the view that the abnormal idle capacity claimed by the appellant has to be considered. We hold that the demand raised by not considering the claim of abnormal idle capacity cannot sustain and requires to be set aside, which we hereby do. 31. The Ld. Consultant has put forward arguments alleging that special audit was conducted without any authority. As per Section 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant was directed to file CAS-4 with the Department to verify the correctness of the value adopted in respect of goods cleared to their sister unit on stock transfer basis. However, the appellant had claimed that they would follow dynamic costing on the lines of CAS-4. It was in this background that Dy. Director (Cost) of the Department was deputed to verify the correctness of the value adopted with reference to CAS-4. So the contention of the appellant that there is violation of principles of natural justice is without basis. 35. Further, in the letter dated July 21, 2009 issued to the Superintendent of Central Excise (Audit), Coimbatore, the appellant has stated as under : "You have enquired us about submission of CAS4 statement for the goods cleared by us to our own units. You have also informed us that cost construction is to be done strictly in accordance with CAS4. In this regard we would like to inform you that a similar issue was raised earlier and we have given a reply clarifying our stand. Please note we have got advanced system of cost management and methods. In fact, we have been awarded No.1 unit in India with regard to cost management by the Ministry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is no revenue loss in future clearances made by the appellant to the sister units and so the argument of revenue neutrality cannot be accepted on the basis of the facts of this case. 37. Ld. Consultant has argued on the ground of limitation also. We have decided to remand the matter in respect of issue on (1) Material Transfer Expenses (2) Deferred Revenue Expenses to the adjudicating authority for de novo consideration. The other issues addressed in these appeals have been held in favour of the appellant. The issue with regard to Material Transfer Expenses and Deferred Revenue Expenses involve verification of list of the items that have been transferred to the sister unit and reconciliation of accounts (DFE). This itself shows that the appellant has not furnished full details to the department. They had deviated from filing CAS-4 statements and had adopted their own method contending that the filing of CAS-4 would be humungous due to volume of materials, clearances involved. We are not therefore able to persuade ourselves to hold that the SCNs are time barred. 38. From the foregoing, we order the following : (1) The issue in regard to demand, interest and penalty rais ..... X X X X Extracts X X X X X X X X Extracts X X X X
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