CX - Valuation - Duty paid on inter-unit transfer of finished goods under Rule 8 by adopting CAS 4 - Demand of duty by including Inter Divisional Service Charges accounted for as per AS 17 is prima facie not sustainable – Stay granted: CESTAT
By TIOL Nes Service
CHENNAI, OCT 29, 2013: THE assessee is engaged in manufacture of Printed Cartons and other packing materials and is receiving paper and paper board from their Bhadrachalam Unit. The assessee is clearing the printed cartons and other packing material to their other units for captive consumption. Thus, the duty is paid by the Bhadrachalam unit under Rule 8 by adopting CAS 4 and the assessee is also paying duty under Rule 8. The dispute is regarding the valuation of Printed Cartons.
The Bhadrachalam Unit of the assessee has been raising debit notes on the assessee for “Inter Divisional Service Charges”, being the difference between the market price at which the goods are sold to outside customers and the invoice price adopted for transfer of the goods. This is done for valuing the operational efficiency of that Unit for complying with the "segment reporting" in terms of AS-17. There is a demand of differential duty on account of these Inter Divisional Service Charges.
Further, differential duty was also demanded by including the 15% / 10% notional margin added by the Bhadrachalam unit by adopting the cost of paper and paper board as 115% / 110% in the hands of the assessee.
The assessee contended that the Badrachalam Unit raised Debit Notes in the name of Inter Divisional Service Charges [IDSC] or Intra Company Notional Charges [ICNC]. These Debit Notes indicate the difference between the price at which such goods were sold to the outside customers and the invoice price adopted for transferring of such goods to the applicant-Unit. Debit Notes were prepared on the basis of cost on the principles of notional prices as per Accounting Standard 17 (AS-17) and the same cannot be included in the value.
The assessee also submitted that a show-cause notice was issued to Badrachalam Unit proposing to adopt transaction value sold to independent buyers, for the purpose of the assessable value for inter unit transfer and proceeded on the basis of Debit Notes (i.e.,IDSC /ICNC). Commissioner of Central Excise, Hyderabad dropped the proceeding by Order-in-Original No.09/2004 - Commr., dated 26.07.2004.
The duty was also demanded on the ground that while determining the cost of manufacture, the applicant had taken into consideration 100% of cost of manufacture of Badrachalam unit and not the invoice value, which was 115% /110% of such cost of manufacture, adopted for such transfer. The appellant submitted that Rule 8 of the Valuation Rules, 2000 provides for determination of actual cost of raw materials, therefore, such notional amount of 15% or 10% would be excluded from the invoice value of the Badrachalam Unit.
After hearing both sides, the Tribunal waived the pre-deposit by holding that:
It is seen that a show-cause notice was issued to Badrachalam Unit proposing to adopt transaction value of independent buyers, in the assessable value of inter-unit transfer in the light of Debit Notes (IDSC), which was dropped by the Commissioner of Central Excise, Hyderabad by Order dated 26.07.2004. It has been observed that there is no sale involved in the transfer of goods to other division of ITC, the valuation would be under Rule 8 of the Valuation Rules, by adopting 115% of cost of production. So, the amount of Debit Notes would not be included while determining assessable value at Badrachalam Unit. Then, it is difficult to accept that the said amount of Debit Notes would be included in the assessable value of the applicant herein. Prima facie, we do not find any reason to include the amount of Debit Note in the assessable value at the hand of the applicant.
Regarding the demand of duty on the other issue, namely, the applicant while computing the assessable value considered 100% of the cost of production of Badrachalam Unit and not invoice value, which was 115%/110% of cost of production. Rule 8 of the Valuation Rules, 2000 provides that value is to be determined on the 115%/110% of cost of production and, therefore, 15%/10% is notional margin. Both the sides placed the case laws. Each case depends on its own facts and a single significant detail may alter the entire aspect. In our opinion, this issue is required to be considered on the basis of Rule 8 and in the light of provision of CAS-4, which will be looked into at the time of appeal hearing in detail.
(See 2013-TIOL-1603-CESTAT-MAD)
