Inter-unit transfer of excisable goods consumed by recipient unit for further manufacture and clearance of goods to its own units – Valuation – Whether cost of material is 100% or 115%/110% - Matter referred to LB in view of conflicting views between Mumbai and Chennai Benches
By TIOL News Service
CHENNAI, APR 21, 2014: THE appellant unit is engaged in manufacture of packing material which is supplied to its own units on payment of duty in terms of Rule 8 of the Central Excise Valuation (Determination of price of excisable goods) Rules, 2000. The raw material, i.e., paper and paper board required for manufacture of packing material is received from their Bhadrachalam unit. Bhadrachalam unit is paying excise duty on paper and paper board by adopting value at 115%/110%% of the cost of production. The appellant unit is also paying excise duty on packing material cleared to their own units by adopting the value at 115%/110% of the cost of production. While arriving at the cost of production of packing material, the appellant unit is adopting the cost of paper at 100% and it is the case of department that the cost of paper should be adopted at 115%/110% instead of 100%. In addition to this, the department also disputed the cost of production computed by the appellant unit by holding that the Intra-Division Service Charges raised by the Bhadrachalam unit are to be included in the cost of production and also the appellant has to include the unabsorbed overheads due to idle capacity have to be included in the cost of production.
On the issue of adopting 115%/110% of the cost of paper for the purpose of arriving the cost of production of packing material, department contended that the issue is covered by the Larger Bench decision in the case of Eicher Motors Ltd. Vs. CCE 2008-TIOL-977-CESTAT-DEL and the value has to be adopted as 115%/110%. However after analyzing the decisions cited by both sides, the Bench observed:
From the facts of the case in the present appeal, inter-unit transfer for captive consumption as defined in clause 4.2 of CAS-4, the consumption of goods manufactured by one unit and consumed by another unit of the same organization or related undertaking for manufacturing another product, are similar to Eveready Industries Ltd = 2011-TIOL-1115-CESTAT-MAD and Tata Iron and Steel Co. Ltd. 2013-TIOL-707-CESTAT-MUM. But, the facts of the case of Eicher Motors are different and further, CAS-4 and CBEC Circular were not placed before the Larger Bench. The case before the Larger Bench is different from the other two Division Benches in the case of Eveready Industries and Tata Iron and Steel Co. Ltd. When there is a direct conflict between decisions of two coordinated Benches on similar facts, it is appropriate that the matter should be referred to the Larger Bench.
With regard to the issue of inclusion of Intra Division service charges, the Bench held:
The adjudicating authority accepted the IDSC/ICNC debit notes raised to evaluate the operational efficiency of the unit, which is of a notional nature. CBEC Circular dated 13.2.2003 clarified that CAS-4 should be strictly followed to determine assessable value for captive consumption. IDSC/ICNC debit notes was raised by Bhadrachalam Unit in compliance of AS-17 for segment reporting for different purpose as sated above, which is of notional nature. Thus, there is no reason to consider the amount of IDSC/ICNC debit notes as actual cost of raw material and it cannot be added in the cost of raw material at the hands of the appellant for captive consumption under Rule 8 of Valuation Rules.
On the issue of unabsorbed overheads due to idle capacity also, the Bench Ruled in favour of the appellant and held that the same are not includable.
The stay order in this case was carried by us in 2013-TIOL-1603-CESTAT-MAD.
(See 2014-TIOL-605-CESTAT-MAD)
