Custom, Excise & Service Tax Tribunal
Cosmo Films Ltd vs Cgst & Central Excise Vadodara I on 25 April, 2025
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 1
Excise Appeal No. 11778 of 2017- DB
(Arising out of OIA-VAD-EXCUS-002-APP-020-022-2017-18 dated 05/04/2017 passed by the
Commissioner (Appeals-I) Central Excise, Customs and Service Tax-VADODARA)
Cosmo Films Ltd ........Appellant
Vemardi Road, Nr Inox, Off. N H. No. 8,
Village-Navi Jithardi,
Taluka-karjan,
Vadodara, Gujarat-391240
VERSUS
Commissioner of CGST, Customs &
Central Excise -Vadodara I ......Respondent
Central GST Building, Race Course Circle, Vadodara, Gujarat-390007 WITH Excise Appeal No. 11779 of 2017- DB (Arising out of OIA-VAD-EXCUS-002-APP-020-022-2017-18 dated 05/04/2017 passed by the Commissioner (Appeals-I) Central Excise, Customs and Service Tax-VADODARA) Cosmo Films Ltd ........Appellant Vemardi Road, Nr Inox, Off. N H. No. 8, Village-Navi Jithardi, Taluka-karjan, Vadodara, Gujarat-391240 VERSUS Commissioner of CGST, Customs & Central Excise -Vadodara I ......Respondent Central GST Building, Race Course Circle, Vadodara, Gujarat-390007 AND Excise Appeal No. 11780 of 2017- DB (Arising out of OIA-VAD-EXCUS-002-APP-020-022-2017-18 dated 05/04/2017 passed by the Commissioner (Appeals-I) Central Excise, Customs and Service Tax-VADODARA) Cosmo Films Ltd ........Appellant Vemardi Road, Nr Inox, Off. N H. No. 8, Village-Navi Jithardi, Taluka-karjan, Vadodara, Gujarat-391240 VERSUS Commissioner of CGST, Customs & Central Excise -Vadodara I ......Respondent Central GST Building, Race Course Circle, Vadodara, Gujarat-390007 APPEARANCE:
Shri Amber Kumrawat, Advocate for the Appellant Shri R K Agarwal, Superintendent (AR) for the Respondent CORAM:
HON'BLE MR. SOMESH ARORA, MEMBER (JUDICIAL) HON'BLE MR. SATENDRA VIKRAM SINGH, MEMBER (TECHNICAL) Final Order No. 10273-10275/2025
2|Page E/11778-11780/2017-DB DATE OF HEARING: 01.04.2025 DATE OF DECISION: 25.04.2025 SATENDRA VIKRAM SINGH The facts of the case are that M/s Cosmo Films Ltd, Vadodara (Appealant) are manufacturing BOPP films, and during the process of manufacturing, waste/ scrap of plastic is generated. Some of the quantity of waste/scrap is cleared on payment of Central Excise duty at the appropriate rate while some quantity is reprocessed in the factory for manufacture of PP granules. Some of the quantity of PP granules so manufactured (by reprocessing waste/scrap) is further used in the factory for manufacture of BOPP films whereas rest of the quantity is cleared to independent buyer(s).
1.1 The appellant availed exemption from payment of duty as per Notification No. 67/1995-CE dated 16.03.1995 on the quantity of PP granules & waste and scraps captively consumed in the manufacture of BOPP films. The Revenue has alleged that the assessee is not correctly determining the value of such captively consumed waste and scrap while paying duty and that they are taking the value at which the waste is sold by them to independent buyers.
The Revenue alleged that the valuation of such captively consumed waste and scrap should be determined on the basis of CAS-4 as quality of waste and scrap used captively is much better than the quality of waste and scrap cleared to independent buyers. On the basis of above, the Revenue calculated the differential duty payable by the appellant. They issued show cause notice dated 13.01.2012 demanding differential duty of Rs. 93,39,670/- for the period January, 2011 to September,2011 along with interest and penalty under Rule 25(1) of the Central Excise Rules, 2002. Similar show cause notices were issued to the appellant covering period from April, 2010 to June,2010 (duty of Rs. 49,55,508/-) and from July, 2010 to December, 2010 (duty of Rs. 1,03,62,950/-). These three show cause notices put together demand total differential Central Excise duty of Rs. 2,46,58,128/- from the appellant.
1.2 The above show cause notices were decided by the adjudicating authority vide the order dated 28.12.2016, wherein he confirmed the Central Excise duty of Rs. 2,46,58,128/- on the party under Section 11A(1) of the Central Excise Act, 1944 alongwith interest under Section 11AB/11AA of the Central Excise Act, 1944 and a penalty equal to 10% of the differential duty amount so demanded. Aggrieved with this order, the appellant filed appeal before the Commissioner (Appeals), who vide impugned order dated
3|Page E/11778-11780/2017-DB 05.04.2017 upheld the order of the lower authority and rejected their appeal. Hence, the present appeals.
2.1 In their appeals, the appellant has assailed the order of the lower authority on the ground that when sale price to independent buyers is available at the factory gate, the same should be adopted for valuation of captively consumed goods and resort to CAS-4 under Rule 8 of the Central Excise Rules, 2000 is not correct. They also cited the decision of Hon'ble Apex Court in CCE Jaipur Vs. Scan Synthetics Ltd- 2008-TIOL-34-SC-CX, wherein it has been held that when independent factory sale price is available, that should be the basis for determining the value of same excisable goods captively consumed. They also cited the following case laws: -
• Ispat Industries Ltd Vs. CCE, Raigad- 2007 (209) ELT 185 (Tri.-LB) • Avon Tubes Ltd Vs. CCE, Ludhiana- 2007 (117) ECR 616 (Tribunal) • Hindustan Copper Ltd. Vs. CCE Jaipur-I- 2005-TIOL-751-CESTAT-DEL. • Hindustan Copper Ltd. Vs. CCE, Jaipur-I-2006-TIOL-901-CESTAT-DEL. • Steel Complex Ltd. Vs. CCE, Calicut- 2004 (171) ELT 255 (Tri.-Bang.) 2.2 They also mentioned that CAS-4 system is a residual procedure and when transaction value under Section 4(1)(a) of the Central Excise Act is available, there is no need to rake recourse of Section 4(1)(b) of the said Act and Rule 7 of the Central Excise Valuation Rules, 2000. While arriving the assessable value of waste and scrap captively consumed by the appellant, the revenue has adopted cost of "virgin PP granules" which is highly objectionable and erroneous. They pleaded to set aside the impugned order and allow their appeals.
3. Learned Authorised Representative appearing for Revenue reiterates the findings of the impugned order. He placed reliance on the decision of Apex Court in the case of Commissioner of Central Excise, Pune Vs. Cadbury India Ltd- 2006 (200) ELT 353 (S.C.).
4. We have gone through the facts of the case and also heard rival submissions. Limited issue to be decided in the present case is valuation of waste and scrap generated during the process of manufacture of final products, a part of which is captively consumed within the factory while rest is sold to independent buyers at the factory gate. This Tribunal considering the very same issue in the appellant's own case for the previous period, held
4|Page E/11778-11780/2017-DB that as per the Ispat Industries decision for the purpose of captive consumption, the value of transaction made through the outside buyer should be taken as assessable value. The said decision vide Final order No. 11109-
11122/2024 dated 03.06.2024 is reproduced below:-
"4. We have carefully considered the submissions made by both the sides and perused the records. We find that limited issue to be decided in the present case is the valuation method in respect of waste/ scrap generated during the process of manufacture of final product and part of it is consumed within the factory and partly sold outside the factory. The case of the department is that the valuation should be as per Rule 8 i.e. Cost Construction Method in respect of the captively consumed goods. This Tribunal considering the very same issue in the appellant's own case for the previous period, held that as per the Ispat Industries Judgment for the purpose of captive consumption, the value of transaction made through the outside buyer should be taken as assessable value, the said decision vide Final Order No. A/12329/2019 dated 03.02.2019 is reproduced below:
"7. We have carefully considered the submissions made by both the sides and perused the record. We find that the issue to be decided is that what should be the valuation of the waste and scrap used captively for Manufacture of exempted reprocessed granules. Whether the valuation should be done in terms of Rule 8 of Central Excise Valuation Rules that is on Cost Construction Method or on the comparable value of waste and scrap sold to independent customer on Principle to Principle basis. We find that the Adjudicating Authority held that the valuation of captively consumed waste and scrap should be on the basis of Cost Construction method mainly for the reason that the waste and scrap sold to independent customer is different from the Waste and Scrap consumed captively. Therefore, the Learned Adjudicating Authority did not accept that the sale price of waste and scrap charged to independent customer should be applied in the case of captive consumption.
8. The Learned Counsel vehemently argued that the nature of the scrap whether it is different for captive consumption and for independent sale was not the subject matter of the Show Cause Notice and therefore, the said issue should not have been taken in the Adjudication Order.
9. We find that in the Show Cause Notice the fact was narrated which is reproduced below.......
"In the present case, the assessee uses waste/scrap generated at intermediate stage for captive consumption in the manufacture of PP granules which are exempted from payment of duty under Notification No. 6/2002-CE dated 01.03.2002 or 4/2006-CE dated01.03.2006. It appears that the exemption under notification number 67/95-CE, therefore, is not available to such quantity of waste/scrap captively consumed. The assessee are, therefore, paying duty at applicable rates on such waste/scrap. However, the value of such captively consumed waste/scrap is worked out by them at the price at which such goods are sold by them to independent buyers. Whereas it appears that in the case of captive consumption, the valuation of the goods captively consumed is required to be done in accordance with and as per CAS-4 standard, prepared by the Institute of Cost and Works Accountants of India (ICWAI)."
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10. From the plain reading of the above facts narrated in the Show Cause Notice it is accepted that the waste and scrap consumed captively and sold to independent buyers are one and the same. There is no allegation in the Show Cause Notice that the waste and scrap cleared for captive consumption and the one sold to the independent buyers are different.
11. We also find that no investigation was carried out to establish that the waste and scrap sold and captively consumed are different in nature. We also observe that the waste and scrap is generated in the course of manufacture of BOPP film. Therefore, there cannot be different category of waste in one process of Manufacture of BOPP film. The entire Show Cause Notice was issued only on the basis of Rule 8 of Valuation Rules and CBEC Circular dated 30.6.2000, however this dispute has been resolved by the Larger Bench of this tribunal in the case of Ispat Industries Ltd.(supra) according to which even though goods were not sold and used captively, the valuation of such goods shall be on the basis of the Sale Price of such goods sold to the independent buyers. Therefore, after delivering the judgment of Larger Bench the dispute came to the rest. The Adjudicating Authority relied upon the invoices issued for captive consumption and for sale of the goods and the comparative chart was prepared
12. On going through the above chart we find that there is no specific character of the waste and scrap mentioned in the description, either in case of captive consumption or in the case of waste and scrap sold to independent customer. Therefore, merely on the description which does not give the actual character of the scrap, it cannot be said that the scrap sold to independent customer is different from waste and scrap captively consumed. Therefore, the conclusion of the Adjudicating Authority that both types of clearances are of different waste and scrap is not tenable. We find that the appellant has correctly valued the goods in conformation to the Larger Bench judgment in the case of Ispat Industries Ltd. The relevant order is reproduced below.
"5. We have considered the rival submissions and are of the view that the assessee is correct in contending that provisions of Rule 8 would apply only in a case where its entire production of a particular commodity is captively consumed. This is evident on a plain reading of Rule 8 of the valuation rules, which reads as under "Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods" (emphasis supplied).
If the intention was not to restrict the applicability of Rule 8 to cases where the entire production was being captively consumed, the Rule would have simply stated "where excisable goods are consumed by an assessee himself or on his behalf in the manufacture of other articles" instead of preceding the above expression with the words "where the excisable goods are not sold". This view is also supported by the judgment of the jurisdictional High Court in the case of Indian Drug Manufacturers Association v. Union of India, wherein the Court held that Rule 8 applies in a situation where goods are not sold but are cleared 'exclusively' to be used in consumption or for manufacture of other articles. We also agree with the contention of the assessee that Rule 8 will apply only in two situations, (a) where the goods are consumed by him in the same factory (captive consumption) or (b) where such goods are transferred
6|Page E/11778-11780/2017-DB to another factory for consumption in the manufacture of other articles on behalf of the assessee. In this case, it is not the case of the revenue that the goods were transferred to other units for manufacture of other articles on behalf of the assessee/appellant, i.e. the Dolvi Unit. We agree with the assessee's contention that the expression 'assessee', wherever it appears in the Central Excise Rules, applies to a particular factory, which is why different units belonging to one company are separately registered and separately assessed to duty. Since the assessee in the present case is the Dolvi plant and it is not the revenue's case that the other three units of the company to whom HR coils were transferred were undertaking further manufacturing operations on behalf of the Dolvi Unit, the provisions of Rule 8 will not apply. We, therefore, hold that Rule 8 is inapplicable in the instant case.
6. We also note that in the present case the application of Rule 4 is being disputed by the Revenue not on the ground that the said rule is inapplicable to the present case but on the ground that a more specific provision in Rule 8 is available to enable determination of the assessable value. As discussed above, the provisions of Rule 8, in our view, are not applicable to the present case and therefore the value determined by the assessee under Rule 4 deserves acceptance.
7. We also agree with the submission of the assessee that even if both the rules, i.e. Rule 4 and Rule 8, were applicable, it would only be logical to read and apply the various rules in the Central Excise Valuation Rules in a sequential manner. Though the Central Excise Valuation Rules, 2000 do not specifically prescribe such sequential application of various rules, the same, in our view, is the only reasonable way to read these rules. Any other interpretation would only lead to confusion and chaos. Since the applicability of Rule 4 is not really in dispute, there was no need to look further and regardless of the applicability or otherwise of Rule 8, the assessable value should have been determined in terms of Rule 4 of the Valuation Rules.
8. The conclusion that we are drawing in the present case would lead to determination of a value which, in our view, will not only be reasonable but also consistent with the provisions of Section 4 of the Central Excise Act. We would, at this stage, draw support from the judgment of the Supreme Court in the assessee's own case, as reported in 2006 (202) E.L.T. 561, wherein the Court applied "The Gunapradhan Principle" in interpreting the Customs Valuation Rules. We have kept in mind the following observations of the Court in coming to our above conclusion: "26. In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act.
27..................
36. In our opinion, the Gunapradhan principle is fully applicable to the interpretation of Rule 9(2). Rule 9(2) is subservient to Section 14. We must, therefore, interpret it in such a way as to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning which is in accordance with the object of Section 14. The object of Section 14 is 'primary' whereas the conditions in Rule 9 (2) are the 'accessories'. The 'accessory' must, therefore, serve the 'primary'."
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9. In view of what we have observed above, we answer the reference in the following terms :
(a) the provisions of Rule 8 of the Valuation Rules will not apply in a case where some part of the production is cleared to independent buyers;
(b) the provisions of Rule 4 are in any case to be preferred over the provisions of Rule 8 not only for the reason that they occur first in the sequential order of the Valuation Rules but also for the reason that in a case where both the rules are applicable, the application of Rule 4 will lead to a determination of a value which will be more consistent and in accordance with the parent statutory provisions of Section 4 of the Central Excise Act, 1944.
10. The papers are now returned to the referral Bench for passing orders on the appeal."
13. From the above decision of the Larger Bench of this tribunal, the same is clearly applicable in the facts of the present case. Therefore, on merit itself the demand is not sustainable. We also examined the aspect of limitation, we find that the fact of sale of waste and scrap and captive consumption for further manufacture of reprocessed granules and use thereof in the manufacture of BOPP films was in the knowledge of the department as the appellant was otherwise discharging the duty and the issue is of neat question of law that what should be the valuation in case of captive consumption. Subsequently, since the issue was contentious on the dispute of valuation in case of captive consumption the same was resolved by the Larger Bench of this tribunal in the case of Ispat Industries Ltd (supra). Therefore, it cannot be said that the appellant had any intention to evade payment of Excise Duty. Accordingly, the extended period of demand was also not invocable. Therefore, demand for the extended period is not maintainable on the ground of time barred also.
14. As per our above discussion, the impugned order is set aside, appeal is allowed."
In view of the above decision in the appellant's own case, the issue is no longer res-integra. Accordingly, the impugned orders are set aside. Appeals are allowed."
5. In this case also, though the show cause notices allege that the scrap sold to independent buyers was not of the same quality as was used by them captively in the manufacture of PP granules but there is no evidence to support as to on what basis both the qualities are presumed to be different. In absence of any supportive evidence, demands raised by the department for earlier periods were set aside by the Tribunal. Therefore, the issue is no longer res- integra.
6. As regard department's reliance on the decision of Cadbury India Ltd (Supra), we find that the facts are entirely different. In Cadbury India case, goods were 100% consumed captively and no portion of it was sold to independent buyers, whereas in the instant case, there exists, sale price at
8|Page E/11778-11780/2017-DB which goods are sold to independent buyer(s) at the factory gate. Accordingly, the impugned orders are set aside and the appeals are allowed
7. Appeals are allowed with consequential benefits, if any, as per law.
(Pronounced in the open court on 25.04.2025) (SOMESH ARORA) MEMBER ( JUDICIAL ) (SATENDRA VIKRAM SINGH) MEMBER ( TECHNICAL ) Raksha