Custom, Excise & Service Tax Tribunal
M/S Essar Steel India Limited vs Cce, Raipur on 27 September, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING : 12/09/2016. DATE OF DECISION : 27/09/2016. Excise Appeal No. 58701 of 2013 [Arising out of the Order-in-Original No. Commissioner/RPR/CEX/ 53/2013 dated 31/03/2013 passed by The Commissioner of Central & Customs, Raipur.] M/s Essar Steel India Limited Appellant Versus CCE, Raipur Respondent
Appearance Shri Vipin Kumar Jain, Advocate for the appellant.
Shri R.K. Manjhi, Authorized Representative (DR) for the Respondent.
CORAM : Honble Shri Justice Dr. Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) Final Order No. 53790/2016 Dated : 27/09/2016 Per. B. Ravichandran :-
The appeal is against order dated 31/3/2013 of Commissioner of Central Excise, Raipur. The appellants are engaged in the manufacture of Iron Ore Concentrate liable to Central Excise duty. The Iron Ore Concentrate is cleared to sister unit situated at Visakhapatnam on payment of Central Excise duty. The Visakhapatnam unit uses the said concentrate for further manufacture of excisable goods. As such the excise duty on the Iron Ore Concentrate is discharged in terms of Rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, considering the use for captive consumption. These are admitted facts and are not in dispute. The dispute is only with reference to periodicity of costing to be followed while arriving at value in term of Rule 8 as above. In other words, whether the CAS 4 based costing of Iron Ore Concentrate is to be done on an annual basis or for a lesser durations of 2/4/5 months, as and when the raw material costs varied.
2. After an audit of records of the appellant, the Revenue raised the objection of short payment of duty during the period 2007-08 and 2008-09. It was contended that during the period April 2007 to August 2007, November 2007, December 2007 and January 2009 to March 2009, the appellants have cleared the goods with the value of less than 110% of cost of production (Rs. 2963/- p.m.t. and Rs. 3306/- p.m.t.). Proceedings were initiated against the appellant to demand and recover duty of Rs. 27,07,44,044/- on this ground. The Original Authority adjudicated the case by confirming duty and imposing equal amount of penalty in terms of Section 11AC of the Central Excise Act, 1944. The present appeal is against this order.
3. The learned Counsel for the appellant submitted that the demand is not legally sustainable on various grounds. The main points raised are :
(a) the original authority erred in adopting average cost of production during the Financial year as the basis for valuing inter-unit clearances under Rule 8. The actual cost of production prevailing at the time of removal of goods should have been accepted in terms of CAS 4 certificates.
(b) the methodology of computation of value should be consistent with overall statutory provisions of Section 4 and Central Excise Rules, 2002. The duty is self assessed, invoice prepared for payment at the time of clearance of goods. The Honble Supreme Court in Purolator India Ltd. vs. CCE, Delhi III reported in 2015 (323) E.L.T. 227 (S.C.) held that the assessable value of manufactured goods are to determined at the time of removal. Further events or factors that are unknown to an assessee at the time of removal of goods are irrelevant for determination assessable value.
(c) the reliance placed on Boards Circular dated 30/10/1996 is not at all relevant. The said circular dealt with addition of previous years profit margin to arrive at valuation in terms of erstwhile Valuation Rules. The said circular does not prescribe adoption of current years profit margin for valuation which is in line with Honble Supreme Courts decision in Purolator case (supra).
(d) cost of production of goods can be determined at any given point of time, and does not have to wait till end of the financial year. Depreciation etc. are allocable on a pro-rata basis.
(e) NDMC pricing policy determines cost of iron ore fines and slimes. The revision of costing of iron ore concentrate is necessitated due to these revisions by NDMC. Every time there was a revision, the appellant intimated the department about the revised cost alongwith CAS-4 certificate.
(f) even if the Revenue intends to adopt average cost method, the demand cannot be made on selective basis, ignoring the months when there were actually excess payments. If the value has to be determined on annual cost calculation the duty payments for the whole period have to be considered for correct quantification.
(g) the demand is clearly time barred. There is no case for suppression of fact etc. The entire exercise is Revenue neutral as whatever duty paid by appellant is eligible fully for credit by their Visakhapatnam unit.
4. The learned AR for Revenue reiterated findings of the Original Authority. He submitted that the appellants have chosen different periods of duration for cost calculation whereas as per accepted standards, annual costing correlated with accounting year of the assessee is the correct procedure.
5. We have heard both the sides and perused appeal records including written submission. The admitted facts of the case are that there is no sale of iron ore concentrate by the appellant and clearance to sister unit for further use is subjected to excise duty and valuation for such duty has to be worked out in terms of Rule 8 of Valuation Rules, 2000. The central point of dispute is the frequency or periodicity of costing in terms of CAS-4. The appellants followed different value during the same financial year based on revision of costing within the year more than once. The Revenue contended that the costing should be annual basis and, hence, during whichever month the value happens to be less than the average annual cost, duty was confirmed.
6. First, we consider the appellants plea regarding the transaction value arrived at based on costing should be at the time of removal. It was submitted that the scheme of things for excise duty purposes in terms of Section 4 and Rules made thereunder and Central Excise Rules, the duty liability based on self-assessment has to be discharged at the time of removal of goods when the invoices are prepared. The legal position as submitted by the appellant cannot be contested. However, it is an admitted fact that the appellants themselves did not follow costing to arrive at deemed transaction value for each clearance. They have considered a period of many months and worked out the costing, in terms of CAS-4 for that period and paid duty. Thereafter, they revised said costing when there are changes in raw material cost. That being the case, we find that the reliance placed by the appellant on the principle that time of removal is relevant and, hence, annual costing is not tenable, is unsustainable. The fact remains that while the duty liability has to be discharged at the time of removal of excisable goods in a situation where there is no sale transaction and known value, the deemed transaction value has to be constructed based on costing method which necessarily will involve an averaging of cost for a period, considering all the parameters. It is neither the case of the appellant nor there is such an approved standard for arriving at cost of excisable goods for each individual clearance.
7. Now, the question remains when at the time of each clearance of excisable goods for captive consumption the exact transaction value could not be arrived at the relevant time the duty has to be paid on a provisional basis and upon arriving at the costing applying CAS-4 and the assessable value in terms of Rule 8 of Valuation Rules final determination of duty liability has to be made. In the present case, admittedly no provisional assessment was resorted to by the appellant. Hence, the determination of actual cost much later on the clearance resulted in certain adjustments and payments by the appellant.
8. The appellants referred to guidelines issued by the Institute of Cost & Works Accountants of India on CAS-4. We have perused the same. Para 8 deals with periodicity of CAS-4 Certificates. The guidelines states that the frequency of revising the certificate of cost of production will depend upon the significance in the changes in the cost due to various factors like input cost fluctuations, changes in the employee cost and other expenses. It further notes that where goods are cleared on cost of production worked out as per the audited accounts of the previous audited period, it is advisable to prepare a fresh certificate of cost of production based on the audited accounts of the period for which the goods are cleared and the differential duty is paid or taken credit of as the case may be. In such circumstances, it is advisable to compute the actual material cost as per the issue valuation adopted by the assessee for material issues. Further, in the FAQ on CAS-4 the ICAI clarified that cost determination of a product is always for a period and computed on the basis of actual accounts of the company. The costs so determined should be actual cost reconciled with the audited accounts of the company after the accounts for the period is audited.
9. On perusal of the guidelines by the ICAI, we find while arriving at costing based on CAS-4 the correct method will be to determine the same based on actual audited data as per the account year of the company. To that extend we find the CAS-4 cost price arrived at on annual basis by the Revenue is correct procedure.
10. The next issue for decision is on the quantification of differential duty. Even though there is no provisional assessment in the present case, the duty determination on the inter-unit transfer is made on annual costing. As such when the Department arrived at cost on annual average basis the duty liability, excess or shortage has also to be determined on such basis. It is not tenable while for arriving at per unit duty liability the whole year data is considered for costing, for total duty liability only months when short payment was noticed were considered. In other words when CAS-4 based annual costing formed basis for arriving transaction value, the overall duty liability/short payment should be arrived at after considering duty already paid during that year on such goods. We find the reasoning given by the Original Authority against adjustment of already paid duty as untenable. Section 11B has no application in such situation, when the appellants duty liability is determined on annual CAS-4, the duty already paid during said period has to be adjusted. The question of unjust enrichment has no relevance here. There is no refund considered here. The point that the duty paid in excess in certain months has been availed as credit by sister unit hence, cannot be adjusted towards short payment also not tenable. The demand arose based on annual costing. Such cost price in terms of Rule 8 will apply to all clearances made during the relevant year. Admittedly, duty already discharged has to considered for arriving at overall short payment. Selectively applying the said cost price only for months when the clearances were below such cost price is not legally sustainable.
11. Further, the finding of the lower Authority against adjustment of Rs. 16,07,19,858/-, towards differential duty is not clear. Admittedly, the said amount is paid due to upward revision of costs. The months covered are also the months for which short payment of duty was confirmed. Hence, it is not clear why such payment could not be adjusted against total duty liability.
12. We find the Original Authority has not fully examined the issue of time bar raised by the appellant. Intimations of price revision followed by CAS-4 Certificates have been given to the Department. Monthly statutory returns with duty payment details have been filed. The existence of more than one cost certificates during different months in one financial year is apparently in the knowledge of the Department. Hence, the question of time bar requires closer scrutiny. Since we intend to remand the case to the Original Authority on the quantification of duty demand as discussed above, this aspect also has to considered by the Original Authority for a clear finding.
13. In view of the above analysis, while upholding the finding on annual cost price based on CAS-4 for Rule 8 of Valuation Rules, we remand the case back to Original Authority for a fresh finding on time bar and quantification of short payment by the appellant.
14. The appeal is partially allowed by way of remand on the above terms.
(Order pronounced in open court on 27/09/2016.) (Justice Dr. Satish Chandra) President (B. Ravichandran) Member (Technical) PK ??
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