Customs, Excise and Gold Tribunal - Mumbai
Mafatlal Industries Ltd. vs Commissioner Of Central Excise on 15 March, 2004
Equivalent citations: 2004(95)ECC506, 2004(172)ELT232(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. Heard both sides.
2. In the impugned order, the Commissioner of Central Excise, Mumbai, adjudicated upon two show cause notices, one dated 4.5.1999 and the second dated 25.4.1999. The first notice covers the period 1994-95 and the second 1995-96. Both the notices are issued invoking longer period of limitation under Section 11 A(1) proviso.
3. The appellant is engaged in the manufacture of yam. He receives various duty paid raw materials for use as inputs in the manufacture of yarn. The appellant pays excise duty on the yam captively consumed at the spindle stage. The assessable value of such captively consumed yam is arrived at on the basis of the valuation rules framed under Section 4(1)(b) of the Central Excise Act, viz. the Central Excise Valuation Rules, 1975. The appellant was required under Rule 173C to file price declaration in the proforma Annexure II with the Central Excise Department, declaring the assessable value of the yam captively consumed. It is an admitted fact that during this period, i.e. from 1994 to 1996, the appellants have been filing the Annexures along with their price declarations under Rule 173C. The records also indicate that during this period the department has been issuing notices to the appellants directing them to pay differential duties involved on various counts. The show cause notices referred to above are in addition to these notices.
4. In the impugned order, the Commissioner held that certain elements of cost which should have been taken into account for computing the assessable value of the goods captively consumed have not been taken by the appellants and that such non-inclusion resulted in short recovery of duty. The Commissioner also holds that the appellant has deliberately suppressed the fact of non-inclusion of certain elements of cost from the department and therefore larger period of limitation while issuing the show cause notices can be invoked against the appellant.
5. The issues before us are therefore two-fold. (1) whether the appellant has suppressed material particulars from the department while declaring the assessable value of captively consumed yarn during the period in question and (2) whether the elements of cost which are alleged to have been not included while computing the assessable value of captively consumed yarn have to be really included at all.
6. On the issue of limitation the Commissioner's findings are that though the raw material cost and conversion cost kept on changing over the period thereby increasing the cost, the change in corresponding assessable value was not effected by the assessee by way of filing a revised price list/annexures for the period in question. The assessable value declared in various annexure II filed from time to time did not include all elements of cost required to determine the assessable value in terms of Section 4 of C.E. Act. Specifically the share of administrative overheads, selling and distribution expenses, profit, interest etc. were not included by the appellant while computing the assessable value. The appellant, even after the finalisation of account and preparation of reports under Cost Audit Report Rules, had failed to intimate the department the real cost as worked out by their Cost Accountant. The appellant should have revised the annexure II filed under Rule 173C after the cost audit report required to be made annually under the Companies Act, 1956 was proposed. The appellant furnished the said records (cost audit report) only when the department initiated investigations. In the light of these observations, the Commissioner held that the appellant had suppressed the facts from the department with an intent to evade duty.
7. The appellant contended that as per Rule 6(b)(ii) of the Valuation Rules which speaks of valuation of captively consumed goods an assessee is required to include only the cost of raw material, manufacturing cost and notional profit. These three elements were included by them at all times as indicated in the annexure II and the cost declaration filed under Rule 173C. In line with the decision of the Tribunal in Cadbury India Ltd. the appellants have followed the correct basis of determining the assessable value of the yarn captively consumed. With regard to the non-submission of cost audit report made under Cost Audit Report Rules the appellant contended that they were not required to submit this report which in any case was available to them much after the dates of filing of annexure II under Rule 173C. There was no onus on the assessee to submit the cost audit report made under Section 233(b) of the Companies Act, 1956. In such an event non-submission of the cost audit report cannot be held as suppression or omission on the part of the appellant. It was further contended that during the relevant period the appellant filed six declarations in annexure II along with their Chartered Accountant certificate setting out the assessable value and the basis of computation thereof. It is only on the basis of these declarations the department had been issuing letters to the appellant, asking them to make good various omissions on their part during the relevant period. They have been accordingly doing so. If the department had felt that certain other elements of cost which should have been taken into consideration while computing the cost they should have made it clear to the appellant at that stage itself. The dispute regarding notional profit to be included in the assessable value has been the subject matter of much correspondence between the department and the appellant during the disputed period. The department was all along aware that the cost of production of yam up to spindle stage was only taken into consideration while computing the cost of production of captively consumed yarn.
8. We have examined the rival contentions carefully. It is not disputed that during the relevant period the appellant had been filing declarations under Rule 173C. It is only on the basis of these declarations the department had been issuing letters stating that notional profit had to be added to the cost of production even when the appellant was not making any profit. Nothing prevented the department from pointing out that certain other elements of cost should also have been included in the assessable value at that time itself. The department cannot turn round much later and accuse the appellant of having suppressed information. In our opinion what the Commissioner was trying to do is to make good what was not done when the declarations were filed by invoking larger period of limitation by alleging suppression. So long as the department is aware that the price declaration under Rule 173C were filed only on the basis of raw material cost, manufacturing cost and notional profit, any demand for short levy on the ground that some more elements of cost such as bonus, gratuity, interest etc. should have been added could be made only within the normal period of limitation. Even when the appellants had not indicated the various elements of cost under the head 'Manufacturing Cost' it is for the department to seek clarification from the appellants. The department on the other hand has been raising objections regarding non-inclusion of notional profit as if they were satisfied with the declaration in regard to manufacturing cost declared by the appellants. In the present case, the show cause notices came to be issued in 1999 for alleged short levy that occurred in 1994-1996. We hold that the show cause notices are clearly time barred.
9. On the issue of merits, we observe that the appellant had all along been computing the cost of production of captively consumed yarn taking into consideration cost of raw material, cost of manufacture of yarn at the spindle stage and notional profit. (The last element at the instance of the department). It is the appellants' contention that duty on yarn becomes leviable at the spindle stage. Any cost incurred after this stage has passed, is not to be included in the assessable value. He relied upon the decisions in (a) J.K. Spinning & Wvg. Mills 1987 (32) ELT 234 (SC), (b) Bhilwara Spinners Ltd. v. CCE 1996 (82) ELT 442 (SC), (c) CCE v. Banswara Syntex Ltd. 1998 (88) ELT 645, (d) Baripada Spinning Mills v. CCE, Bhubaneshwar 1995 (79) ELT (Tri.) wherein it was held that processes like winding, warping, beaming, sizing etc. which take place after the spindle stage cannot be considered as processes related to the yam which emerges at the stage of spindle point. The Commissioner discarded this argument stating that all the judgments cited involved disputes for the period prior to 1994 when the duty on yarn was subjected to specific rate of duty. The Commissioner holds that at that time it was immaterial at what stage duty was paid. We cannot agree with this contention. Whether the duty was specific or ad valorem what is important is the stage at which yarn comes into existence as an excisable product. All costs incurred up to that stage alone should be taken for consideration while computing the cost of captively consumed yam. The cost of further processes mentioned above would naturally go into the cost of fabric. We agree with the contention of the appellant that the cost of production of yam should therefore include all costs that go into the manufacture of yam up to spindle point. The second contention of the Commissioner is that certain elements of cost pertaining to administrative overheads, selling and distribution expenses, profit interest etc. should have been included while computing the cost of yam. The appellant contended that marketing, selling and distribution expenses cannot be included while computing the cost of manufacture of captively consumed goods for the reason that there is no sale of captively consumed yam. He relied upon CESTAT's decision in the case of Cadbury India Ltd. v. CCE, Mumbai and GEC Alshon India Ltd. v. CCE 1997 (96) ELT 473. The Commissioner brushed aside these decisions stating that the Board's Circular No. 258/92/96 CX dated 30.10.1996 clarifies that while calculating the cost of production of captively consumed goods in terms of Rule 6(b)(ii) of the Central Excise Valuation Rules 1975, all elements which are otherwise includible under Section 4(1)(a) price have to be included in such cost. The Commissioner says that the cost of production should include inter alia the cost of material, labour cost and overheads including administrative cost, advertising expenses, depreciation etc. Without going into the merits of the contents of the above mentioned circular, we may observe that if the cost has to be calculated on the basis of this circular nothing prevented the department from issuing a notice within time for demanding the differential duty. The Commissioner relies on this circular (issued in 1996) and defends the show cause notice issued in 1999 on the specious ground that the circular was only a clarification of already stated position. If the department was aware that all these elements should have been taken into consideration, the appropriate time to point out these shortcomings to the appellant was when the price declarations were filed by them during the period 1994-1996. The department cannot possibly invoke the contents of this circular at a much later stage invoking the larger period of limitation. In any case, we are not inclined to go into the various contentions of both sides in this regard in view of the fact that we hold that the demand is time barred.
10. The order of the Commissioner is set aside. The appeals succeed on the ground of limitation. Thus the demands for duty as well as the penalties imposed are set aside.