Case Law Details
Tractor And Farm Equipment Limited Vs Commissioner of GST & Central Excise (CESTAT Chennai)
In the case of Tractor And Farm Equipment Limited Vs Commissioner of GST & Central Excise, the dispute concerned the valuation of lead oxide stock-transferred by the appellant from one manufacturing unit to another between September 2003 and March 2008. The Revenue alleged that the appellant had not followed the prescribed CAS-4 costing method under Rule 8 of the Central Excise Valuation Rules, 2000 and had instead adopted its own method for determining assessable value. Based on this allegation, a show cause notice dated 30.09.2008 proposed recovery of differential duty amounting to Rs.93,80,442/-, along with interest and penalty. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order.
The appellant contended that CAS-4 certificates issued by an approved Cost Auditor had been submitted for the relevant period and that the cost of production under Rule 8 could only be finalized after the completion of the financial year. The appellant argued that the valuation adopted was based on the moving average price of lead published by M/s. Hindustan Zinc Ltd., together with additional margins to account for overheads and labour costs. It was also submitted that the entire production of lead oxide was captively consumed by the appellant’s second unit, which availed CENVAT credit, resulting in revenue neutrality. According to the appellant, there was no suppression of facts because the Department was aware of the valuation method adopted since inception.
The appellant further argued that the Department had misunderstood the cost statements and wrongly assumed that the costing was based on previous years’ data. It was emphasized that the cost certificates related only to the current periods mentioned therein and that the adjudicating authority had not identified any specific defect in those certificates. The appellant also relied on several judicial precedents in support of its case.
The Department, on the other hand, maintained that the appellant had failed to determine the cost of production in accordance with CAS-4 and that the methodology adopted by the appellant could not be accepted. Reliance was placed on Board circulars and various judicial decisions to support the Department’s position.
After considering the submissions of both sides, the CESTAT observed that the central issue was whether the impugned order was sustainable. The Tribunal noted that the Revenue’s case was based on the allegation that the cost statements were not in conformity with CAS-4 principles and related to previous periods, whereas the appellant maintained that the certificates pertained to the relevant periods only. The Tribunal held that factual verification of the CAS-4 certificates was necessary. Accordingly, it set aside the impugned order and remanded the matter to the adjudicating authority for fresh examination of the certificates and the appellant’s contentions.
On the issue of limitation, the Tribunal observed that the show cause notice did not clearly specify the basis for alleging wilful suppression of facts. Since the goods were captively consumed and the valuation method was within the knowledge of the Department, the Tribunal held that the extended period of limitation could not be invoked. It ruled that any demand, if sustainable after fresh adjudication, could only relate to the normal period. The adjudicating authority was directed to complete the de novo adjudication preferably within 60 days from receipt of the order. The appeal was disposed of on these terms.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief and relevant facts as could be gathered from the impugned Order-in-Appeal are that M/s. Tractor and Farm Equipment Ltd. (TAFE), Power Source Division-I, the Appellant herein, had stock-transferred lead oxide valued at Rs.5,75,10,051/- to their other unit M/s. TAFE, Power Source Division-II at Maraimalai Nagar during the period from September 2003 to March 2008; the Appellant had adopted their own method of cost construction and arrived at a value at 110% of such cost and did not follow the correct costing method i.e. CAS-4 for arriving at the assessable value of the goods stock-transferred. Revenue entertained a view that the Appellant had wilfully suppressed and adopted the cost of production by taking cost as per the cost construction statement from the previous years; that they had short-paid duty amounting to Rs.93,80,442/- by wilfully suppressing the fact regarding the cost of production statement of the previous years and contravened the provisions of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 read with Section 4 of Central Excise Act, 1944. A Show Cause Notice dt. 30.09.2008 was therefore issued proposing to demand Rs.93,80,442/- for the period September 2003 to March 2008 under proviso to Section 11A (1), along with interest under Section 11AB and penalty under Section 11AC ibid read with Rule 25 of Central Excise Rules, 2002 (CER). The proposals as made in the SCN came to be confirmed upon adjudication by the Adjudicating Authority vide Order-in-Original No.42/2017-C.Ex. dt. 30.03.2017.
2. Aggrieved by the order of Adjudicating Authority, Appellant filed an Appeal before Commissioner (Appeals) inter a/ia contending that they had filed the CAS-4 certificate issued by the approved Cost Auditor; the cost of a product cannot be arrived as required under Rule 8 of Central Excise Valuation Rules, 2000 at the time of clearance of the goods but could only be arrived at after completion of financial year and filing of Tax Audit Reports as per CBEC’s letter F.No.206/01/2017-CX.-6 dt. 16.02.2017; the cost adopted by the Appellant was in accordance with the clarification issued by the above Circular; there was revenue-neutrality as the duty paid by them in one unit is available as CENVAT credit to their other unit. It was also contended by Appellant that invoking of suppression and imposing of equal penalty is incorrect and relied on many decided case law in their support; that the Appellant were paying duty on lead oxide based on the moving average price of lead of M/s. Hindustan Zinc Ltd. as the base price, as the basis of price of lead plus a cushioning margin for increased overheads and cost of labour as costing method. The whole supply of lead oxide was to its Battery unit there is no scope of taking excess CENVAT credit; that there is no suppression involved and therefore equal penalty is not legally invokable. It was submitted that in the Adjudication Order it is held that when the standardization has been done by way of CAS-4, the Appellant should have followed the CAS-4. It is submitted by Appellant that Rule 8 of Valuation Rules, 2000 prescribes that when the excisable goods are not sold but are used for consumption by the Assessee or on their behalf in the production or manufacture of other articles, the value shall become 110% of the cost of production or manufacture of such goods. However, the First Appellate Authority also having endorsed the view of the Adjudicating authority, rejected the Appeal vide Order-in-Appeal No.89/2018 dated 28.02.2018, thereby upholding the Order-in-Original supra. Aggrieved by the said Order-in-Appeal, the present Appeal has been filed before us.
3. Shri N. Viswanathan, Id. Advocate appeared and argued for the Appellant and his submissions are captured herein below :
3.1 The Appellant is a manufacturer of automotive batteries. They have two units at Marimalai Nagar, Chengleput District for this purpose. Both the units are located adjacently and coming under the jurisdiction of the same Assistant Commissioner. Unit No.1, is engaged in the production of lead oxide and parts of automotive batteries and the Unit No.II is a manufactuer of automotive batteries. Automotive batteries sold in spare market is subjected to duty on the basis of RSP determined in terms of Section 4A, whereas the battery parts and lead oxide meant for captive consumption at their second unit is subject to duty on the basis of the cost of production determinable in terms of Valuation Rules vis a vis Section 4 of the Central Excise Act, 1944.
3.2 Whatever duty which is paid at Unit No.1 is subsumed at Unit No. II by way of availing of CENVAT credit and the ultimate sale price of automotive batteries captures the cost of lead oxide adopted by them in their Unit No. I. Thus, the full commercial value / RSP attributable to the automotive batteries had been subjected to Central Excise duty resulting in no possibility of any undervaluation.
3.3 Insofar as the lead oxide being stock-transferred torn the Unit No. I to Unit II, the cost of lead predominates in value. Even in the final price of the batteries, the value of lead is significant. Lead is the basic raw material for the manufacture of lead oxide and they source their raw material in the form of ingots both indigenously and through imports. M/s. Hindustan Zinc Limited is the major producer of lead in India and their sale price is being adopted as the guide line value / price by the various manufacturers like the Appelant who source lead from variety of sources. For the valuation of lead oxide, the Appellant had been adopting the moving average price of lead of M/s. Hindustan Zinc Ltd. as the base price and add certain parentage over and above the said price to ensure that the cost of material does not go below the actual cost and further add 10% over the cost of lead oxide to arrive at the cost of production as prescribed. The departmental officers were aware of the method being adopted by the Appelant since inception and the fact that the Appelant do not make any sale of lead oxide except stock-transfer to our own Unit No. II.
3.4 The Appellant had not determined the cost of production based on any previous period. The cost certificate submitted was only for the current period mentioned in the said certificate.
3.5 The Department did not question the correctness or otherwise of the costing adopted by the Appellant. They had merely misunderstood the cost statement for the earlier period whereas the cost statement reflect the current period cost.
3.6 The effective date was very much indicated in the respective cost sheet. The cost of lead as determined based on the moving average price of lead published by M/s. Hindustan Zinc Ltd., which was a Government of India Enterprise at the relevant time, who is the leading producer of lead in India.
3.7 In addition to the moving average price, the Appelant also provided due and sufficient provision to factor the cost escalation based on market conditions and determine the final price / value of lead and added other elements of cost on actuals.
3.8 Copies of Cost certificates for relevant period duly certified by the Cost Accountant filed before the authorities nowhere state that the said certificates were prepared based on the costing of any previous period.
3.9 The Adjudicating Authority has also not found fault with the Cost certificates produced but wrongly assumed that it has to be applied to the previous period which was not correct. The cost certificates represent the cost of the impugned goods for the period stated therein and not for any earlier period. Ld. Counsel also relied on the following caw law :
i. Nirlon Ltd. Vs CCE Mumbai [2015 (320) ELT 22 (SC)]
ii. Commissioner Vs Special Steel Ltd. [2016 (334) ELT A123 (SC)]
iii. CCE Chennai Vs Tenneco RC India Pvt. Ltd. M.A. No.976 of 2009, decided on 19.06.2015 [2015 (323) ELT 299 (Mad.)]
iv. CCE Vadodhara II Vs Indeos ABS Ltd. [2010 (254) ELT 628 (Guj.)]
v. Daman Ganga Board Mills Pvt. Ltd. Vs CCE Daman, Vapi [2012 (276) ELT 532 (Tri.-Ahmd.)]
vi. Trinity DIC Forgers Ltd. Vs CCE Pune-I [2017 (348) ELT 276 (Tri.-Mumbai)]
vii. Precot Mills Ltd. Vs CCE Calicut [2014 (313) ELT 789 (Tri.-Bang.)]
viii. Kansai Nerolac Paints Ltd. Vs CCE Ahmedabad [2016 (339) ELT 467 (Tri.-Ahmd.)]
ix. CCE Mumbai Vs Special Steel Ltd. [2015 (329) ELT 449 (Tri.-Mumbai)]
4. Per contra, Smt. G. Krupa, Id. Departmental Representative would submit, at the outset, that the Appellant having not declared the cost of production in accordance with the mandated CAS-4, the methodology adopted by the Appellant cannot be accepted. She would invite our attention to the clarification issued by Board’s Circular No.692/08/2003-CX. Dated 13.02.2003 and also placed reliance on the following judgments / orders :
i. Vichitra Prestressed Concrete Udyog (P) Ltd. Vs CCE [2018 (363) ELT 318 (Tri.-Mumbai]
ii. Eicher Tractors Vs CCE Jaipur [2017 (358) ELT 375 (Tri.-Del.)]
iii. Tamilnadu Petroproducts Ltd. Vs CCE Chennai [2017 (352) ELT 375 (Tri.-Chennai)
iv. Essar Steel India Ltd. CCE Raipur [2017 (345) ELT 139 (Tri.-Del.)
v. ITC Ltd. Vs CCE Chennai [2016 (333) ELT 287 (Tri.-LB)
vi. CCE Pune Vs Cadbury India Ltd. [2006 (200) ELT 353 (SC)]
vii. Mahindra & Mahindra Ltd. Vs CCE Mumbai-V [2018 (362) ELT 382 (Tri.-Mumbai)]
viii. Star Industries Vs CC (Imports), Raigar [2015 (324) ELT 656 (SC)]
ix. Pricol Ltd. Vs CCE Coimbatore [2018 (360 LET 161 (Tri.-Chennai)]
x. Sweet Industries India Pvt. Ltd. Vs CCE Aurangabad [2016 (334) ELT 164 (Tri.-Mumbai)]
5. We have considered the rival contentions carefully and also perused the documents placed before us, apart from case law relied upon by both the parties. After hearing both the sides, we find that the issue to be decided is, ‘whether the impugned order is sustainable or not ?’
6. At the outset, we find that the case of the Revenue is that the Appellant did follow the costing method in terms of CAS-4; the Cost Statement prepared by the Appellant was not in conformity with the general principles of costing in CAS-4 and that the cost certificates furnished by the Appellant relate to the past periods and hence, same are not reliable. Against this assertion of the Revenue, it is the case of the Appellant as canvassed before us that all the CAS-4 certificates were furnished for the relevant period as certified by Cost Accountant and that none of the CAS-4 certificates stated that the same were prepared based on the costing of any previous period/s.
7. We find that it is appropriate in the backdrop of the above arguments to remit the matter to the file of the Adjudicating Authority who shall verify the CAS-4 certificates furnished by the Appellant, take into consideration the Appellant’s contention and verify the same and then give a finding in accordance with law since, according to us, if the Cost Statements relate to the period in question then perhaps the assertion of the Appellant may have to be accepted. This factual verification is very much required to place on record the proper status with regard to the counter claims and hence, we set aside the impugned order and remit the matter back to the file of Adjudicating authority for carrying out the exercise.
8. We find that the Appellant has also taken a ground as to invoking the extended period of limitation since the SCN dt. 30.09.2008 came to be issued proposing to recover the alleged differential duty for the period September 2003 to March 2008. In this regard, it is contended that since the subject goods were only captively consumed by the Appellant Unit No. II and the Appellant did pay the duty based on the cost of production plus profit margin as prescribed under Rule 8 of the Valuation Rules, 2000 which facts were within the knowledge of the Revenue and hence, there was no suppression, much less suppression with an intent to evade duty and hence, the invocation of extended period of limitation was bad. We have perused the SCN wherein the proposal was to recover the short-paid duty but however, there is no whisper about the reason for alleging wilful suppression of fact regarding the cost of production statements for the previous periods and the contravention of provisions of Rule 8 ibid. Hence, we are of the view that the demand could only be pegged to the normal period alone.
9. In view of our observations, we make it clear that the Adjudicating Authority shall carry out the de novo adjudication for the normal period alone, if any. All other contentions are left open. Considering the fact that the Appeal pertaining to the year 2018, we also direct the Adjudicating Authority to pass a de novo order preferably, within a period of 60 days from the date of receipt of our order.
The Appeal stands disposed of on the above terms.
(Order pronounced in open court on 24.04.2026)
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