Adopting cost inflation index of Income Tax for Excise valuation not valid

Shri Krsna Urja Project Pvt Ltd. Vs CCE (CESTAT Delhi)

CESTAT Delhi held that there was no legal basis for adopting cost inflation index of Income Tax dept for determination of assessable value under Section 4 of CE Act read with the CE Valuation Rules, 2000, for valuation of captively consumed goods. The Tribunal also noted that cost of manufacture as certified by Cost Accountant in CAS-4 cannot be rejected based on vague reasons and that Commissioner (Appeals) should have provided tenable grounds for rejecting assessable value.

FULL TEXT OF THE CESTAT JUDGEMENT

The brief facts of the matter are that the appellant is engaged in manufacture of end use car carrier falling under Central Excise Tariff Heading 87 during the financial year 2008-09 and 2009-2010. The appellant have manufactured 25 car carriers for their captive use for transportation of the cars, which are not sold by them. The appellant have paid Central Excise duty on such car carriers as per the provisions of Rule 8 of Central Excise Valuation Rules, 2004 on the basis of value provided by Cost Accountant as per the requirement of CAS 4 certificate. The Revenue has undertaken Audit of the appellant’s manufacturing premise for the period covering April 2008 to November, 2010. The Revenue has entertained a doubt with regard to the valuation adopted by the appellant for payment of Central Excise duty. It has been contended by the Revenue that the cost of manufactured car carriers given by the Cost Accountant in their CAS 4 certificate is less than the value adopted by the Revenue for the previous period i.e. 2004-2005 to 2007-2008, for which the show cause notice was issued earlier and adjudicated by the competent authority.

2. The assessee had shown total cost of production of car carriers in CAS 4 for the years 2008-2009 and 2009-2010 as under:

Accordingly, the value per Car Carrier Body value works out as under:-

3. It, therefore appeared for the revenue that the assessee had manufactured and cleared total 25 Nos. of Car Carrier Bodies for their own use, without payment of proper Central Excise Duty leviable thereon as the assessable value shown by them in their CAS 4 Certificate for the years 2008-09 & 2009-10 has been shown on lower side. The cost of raw material and manufacturing cost is increasing day by day on account of inflation which is rising regularly. This fact is confirmed by the Cost Inflation Index notified by the Income Tax Department in Official Gazette for the year 2008-09 which is @ 105.63% of the cost for the year 2007­2008. Also inflation for the year 2009-10 has been notified @ 114.70% of the cost for the year 2007-08. The basic premise of demand of Rs.19,27,842/- was worked out by the Revenue keeping in mind the Cost Inflation Index.

4. Accordingly, the assessable value of per car carrier body was worked out and appropriate Central Excise duty was demanded by the Revenue, as given below:-

Year 2008-09

Year 2009-10

5. Thus it can be seen from the above that the basic premise on which the Revenue has rejected the assessable value adopted by the appellant assessee is primarily two folds, firstly, the value adopted by the Revenue for manufacture and clearances of cover car carriers body was higher in their previous SCN covering the assessment years 2004-2005 to 2007-2008; Secondly, taking the previously adopted value, they have increased the value on the basis of cost inflation index as adopted by Income Tax department in their official gazette for the financial year 2008-2009 and 2009-2010. The show cause notice demanding duty of Rs.35,38,452/- came to be issued which was adjudicated by the Joint Commissioner vide their order dated 11.01.2016 wherein the learned adjudicating authority has confirmed the Central Excise duty of Rs.35,38,453/- along with interest under section 11AB and equal amount of penalty has also been imposed under section 11AC of the Central Excise Act, 1944. The appellant assessee has gone in appeal before the Commissioner (Appeals) which was adjudicated vide order dated 19.4.2018 confirming the charges as confirmed in order-in-original. The appellant-assessee is before us against the impugned order of the Commissioner (Appeals).

6. It has been the main contention of the learned advocate of the assessee that the valuation of the car carrier bodies adopted by them is as per the legal provisions of Central Excise Act read with Central Excise valuation Rules. It has been the argued by the learned advocate appearing for the appellant that all 25 car carrier bodies manufactured by them have been captively used by them for their own purpose and as per the provisions of section 4 of Central excise Act, 1944, it is very categorically provided that where there is a no sale in the normal course of business, the provisions of Central Excise Valuation Rules, 2000 need to be applied. It has further been added that the Central Excise Valuation Rule 8 specifically covers the situation where the manufactured goods are cleared for captive consumption. It has been further been added that CAS 4 certificate given by Cost Accountant is on the basis of factual cost of manufactured product on which they have added the 10% of the value for payment of Central Excise duty as per the provisions of Central Excise valuation Rules. The learned advocate is of the view that rejection of CAS 4 certificate by the Revenue without any valid and cogent evidence is legally not tenable and therefore, learned Commissioner (Appeals) has erred in rejecting the CAS 4 certificate based assessable value adopted by the appellant and arbitrarily taken the value which was adopted by the department in their previous Show cause notice and applying the cost inflation index of the Income Tax department which is primarily for assessment of income and not applicable in the cases where the factual and certified cost of manufactured products is available. It has also been argued that as per the order of this Tribunal in their own case, they are also entitled for the benefit of notification No. 6/2006 dated 1.3.2006 and by virtue of which they are not liable to pay any Central Excise duty on the manufacture of body for mounting on the duty paid chassis. The learned advocate has also argued that larger period of limitation for demanding Central Excise duty is not invokable in their case as department has all along been aware about the method of assessable value adopted by them for payment of Central Excise duty and therefore demand is barred by limitation and accordingly, the penalty under section 11AC is also not imposable on them.

7. We have also heard learned DR who has reiterated the findings as mentioned in the learned Commissioner (Appeals)’ order.

8. We have heard both the sides . The basic issue before us is to determine as to whether the assessable value arrived by the appellant assessee for payment of Central Excise duty, on the car carrier body build by them, as per the provisions of Rule 8 of Central Excise Rules, 2000 read with section 4 of Central Excise Act, 1944 is correct as per provisions of law or not and secondly; whether the demand of duty is hit by bar of limitation.

9. It is seen that section 4(1)a of the Central Excise Act provides that assessable value of final products shall be the transaction value where the goods are sold by the assessee for delivery within time and place of removal and where the assessable value and price of goods is the sole consideration of sale. It can be seen that the applicability of transaction value in a particular case is subject to satisfaction of following four conditions, namely:

(1) Sale of excisable goods;

(2) Goods should be sold at the time and place of delivery;

(3) The assessee and buyer are not related to each other; and

(4) price of the goods is sole consideration of the sales.

10. In case the above conditions are not met, the assessable value is to be determined in terms of section 4(1)(b) of the Central Excise Act read with Central Excise Valuation Rules, 2000. In the present case of the appellant, the condition of ‘sale of excisable goods’ is not being satisfied as manufactured goods are not being sold by the appellant assessee but used by them captively. In view of this, the only course of action for determining the assessable value of the manufactured goods has to resort to Central Excise Valuation Rules for determining the transaction value. The Rule 8 of Central Excise Valuation Rules specifically provides that 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 110 % of the cost of production or manufacture of such goods. It can be seen that Rule 8 specifically covers a situation like the one before us except that it is not used for further manufacture of excisable goods. We believe that for determining the assessable value under the present situation under Rule 8 of Central Excise Valuation Rules, 2000 is the closest and more appropriate because the basic requirement of Rule 8 of Central Excise Valuation Rules, 2008 that (a) that the goods are not sold and (b) the goods are used for consumption by appellant assessee, are satisfied. We are of the view that since the goods are being used by the appellant assessee himself, it is not necessary that same need to be used only for the production and manufacture of other articles. Now coming to the fact that valuation of captively used car body carriers adopted by the appellant assessee was based on certificate given by the Cost-accountant in the prescribed form of CAS 4 and on this cost of manufacture the appellant assessee has further added 10% value as per requirement of Rule 8 and duty has accordingly been paid. It is worth noting that the CAS 4 certificate is based on factual data of cost of manufacturing of excisable goods and same is certified by the Cost Accountant and thus the assessable value is reached as prescribed under Rule 8 of the Central Excise Valuation Rules. The certified cost of the manufacture of product cannot be rejected on the basis of some vague reasons. The commissioner (Appeals) should have provided legally sound and tenable ground for rejecting the assessable value reached at on the basis of certified costing data. We also find that there is no legal basis for adopting the cost inflation index of the Income Tax Department for determination of assessable value under the legal premise of section 4 of Central Excise Act read with Valuation Rules of Central Excise Valuation Rules, 2000 and therefore, we find that Commissioner (Appeals) has travelled beyond the legal premise for determining the assessable value of the excisable products.

11. We find that the method adopted by the appellant assessee for determination of assessable value under Section 4 of Central Excise Act, 1944, is legally correct and thus we also find that they have rightly discharged their Central Excise duty liability. In view of the above, we do not find any merit in the order of Commissioner (Appeals) and same is set aside. The other argument raised by the learned advocate regarding applicability of notification 6/2006 dated 1.3.2006 we find that since same has not been subject matter either of the order in original or order of Commissioner (Appeals), therefore, we do not find any justification in commenting on the applicability of above notification in this case.

12. We also find that the demand is hit by period of limitation as on the same issue the department had issued a show cause notice earlier covering the period of 2004-2005 to 2007-2008. The present impugned show cause notice dated 26.04.2013 covers the period of financial year 2008-2009 and 2009-2010 which is much beyond the normal period of demanding duty under section 11AC of Central Excise Act, 1944. Since the department has all along been aware about the practice followed by the appellant and they have also filed their return in time, we find there are no valid grounds for invoking extended time of limitation under Section 11A of Central Excise Act, 1944 and therefore, we find that demand is barred by limitation and as such, not sustainable.

13. In view of the above, appeal is allowed with consequential benefit, if any, to the appellant.

(operative part of the order pronounced in the open Court)