Case Law Details
ITC Limited Vs Commissioner of Central Excise (CESTAT Chennai)
Whether the IDSC/ICNC debit note raised by Bhadrachalam Unit have to be considered as a component of cost of raw materials of the appellant and Whether the unabsorbed overheads due to idle capacity have to be included in the cost of production?
n the case of Inter-unit transfer of goods for captive consumption, the actual cost of production (100% of the cost of production), of the raw material procured from the Bhadrachalam unit of the appellant [excluding the notional loading under Rule 8 – 15% / 10%] is the cost of raw material in the hands of the Chennai unit, for determining the cost of production of packaging material manufactured by the Chennai unit. The percentage of loading on such cost of production, mandated by provisions of Rule 8 for remittance of excise duty by the Bhadrachalam unit cannot not however be considered as comprised in the cost of the raw material consumed for manufacture of packaging material and thus constituting the cost of production at the Chennai unit;
FULL TEXT OF THE CESTAT CHENNAI ORDER
The above appeal was listed for hearing on 05.11.2013. The Tribunal vide Interim Order No. 37/2014 dated 11.02.2014 had decided the Issues No. 1 and 3 therein and had set aside the demand of duty along with interest and penalty in respect of these issues.
“Issue No. 1:- Whether the IDSC/ICNC debit note raised by Bhadrachalam Unit have to be considered as a component of cost of raw materials of the appellant.
…
Issue No. 3:- Whether the unabsorbed overheads due to idle capacity have to be included in the cost of production”
2. With regard to Issue No. 2, the Tribunal referred the matter to the Larger Bench. Issue No. 4 was as to whether the demand was barred by limitation; the Tribunal at paragraph 8.1 of its order had observed that as the Issues No. 1 and 3 were decided on merits and the Issue No. 2 having been referred to the Larger Bench, there was no requirement to discuss the issue of limitation and penalty.
3. The Issue No. 2, which was referred to the Larger Bench, reads as under:-
“(i) Whether, in the case of inter-unit transfer of goods for captive consumption, the entire value (i.e. 115% / 110% of the cost of production) OR the actual cost of production (i.e. 100% of cost) excluding notional loading (i.e. 15% / 10%) of the goods manufactured by the one unit, would be the cost of raw material of the another unit (who used the goods in the manufacture of another article) for the purpose of determining value under Rule 8 of Valuation Rules and CAS-4 issued by ICWAI, for transferring the goods to their other unit for further use.
(ii) Whether the decision of Chennai Bench in the case of C.C.E. v. Eveready Industries Ltd. – 2011 (274) E.L.T. 564 (OR) the decision of Mumbai Bench in the case of Tata Iron and Steel Co. Ltd. v. C.C.E.– 2013-TIOL-770 had enunciated the correct position of law on the above issue.”
4. The Larger Bench vide Interim Order No. 18/2016 dated 12.02.2016 answered the above reference, holding that the decision of the Chennai Bench of the CESTAT rendered in Final Order No. 542/2010 dated 11.05.2010 in the Revenue’s appeal against M/s. Eveready Industries Ltd. and the subsequent decision of the same Regional Bench as reported in 2011 (274) E.L.T. 564 represent the correct position in law. The findings of the Larger Bench are reproduced as under:-
“20. In the light of our foregoing analyses, discussion and reasons, we answer the reference as under :
(a) In the case of Inter-unit transfer of goods for captive consumption, the actual cost of production (100% of the cost of production), of the raw material procured from the Bhadrachalam unit of the appellant [excluding the notional loading under Rule 8 – 15% / 10%] is the cost of raw material in the hands of the Chennai unit, for determining the cost of production of packaging material manufactured by the Chennai unit. The percentage of loading on such cost of production, mandated by provisions of Rule 8 for remittance of excise duty by the Bhadrachalam unit cannot not however be considered as comprised in the cost of the raw material consumed for manufacture of packaging material and thus constituting the cost of production at the Chennai unit;
(b) In view of the conclusions recorded in (a) above, we hold that the decision of the Chennai Division Bench of CESTAT in the Final Order dt. 11.5.2010 in Revenue’s appeal in Eveready Industries and the subsequent decision of the same Regional Bench in the judgment reported in 2011 (274) ELT 564 represent the correct position in law. The decision of the Mumbai Division Bench in Tata Iron and Steel Co. Ltd. v. C.C.E., Thane-II – 2013-TIOL-707 = 2014 (300) ELT 571 (Tri. – Mumbai) does not represent correct view regarding application of Rule 8 of the Valuation Rules and the same is overruled.”
5. The matter was remitted by the Larger Bench for disposing of the matter in accordance with the conclusions arrived at by the Larger Bench.
6. Applying the dictum laid by the Larger Bench in its Interim Order No. 18/2016 dated 12.02.2016, we hold that the demand, interest and penalties in respect of Issue No. 2, which is extracted at paragraph 3 hereinabove, cannot sustain and requires to be set aside, which we hereby do. Issues No. 1, 2 and 3 are therefore answered in favour of the assessee. We direct that the Interim Order No. 37/2014 dated 11.02.2014, passed by the Tribunal in the appeal, be read as part of this Final Order.
7. The appeal is disposed of in the above terms, with consequential reliefs, if any.
(Order pronounced in the open court on 28.02.2023)
