Valuation of intermediate goods manufactured and stock transferred to Sister concern

PJ/Case Laws/2012-13/1035

Case: Commissioner of Central Excise Vs. Eveready Industries (I) Ltd.

Citation: 2011 (274) E.L.T. 564 (Tri.- Chennai)

Issue:- Valuation of intermediate goods manufactured and stock transferred to Sister concern – whether cost of production to be ascertained on actual basis or on notional basis?

Brief Facts:- Eveready Industries India Limited, National Carbon Plant at 1075, TH Roads, Chennai were engaged in manufacturing dry cell batteries. In course of manufacture of dry cell batteries, a number of mixes were prepared, two of which was – AA Mix 915 and AA Mix 1015. They also manufactured AA Cans. These apart from captively consumed, were also stock transfer to Guindy Plant. For manufacturing of AA Mix, the company was receiving electrolytic manganese dioxide from Navi Mumbai Plant (EMD Plant). This was dispatched on payment of duty. The duty was paid by the EMD Plant by determining the value for payment of duty as under:-

(a) Cost of Production computed and certified by the Cost Auditor of the Company.
(b) Corporate Overheads
(c) Notional deemed profit at 15% of cost of production + Corporate overheads

The question was how to determine the value of AA Mix 915 and 1015 type manufactured by National Carbon Plant, for the purpose of payment of duty since the same was not sold but transferred to their Guindy Factory and Consumed in Guindy Factory

Respondent’s Contention:- In case of Union Carbide India Ltd. Vs. Collector of Central Excise Calcutta [2003 (158) E.L.T. 15(S.C.)], the Apex Court has held that in case of captive consumption, the cost of production means actual cost of production together with notional profit. Respondents submission was that this method was prescribed in CAS and has been followed by them was not controverted by Revenue.

Reasoning of Judgment:- In term of Rule 8 of Central Excise Valuation Rules, 2000, in such circumstances the value is to be determined based on cost of production + 15% notional margin.

In terms of Circular No. 692/8/2003-CX, dated 13th February, 2003, the cost of production for the purpose of arriving at the assessable value of goods captively consumed is to computed in accordance with CAS-4. This standard stipulated that cost of production shall not include marketing costs, corporate overheads and interest.

While determining the cost of production at National Carbon Plant, the actual cost incurred is alone to be taken into consideration in respect of raw material received from Mumbai namely electrolytic manganese dioxide. The corporate overheads and notional deemed profit taken into account for the limited purpose of computing the assessable value for payment of duty at Navi Mumbai Plant is not to be taken into account while working out the cost of production at National Carbon Plant. The same principle applies to the AA type Zinc calots received from their Guindy Plant.

Decision:- Appeal Rejected.

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PJ/Case Laws/2012-13/1035

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