By TIOL News Service

MUMBAI, SEPT 11, 2018: 'SHELLS', 'cut labels' and 'printed sheets' captively consumed by the cigarette manufacturer were subjected to proceedings on the valuation adopted by following the cost construction basis.

The notice pertained to the period from April 1997 to September 1997 for recovery of differential duty of Rs. 6,16,254/- and for the period from September 1997 to March 1998 for recovery of differential duty of Rs. 6,47,923/- by addition of notional margin of profit of 10% and these were confirmed.

This the second round of litigation, the first having been carried by the Revenue to the Supreme Court and which remanded the matter to the original authority and again made its way to the Tribunal from the appellant's side.

The appellant contended that the expression 'if any' in rule 6(b)(ii) of the CE (Valuation) Rules, 1975, implies that the profit margin was to be added only if circumstances so warranted as held by the Larger Bench in the case of Raymond Ltd - 2002-TIOL-119-CESTAT-DEL-LB; that the Supreme Court had held that the notional profit of 10% was to be added in the event of failure on the part of the assessee to establish that a lower notion of profit should be adopted. Reliance is also placed on the decision in PCC Pole Factory - 2003-TIOL-110-SC-CX wherein the absence of sale was held to be a disqualification for enhancement by addition of the notional profit; that in Crompton Greaves Ltd. Order no. 331/2001-A dated 04.09.2001 it was specifically held that addition of notional profit in assessable value is not permissible when the assessee's manufacturing activity is in loss.

The AR relied on the decision in Chackolas Spinning and Weaving Mills Ltd. - 2015-TIOL-153-SC-CX & Union Carbide India Ltd - 2003-TIOL-62-SC-CX in support.

After considering the submissions, the Bench inter alia observed –

+ Valuation to be adopted for such captive consumption poses problems which led to the incorporation, within the rules, of a notional profit on the cost of production.

+ Therefore, irrespective of whether the goods are sold or used entirely for captive consumption, it is not just the cost of production but the profits that would have been earned had the goods been sold outside that was required to be included for the purpose of assessment of duty.

+ The contention (of appellant) is that they had been making loss; it would appear that this loss pertained to the sale of the finished products, viz. , cigarettes.

+ On the other hand, the exercise was to determine the assessable value of inputs used in the manufacture of cigarettes in the form in which it is finally presented for sale. The goods being entirely consumed within the factory does not have a comparison basis with sales made by the appellant or, by anybody else, of like goods.

+ At the same time, the appellant is unable to show that the assessable value adopted by the lower authorities does not reflect the cost of production and the profit that might have been earned even if these goods have been sold by the assessee or purchased by the assessee from outside.

+ A loss on the product that is cleared finally using the impugned goods as an input is not relevant for determining the notional profit envisaged in rule 6(b)(ii) of Central Excise (Valuation) Rules, 1975.

Concluding that there is no merit in the appeal filed by the assessee, the same was dismissed.

(See 2018-TIOL-2778-CESTAT-MUM)