ORDER
K.C. Mamgain, Member (T)
1. Heard both the sides.
2. Shri R. Raghavan, ld. Advocate appearing for M/s. BMP Beltings Ltd (hereinafter referred to as “BMF-I”) pleaded that the appellants are manufacturing Rubber Compound in factory at BMF-I and clearing the goods to their factory at Chennai (BMF-II) on stock transfer basis for manufacturing Hydro dynamic oil seals by the latter. The department has issued a show cause notice to them on the ground that they have undervalued the goods transferred by them from BMF-I to BMF-II and accordingly demanded duty of Rs. 20,78,993/- for the period from November 1995 to October 2000. The Commissioner confirmed the demand and imposed a penalty of Rs. 18,09,160/- under Section 11AC and penalty of Rs. 3,70,000/- under Rule 173Q of the Central Excise Rules, 1944, on BMF-I.
3. Shri Raghavan, ld. Advocate pleaded that he is contesting the Order-in-Original of the Commissioner on three grounds, namely –
(i) The goods in dispute are not marketable.
(ii) Transfer to other unit of the same manufacturer is revenue neutral as has been upheld by the Larger Bench of the Tribunal in case of Jay Yuhshin Ltd. v. CCE, New Delhi – 2000 (119) E.L.T. 718 (Tribunal -L.B.).
(iii) The cost of production contemplated under Central Excise Valuation Rules, 1975 or under Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 shall not include elements like – Administrative overheads and Selling & Distribution expenses.
He pleaded that cost of production and cost of sale are two different things. The cost of production has to be determined for captively consumed goods as has been notified by the Ministry under their Letter No. 6/29/2002-CX-I (Circular No. 692/08/2003-CX.), dated 13th February 2003 in accordance with CAS-4, includes Administrative overheads relating to production activity only and it does not include selling & distribution expenses. If the marketing and selling expenses are excluded then they have not to pay more duty than paid by them. The department should have only taken into consideration the raw material cost plus labour cost plus factory overheads and thus the value arrived at could have been the proper value instead of the value determined by the Department.
4. Shri P.M. Saleem, ld. SDR appearing for the Revenue pleaded that the appellants have been filing the classification lists and price lists from the beginning and they have never disputed that the product in question is not marketable. They themselves classified the products and are regularly paying duty on the said products by filing proper classification declaration and clearing the goods on payment of duty. The case of the Department is that the appellants have undervalued the goods which are cleared to their second unit. He stated that the plea of the appellants that the exercise is revenue neutral is not correct. He said that the issue is not of revenue neutrality but the issue is of determination of the correct duty. He stated that the appellant’s claim is that the costing has been done according to provisions of Section 4 read with the Valuation Rules. According to the decision of the Supreme Court in the case of Bombay Tyres International – 1983 (14) E.L.T. 1896 and in the case of MRF Ltd. [1995 (77) E.L.T. 433 (S.C.)], the selling and distribution expenses which enrich the value of the goods are to be added in the assessable value. CAS-4 also gives the scope of overheads to be included. He also stated that the appellants did not file any price declaration for the rubber compound cleared by them to their Chennai factory since June 1995 when they started stock transfer. They were filing the price declarations for other products manufactured by them. For five years the value remained static in their invoice despite increase in the cost of various factors constituting the cost of the product. It shows their clear intention of suppressing the correct assessable value of the disputed goods with an intent to evade payment of duty. The Commissioner has gone by the coast data and Board’s Circular on the subject and determined the assessable value. Therefore, the order, of the Commissioner is correct in law.
5. We have carefully considered the submissions made by both the sides. We find that the appellants, M/s. BMP Beltings Ltd. (BMF-I), are manufacturers of various rubber products including the rubber compound. The appellants were clearing rubber compound to their another Unit at Chennai (BMF-II) on stock transfer basis adopting the invoice value since 1995 and did not file any price declaration under Rule 173C of Central Excise Rules, 1944. On scrutiny of the various records, it was found that they had undervalued the goods and accordingly the duty was demanded. We find that it was not in dispute at any stage that rubber compound is not marketable products or it is not excisable products. This was also not the issue in show cause notice before the Commissioner for the decision. The appellants were themselves paying duty on the product after filing classification declaration and submitting monthly RT 12 returns without any dispute. Therefore, raising of this issue by the appellants at this stage cannot be accepted. The issue in the present proceeding is only of undervaluation and not of excisability. Since the appellants were not selling the goods to others but only transferring the goods to their another factory at Chennai (BMF-II), therefore value is required to be determined in accordance with Central Excise Valuation Rules, 1975 read with Section 4(1)(b) of the Central Excise Act. Accordingly the assessable value was proposed to be determined. From 1-7-2000 since Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 came into effect, assessable value was determined as per these Rules from 1-7-2000. The plea of the appellants that there is no revenue loss to the Department since duty paid by them at BMF-I was availed as credit at BMF-II was not accepted by the Commissioner on the ground that during the period from 2-6-1998 to 28-2-1999, there was a restriction on availment of Modvat credit to the extent of 95% of duty paid. Therefore their claim of revenue neutrality is not correct. Since the appellants had not adopted the correct value as required under the rules and they also did not file the price declarations and adopted incorrect assessable value for five years without any change, therefore the suppression of facts and mis-declarations with intent to evade duty is established on the part of BMF-I. Before the lower authority, the appellants had only pleaded that the price was not hypothetical one and was based on the costing of raw materials, labour cost, electricity cost, packing cost etc. and if viewed without loading the overheads factors, it would be very nearer to the calculations as arrived at. We find that the Commissioner in his Order-in-Original has found that BMF-I has not calculated certain components prescribed by the Board and also not filed price declarations. From the order of the Commissioner, it is not possible to us to know whether the cost of production taken by the investigating authority contains administrative overheads in relation to activity other than manufacturing activities like marketing, project management, corporate office expenses, etc. which are required to be excluded as per CAS-4 (Cost Accounting Standard-4). There cannot be sale to self. Therefore selling expenses are to be excluded. The appellants have not shown that how they are concluding that the selling & distribution overheads are included in the cost. In the absence of any evidence, it is not possible for us to come to a definite conclusion. We, therefore, remand the case back to the Commissioner to re-calculate the assessable value of the goods as per CAS-4. The appeal is allowed by way of remand.