COMMISSIONER OF CENTRAL EXCISE, PUNE v. M-S. CADBURY INDIA LTD

Citation: [2006] SUPP. 4 S.C.R. 207

Court: Supreme Court of India

Bench: ASHOK BHAN, MARKANDEY KATJU

Case summary

COMMISSIONER OF CENTRAL EXCISE, PUNE v. M-S. CADBURY INDIA LTD.pdf

Judgment text

COMMISSIONER OF CENTRAL EXCISE, PUNE v. MIS. CADBURY INDIA LTD. AUGUST I, 2006 [ASHOK BHAN AND MARKANDEY KATJU, JJ. ] Central Excise (Valuation) Rules, 1975; Rule 6(b)(ii)/Circular No. 6921 • 812003-CX dated 13. 2.

2003 issued by the Central Board of Excise and Customs: Valuation-Goods/milk products captively consumed in manufacturing of final product/chocolate-Expenditure incurred on-Factory expenses- Inclusion in the cost of production-Held: Products in question captively consumed by the a~sessee in his factories-These are neither marketable nor did the assessee sell them-Principles ofAccountancy as recognized by the Central Board of Excise and Customs could be followed for determining the cost ofproduction-Direct Labour Cost/material cost/overhead expenses in producing the intermediate products could only be included in the cost of production ofthe final product-Revenue is not permitted to rake view to the contrary-Hence, factory expenses incurred on these products could not be included in the cost for the purpose of valuation.

The question, which arose for determination before this Court in these appeals was as to whether the expenditure incurred in manufacturing of certain products of milk which are captively consumed in the factories of the assessee in the manufacture of chocolate, the final product, and no part of which are sold by the respondent, could be included in the cost of production in terms of Rule 6(b)(ii) of the Central Excise (Valuation) Rules for the purpose of valuation. Dismissing the appeals, the Court HELD: 1. 1. According to settled principles of accountancy only the elements that have actually gone into the manufacture/production of the intermediates i. e. sum total of the direct labor cost, direct material cost, direct cost of manufacture and the factory overheads of the factory producing such intermediate products are included in the cost of production. (210-F-G( CCE v. Dai ! chi Karkaria ltd, (1999( 7 SCC 448, relied on. 1. 2.

The cost accounting principles as laid down by the Institute of Cost and Works Accountants of India (ICWAI) have been recognized by the Central Board of Excise and Customs vide Circular No. 692/8/2003 - CX dated 13. 2. 2003. The circular requires the department to determine the cost of production of captively consumed goods strictly in accordance with these principles. (211-H; 212-A( BMF Be/tings ltd v. CCE: (2005) 184 E. L. T. 158 (Tri. - Bang. ); ITC v. CCE, (190) ELT 119; Teja Engineeringv. CCE, (2006) 193ELT100 (Tri- Chennai); Ashima Denims v. CCE. (2005) 191 ELT 318 (Tri-Mumbai); and Arti Industries v. CCE, (2005) 186 ELT 208 (Tri-Chennai), referred to. 1. 3. In the present case thr intermediate products are captively consumed in the assessee's own factory. These intermediate products are not sold nor are marketable. Hence question of including the factory expenses in producing the final product in their valuation as was sought to be added by the Revenue, does not arise.

(212-D( CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2947-2948 of 2001. From the Final Order No. C-1/3430-31/WZB/2000 dated 28. 9. 2000/ 24. I0. 2000 of the Customs, Excisee & Gold (Control) Appellate Tribunal, West Regional Bench at Mumbai in appeal No. E/102 l/'2000-MUM. WITH C. A. Nos. 1856-1857/2002, 5232-5233/2003, 1425/2005 and 2878-2879/ 2005. Harish Chander, Binu Tamta, T. S. Murthy, R. Sudhinder and B. K. Prasad for the Appellant. Joseph Vellapally, Ashok H. Desai, D. B. Shroff, Pratap Venugopal, E. Venu Kumarr for (K. J. John & Co. ), U. A. Rana, P. K. Thakur (Gagrat & Co. ), Bhavesh Panjwani, P. H. Parekh, Sameer Parii . The circular requires the department to determine the cost of production of captively consumed goods strictly in accordance with CAS-4. The Tribunal in the case of BMF BELTINGS LTD. v. CCE: (2005) 184 - E. L. T. I58 (Tri. Bang.

) for the period 1995 to 2000 has directed the department to apply CAS-4 forthe determination of the cost of production ofthe captively consumed goods. In ITC v. CCE, (190) ELT 119 the Tribunal held that the department has to calculate the cost of production in terms of CAS-4. Other decisions of the Tribunal, wherein it has directed that CAS-4 be applied for determination of the cost of production, are Teja Engineering v. CCE, (2006) - 193 ELT 100 (Tri-Chennai), Ashima Denims v. CCE, (2005) 191 ELT 318 (Tri-Mumbai), and Arti Industries v. CCE, (2005) 186 ELT 208 (Tri-Chennai). This is therefore a consistent view taken by the Tribunal. The department has not filed any appeal in these cases and accepted the legal position. Apart from this, in the light of several decisions of this Court, the Department is also bound by the said circular No. 692/8/2003-CX dated 13. 2. 2003 issued by the CBEC. As such it cannot now take a contrary stand.

It may be noted that in the present case the intermediate products (milk crumbs, refined milk chocolate and four other intermediate products) are captively consumed in the Respondent's own factory. These intermediate products are not sold nor are marketable. Hence there can be no question of including the expenses ofthe factory which produces the final product namely the chocolate e. g. advertising, insurance and another expenses in their valuation as was sought to be added by the Commissioner (Appeals) and the Assistant Commissioner. For the reasons given above, we find no merit in these appeals and they are dismissed. No costs. Civil Appeal Nos. 1856-195712002, 5232-523312003, 142512005 & 2878- 287912005) In view of the decision in Civil Appeal Nos. 2947-2948/200 I, these appeals are accordingly dismissed. No costs. - S. K. S. Appeals dismissed.