Case: Commissioner of Central Excise, Ahmedabad Vs. M/s. Asarwa Mills &amp; Others

1. The respondents herein are engaged in the manufacturing of yarn and fabrics. The yarn was captively consumed in the manufacture of fabrics. The respondent were paying the duty on the yarn at the spindle stage on the basis of cost of construction arrived at under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975. The Department contends that the respondents had not declared the correct value of the captively consumed yarn during the years97 as the value declared was much lower than the value arrived at on the basis of Cost Audit Report furnished by their cost accountants. Thereafter, an investigation was held and it was further observed that the respondents had not included the value of administrative overheads, bonus, gratuity, interest, conversion charges and depreciation charges in the assessable value of the yarn.2. Show cause Notices were served upon the respondents in the year 1999 demanding differential duty along with interest. The notices alleged that there had been duty evasion. The said show cause notices were adjudicated upon by the Commissioner of Central Excise, Ahmedabad, who confirmed the demands and also imposed the penalty on the respondents. It was held that all the administrative and other overheads along with wraping, winding, beaming, sizing and dyeing charges were includible in the assessable value. The Commissioner further confirmed the invocation of the extended period of limitation only in respect of the administrative and overhead expenses.3. Aggrieved, the respondents preferred appeals before the Customs, Excise and Service Tax Appellate Tribunal, Mumbai (hereinafter referred to as CESTAT). CESTAT vide its common order dated 13.02.2004 allowed the appeals on the ground that the larger period of limitation was not invocable against the respondents herein and accordingly set aside the demands of duty on them. It was also held that the cost accountants were the experts authorized by the law to do the costing of production of the goods and their duly certified statements/ reports relating to such costing were legally authentic enough to be acted upon by their clients and any error found in such certificates would not be a valid ground for any authority to proceed against the clients criminally or

Court's reasoning:
7. After hearing the counsel for the parties on both sides and going through the records, we find that theare correct in their submissions on both the counts and the CESTAT has rightly accepted their case.We also find that earlier there was some ambiguity and it was not clear as to whether cost of labour, bonus, etc., is to be included while arriving at the cost of captive consumption of this item. This was clarified only vide circular dated 30.10.1996 issued by the Central Board of Excise and Customs, New Delhi on the subject of Assessable Value in the case of Goods captively consumedThe clarification, as noted above, pertains to calculation of value of goods captively consumed under Rule 6(b)(ii). It is this Rule which is undoubtedly applicable in the present case. Thus, for the first time, only in October, 1996, it was clarified that the cost of material, labour cost and overheads including administrative cost, advertising expenses, depreciation, interest, etc., would be included in the cost of production. The period with which we are concerned is prior to October, 1996, i.e., April, 1994 to September, 1996. It, therefore, cannot be said that themade intentional misdeclaration with the purpose to avoid payment of correct excise duty.13. We thus, find that the CESTAT was right in holding that extended period of limitation would not be applicable in the present case.