Formula prescribed in notification is binding to arrive value addition by revenue ,Cost Audit Report Rules not to be followed

By | December 8, 2015

B4 – Kolkata Zone – Assessment and Valuation – Fixation of special rate representing the actual value addition under Area based Exemption Scheme

Issue:

It was explained by the sponsoring zone that an assessee was engaged in the manufacture of various food products and cosmetic products under chapter 21 and chapter 33 and availing area based exemption notification no 20/2008-CE dated 27.03.2008 and 38/2008-CE dated 10.06.2008. The assessee had applied for fixation of special rate for the F.Y 2011-12. The Joint Director (Cost) Kolkata initially worked out the percentage of value addition based on the Value Addition Formula prescribed in the notification no 20/2008-CE dated 27.03.2008. But a re-working of actual value addition in respect of these products was carried out by the Joint Director adopting the formula prescribed in Cost Audit Report Rules, 2011 and taking into account two more ingredients viz

(i) consumption of stores & spares and

(ii) consumption of fuel indicated a different value addition.

The Advisor (Cost) Kolkata expressed agreement with the recommendations of the Joint Director (Cost) and opined that subject matter being contentious, should not be decided for the time being. The jurisdictional Commissioner elaborated the logic of applicability of Cost Audit Report Rules, 2011. The issue has been brought before the conference as to whether the said Cost Audit Report Rules may be adopted for fixing value addition though these rules are not specified in the notification on area based exemption.

Discussions & Decision

The conference discussed the issue and after discussions concluded that the formula prescribed in the notification is binding for arriving at the value addition by revenue. It was beyond the authority of law to impose conditions in a notification not explicitly prescribed in the notification concerned. The sponsoring zone may make a detailed reference to the Board, suggesting change in the notification, if they deem it necessary. However, till the amendments are made in the notification, the formula as prescribed in the notification is required to be followed to arrive at value addition. As the present applications would be governed by the notification as they exist, they should be decided on the basis of the formula prescribed in the notification.

Source : Annexure B of  Minutes of Central Excise Tariff Conference held in Chandigarh on 28th and 29th October, 2015

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