Captive consumption

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Shambhu Agarwal (Querist)
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06 December 2009 we are the producer of TMT bar (Excisable Goods) and we capitively consumed the TMT bar for our another unit (for Civil construction) in the same factory/premises resulting in excise duty liability.whether we are liable to able the Cenvat credit of such captive consumption? (Treatment in a/c -: we pass the sale and purchase entry for the same?)
plz give me reply with proper justification instead of yes or no.

Ram Avtar Singh

Ram Avtar Singh (Expert)
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06 December 2009 Valuation in case of captive consumption - In case of captive consumption, valuation shall be done on basis of cost of production plus 15%. (Rule 8 of Valuation Rules). Captive consumption means goods are not sold but consumed within the factory.
In case goods are supplied to a 'related person' but consumed by the related person and not sold, valuation will be done on the basis of cost of production plus 15%. [Proviso to rule 9]
The simplified provision has been probably made as in most of the cases, the buyer will be able get Cenvat credit of duty paid on inputs and there is hardly any incentive to avoid any payment of duty.
Normally, certificate from Cost / Chartered Accountant in respect of cost of production should be obtained. As per normal costing principles, 'cost of production' should include production overheads and proportionate share of administrative overheads. However, since the term used is 'cost of production', sales overheads should not be considered. As per department's earlier circular No. 258/92-96-CX dated 30-10-1996, cost of production of goods should be determined so as to include cost of material, labour cost and overheads including administrative cost, advertising expenses, depreciation, interest etc. Board had advised that CA certificate and profit and loss statement should be scrutinised carefully and should not be accepted blindly or automatically. Other instructions in the circular regarding calculation of profit margin have now become redundant. [In the opinion of author, advertisement costs in relation to selling expenses should not form part of 'cost of production'].
Material Cost should be exclusive of duty paid on inputs and cost of as material handling of inputs should be included

Thus, the formula for determining value is simple. If the cost of production based upon general principles of costing of a commodity is Rs. 10,000 per unit, the assessable value of the goods shall be Rs. 11,500 per unit.