The Hindu Business Line : Circulars on valuation on incorrect costing principles

NOT many CAs may know that CAS is an abbreviation that does not belong to the Institute of Chartered Accountants of India. No, I'm not talking about conditional access system and the dozens of other expansions one may find on www.acronymfinder.com, but the Cost Accounting Standards from the Institute of Cost and Works Accountants of India. On http://myicwai.com you can find four such pronouncements, on classification of cost, capacity determination, overheads, and cost of production for captive consumption.

The last, that is, CAS-4 finds elaborate mention in a recent tribunal decision from New Delhi, in the National Aluminium Co Ltd case. The assessee contended that excise circular dated February 13, 2003, lays down the correct method of costing w.r.t. valuation of captively consumed goods, and that the said circular governed the valuation of all pending cases, irrespective of whether the goods in question were removed prior to the issue of that Circular or after its issue. No, said the Revenue, insisting that the earlier circulars on the subject should govern the valuation for the period when they were in force.

The company pointed out that the circular spoke about `general principles of costing' and of the ICWAI having developed CAS. Paragraph 3 of the 2003 reads, "It is therefore, clarified that cost of production of captively consumed goods will henceforth be done strictly in accordance with CAS-4."

The subsequent paragraph had something interesting to say: "4. Board's Circular No.258/92/96-CX dt. 30.10.96, may be deemed to be modified accordingly in so far as it relates to determination of cast of production for captively consumed goods."

Arguing for the company, V. Lakshmi Kumaran submitted that an assessee could seek the benefit of a beneficial circular even with regard to a pending dispute and that such a circular had to be applied retrospectively while oppressive circulars are to be applied prospectively. Citing an earlier case, he argued that Revenue could not be heard to contend against its own circulars.

To support the stand of the company there was the Eswaran & Sons Engineers case where the apex court had held that a court might compel compliance with such instructions as are for the benefit of the assessee.

Jyoti Balasundram and C.N.B. Nair of the tribunal heard the case and reasoned that the two paragraphs of the 2003 circular, viz. 3 and 4, 5, made it clear that the cost of production of captively consumed goods would "henceforth" be done strictly in accordance with CAS-4. "Even in the absence of such a statement, it would be correct to follow the Circular inasmuch as `general principles' are of guidance without regard to time and an assessee would be well within his rights to demand that a dispute involving him may be decided according to `the general principles' applicable to the issue in dispute, irrespective of what a circular of the Government may say," stated the tribunal.

However, such a situation did not arise in the present case since the circular "has taken care to specifically clarify that `existing instructions may be deemed to be modified'". Therefore, it would not be permissible to apply the instructions without the modification, opined the tribunal, asserting that the circular binds the Revenue.

"Therefore, in pending matters, the assessee can seek determination of his case under a later beneficial circular by pointing out that instructions contained in the earlier circulars are incorrect and the matter should be settled according to `general principles' developed by an authority competent to lay down standards," reads the ruling of the tribunal, referring to, as you might have rightly guessed, the ICWAI.

In this, the tribunal drew support from a Calcutta High Court decision in the Birla Jute and Industries case, as approved the apex court in the Eswaran & Sons case cited earlier.

That the Revenue's argument stood on shaky ground comes forth in these lines extracted from the tribunal's ruling: "The Revenue seeks to finalise pending valuations applying different costing principles on the plea that different criteria had been circulated from time to time. The assessees are contesting the correctness of that approach by contending that the instructions contained in the earlier circulars were not in conformity with the general principles of cost accounting, and that the latest circular which incorporated correct principles should be followed in all pending cases."

The Revenue had no independently sustainable claim, ruled the tribunal and added that the Revenue's claim was based entirely on circulars issued from to time, "that too, on incorrect costing principles".

Perhaps the ICAI should run a continuing education programme on CAS too!

********

To warm the hearts of CAs, here is the J. K. Industries case where the Delhi tribunal asked the excise officials to look at the CA certificate produced by the company as proof that it had not passed the incidence of duty to customers.

"There is no dispute regarding the excess payment of the duty by the appellants. Their right to claim the refund of the excess paid duty, had been accepted by the authorities below with a rider that they had passed on the incidence of duty to the consumers and as such are not entitled to get back, in view of the apex court judgment in the case of Mafatlal Industries," states the tribunal's ruling, narrating the facts.

The order of the Commissioner (Appeals), that the company was aggrieved against, referred only to the CA's certificate produced before him. "He has not made reference to the vouchers or copies of the balance sheets produced before him. He has refused even to take cognisance of that CA certificate also," observed the tribunal about what was not the right thing to do by the Commissioner (Appeals).

"He should have gone into the authenticity, correctness and the evidentiary value of those documents. If he himself was unable to do so, he could call for the report from authority below, sent back the case to him, for fresh decision, but he did not even adopt that course and this, in our view, has certainly resulted in miscarriage of justice," is how the tribunal chided the Department.

"It can hardly be denied that an assessee on the basis of the entries in the balance sheet, voucher or CA certificate, could prove the non-passing of the incidence of duty. The documents produced by the assessee require re-examination."

This is a case that should alert the accounting professionals because the tribunal gives the accountants' certificates so much importance that the onus of ensuring their correctness falls on CAs.

Tailpiece

"In the world of service, there are two types of people — those who pay and those who don't."

"You mean, pay for the service they receive?"

"No, I meant service tax!"

Detaxification@TheHindu.co.in

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