CAS-4 (Cost Accounting Standard -4) and Rule 8 Valuation as per Central Excise Rules, 2000

Formation of CAS-4 and Rule 8:

Where the excisable goods which are manufactured are not sold by the assessee, but are used for consumption by himself or on his behalf in the production or manufacture of other articles, the value for computation of Excise Duty shall be 110% of the cost of production or manufacture of such goods. The Cost of production shall be computed using the CAS-4(Cost of Production for captive consumption) for the purpose of excise valuation.

This article shall try to describe the purpose of CAS-4 read along with Rule-8 of Central Excise valuation rules,2000.

Objectives:

CAS 4:

CAS-4 is the cost accounting standard issued by the Council of the Institute of Cost and Works Accountants of India(ICWAI) for determination of Cost of Production for captive consumption.

Rule 8 of Central excise valuation rules, 2000:

Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods.

Captive Consumption:

Captive Consumption means the consumption of goods manufactured by one division or unit and consumed by another division or unit of the same entity or related undertaking for manufacturing another product.

Whether Captive consumption is liable for Excise Duty:

Section 3 of Central Excise Act, 1944 describes the taxable event for levy of Excise Duty is manufacture.

Basic conditions for levy of Excise Duty:

• There is manufacture.
• Such manufacture is in India.
• Such manufacture results in “goods”(which can be moveable and marketable)
• Such goods are “excisable goods”

If the above conditions are satisfied the goods shall be levy to Excise Duty.

Excise Duty is not concerned with ownership or sale. Liability under excise law is based on manufacture and doesn’t depend upon whether the goods are sold or captively consumed.

Therefore, the manufactured goods which are captively consumed are also liable for Excise Duty.

Non-Liability of Excise Duty on Captive Consumption:

Goods captively consumed in the same factory of the manufacturer are exempted from duty as per Notification No. 67/95-CE dt.16.03.1995, if duty is payable on the final product.

Valuation of Goods Covered under CAS-4:

Periodicity of Cost sheet/certification of CAS-4

1. Generally, valuation is required at the time of removal of goods for captive consumption. CAS-4 is used to determine the cost of production for goods captively consumed and calculate deemed transaction value thereof.

2. If the costing is done for the future dispatches/period, the valuation shall be done at the projected cost / projected capacity utilization based on actual cost for previous quarter at the time of removal.

3. Manufacture shall go for provisional assessment under rule 7 of Central Excise Rules, 2002, for valuation of goods, if capacity utilization is likely to be low, as compared to previous period.

4. After the end of year annual certification should be done based on finalized book of account and if cost of production is not in tune with the provisional cost, differential duty arising from it shall be paid by the manufacturer.

Issue of Certificate by the Cost accountant:

CAS-4 certificate shall be certified by a Cost Accountant in practice.

Maintenance of Cost accounting record and cost audit as per Section 148 of the Companies Act, 2013

Maintenance of cost accounting records and cost audit for different products and services are specified in The Companies (Cost Records and Audit) Rules, 2014.

If the product is manufactured and 100% captively consumed for production of some other final product which is also covered under these rules and subject to cost audit, then the cost of such captively consumed product would form part of final product which is also subject to cost audit and as such a separate cost audit report for the captively consumed report will not be necessary.

Availment of CENVAT Credit on Excise Duty Paid as per Rule 8:

Excise Duty paid on the Captive Consumption is not eligible for CENVAT Credit, as Rule 8 applies only when the final product is not excisable.

Cost of Production:

Cost of production has been defined under the CAS-4, and the cost sheet should be prepared in format as per Appendix-1 or as thereto as possible, which are described as follows:

Disclosure Requirement:

1. If there is any change in cost accounting principles and practices during the concerned period which may materially affect the cost of production in terms of comparability with previous periods, it should be disclosed.

2. If opening stock and closing stock of work -in-progress and finished goods are not readily available for certification purpose, it should be disclosed.

Following disclosure shall be made in the body of the Cost Statement or as a footnote or as a separate schedule or below the certificate relating to above items or any other matter.