Shrinkage in fabric valuation excluded from duty demand where profit loading was found to cover processing loss.

Duty on grey fabrics lost during processing due to shrinkage was examined as part of the valuation of processed fabrics. The valuation exercise had already treated shrinkage as a component relevant to the intrinsic value of the grey cloth, and the records showed that profit was loaded at 10% with shrinkage stated to be included in that element. On the facts recorded, the revenue did not establish that the 4.26% shrinkage fell outside the added profit component, so the demand on account of shrinkage was not sustainable.

---

---

Issues: Whether duty could be demanded on grey fabrics lost during processing on account of shrinkage while computing the value of processed fabrics.

Analysis: The demand had been raised for duty on fabrics lost during processing due to shrinkage. The valuation issue had already been recognised as involving inclusion of shrinkage in determining the intrinsic value of the grey cloth. On the facts of the case, the records also indicated that profit had been loaded at 10% and shrinkage was stated to be included therein. The revenue did not establish that the shrinkage of 4.26% fell outside the added profit element.

Conclusion: The demand on account of shrinkage was not sustainable and the appeal was dismissed.

---