Captive consumption valuation requires profit on cost of production, not sales profit of the finished product.

Captively consumed goods must be valued on the basis of their own cost of production, with a reasonable notional profit added to arrive at assessable value. The profit element cannot be derived from the sales profit earned on the finished product, because that reflects the economics of the final and not the captive input. Applying that principle, the Tribunal treated a 10% margin on the cost of production of the captively consumed goods as reasonable and operative for valuation.

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Issues: Whether, in valuing goods captively consumed in the manufacture of finished products, notional profit should be added to the assessable value and whether such profit should be based on the sales profit of the finished product or on the cost of production of the captive goods.

Analysis: The goods in question were not sold as such but were captively consumed in the manufacture of plywood. The assessable value of captively consumed goods cannot be determined by taking the profit realised on the finished product as the basis. In such cases, the accepted approach is to add a reasonable margin of profit on the cost of production of the captive goods. On the facts, the Tribunal followed its earlier view that a 10% profit margin on cost of production was reasonable.

Conclusion: The addition of notional profit was required, but it had to be computed at 10% on the cost of production of the captively consumed goods, not on the sales profit of the finished product.

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