Excise valuation of customer-supplied goods excludes the customer's notional profit and avoids double counting embedded costs.

For excise valuation of steel drums made from customer-supplied sheets and coils, assessable value had to be determined under Section 4 and the Valuation Rules on a cost-plus basis, using the manufacturer's cost and manufacturing profit. The customer's notional profit could not be loaded into the assessable value because the customer was not the manufacturer and its post-manufacturing margin had no basis in valuation. Transportation charges were not separately addable where they were already covered by fabrication charges, and wrapping material cost could not be added again when it was already embedded in the certified cost data.

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Issues: Whether, for valuation of steel drums manufactured from customer-supplied steel sheets and coils, the assessable value could be loaded with the customer's notional profit, and whether transportation charges and wrapping material cost were separately includible.

Analysis: The assessable value was required to be determined under Section 4 of the Central Excises and Salt Act, 1944 and the Valuation Rules, 1975. As the drums were not sold by the assessee in the ordinary course at a normal price, the case fell under the residuary valuation framework and the value had to be worked out on the basis of the manufacturer's cost and profit. The governing principle was that the manufacturer's expenses and manufacturing profit could be taken into account, but not the customer's post-manufacturing or notional profit. The materials showed that the fabrication charges already covered the transportation charges borne by the assessee and that the wrapping material formed part of the cost of the steel sheets and had already been reflected in the certified cost data. The customer was not the manufacturer, and no basis existed to treat its notional margin as part of assessable value.

Conclusion: The customer's notional profit was not includible in the assessable value, and the transportation charges and wrapping material cost were not separately addable again.

Final Conclusion: The valuation adopted by the lower authorities was unsustainable, and the assessee was entitled to relief on the disputed additions.

Ratio Decidendi: In valuation under the excise rules for goods manufactured on customer-supplied materials, assessable value includes the manufacturer's cost and manufacturing profit but excludes the customer's notional profit and any expenditure already embedded in the certified fabrication cost.

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