Captively consumed goods duty and valuation must reflect Modvat credit and the binding Board circular on assessable value.

Compound rubber captively consumed in the manufacture of ADV tyres was dutiable for the period after Notification No. 152/87-C.E. was rescinded on 1-3-1994 and before Notification No. 74/94-C.E. restored the exemption on 28-3-1994; the later notification was not pressed as retrospective, so liability for the interregnum was upheld. However, while quantifying the demand, admissible Modvat credit on inputs had to be allowed and the Board's circular on valuation of captively consumed goods required profit before tax from the audited balance sheet, not gross profit. The quantum was therefore set aside for fresh recomputation and hearing.

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Issues: (i) Whether compound rubber captively consumed in the manufacture of ADV tyres was dutiable for the period 1-3-1994 to 27-3-1994. (ii) Whether, while quantifying the duty, the assessee was entitled to Modvat credit on inputs and to the benefit of the Board's circular on valuation of captively consumed goods.

Issue (i): Whether compound rubber captively consumed in the manufacture of ADV tyres was dutiable for the period 1-3-1994 to 27-3-1994.

Analysis: The exemption previously available under Notification No. 152/87-C.E. was rescinded on 1-3-1994, and the benefit was restored only by Notification No. 74/94-C.E. dated 28-3-1994. During the interregnum, the exemption was unavailable, and the contention that the later notification was clarificatory and retrospective was not pressed in view of the governing case law.

Conclusion: The dutiability of compound rubber for the relevant period was upheld, against the assessee.

Issue (ii): Whether, while quantifying the duty, the assessee was entitled to Modvat credit on inputs and to the benefit of the Board's circular on valuation of captively consumed goods.

Analysis: The demand had been quantified without considering Modvat credit on inputs used in the manufacture of compound rubber. The valuation was also made by adopting gross profit, although the Board's circular required profit before tax to be taken from the audited balance sheet for determining assessable value of captively consumed goods. The quantification therefore required reconsideration.

Conclusion: The demand was set aside for fresh quantification after granting Modvat credit and applying the Board's circular, with an opportunity of hearing to the assessee.

Final Conclusion: The liability to duty for the disputed period remained intact, but the quantum of demand was reopened and sent back for recomputation in accordance with the applicable exemption and valuation principles.

Ratio Decidendi: Where duty is payable on captively consumed goods, quantification must account for admissible Modvat credit and valuation must follow the binding Board circular governing assessable value.

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