Captive consumption valuation: CAS-4 cost method excludes head office overheads, selling expenses and interest from assessable value.

Captively consumed goods were to be valued on cost of production, with CAS-4 treated as the governing method for computing that cost. The later CBEC circular on valuation was applied retrospectively, but on that basis head office administrative overheads, marketing, selling and distribution expenses, and interest were not includible in assessable value. Research and development cost, already reflected in the final product, did not warrant an additional loading. The disputed expenses were therefore excluded from valuation, and the order dropping demand, penalty and interest was sustained; the departmental appeal failed.

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Issues: Whether CAS-4 and the CBEC circular prescribing valuation of captively consumed goods apply retrospectively, and whether head office administrative expenses, selling and distribution expenses, and interest are includible in the assessable value of goods captively consumed.

Analysis: The valuation of captively consumed goods was to be determined on the basis of cost of production. CAS-4 was treated as laying down the governing principle for computation of such cost, and the later circular was held to be applicable even for the period prior to its issue. On that basis, administrative overheads relating to corporate office, marketing, selling and distribution, and interest were not includible in the assessable value, while research and development cost, as already accounted for in the final product, did not justify an addition to the component value.

Conclusion: The disputed expenses were not liable to be added to the assessable value, and the order dropping demand, penalty, and interest was . The department's appeal failed.

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