Captive consumption valuation turns on ordinary profit element; prior gross profit cannot be mechanically substituted.

Valuation of captive clearances to sister units must reflect the ordinary profit element under the valuation rules, and gross profit shown in the preceding year's audited accounts cannot be mechanically substituted where it is not the profit actually earned on sale of the goods. The dispute was also treated as revenue-neutral because duty paid by one unit would have been available as credit to the other unit within the same company. In light of an earlier decision on the same issue, the Revenue's challenge was rejected and the assessee's valuation was left undisturbed.

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Issues: Whether the assessable value of goods cleared for captive consumption was to be determined by adding the gross profit of the preceding financial year, and whether the demand could survive in a revenue-neutral situation.

Analysis: The valuation dispute arose from captive clearances to sister units for further consumption. The applicable valuation rule required addition of the profit element ordinarily earned on sale of such goods, and the authority below had held that gross profit shown in the audited balance sheet could not automatically govern the valuation where it was not the profit actually earned on sale of the goods in question. The matter was also treated as revenue-neutral because duty paid by one unit would have been available as credit to the other unit of the same company. As an earlier decision involving the same respondent and the same issue had already rejected the Revenue's challenge, that precedent was followed.

Conclusion: The Revenue's appeal had no merit and was rejected.

Final Conclusion: The valuation adopted by the assessee was not disturbed, and the demand raised by the Revenue did not succeed.

Ratio Decidendi: Where valuation for captive clearances is governed by the ordinary profit element under the valuation rules, gross profit from the preceding year cannot be mechanically substituted, and a revenue-neutral situation supports rejection of the Revenue's challenge.

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