Rule 8 valuation: conversion charges in invoices could not be treated as cost of production for captive clearances.

For valuation of goods captively consumed under Rule 8 of the Central Excise Valuation Rules, 2000, the cost of production must be determined on the basis of actual production cost. The amounts recovered through debit notes and invoices described as conversion charges could not be equated with the cost of production where the documents showed that the sums may also include a profit element. As the records did not establish that the recoveries represented only conversion cost, they could not be adopted for valuing clearances to the sister units. The demand based on that valuation was therefore unsustainable.

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Issues: Whether, for valuation under Rule 8 of the Central Excise Valuation Rules, 2000, the conversion charges shown in debit notes and invoices issued to a customer could be treated as the conversion cost and adopted as the cost of production for wire rods cleared to the assessee's own sister units.

Analysis: Rule 8 requires the value of goods captively consumed to be taken at 115% of the cost of production or manufacture. The dispute turned on whether the amounts recovered from TISCO Jamshedpur represented the conversion cost for the goods transferred to the assessee's own units. The invoices and debit notes described the amounts as conversion charges, and the assessee's explanation was that such charges included both conversion cost and profit element. Since the documents did not evidence only conversion cost, the conversion charges could not be equated with the cost of production for Rule 8 valuation.

Conclusion: The conversion charges reflected in the debit notes and invoices to TISCO Jamshedpur could not be taken as the conversion cost for valuing clearances to the assessee's Borivali and Tarapur units, and the demand based on that approach was unsustainable.

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