Captive consumption valuation under excise law is limited to product-specific cost and normal profit, not overall factory margins.

Valuation of captively consumed intermediate goods under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 is confined to the cost of production or manufacture of those goods plus the reasonable profit normally attributable to those goods. The profit element cannot be expanded to include margins from other divisions or the factory as a whole. The Board circular was read consistently with this principle, and the earlier view limiting valuation to the captive-product division was affirmed. The stated effect is that the assessable value of the intermediate product must be determined only by reference to its own production cost and related profit, not unrelated business profits.

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Issues: Whether, for valuation of captively consumed intermediate goods under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, the assessable value must be based only on the cost of production and profit relatable to the intermediate goods, or on the profit margin of the entire factory including other divisions.

Analysis: Rule 6(b)(ii) requires valuation of intermediate goods cleared for captive consumption on the basis of cost of production or manufacture, together with the reasonable profit the assessee would normally earn on sale of such goods. The profit component therefore attaches to the intermediate product itself and not to the profits of unrelated manufacturing activities of the assessee. The Board circular relied upon by Revenue was read as consistent with this rule and not as authorising inclusion of profit from other divisions. The earlier view that only the cost and profit of the captive-product division was relevant was approved, and the Supreme Court's decision was understood as not displacing that principle.

Conclusion: The assessable value had to be worked out with reference only to the spinning division's captive intermediate product and not the profit margin of the factory as a whole; the Revenue's challenge failed.

Ratio Decidendi: Under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, valuation of captively consumed intermediate goods is confined to the cost of production of those goods plus the profit normally attributable to those goods, and cannot be enlarged by adding profits from other divisions or final products.

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