CAS-4 captive consumption valuation excludes loan interest from cost of production, making the duty demand unsustainable.

Valuation of captively consumed goods must follow accepted costing principles and CAS-4. Under that framework, interest on loans does not form part of the cost of production, so it cannot be added to the value of castings cleared for captive consumption. The earlier Board circular aligned with this costing method, and the Supreme Court had already confirmed that captive consumption valuation must be computed strictly on accepted costing principles and CAS-4, even for prior periods. On that basis, inclusion of loan interest was rejected and the duty demand founded on such inclusion was unsustainable.

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Issues: Whether interest on loans was required to be included in the cost of captively consumed goods for valuation under the Central Excise valuation rules.

Analysis: The valuation of goods cleared for captive consumption had to be determined in accordance with the general principles of costing and CAS-4. Under CAS-4, interest cost does not form part of the cost of production. The earlier Board circular recognising CAS-4 reflected this costing approach, and the Supreme Court had already held that, even for periods prior to the circular, cost of production for captive consumption must be determined strictly on the basis of accepted costing principles and CAS-4.

Conclusion: Interest on loans was not includible in the cost of the castings, and the duty demand based on such inclusion was unsustainable. The appeal succeeded.

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