Captive consumption valuation must use notional profit, not actual earnings, and cannot be applied selectively across periods.

Captive consumption valuation under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 had to be based on notional profit, not actual earnings. The Tribunal noted that the Department had accepted addition of 10% notional profit for earlier periods where actual profit was lower, but sought to apply actual profit for the disputed period. Relying on Supreme Court authority, it held that the rule does not permit selective application of different profit bases within the same valuation exercise. The demand was therefore held unsustainable and the appeal was allowed.

---

---

Issues: Whether, for captive consumption of intermediate goods, valuation under Rule 6(b)(ii) required addition of actual profit for one period and notional profit for other periods, and whether the demand and penalty were sustainable.

Analysis: The goods were captively consumed and their valuation had to be determined under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975. The Tribunal noted that for earlier periods, where actual profit was below 10%, the Department had accepted addition of notional profit of 10%, but for the disputed period it sought to apply actual profit. Relying on the Supreme Court's ruling that Rule 6(b)(ii) contemplates notional profit and not actual earnings, the Tribunal held that the Department could not selectively apply different profit bases for different periods in the same valuation exercise.

Conclusion: The demand was not sustainable and the appeal was allowed.

---