2018 (8) TMI 1676 - AT - Central Excise

Court clarifies valuation rules for captively consumed goods, requires 10% profit margin if not proven

The Supreme Court interpreted the Central Excise (Valuation) Rules, 1975, in a case involving the valuation of captively consumed goods by M/s Golden ... Valuation - captive consumption - addition of notional margin of profit of 10% - rule 6(b)(ii) of Central Excise (Valuation) Rules, 1975 - Held that:- The valuation to be adopted for such captive consumption poses problems which led to the incorporation, within the rules, of a notional profit on the cost of production. Therefore, irrespective of whether the goods are sold or used entirely for captive consumption, it is not just the cost of production but the profits that would have been earned had the goods been sold outside that was required to be included for the purpose of assessment of duty. The goods being entirely consumed within the factory does not have a comparison basis with sales made by the appellant or, by anybody else, of like goods. At the same time, the appellant is unable to show that the assessable value adopted by the lower authorities does not reflect the cost of production and the profit that might have been earned even if these goods have been sold by the assessee or purchased by the assessee from outside. A loss on the product that is cleared finally using the impugned goods as an input is not relevant for determining the notional profit envisaged in rule 6(b)(ii) of Central Excise (Valuation) Rules, 1975. Appeal dismissed - decided against appellant. Issues:Valuation of captively consumed goods for Central Excise duty assessment.Analysis:The appeal concerned the valuation of captively consumed goods by M/s Golden Tobacco Limited, where the disputed items were 'shells', 'cut labels', and 'printed sheets'. The dispute arose from the application of the cost construction basis for valuation, leading to demands for differential duty amounts. The matter had undergone multiple rounds of litigation, including references to the Tribunal and the Supreme Court. The appellant argued that the profit margin should only be added if circumstances warranted it, citing precedents and decisions like Raymond Ltd v. Commissioner of Central Excise and PCC Pole Factory v. Collector of Central Excise. On the other hand, the Authorized Representative relied on the decision in Chackolas Spinning and Weaving Mills Ltd v. Commissioner of Central Excise to support the imposition of a notional profit margin.The Hon'ble Supreme Court's interpretation of rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 was crucial in determining whether a notional profit margin of 10% should be added. The Court held that the profit margin should be added in case the assessee fails to establish a lower profit margin. Various decisions, including the one in Crompton Greaves Ltd v. Commissioner of Central Excise, Chandigarh, were cited to argue for or against the imposition of a notional profit margin based on the circumstances of the case.The Tribunal's analysis focused on the need to include notional profits in the valuation of captively consumed goods, emphasizing that it is not just the cost of production but also the profits that would have been earned if the goods were sold externally that should be considered for duty assessment. The Tribunal highlighted the importance of relevant data and evidence in determining the profit element, especially in cases where the assessee claims to have incurred losses. Ultimately, the Tribunal found no merit in the appellant's arguments and dismissed the appeal on 29/08/2018.This detailed analysis of the judgment showcases the complexities involved in determining the valuation of captively consumed goods for Central Excise duty assessment, highlighting the legal interpretations, precedents, and evidentiary requirements essential in such cases.