Captive consumption valuation requires notional profit inclusion; final product losses do not reduce assessable value.

For captively consumed goods, notional profit under rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 is to be included in assessable value, even if the assessee incurs a loss on manufacture or sale of the final product. The valuation of inputs or intermediate goods consumed within the factory is based on cost of production plus the profit element that would have arisen on external sale. A lower profit element can be accepted only if supported by evidence, and losses on the finished product do not displace the valuation rule. On the facts, the assessable value adopted below was not shown to be wrong and the appeal failed.

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Issues: Whether, for captively consumed goods, notional profit under rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 had to be added even when the assessee claimed loss in the manufacture or sale of the final product.

Analysis: The valuation of goods used for captive consumption requires inclusion not merely of cost of production but also the profit element that would have been earned if the goods had been sold outside. The rule permits adoption of notional profit, and the assessee must establish by evidence that a lower profit element is warranted. Losses incurred on the finished product are not relevant where the issue is valuation of inputs or intermediate goods consumed within the factory, and the assessee failed to show that the assessable value adopted by the lower authorities was incorrect.

Conclusion: The addition of notional profit was justified and the appeal failed.

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