Captive consumption valuation must include cost of production plus reasonable profit where no market price exists.

Where captively consumed excisable goods have no wholesale cash price or comparable market goods, assessable value under Section 4 of the Central Excises and Salt Act, 1944 is to be computed on the basis of cost of production with a reasonable margin of profit added. The valuation test is what a manufacturer would ordinarily realise in the normal course of business, so actual sale in the market is not required. A loss during the relevant period does not eliminate the statutory requirement to include notional profit. The assessment based on cost of production plus reasonable profit was therefore upheld.

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Issues: Whether, for captively consumed excisable goods where no wholesale cash price or comparable goods were available, assessable value under Section 4 of the Central Excises and Salt Act, 1944 had to be determined on the basis of cost of production with a reasonable margin of profit added, and whether the revenue authorities were justified in including such margin.

Analysis: The goods were not sold in the wholesale market and were captively consumed, so the normal price method was unavailable. In such a case, value had to be worked out on the basis of cost of production and notional profit. The governing principle was that the assessable value must reflect what a manufacturer would ordinarily realise in the normal course of business, which includes a reasonable element of profit. The fact that the manufacturer had incurred loss during the relevant period did not displace the requirement to add a reasonable profit margin, since the statutory test was not dependent on actual sale or actual profit in the particular case.

Conclusion: The addition of a reasonable margin of profit to the cost of production was valid, and the assessment made by the appellate authority called for no interference.

Final Conclusion: The revision application failed, and the assessment based on cost of production plus reasonable profit was upheld.

Ratio Decidendi: Where captively consumed excisable goods have no wholesale cash price or comparable market goods, their assessable value may be determined on cost of production with a reasonable margin of profit included.

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