Captive consumption valuation must use reasonable cost-plus profit, not the final product's margin for intermediates.

For captively consumed intermediate goods not sold in the market, valuation had to be made on a cost-plus basis under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975, and the profit margin of the final product could not be mechanically applied to the intermediates. A 10% notional profit margin had earlier been treated as reasonable on the assessee's own clearances, and there was no legal basis for adopting a higher margin linked to the final product. The valuation adopted by the assessee was therefore accepted and the higher-demand basis was rejected.

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Issues: Whether, for valuation of captively consumed intermediate goods not sold in the market, the profit margin of the final product can be adopted and whether the notional profit margin applied by the assessee was reasonable.

Analysis: The goods under dispute were not sold by the assessee and no sale price or comparable market value was available. For captively used intermediate goods, valuation had to be made under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 on a cost-plus basis. The margin of profit attributable to the final product could not be applied straightaway to the intermediate goods. The material on record and the earlier decisions in the assessee's own case showed that a 10% notional profit margin had been treated as reasonable for such captive clearances, and there was no legal basis for adopting a higher margin linked to the final products.

Conclusion: The valuation adopted by the assessee was accepted and the demand based on higher profit margin was rejected.

Ratio Decidendi: For captively consumed intermediate goods not sold in the market, valuation must be based on cost plus a reasonable notional profit, and the profit margin of the final product cannot be mechanically adopted.

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