Rule 8 valuation for captive consumption excludes notional loading; duty demand based on added cost was set aside.

For inter-unit transfers of goods for captive consumption, valuation under Rule 8 must be based on the actual cost of production of the raw material in the hands of the consuming unit. The notional loading added at the supplying unit for excise duty payment is not part of that cost and cannot be included in assessable value. On that basis, the demand for duty, interest and penalties founded on such inclusion was held unsustainable and set aside, with consequential relief to follow in accordance with the Larger Bench ruling.

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Issues: Whether, in the case of inter-unit transfer of goods for captive consumption, the assessable value under Rule 8 had to include the notional loading over actual cost of production, and whether the demand of duty, interest and penalties could survive on that basis.

Analysis: The matter was governed by the Larger Bench ruling, which held that for inter-unit transfers for captive consumption, the relevant cost in the hands of the consuming unit is the actual cost of production of the raw material received, and that the notional loading mandated for excise duty payment by the supplying unit does not form part of the raw material cost for the receiving unit. Applying that conclusion, the demand founded on inclusion of the notional loading could not stand. The earlier order on the other issues was also taken as part of the final disposal.

Conclusion: The demand of duty, interest and penalties was not sustainable and was set aside. The issue was answered in favour of the assessee.

Final Conclusion: The appeal was disposed of by setting aside the impugned demand and granting consequential relief, if any, in accordance with the Larger Bench ruling.

Ratio Decidendi: For valuation under Rule 8 in inter-unit captive consumption, only the actual cost of production forms the cost of the raw material in the hands of the consuming unit, and notional loading added for duty payment at the supplying unit cannot be included.

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