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Issues: (i) Whether debit notes raised by the paper unit formed part of the cost of paper and paper board received by the manufacturing unit; (ii) whether the value of goods received from the paper unit had to be taken at 115%/110% of cost of production or at actual cost only; (iii) whether unabsorbed overheads arising from idle machine capacity were to be added to the cost of production and closing stock.
Issue (i): Whether debit notes raised by the paper unit formed part of the cost of paper and paper board received by the manufacturing unit.
Analysis: The dispute was covered by the earlier decision on identical facts. The controlling principle applied was that, for inter-unit transfers for captive consumption, the assessable value must be determined on the basis of actual cost of production of the raw material transferred, and not by adding notional elements that do not form part of the real cost in the recipient unit's hands.
Conclusion: Decided in favour of the assessee.
Issue (ii): Whether the value of goods received from the paper unit had to be taken at 115%/110% of cost of production or at actual cost only.
Analysis: The earlier larger bench ruling held that the loading prescribed for duty computation at the supplying unit does not become part of the raw material cost in the recipient unit. For valuation of the finished goods manufactured at the recipient unit, the relevant figure is the actual cost of the transferred raw material, excluding the notional loading under Rule 8.
Conclusion: Decided in favour of the assessee.
Issue (iii): Whether unabsorbed overheads arising from idle machine capacity were to be added to the cost of production and closing stock.
Analysis: This issue had already been decided on identical facts in the assessee's favour for the earlier period, and no contrary or superseding decision was shown. The same reasoning was applied to the later period, and the loading of such overheads was not accepted.
Conclusion: Decided in favour of the assessee.
Final Conclusion: The valuation additions made in the impugned order were not sustainable, and the assessments were directed to be set aside with consequential relief.
Ratio Decidendi: In inter-unit transfers for captive consumption, valuation must be based on the actual cost of production of the transferred goods without adding notional loading under Rule 8 to the recipient unit's raw material cost.
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