Actual value addition under area-based exemption must be computed from audited records, not notional raw material costs.

Area-based exemption notifications requiring special value addition rates must be applied using the actual figures from audited financial records, not a notional estimate of raw material cost. The prescribed formula called for computation from the preceding financial year's sale value, deduction of raw materials and packing material consumed, eligible fuel cost, and inventory adjustments. Because the rejection was based on notional raw material costing contrary to the notification, and the statutory auditors' certificate supported the actual value addition, the refusal to fix the special rate was unsustainable. The claimant was entitled to fixation of the special value addition rate at 73.5%.

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Issues: Whether, for fixation of the special value addition rate under the area-based exemption notification, the actual cost of raw materials and related inventory figures had to be adopted instead of a notional computation, and whether the appellant was entitled to the claimed special rate of 73.5%.

Analysis: The notification prescribed a specific formula for calculating actual value addition on the basis of the preceding financial year's financial records. The formula required consideration of sale value excluding duties and taxes, deduction of the cost of raw materials and packing material consumed, deduction of eligible fuel cost, and suitable adjustments for closing and opening inventory. On this basis, the actual cost figures reflected in the audited financial records had to be applied. The rejection of the application was founded on a notional cost of raw materials, which was inconsistent with the notification. The statutory auditors' certificate supporting the actual value addition was also on record.

Conclusion: The rejection of the special value addition rate was unsustainable. The appellant was entitled to fixation of the special rate of value addition at 73.5%.

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