2003 (9) TMI 89 - SC - Central Excise

Interpreting Rule 6(b)(ii): Actual production costs key in excise duty valuation

UNION CARBIDE INDIA LTD. Versus COLLECTOR OF CENTRAL EXCISE, CALCUTTA

UNION CARBIDE INDIA LTD. Versus COLLECTOR OF CENTRAL EXCISE, CALCUTTA - 2003 (158) E.L.T. 15 (SC) Issues:Valuation of excisable goods for excise duty purposes based on the cost of production - Interpretation of Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975.Detailed Analysis:The case involved a manufacturer of batteries who produced polystyrene sheets as a raw material for their batteries, with a significant amount of waste generated in the process. The waste or residue was recycled into polystyrene granules, which were then used to produce fresh sheets. The question arose regarding the valuation of these sheets for excise duty purposes.The assessment year in question was 1976-77, governed by Section 4 of the Central Excises and Salt Act, 1944. The dispute centered around the interpretation of Rule 6(b)(ii) of the Central Excise Valuation Rules, which dealt with the valuation of excisable goods not sold but used in the production of other articles. The appellant argued that the cost of production should include actual costs and notional profits, while the Revenue Authorities contended that the value should be based on the notional sale of the goods without considering actual production costs.The Court emphasized the importance of interpreting the phrase 'cost of production' in Rule 6(b)(ii) and concluded that actual costs must be considered in determining the value of excisable goods. It noted that the appellant had already incurred costs for the inputs used in manufacturing the sheets, including the recycled granules, which had already been subjected to excise duty. The Court rejected the Revenue Authorities' argument that only notional costs should be considered for valuation.The Tribunal had previously held that the scrap of the sheets had some value, which should be the notional value for determining the value of the fresh sheets. However, the Court disagreed, stating that notionality under Rule 6(b)(ii) pertains only to profits, not other production costs. It referenced a previous case to emphasize that the cost of the excisable product for excise duty assessment should be determined realistically, considering commercial principles.Ultimately, the Court set aside the Tribunal's decision, allowing the appeal of the manufacturer without any order as to costs. The judgment clarified the interpretation of Rule 6(b)(ii) and underscored the significance of considering actual production costs in valuing excisable goods for excise duty purposes.