Captive consumption valuation under Rule 6(b)(ii) excludes sale-price overheads and limits assessable value to prescribed cost elements.

For captively consumed goods valued under Rule 6(b)(ii), assessable value is confined to the prescribed cost of production elements and profit, if any, and cannot be expanded to include sale-price components or general overheads such as labour, direct expenses, administrative charges, travelling, insurance, advertising or interest. The Tribunal distinguished valuation of unsold captive goods from marketed goods, holding that principles relating to advertising and marketing expenses in sold goods do not apply where no sale takes place. It also held that a Section 37B circular could not override the appellate authority's statutory discretion. The department's valuation was therefore unsustainable.

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Issues: Whether, for goods captively consumed and not sold, the assessable value under Rule 6(b)(ii) could include expenses beyond the cost of manufacture, raw material cost and profit, such as labour cost, direct expenses, administrative overheads, travelling, insurance, advertising and interest.

Analysis: Rule 6(b)(ii) was applicable where goods were not sold and comparable goods were unavailable, and it required valuation on cost of production inclusive of profit, if any. The Tribunal held that this did not justify treating captively consumed goods as though they were sold goods or importing all elements that may enter the sale price of marketed products. The rule permitted only those elements specifically contemplated by it, and the Tribunal relied on earlier decisions holding that valuation could not be extended beyond the prescribed components. It further held that a circular under Section 37B could not bind the appellate authority in the exercise of its statutory discretion, and that the principles relating to advertising and marketing expenses in sold goods had no application where no marketable sale took place.

Conclusion: The additional expenses were not includible in the assessable value, and the valuation adopted by the department was unsustainable; the assessee succeeded.

Ratio Decidendi: For captively consumed goods valued under Rule 6(b)(ii), assessable value is confined to the prescribed cost elements and profit, and cannot be expanded to include sale-price components or general overheads not authorised by the rule.

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