Captive goods valuation must follow unit-specific manufacturing cost, with the cost-of-production circular considered on remand.
Valuation of captively consumed goods under Rule 6(b)(ii) must be based on the manufacturing unit's own cost and overheads, not on consolidated company-wide balance sheet figures that include other units. The settled valuation principle was not properly examined below, so the assessable value could not be sustained and the matter required fresh adjudication on the unit-specific cost basis. The cost-of-production circular on captively consumed goods also had to be considered in the de novo proceedings if applicable. The order was set aside and the dispute remanded, with liberty to raise limitation and revenue-neutrality contentions before the Commissioner.
Issues: (i) Whether, for valuation of captively consumed goods under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, only the expenses of the manufacturing unit concerned could be taken into account, or whether the company-wide expenses reflected in the balance sheet of all units could be adopted; (ii) Whether the Circular No. 692/8/2003-CX dated 13-2-2003 governing cost of production for captively consumed goods required consideration in the de novo proceedings.
Issue (i): Whether, for valuation of captively consumed goods under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, only the expenses of the manufacturing unit concerned could be taken into account, or whether the company-wide expenses reflected in the balance sheet of all units could be adopted.
Analysis: The assessable value of captively consumed goods must be based on the overall expenses of the factory manufacturing the product, and not on the balance sheet figures of the company as a whole. Expenses of other units are not relevant for this purpose. The Commissioner had not dealt with the settled legal position or the decisions cited before him, including the larger bench view. The matter therefore required reconsideration on the correct valuation principle.
Conclusion: The valuation adopted below could not be sustained and the matter had to be re-adjudicated on the basis of the unit-specific manufacturing cost; this was in favour of the assessee.
Issue (ii): Whether the Circular No. 692/8/2003-CX dated 13-2-2003 governing cost of production for captively consumed goods required consideration in the de novo proceedings.
Analysis: The circular accepted the cost-accounting guidelines for determining the cost of production of captively consumed goods, including capacity determination and overheads. Its applicability to the present dispute was required to be examined by the Commissioner during fresh adjudication.
Conclusion: The Commissioner was directed to consider and apply the circular, if applicable, in the de novo proceedings.
Final Conclusion: The impugned order was set aside and the dispute was sent back for fresh adjudication on the correct method of valuation of captively consumed goods, with liberty to raise limitation and revenue-neutrality contentions before the Commissioner.
Ratio Decidendi: Valuation of captively consumed goods must be determined on the basis of the manufacturing unit's own cost and overheads, and not on the consolidated expenses of unrelated units of the assessee.