Captive consumption valuation must use product-specific profit and exclude interest charges from production cost

Captive consumption valuation under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 requires the profit normally earned on sale of the goods being valued, not the overall profit of the assessee's business or other products. For captively consumed slides and inner frames, the cost of production also excludes interest and other financial charges on machinery loans under accepted costing principles. The valuation therefore has to be worked out on the specific cost-accounting basis applicable to the goods in question, rather than by reference to company-wide profitability.

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Issues: Whether, for captively consumed slides and inner frames, the assessable value had to be determined by adding only the profit normally earned on sale of such goods, and whether interest on machinery loans could be included in the cost of production.

Analysis: The dispute arose from finalisation of provisional assessments for goods consumed captively in the factory. The Tribunal held that the question of excisability was not open in this appeal, and that valuation alone had to be decided. Under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975, the relevant profit is the margin that would normally be earned on sale of the goods whose value is being determined, not the overall profit of the assessee's business or of other products. The Tribunal also accepted that interest and financial charges do not form part of cost of production under the accepted costing principles applied to captive valuation.

Conclusion: The profit of the company as a whole could not be used for valuation of the captively consumed goods, and interest charges on the machinery loan were not includible in cost of production.

Final Conclusion: The valuation adopted by the lower authority was set aside and the matter was remitted for fresh determination of assessable value on the correct cost-accounting basis, with the appeal allowed by way of remand.

Ratio Decidendi: For captively consumed goods valued under Rule 6(b)(ii), only the profit normally attributable to the goods being valued is includible, and financial charges such as interest are excluded from cost of production.

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