Captive consumption valuation requires normal profit to be added to cost, even where the assessee shows a temporary loss.

Captively consumed excisable goods valued under Rule 6(b) of the Central Excise (Valuation) Rules, 1975 must be assessed on cost of production or manufacture plus the normal profit ordinarily earned on sale. A temporary loss shown by the assessee in a particular period does not, by itself, displace the inclusion of that normal profit margin for valuation purposes. The note also records that a 7% notional profit margin was treated as reasonable because it reflected actual profits earned in the preceding year, and the valuation approach accordingly supported inclusion of profit even where the assessee claimed loss during the relevant period.

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Issues: Whether, for captively consumed excisable goods valued under Rule 6(b) of the Central Excise (Valuation) Rules, 1975, a normal margin of profit could be added to cost of production even though the assessee claimed a loss during the relevant period.

Analysis: Rule 6(b) requires valuation of captively consumed goods on the basis of cost of production or manufacture, together with the profit which the assessee would normally have earned on sale of such goods. The fact that an assessee suffered a loss in a particular period does not establish that the goods would normally be sold without profit. The normal profit margin remains includible for valuation, and the margin of 7% was also found to be reasonable and based on actual profits earned in the preceding year.

Conclusion: The addition of 7% notional profit was upheld and the issue was decided against the assessee.

Ratio Decidendi: Under Rule 6(b) of the Central Excise (Valuation) Rules, 1975, captively consumed goods are to be valued by adding the normal profit which would ordinarily be earned on sale, and a temporary loss in a particular year does not displace that normal margin of profit.

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