Special value-addition computation under an exemption notification must follow audited records and proper accounting methods, not unilateral cost recasting.

An exemption notification allowing fixation of a special value-addition rate was applied on the basis of audited financial records and the statutory auditor's certificate. The appellant's audited accounts, cost records and supporting certificates were accepted as showing value addition at 82.29%, because the prescribed computation had been followed. The Commissioner's attempt to recast the calculation by adding freight subsidy and abnormal waste to material cost was found inconsistent with the relevant accounting method, and the reduced value addition was rejected. The discussion concludes that special rate computation must conform to the notification's prescribed accounting framework and cannot be altered by loading costs contrary to that framework.

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Issues: (i) Whether the appellant was entitled to special rate of value addition at 82.29% under the exemption notification on the basis of the statutory auditor's certificate and supporting records. (ii) Whether the Commissioner could disregard the auditor's certification and recalculate value addition by including freight subsidy and abnormal waste in the cost computation.

Issue (i): Whether the appellant was entitled to special rate of value addition at 82.29% under the exemption notification on the basis of the statutory auditor's certificate and supporting records.

Analysis: The special rate under the notification is to be worked out from the audited financial records of the preceding year, supported by the statutory auditor's certificate. The appellant produced the audited balance sheet, profit and loss account, cost accountant's certificate, manufacturing details and the statutory auditor's certificate showing value addition at 82.29%. On the materials placed, the computation was found to be consistent with the prescribed method.

Conclusion: The appellant was entitled to the special rate of value addition at 82.29%.

Issue (ii): Whether the Commissioner could disregard the auditor's certification and recalculate value addition by including freight subsidy and abnormal waste in the cost computation.

Analysis: The notification required inquiry by the Commissioner, but the recomputation adopted was held to be contrary to the accounting principles applied to material cost. Freight subsidy received by the appellant was not includable in freight cost for arriving at material cost, and abnormal waste was also not liable to be loaded into material cost. The reassessment to 36.81% was therefore found unsustainable.

Conclusion: The Commissioner was not justified in recasting the computation in the manner adopted, and the reduced value addition was rejected.

Final Conclusion: The impugned order was set aside and the appeal was allowed, with the appellant's claimed special rate of value addition accepted for consequential relief in accordance with law.

Ratio Decidendi: Where an exemption notification permits special rate fixation on the basis of audited financial records and supporting certification, the computation must conform to the prescribed accounting method, and costs such as subsidy-adjusted freight and abnormal waste cannot be added contrary to that framework.

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