Captive consumption valuation requires normal profit inclusion, even where a particular year shows a loss.

Captively consumed wrapper paper valued under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 had to be assessed on cost of production or manufacture plus the profit normally earned on sale of such goods. The relevant test was the assessee's ordinary earning capacity, not an exceptional loss shown in a particular year. Where comparable goods were unavailable, a reasonable margin of normal profit remained includible even if one year's accounts reflected a loss. The valuation based on the Chartered Accountant's cost certificate and the profit shown in the balance-sheet was therefore treated as proper, and the assessable value fixed below was upheld.

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Issues: Whether, for captively consumed wrapper paper where comparable goods were not available, assessable value was to be determined by including profit, and whether the relevant profit had to be the normal gross profit rather than the assessee's claimed loss position.

Analysis: Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 requires valuation of captively consumed excisable goods on the basis of cost of production or manufacture, including profits, if any, which the assessee would have normally earned on sale of such goods. The normal earning capacity of the assessee, and not an exceptional loss in a particular year, is the relevant consideration. Where the assessee ordinarily earns profit, a reasonable margin of profit is to be added even if the accounts for one year show a loss. The assessable value was therefore correctly worked out on the basis of the manufacturing cost shown by the Chartered Accountant's certificate and the manufacturing profit reflected in the balance-sheet.

Conclusion: Inclusion of normal profit in the valuation of the captively consumed wrapper paper was justified, and the assessable value fixed by the lower authority was upheld against the assessee.

Ratio Decidendi: For captively consumed goods valued under Rule 6(b)(ii), the assessable value must include the normal profit the assessee would ordinarily earn on sale, and a temporary loss in a particular year does not displace that requirement.

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