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Issues: Whether, in valuing captively consumed intermediate goods under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, the assessing authority could have regard to the profit margin of the final product and adopt a reasonable method for estimating profit on the intermediate product.
Analysis: The valuation of intermediate goods had to be based on cost of production including profits that the assessee would have made on sale of the product. Since there was no market for the intermediate goods, profit could not be fixed by mechanically adopting the profit margin of the final product, especially where the two products were different in nature and quality. At the same time, the assessing authority was entitled to use a reasonable non-arbitrary method, taking into account relevant factors such as the nature of the products, their respective costs, the profit margin of the final product, and comparable products, with suitable adjustments. The appellate authority had erred in ruling out any regard to the final product's profit margin altogether.
Conclusion: The valuation adopted by the assessing authority was sustained and the remand ordered by the appellate authority was set aside.
Final Conclusion: The duty valuation made by the assessing authority was restored, and the department's challenge to the remand succeeded.
Ratio Decidendi: Where captively consumed intermediate goods have no market, their assessable value may be determined by a reasonable and non-arbitrary method under the valuation rules, and comparable profit margins of the final product may be considered with appropriate adjustments.
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