Gross profit valuation must reflect audited accounts and overall expenditure, not only direct manufacturing costs.

For valuation under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975, expenses such as advertisement, printing and stationery, postage, telephone, sales promotion, interest and bank charges could not be excluded from the computation of gross profit where they were part of the overall cost structure and not shown to be non-genuine. A comprehensive view of the manufacturer's entire expenditure was required to determine the proper notional profit, and the profit reflected in the audited accounts, certified by the auditors, was the correct basis for computation. The exclusion of these expenses was therefore not justified, and the audited accounts could be relied upon.

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Issues: Whether, for valuation under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975, expenses such as advertisement, printing and stationery, postage, telephone, sales promotion, interest and bank charges could be excluded while computing gross profit, or whether the profit shown in the audited accounts had to be accepted.

Analysis: The expenditure in question was not shown to be non-genuine. Such expenses formed part of the overall cost structure of the goods and affected the manufacturer's real profit or loss. Gross profit could not be worked out by confining the computation only to expenditure directly attributable to manufacture, because a comprehensive view of the entire expenditure was necessary to arrive at the proper notional profit. The profit reflected in the company's accounts and certified by the auditors was therefore the proper basis for the computation.

Conclusion: The exclusion of the disputed expenses was not justified, and the audited accounts could be relied upon for arriving at gross profit.

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