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Issues: (i) Whether the value of consumables used in the manufacture of captively consumed goods formed part of the assessable value. (ii) Whether the profit margin shown in the balance sheet for the final product could be adopted as the notional profit for captively consumed goods without examining relevant factors.
Issue (i): Whether the value of consumables used in the manufacture of captively consumed goods formed part of the assessable value.
Analysis: Consumables such as drills, tools, bits, lubricants, greases and grinding wheels used in the manufacture of the machines were part of the material cost and their value could not be excluded while determining assessable value of the captively consumed goods.
Conclusion: The addition on account of consumables was upheld.
Issue (ii): Whether the profit margin shown in the balance sheet for the final product could be adopted as the notional profit for captively consumed goods without examining relevant factors.
Analysis: There was no legal objection in principle to taking the profit of the final product as a basis for deriving notional profit of the captively consumed goods, but the relevant factors bearing on profit margin were not taken into account. In view of the age of the matter and the small amount involved, remand was not considered useful.
Conclusion: The demand on this count was reduced.
Final Conclusion: The valuation order was modified by sustaining the inclusion of consumables and reducing the duty demand relatable to notional profit.
Ratio Decidendi: In valuation of captively consumed goods, consumables used in manufacture form part of assessable value, and notional profit may be derived from final-product profit only after considering relevant profit-affecting factors.
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