Captive consumption valuation may follow comparable sale prices where they reflect a reasonable profit margin over cost.

Captive consumption valuation of diesel engines under Rule 6(b)(i) was assessed by reference to comparable outside sales, where the relied-upon sales were rare, contracted sales and the higher price reflected only a reasonable margin over cost. The article notes that the benefit of Notification No. 120/75-C.E. was irrelevant to this valuation exercise, and the valuation adopted by the authorities was upheld on merits. On limitation under Section 11A of the Central Excise Act, 1944, the show cause notices were beyond the normal period and the record did not show whether the assessments were final or provisional, so the matter was remanded for de novo adjudication on limitation.

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Issues: (i) whether the value of diesel engines captively consumed in the manufacture of diesel shunters was to be determined on the basis of the price at which some engines were sold to outside public sector undertakings under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975; (ii) whether the demand for the earlier period was barred by limitation under Section 11A of the Central Excise Act, 1944.

Issue (i): whether the value of diesel engines captively consumed in the manufacture of diesel shunters was to be determined on the basis of the price at which some engines were sold to outside public sector undertakings under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975.

Analysis: The sales relied upon by the Department were rare and were made on contracted prices, but the higher selling price reflected only an addition of 12% margin of profit over cost. Even where valuation is based on cost data, a reasonable margin of profit has to be added. On the peculiar facts, the outside sale price broadly represented the value that could be adopted for the captively consumed goods. The benefit of Notification No. 120/75-C.E. was held to be irrelevant to this valuation dispute.

Conclusion: The valuation adopted by the authorities below was upheld and the challenge on merits failed.

Issue (ii): whether the demand for the earlier period was barred by limitation under Section 11A of the Central Excise Act, 1944.

Analysis: The show cause notices were issued beyond the normal period of six months, and in one appeal the demand covered a period extending beyond five years. The point of limitation had not been examined by the adjudicating authority, and the record did not show whether the relevant assessments were final or provisional.

Conclusion: The matter was remanded to the original adjudicating authority for de novo adjudication on limitation.

Final Conclusion: The valuation dispute was decided against the assessee, but the limitation plea was kept open for fresh adjudication, resulting in a partial remand.

Ratio Decidendi: For captively consumed excisable goods, adopted value may be based on comparable sale price where the sale price reflects a reasonable margin of profit over cost; however, where limitation is raised and not adjudicated, the matter must be remanded for fresh consideration.

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