Captive consumption valuation: income tax is not deductible, and a weighted-average profit margin of 7.72% was upheld.

For captive consumption valuation under the Central Excise rules, income tax is not a permissible deduction because it is treated as an appropriation of profit rather than a deductible valuation charge. The notional profit margin may be fixed on a reliable weighted-average basis drawn from the assessee's audited figures where the facts justify that approach. On the facts considered, the Tribunal accepted 7.72% as the correct margin and rejected 5% as inapposite given the differing business profile and profit pattern.

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Issues: (i) Whether income tax was a permissible deduction while determining assessable value under Section 4 and Rule 6(b)(ii) for captively consumed goods; (ii) whether the notional profit margin should be fixed at 5% or 7.72%.

Issue (i): Whether income tax was a permissible deduction while determining assessable value under Section 4 and Rule 6(b)(ii) for captively consumed goods.

Analysis: Income tax was treated as an appropriation of profit and not as a deductible charge for the purpose of valuation. The deduction claimed towards income tax was therefore held to be impermissible in working out the notional profit element.

Conclusion: The deduction of income tax was not permissible.

Issue (ii): Whether the notional profit margin should be fixed at 5% or 7.72%.

Analysis: The Tribunal accepted the Revenue's computation based on the audited balance sheet and weighted average figures, and found that the profit margin of 7.72% reflected the correct margin on the facts. The comparison with a different business, namely an electricity distribution undertaking, was found inapposite because the nature of business and profit pattern were materially different.

Conclusion: The notional profit margin was fixed at 7.72% and not 5%.

Final Conclusion: The Revenue succeeded in the appeal, and the assessable value for the captively consumed goods was to be determined by adopting a notional profit margin of 7.72% without deduction for income tax.

Ratio Decidendi: For captive consumption valuation under the Central Excise valuation rules, income tax is not a permissible deduction, and the notional profit margin may be fixed on a reliable weighted-average basis drawn from the assessee's audited figures when the facts justify it.

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