Captive goods valuation includes production depreciation and indirect overheads, subject to proof that no depreciation remains to be added.

In valuing captively consumed goods under the cost construction method, depreciation on plant and machinery used in production is generally part of the cost of production and therefore includible in assessable value. However, the depreciation issue required verification because the machinery for the slides was said to have been fully depreciated, a factual claim not examined by the lower authority. Indirect overheads of the primary manufacturing department, including properly apportioned administrative and similar manufacturing expenses, were also includible because captive goods must bear their share of production overheads. The depreciation question was remanded for factual reconsideration, while inclusion of indirect overheads in valuation was upheld.

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Issues: (i) Whether depreciation on plant and machinery used in the manufacture of captively consumed slides was includible in their assessable value under the cost construction method; (ii) Whether indirect overheads of the primary manufacturing department were includible in the assessable value of the captively consumed slides.

Issue (i): Whether depreciation on plant and machinery used in the manufacture of captively consumed slides was includible in their assessable value under the cost construction method.

Analysis: The assessable value of captively consumed goods was required to be determined on the basis of cost of production under Rule 6(b)(ii) of the Central Excise Valuation Rules. Depreciation relatable to fixed assets used in production normally forms part of the cost of production and is therefore includible. At the same time, the appellants' specific contention that the machinery used for the slides was already fully depreciated had not been examined by the lower authority.

Conclusion: Depreciation is generally includible in the assessable value, but the matter was remanded for verification of the claim that no depreciation remained to be added because the machinery had been fully depreciated.

Issue (ii): Whether indirect overheads of the primary manufacturing department were includible in the assessable value of the captively consumed slides.

Analysis: Since valuation under the cost construction method turns on arriving at the true cost of production, overheads attributable to manufacture, including suitable apportionment of administrative and similar indirect expenses, were required to be taken into account. The reasoning was consistent with the Board's circular and with the principle that captively consumed goods must bear their proper share of production overheads.

Conclusion: Indirect overheads were held includible in the assessable value of the slides.

Final Conclusion: The appeal succeeded only to the limited extent that the depreciation issue required reconsideration on the factual claim of full depreciation, while the inclusion of indirect overheads in valuation was upheld.

Ratio Decidendi: In valuing captively consumed goods under the cost construction method, production-related depreciation and proportionate manufacturing overheads form part of assessable value, subject to proof that no depreciation remains to be added.

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