1997 (1) TMI 170 - AT - Central Excise

Summary

Issues: Valuation of intermediate product based on profit margin of final product.

In this judgment by the Appellate Tribunal CEGAT, New Delhi, the appellant, a manufacturer of printing ink, captively consumed in the production of calendars and labels, filed Price List No. 4/87-88 under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975. The dispute arose when the authorities issued a notice to the appellant to justify why 30.89% should not be considered as notional profit in relation to the printing ink. The lower authorities, including the Assistant Collector and the Collector (Appeals), upheld the notice, leading to the present appeal (para. 2).

The crux of the issue revolved around Rule 6(b)(ii) of the Valuation Rules, which mandates the inclusion of notional profit based on what the assessee would typically earn on the sale of such goods. While both parties agreed on the necessity of adding notional profit, the disagreement centered on the quantum. The lower authorities treated the profit of the final product as notional profit for the intermediate product, a decision contested by the appellant (para. 3).

The Tribunal referred to various precedents to analyze the approach to determining notional profit margins. In cases like Food Specialities Ltd. and Kanoria Chemical Industries, the Tribunal allowed the adoption of profit margins from the final product for the intermediate product. However, in cases like Dhrangadhra Chemical Works Ltd. and Bimetal Bearing Ltd., the Tribunal emphasized the need for a reasonable and non-arbitrary method to determine profit margins for intermediate goods. The Tribunal highlighted the importance of considering factors like product nature, production costs, and profit margins of similar products in arriving at a fair assessment (para. 4-6).

Ultimately, the Tribunal found that the profit margin of 30.89% for consumer products like calendars and labels could not be equated with the profit margin for the intermediate product, printing ink, used by a specific industry segment. Therefore, the Tribunal deemed it appropriate to reduce the profit margin from 30.89% to 20% without remanding the case to the lower authorities (para. 7-8).