2000 (10) TMI 326 - AT - Central Excise

Summary

Issues:
1. Determination of notional profit margin for goods captively consumed.
2. Acceptability of tax deduction in determining profit margin.
3. Application of profit margin from audited balance sheet for valuation under Valuation Rules.
4. Permissibility of Income Tax deduction as a valid charge against profit.

Analysis:
1. The appeal was against the Commissioner (Appeals) order fixing a 5% profit margin for goods captively consumed, based on the net profit range of 3.05% to 7.33% after permissible deductions. The Collector (Appeals) determined 5% as a reasonable notional profit margin under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975.

2. The Revenue contended that tax deduction is not acceptable as depreciation and development rebate are valid charges against profit, while tax is an appropriation of profit. The Revenue proposed a profit margin of 7.72% based on weighted averages, which they argued should replace the 5% margin set by the Collector (Appeals).

3. The Tribunal considered the Revenue's submissions and determined that the 7.72% profit margin should be added for valuation under Rule 6(b)(ii) of the Valuation Rules, based on the audited balance sheet of the Company and the weighted average for the relevant period.

4. The issue of Income Tax deduction was raised by the respondents, arguing that Income Tax is not a permissible deduction under Section 4 and thus cannot be considered under Rule 6(b)(ii) of the Valuation Rules. The Tribunal rejected the Income Tax deduction claimed by the Collector (Appeals) and fixed the notional profit margin at 7.72% as proposed by the Revenue, citing the inapplicability of a 2% profit margin from a previous case involving an Electricity Distributing Company to the present case involving metal container manufacturers.

In conclusion, the Tribunal allowed the Revenue's appeal and fixed the notional profit margin at 7.72% based on the audited balance sheet and weighted averages, rejecting the Income Tax deduction and emphasizing the specific business context of the manufacturers involved.