2000 (11) TMI 645 - AT - Central Excise

Summary

Issues:
- Determination of profit under Rule 6(b)(ii) of the CE Valuation Rules, 1975 for goods cleared for captive consumption.
- Inclusion of amounts on account of donations, unexplained differences in bad debts, and miscellaneous income in the profit margin calculation.

Analysis:
1. The appeal was against the determination of profit to be added under Rule 6(b)(ii) of the CE Valuation Rules, 1975, for goods cleared for captive consumption. The amounts of Rs. 98.06 lakhs for donations, Rs. 0.12 lakhs for unexplained bad debts, and Rs. 73.54 lakhs for miscellaneous income were added to calculate the profit margin to be included in the cost of production under the relevant Valuation Rules.

2. The Commissioner (Appeals) held that donations and unexplained bad debts should be included in the profit amount. However, regarding the miscellaneous income of Rs. 73.54 lakhs, the matter was remanded to the lower authorities for re-examination based on additional information provided by the appellant.

3. The Commissioner categorized donations as manufacturing profit, considering them as expenditures made to earn goodwill. The appellant contested the inclusion of donations in manufacturing profits, arguing that they were separately shown in the Balance Sheet as business expenditure and were recognized as such under the Income-Tax Act.

4. The Departmental Representative supported the Commissioner's decision to disallow deductions for donations and unexplained bad debts.

5. The appellant's representative argued that while there was no issue with unexplained expenses and bad debts, the inclusion of donations should be reconsidered by the lower authorities to prove that they were related to manufacturing.

6. The Tribunal upheld the lower authorities' decision to include donations and unexplained bad debts in the profit calculation. Donations were considered part of profit, regardless of whether they resulted in profit or loss, as they were made from amounts remaining after deducting costs from sales revenue. The Tribunal agreed with remanding the matter of miscellaneous income for further examination to determine its source and relevance to the business activities of the corporate assessee.

In conclusion, the Tribunal found no merit in the appeal and confirmed the inclusion of donations and unexplained bad debts in the profit calculation, while directing a re-examination of the miscellaneous income issue.