1999 (7) TMI 447 - AT - Central Excise

Summary

Issues:
- Appeal against order confirming demand of Rs. 2,44,04,820 for Excise Duty on IC Engines used in Diesel Electric Locomotives.
- Assessment of assessable value under Rule 6(b)(ii) of Valuation Rules, 1975.
- Dispute regarding adding profit element for captive consumption of IC Engines.
- Argument on profit earned in sales to Public Sector Undertakings and Indian Railways.
- Interpretation of Rule 6(b)(ii) for determining assessable value.

Analysis:
The appeals were filed against an order confirming a demand for Excise Duty on IC Engines used in Diesel Electric Locomotives. The appellant, a manufacturer for Indian Railways, contended that as the IC Engines were captively consumed for locomotive production, no profit element should be added to the assessable value. The lower authorities approved adding a notional profit of 15%. The appellant argued that since most locomotives were transferred to Indian Railways, profit should only apply to sales to Public Sector Undertakings. The respondent argued that profit was earned on sales to Public Sector Undertakings, justifying the 15% profit addition.

During the appeal, it was highlighted that IC Engines were marketable products subject to duty. Rule 6(b)(ii) of Valuation Rules required adding normal profit earned on goods to compute assessable value. Despite only 2% of sales to Public Sector Undertakings, the profit earned was considered relevant for all transactions. The lower authority's adoption of a 15% profit figure for valuation was upheld as reasonable. The judgment emphasized that the percentage of sales was immaterial compared to the profit earned on products using IC Engines, ranging from 12% to 20%. The decision concluded that the impugned order was legally sound, rejecting the appeals and disposing of cross-objections accordingly.