2001 (3) TMI 128 - AT - Central Excise

Summary

Issues Involved:
1. Valuation of captively consumed goods u/r 6(b) of Central Excise Valuation Rules.
2. Inclusion of profit in the valuation of captively consumed goods.
3. Determination of assessable value based on gross profit vs. net profit.
4. Reassessment of duty and penalties imposed.

Summary:

1. Valuation of Captively Consumed Goods:
The primary issue concerns the valuation of goods manufactured by an assessee and consumed by him in further manufacture, specifically u/r 6(b) of the Central Excise Valuation Rules. Rule 6(b) provides two methods for valuation: the value of comparable goods [6(b)(i)] or the cost of production including profits [6(b)(ii)]. The case focuses on the second method.

2. Inclusion of Profit in Valuation:
The appellant, M/s. Raymonds Limited, included only the overall profit from all items in the cost of production statement. However, for valuation purposes, only the profit from the woven fabric should be included. Both parties agreed that the profit for valuation should be specific to the goods under assessment and determined according to generally accepted costing principles.

3. Determination of Assessable Value:
The Tribunal clarified that the profit to be included is the gross profit, not the net profit. The assessable value should be the normal sale price or its nearest equivalent, and the profit relevant for valuation is the profit from the manufacture and sale of the goods under assessment. The Tribunal emphasized that the profit for captively consumed goods is a projected profit, as actual profit is not earned due to the absence of sale.

4. Reassessment of Duty and Penalties:
The Tribunal found that the proceedings were based on a misunderstanding that the profit of 3.34% included non-textile activities. The appellant's cost of production included only the textile division's profit, in line with the Central Board of Excise & Customs' instructions. The demand for reassessment and increased profit addition was not justified. Consequently, the duty demand and penalties were set aside.

Conclusion:
(i) The profit for captively consumed goods u/r 6(b)(ii) is the profit normally earned on the sale of such goods.
(ii) Profits from other activities are irrelevant for valuation.
(iii) The profit is a projected profit based on generally accepted costing principles.
(iv) The profit included should be gross profit, not net profit.

The appeals were allowed, and the impugned order was set aside with consequential relief.