Central Excise - Scope of the expression 'manufacturing profit, under Rule 6(b) of the Valuation Rules - Question regarding - Central Excise - 6/66/84-CX.1

Central Excise - Scope of the expression 'manufacturing profit, under Rule 6(b) of the Valuation Rules - Question regarding F. No. 6/66/84-CX.1 Dated 23-7-1986 Government of India Ministry of Finance (Department of Revenue) New Delhi Subject : Central Excise - Scope of the expression 'manufacturing profit, under Rule 6(b) of the Valuation Rules - Question regarding I am directed to refer to Ministry's letter F. No. 6/28/84-CX.1, dated 14-8-1984, in terms of which it had been advised that in cases where assessment is sought to be made under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 in respect of goods captively consumed, the margin of profit of the year immediately preceding, may be take into consideration while arriving at the assessable value. 2. Some Collectors have expressed some doubts about the legality of the aforesaid instructions primarily on the ground that the profit of previous year may not reflect the profit which the manufacturer would have made, had he sold goods in the day of their clearance for internal consumption. A suggestion has also been made that the Central Excise Valuation Rules, 1975 may be amended in order to provide legal backing to the Board's instructions. 3. The matter has been considered by the Board in consultation with the Ministry of Law Ministry. Ministry is of the view that the instructions in letter F. No. 6/28/84-CX.1, dated 14-8-1984 do not call for any revision, nor is there any necessity for amending the Valuation Rules. Rule 6(b) of the Valuation Rules speaks of two methods of determining assessable value; (i) on the basis of the value of comparable goods produced by the assessee or by any other assessee; and (ii) on the basis of the cost of production including profits, which the assessee would have normally earned. Method (ii) will be used only when method (i) is not available. Method (ii) contemplates of hypothetical profit which is bound to be approximate in nature. Therefore, the previous year's profit should be acceptable as the profit that the assessee would have normally earned. The Ministry of Law have confirmed that adopting last year's profit is reasonable and, therefore, there is no need to amend the Rule. 4. The receipt of this letter may please be acknowledged.