Loss on Product cleared finally using Input Goods not relevant for determining Notional Profit in Captive Consumption: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) while dismissing the appeal of Golden Tobacco Ltd. v. Commissioner of Central Excise held that loss on product i.e. cleared finally using the input goods is not relevant for determining the notional profit under Rule 6 (b)(ii).

The matter pertained to the recovery of differential duty by addition of notional margin of profit of 10% and has been remanded back by the Hon’ble Supreme Court of India.

It was the appellants’ contention that the expression ‘if any’ appearing under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 implies that the profit margin was to be added only if circumstances so warranted. He reiterated another view of the Supreme Court holding that a notional profit of 10% was to be added in the event of failure on the part of the assessee to establish that a lower notion of profit should be adopted.

The Authorized Representative placed his reliance on another view of the Apex Court where the challenge of the assessee relied upon the losses incurred in the production yarn whereby a notional profit of 10% was adopted.

The Tribunal bench comprising of Technical Member C. J. Mathew and Judicial Member Ajay Sharma pointed out that valuation to be adopted for such captive production poses problems leading to the incorporation of a notional profit on the cost of production. Therefore, irrespective of whether the goods are sold or used entirely for captive consumption, it is not just the cost of production but the profits that would have been earned had the goods been sold outside that was required to be included for the purpose of assessment of duty.

With respect to the issue at hand, the assessee has contended that they had been making the loss from the sale of finished products i.e. cigarettes. The assessee was unable to show the determining of the assessable value of inputs used in its manufacture which were later presented for sale. It was a founded fact that the loss on the product is cleared finally using the impugned goods as an input. On the basis of which the Hon’ble Tribunal held that such loss is not relevant for determining the notional profit under Rule 6 (b)(ii).