ORDER
U.L. Bhat, J. (President)
1. Appellant is absent in spite of notice of hearing but has sent a request for decision of the appeal on merits. We have heard Shri M. Ali, JDR and perused the papers.
2. Appellant manufactures printing ink and captively consumes the same in the manufacture of calendars and labels. Price List No. 4/87-88 was filed in regard to printing ink in Part IV(a) under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 showing cost of raw materials, charges and 5% as margin of profit. The Balance Sheet showed the profit in regard to the end- product as 30.89%. Notice was issued to appellant to show cause why 30.89% should not be taken as notional profit in regard to printing ink. Notice was resisted by the appellant but was confirmed by the Assistant Collector. His order was confirmed by the Collector (Appeals). Hence the present appeal.
3. According to Rule 6(b)(ii) of the Valuation Rules, valuation should be based on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. There is no dispute in this case that notional profit has to be added; the dispute relates only to the quantum. Lower authorities have treated the profit of the final product as s notional profit on the intermediate product. According to appellant they were not justified in doing so.
4. One of the earliest decisions is Food Specialities Ltd. v. Appellate Collec tor, Central Excise and Customs, New Delhi and Ors. reported in 1988 (33) E.L.T. 331. In that case lower authorities added 10% as margin of profit in the absence of data regarding exact pro rata profit margin on the final product (evidently the manufacturer had several products) and since it was a matter of discretion the Tribunal did not interfere. This decision does not throw any light on the principle of law involved. In Dhrangadhra Chemical Works Ltd. v. Collector of Central Excise, Madras – 1988 (34) E.L.T. 656 also referred to in the course of arguments, this aspect of the matter has not been discussed. In Chemical Works Ltd. v. Collector of Central Excise, Madras -1988 (35) E.L.T. 202, the Tribunal observed that in computing the margin of profit on metal containers captively consumed there is no relevance of the margin of profit earned on the sale of caustic soda duly packed in the metal containers. In Graphite India Ltd. v. Collector of Central Excise, Calcutta -1995 (78) E.L.T. 17, in determining the value of Head Blocks manufactured and captively consumed in the manufacture of graphite electrodes, 50% of the profit linked with the finished product as shown in the balance sheet was added and the Tribunal holding that what was done was reasonable declined to interfere. In Kanoria Chemical Industries v. Collector of Central Excise, Allahabad – 1995 (80) E.L.T. 795 the party declared notional profit margin as 5% which was increased by the Assistant Collector to 10% in the absence of specific data. Collector (Appeals) held this to be arbitrary and directed the Assistant Collector to add 6.97% as margin of profit since this percentage of profit had been earned on bleaching powder. Tribunal observed that since the intermediate products were not sold as such profit earned with reference to the finished product has to be taken into consideration while determining the assessable value of the intermediate product. The margins of profit in the relevant four years on the final product were 17.94%, 0.10%, 6.97% and 5.34%. It was held that there is no basis for adding the same percentage namely 6.97% in each of the years and the percentage of profit shown in the balance sheet in respect of finished product should be the profit to be added. It may be noticed that the average rate of profit for finished product for the four years would be arround 7 1/2%- The decision does not give any reason for so holding. In Collector of Central Excise v. Bimetal Bearing Ltd. – 1996 (81) E.L.T. 246 the Tribunal held difficulty arises since there is no market for intermediate goods but the profit margin for the final product cannot be merely adopted as profit margin for intermediate product particularly so when the two products are totally different in nature, quality, etc. and the assessing authority has to determine the profit margin by some method which cannot be ureasonable or arbitrary having regard to the nature, cost of production of the two products, the profit margin for the final product and perhaps the cost of profit for products more or less the similar to the intermediate products and by making suitable adjustment. The Tribunal also indicated that this is not the only method by which profit margin can be arrived at and this method can be reasonably conceived to suit appropriate situations. In West Coast Paper Mills Ltd. v. Collector of Central Excise, Belgaum – 1996 (81) E.L.T. 403 (Tribunal) question arose with reference to valuation of wrapper paper used in the packing of other varieties of paper. This aspect was not considered. What was considered was what should be done where an assessee was normally making profit but in a particular year incurs loss. Assistant Collector had gone by the profit shown in the Balance Sheet. Tribunal declined to interfere.
5. In Appeal E/4294/89-A decided on 23-12-1996, referring to the decisions in Dhrangadhra Chemical Works Ltd. – 1988 (35) E.L.T. 202, Bimetal Bearing Ltd. – 1996 (81) E.L.T. 246, Kanoria Chemicals -1995 (80) E.L.T. 795 and West Coast Paper Mills – 1996 (81) E.L.T. 403, the Tribunal held that there is nothing wrong in looking into the profit margin derived on the end-product and making appropriate adjustments, if necessary, in arriving at the notional profit margin of the intermediate product.
6. An analysis of the above decisions would show that while in some cases where profit margin on the final product was adopted for the inter mediate product, Tribunal did not interfere, while in one case the Tribunal approved the adoption of 50% of the profit margin on the final product as the profit margin for the intermediate product and in other cases Tribunal did not interfere where the lower authorities adopted a reasonable margin of profit in the absence any data. It is not possible to say that margin of profit derived on the final product has no relevance in deciding the margin of profit on the intermediate product. The extent to which it is relevant must necessarily depend on the facts and circumstances of each case, nature of the two products, the comparative cost of production of the two products and like. In some cases there may be justification to adopt the same figure as the margin of profit for intermediate product; in some cases there may be justification to make some adjustment in the margin of profit. We do not think that the Tribunal in any one of the decisions has laid down any hard and fast rule applicable to all fact situations. Even while adopting the profit margin of the final product for the intermediate product, statutory authority must consider whether any adjustment is necessary having regard to all other circumstances adverted to earlier.
7. Profit margin on the final products in the case in question was 30.89% and the final products were calendars and labels which are consumer products and in wide circulation. They cannot be compared with intermediate product such as printing ink which is used only by printing processors. In these circumstances the notional profit margin for the printing ink cannot be held to be the same as the margin of profit for final products. Therefore the view taken by the lower authorities does not appear to be correct. Instead of remanding this old case to the adjudicating authority, we deem it fit to reduce the margin of profit from 30.89% to 20%.
8. Appeal allowed in part as indicated above.