G.N. Srinivasan, Member (J)
1. In the captioned appeals 2 appeals Viz. E/1846 & 1845/93-A have been filed by the assessees and the Appeal Nos. E/467 & 2019-V/99 MUM have been filed by the department against the impugned order, whereunder the Collector (Appeals) has fixed the notional profit in terms of Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 at 14% instead of 17.05% confirmed by the Asstt. Commissioner for the period 1988-89.
2. The assessee company is having a factory at Mithapur, Gujarat manufacturing various types of chemical products like soda ash, sodium bicaustic acid and soda etc. The assessee also manufactures for captive consumption, certain machinery and mechanical appliances and parts thereof which are not available in the market for the specific purpose of using them in manufacturing their final products. The machinery, mechanical appliances and parts thereof manufactured by the appellants fall under Heading 84 of CETA. They filed Part VI of the Proforma price list for determination of assessable value. In the said Part VI, they have given various particulars viz. cost of production and also normal profits. The assessee gave notional profit at 10% whereas the assessing authority proposed to fix it at 24.35% of the gross profit of the company. Being aggrieved against the order of the assessment, the appellants filed appeal before the Commissioner (Appeals) who by the impugned order fixed the profits at 14% of the net profit of the final product as against 17.05% confirmed by the Asstt. Commissioner. The assessee has filed 2 appeals questioning the fixation at 14% whereas the department has filed appeals for enhancing the fixation from 14% to 24.35%. Hence, all the 4 appeals have been heard together.
3. Shri Nankani, the ld. Advocate argued that the intermediate products viz. machinery and mechanical appliances are the goods under consideration. For calculation of the notional profit as envisaged under Rule 6(b) reference to the gross profit from the sale of the final product is totally uncalled for and it goes against the very words used in Rule 6(b)(ii). He states that if the logic of application of the department is to be accepted, then the words such as “such goods” used in Rule 6(b)(ii) will become otiose. He states that there are several cases decided by the Tribunal which goes against the said preposition. He cites the judgment of the Tribunal dated 5-11-1997 in the appellant’s own case CCE v. Tata Chemicals Ltd. [(Appeal No. E/101/90-A and E/Cross/100/90-A), 1998 (98) E.L.T. 478 (T)] where the same question arose and the Tribunal after hearing the parties has fixed 10% of the margin of profit as the notional profit in terms of Rule 6(b)(ii) of the said Rules. He, therefore submits that the appeals of the assessees should be allowed.
4. As against this the Departmental Representative would state that in the appeals of the Department it has been specifically laid down that the correct method of determining the margin of profit would be cost of production of the goods instead of sales. In other words, it is argued that the margin of profit should be arrived at by dividing the gross profit (before tax) by the cost of the goods. As per the 1988-89 Annual Report of the company, the gross Profit is Rs. 5,029.10 lakhs. The cost of production would be sale minus Gross Profit i.e. Rs. 25,682.96 lakhs – 5.029.10 lakhs = Rs. 20,653.86 lakhs
5029.10 x 100
Hence, the margin of profit = ————— = 2435% This is the basis for
arriving at Margin of profit as 24.35% by the department.
5. We have considered the rival submissions. The Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 provides that where the value of the goods cannot be determined under Sub-clause (i) on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. Here the goods referred to are machinery and machinery products, drugs, etc., not the final product soda ash or other chemicals. In fact, the judgment of the Tribunal in the appellant’s own case clinches the issue. When we look into the judgment on the appellant’s own case, there is also reference to other cases viz. National Litho Press v. CCE 1997 (91) E.L.T. 140 Graphite India Ltd. v. CCE 1995 (78) E.L.T. 17. After discussion of these decisions, the Bench came to the conclusion that it should be only 10%. We, therefore, do not disagree with what is found by the Tribunal in the earlier cases as we do not have strong reason to differ from that.
6. As far as the Department’s appeals are concerned, when they claimed notional profit at 24.35%, no evidence has been produced. The calculation based on the sales figures cannot be taken as evidence. The notional profit which has been indicated in the assessee’s own case referred to above will clearly go against what is stated in the department’s appeal. It has not been brought to our notice that any appeal has been filed against the said judgments of the Tribunal in the assessee’s own case supra. In view thereof, we cannot go against the same and we have to accept the assessee’s appeals and dismiss the Department’s claim.
7. It is true that during the course of argument Shri Choubey brought to our attention to the case of Godrej & Boyce Mfg. Co. Ltd. 1999 (110) E.L.T. 877. In our view that case can be distinguished in as much as the facts of the case are different from the facts before us inasmuch as in the assessee’s own case, the Tribunal has given a finding in respect of the same profit related intermediate product and not the final product. In the Godrej case, in paragraph 7 it is stated that the method of valuation of captively consumed goods is to arrive at the assesseble value of such goods in the absence of sale price of such goods. Here the grounds of appeal speaks of figures relating to sale of final product. The formula as reflected in the grounds of appeal referred to the above portion of the order would reflect the sales figures of the final products and not the intermediate products with which we are concerned. In view of the judgments of the Tribunal in the assessee’s own case, we do not think that any useful purpose would be served in referring to the judgment of Godrej & Boyce Mfg. Co. Ltd.
8. It is also interesting to note that at the time of filing of the appeals, the Board has issued Circular No. 258/92/96-CX, Dated 30-10-1996 regarding the assessable value in the case of goods captively consumed – addition of profit – reg. Published by Shri R.K. Jain in Excise & Customs Circulars & Clarifications, 2000 Edition at page 706 wherein at page 708, the formula has mentioned as follows :
"(i) Let net sales (excluding Excise duty) = Rs. 100/- (ii) Profit before tax @ 20% on sales in previous year = 20/- (iii) Therefore, cost of production (sales-profit) = 80/- (iv) Thus profit before tax as percentage of cost of production = 20 ---- x 1000 80 or 25% Thus profit before tax which is 20% on sale = 25% on cost of production".
It is not reflected in the grounds of appeal whether the department had followed this particular formula. It may be clarified here that the Board’s circular is not binding on the assessee but it is binding on the department. But in view of the judgments of the Tribunal in the assessees’ own case, we do not think the department has any case. We, therefore, allow the assessee’s Appeal Nos. E/1846/93-A & E/1845/93-A and dismiss the department’s Appeal Nos. E/467/93-A & E/2019/V/99-MUM.