Collector of Central Excise Vs. Festo Elgi (P) Ltd. - Court Judgment

Excerpt:
1. the dispute in this appeal arises in relation to the price list filed by the respondent on geared motors, manufactured and captively consumed in the manufacture of signal machines. the price list declared assessable value as sum total of the cost of raw materials, manufacturing cost and 10.10% marginal profit. the balance sheet for the year showed overhead expenditure to the extent of 31.75% and profit to the extent of 6.10%. show cause notice was issued proposing addition of overhead expenditure and also 6.10% as margin and profit instead of 10.1%. the profit margin taken from the balance sheet obviously related to the final product and not the product capitavily consumed. the asstt. collector, after hearing the respondent, confirmed the demand.the collector (appeals) set aside order and remanded the case for de novo adjudication of determining the value and rule 6(b)(i) of the central excise (valuation) rules, 1975. since the comparable price of geared motors was not available, it was proposed to determine the value under rule 6(b)(ii) of the rules on the sum of total cost of raw materials, conversation charges, over-head 31.75% and profit margin of 6.10%. this proposal was opposed by the respondent. however, the asstt.collector barred an order directing the addition of 16.3% as profit margin. this percentage was stated to be the gross profit earned by the respondent on the final product. this order was set aside by the collector (appeals) who directed the addition of only 10.10% as margin of profit.2. we agree that the gross profit earned on the final product cannot be mechanically applied to captively consumed product without considering various factors, such as the nature of two kinds of goods, their marketability and profitability. since even after remand, the asstt.collector did not consider the relevant factors, the collector in the impugned order observed that there was no purpose in remanding the case again. in this view, he proceeded to direct addition of 10.1% as margin of profit. we take it that this percentage was added on consideration on the nature of the two products and other relevant factors effecting profitability and after giving due adjustment on account of such factors. in this view we find no ground to interfere.3. the appeal is dismissed. the cross-objection, being merely supportive of the impugned order, is dismissed as unnecessary.

Judgment:
1. The dispute in this appeal arises in relation to the price list filed by the respondent on geared motors, manufactured and captively consumed in the manufacture of signal machines. The price list declared assessable value as sum total of the cost of raw materials, manufacturing cost and 10.10% marginal profit. The balance sheet for the year showed overhead expenditure to the extent of 31.75% and profit to the extent of 6.10%. Show cause notice was issued proposing addition of overhead expenditure and also 6.10% as margin and profit instead of 10.1%. The profit margin taken from the balance sheet obviously related to the final product and not the product capitavily consumed. The Asstt. Collector, after hearing the respondent, confirmed the demand.

The Collector (Appeals) set aside order and remanded the case for de novo adjudication of determining the value and Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975. Since the comparable price of geared motors was not available, it was proposed to determine the value under Rule 6(b)(ii) of the Rules on the sum of total cost of raw materials, conversation charges, over-head 31.75% and profit margin of 6.10%. This proposal was opposed by the respondent. However, the Asstt.

Collector barred an order directing the addition of 16.3% as profit margin. This percentage was stated to be the gross profit earned by the respondent on the final product. This order was set aside by the Collector (Appeals) who directed the addition of only 10.10% as margin of profit.

2. We agree that the gross profit earned on the final product cannot be mechanically applied to captively consumed product without considering various factors, such as the nature of two kinds of goods, their marketability and profitability. Since even after remand, the Asstt.

Collector did not consider the relevant factors, the Collector in the impugned order observed that there was no purpose in remanding the case again. In this view, he proceeded to direct addition of 10.1% as margin of profit. We take it that this percentage was added on consideration on the nature of the two products and other relevant factors effecting profitability and after giving due adjustment on account of such factors. In this view we find no ground to interfere.

3. The appeal is dismissed. The cross-objection, being merely supportive of the impugned order, is dismissed as unnecessary.