The realistic cost of production, including actual costs and notional profits, must be considered in the valuation of excisable goods for excise duty assessment.

ORDER

1. The appellant is the manufacturer of batteries. For the purpose of its batteries it produces polystyrene sheets. The basic raw material for the sheets is polystyrene granules. The sheets are not wholly consumed in the manufacture of battery caps. Almost 2/3 of the sheets are waste. The waste or residue is recycled by being ground into polystyrene granules which are then again used with virgin polystyrene granules to produce fresh sheets. The question has arisen as to the value of these sheets for the purposes of excise duty.

2. The assessment year in question is 1976-77. Section 4 of the Central a Excises and Salt Act, 1944 as it then stood (hereinafter referred to as "the Act") provided for the valuation of excisable goods for the purposes of charging of duty of excise. Sub-section (1) provides that such value shall be deemed:

"4. (1)(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:

(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed."

3. Under sub-section (4) of Section 4, the word "value" has been defined as including the .cost of packing and as excluding the duty of excise, sales tax, etc. subject to certain exceptions with which we are not concerned in this case. We may not, however, (sic ignore) that a distinction appears to have been legislatively made between the words "value", "price" and "cost". This distinction has been repeated in the Central Excise (Valuation) Rules, 1975 (hereinafter referred to as "the Rules"), Chapter II of which pertains to the determination of value. Rules 4 and 5 provide for the value on the basis of the sales made by the assessee in the circumstances mentioned therein. Rule 6 deals with the value of excisable goods which cannot be determined under Rules 4 and 5. Sub-rule (b) of Rule 6 deals with excisable goods which are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles. In such case, the value is required to be based

"(i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee:

Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods;

(ii) if the value 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;"

4. We are concerned with Rule 6(b)(ii).

5. According to the appellant the cost of production referred to in that sub-rule must mean the actual cost of production together with the notional profits which would have been earned if the excisable goods had been sold.

6. The Revenue Authorities, on the other hand, contend that the value of the excisable goods must be decided on the basis of the notional sale of the very same goods without taking into consideration what cost was actually incurred by the assessee in producing the goods.

7. We are of the opinion that some meaning must be given to the phrase

"cost of production" in the said sub-rule. Had actual cost not been a factor to be taken into consideration for determining the value of the excisable goods, the sub-rule could have merely stated that the value would be determined on the price which the excisable commodity would fetch had it been sold.

8. In this case, the appellant had already purchased or otherwise procu