Moheb Ali M., Member (T) - (1.)BOTH these appeals arising from two separate impugned orders were heard together and are taken up for decision by this common order.
(2.)APPEAL No. E/358/99. The appellants are engaged in the activity of manufacture of printed shells, slides, Hinge Lid Cutouts and Cardboard/Foil Board outers in their factory. The dispute arises on the classification of these products. In the present appeal, however, the appellants dispute the classification of HLCs and CBOs backed with aluminium foil which according to them should fall under sub -heading 7607.30 of the Schedule to CETA 1985 and as against that the Department wants the item to be classified under sub -heading 7616.90. The second item which is now in dispute is Coated Board which according to the appellants is classifiable under sub -heading 4810.10 and according to the Department, it is classifiable under sub -heading 4810.90 of the same Schedule. Apart from this, determination of the value under Section 4 of the C.E. Act, 1944 is also the subject matter of this appeal. It so happened that while finalising the assessment, the Assistant Commissioner decided the classification of the disputed products as well as the value under Rule 6(b)(ii) of the Valuation Rules. We may mention that resort to valuation rules itself is necessitated by the fact that the products in question are not sold to any outsiders but are captively consumed by another unit of the appellants. The fact that the products are captively consumed is not in dispute and therefore the applicable rule is Rule 6(b)(ii) of the Valuation Rules. However, the dispute arose on various elements which have been considered by the lower appellate authority for inclusion in the cost of production. We would now deal with the issue pertaining to valuation and then move on to classification of the products.
(3.)THE Commissioner (Appeals) in the impugned order dealt with the issue of valuation under Rule 6(b)(ii) in the following manner :
"I find that none of the case laws referred to supra would specifically deal with the issue regarding the point canvassed by them viz. distinction as between cost of sales and cost of production. In view of the above, I do not venture in to discuss on "cost of sales" and "cost of production" inasmuch as Rule 6(b)(ii) would refer only to "cost of production". In my considered view, if the main aspect of Section 4 is applied the same will only lead to "value" being considered from amongst sale price for the goods available at the factory gate. Therefore, if the intention of the legislature under Section 4 is to consider "normal price" from amongst sale price available at the factory gate, I would consider that the attempt even under Rule 6(b)(ii) should be to find out through the said provision the possible sale price. Therefore, without going into individual items discussed in the order -in -original and also in the appeal memorandum, I hold that as the Assistant Commissioner has tried to find out the value based on what would be the selling price. His view should be accepted".

It is evident from the Commissioner's finding that value arrived at on the basis of the product's selling price is correct way of determining the value of the captively consumed goods. This is hotly contested by the Sr. Counsel for the appellants. He relied upon the decision of the Hon'ble Supreme Court in the case of Union Carbide India Ltd. v. CCE, Calcutta, wherein the Apex Court held that cost of production means actual cost of production together with notional profit which may have been earned if the goods had been sold and not merely notional sale price of the those goods without considering actual cost. The Court observed that valuation of the goods on their notional sale without considering actual cost is impermissible. The learned Sr. Counsel argued that Central Board of Excise & Customs had occasion to issue guidelines as to how captively consumed goods have to be valued. The Board has specifically instructed the field formations to follow costing principles laid down in CAS -4. These costing principles indicate the manner in which cost of production of goods which are not sold should be computed. The Commissioner (Appeals) did not follow these principles and also the ratio laid down by the Apex Court in the case cited supra. He further submitted that certain elements of cost which are not related to production of the impugned goods was also sought to be added, for e.g. Cost of selling and distribution charges were sought to be added to the cost of production which is not in accordance with principles laid down in the CAS -4.