Page 284 - MANUAL OF SOP

Determination of Non Injurious Price

• production value (sales value of the production) basis;
• any other reasonable basis. For example, if all the products emerging
out of any such process have almost similar per unit value, production
quantity method could also be adopted;
(c) If direct costs constitute a significant portion of overall costs, the common
expenses/overheads not linked to any specific product can also be allocated
in the ratio of product wise direct costs;

(d) Expenses in the nature of fixed selling expenses should preferably be
allocated on the basis of turnover of each product of the company.
(e) If the entity has done some trading activity or job work during POI, a
proportionate amount of overheads or share of other common expenses
must be allocated to this activity. Similarly, if the corporate office deals with
all organizations within a group, reasonable expenses must be allocated
to all the constituents of the group including income/investments in group
companies. The reasonability of the basis adopted for allocation must be
verified by the investigation team.

CALCULATION OF RETURN

9.6.23. As already detailed in para above, the Authority as per established practice
allows 22% return on average capital employed. Average Capital employed means
average of opening and closing balances of Net Fixed Assets (NFA) and Working
Capital (WC) for POI relating to PUC. Average NFA attributable to PUC is divided by
total optimum production during POI to arrive at an average per unit NFA.

9.6.24. Similarly, average working capital allowed is calculated as a percentage
of “total cost of sale” minus depreciation claimed by the petitioner and applied
to the “cost of sales” minus depreciation per unit allowed to derive the notional
working capital component per unit of production. Total per unit NFA and WC is
the per unit average capital employed for the PUC. A return of 22% per annum on
average capital employed per unit (as reduced by the amount of interest/finance
cost per unit as per Format-L) is added to the cost of sales to get NIP. The rate of
return is proportionately adjusted, where the period of POI is different from 12
11
months. The standard practice of 22% has been accepted by the Hon’ble CESTAT
also.

11 Merino Panel Products Limited v Designated Authority, 2016 (334) ELT 552 (CESTAT, New Delhi).

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