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Direct costs • Wages & labaour 6,,23,51,872/- 

         •        Packing charges                  55,72,914/-
         •        Testing charges                1,20,11,512/-
                                                 7,99,36,299/-

The direct costs at Sr. No. (i) & (iii) pertained to jewelleries manufactured by the assessee and sold to both M/s Anjali Jewellers and Retail customers. However the packing charges were incurred only in respect of sales made to retail customers. The ornaments were sold to M/s Anjali Jewellers in bulk and hence packing charges were not incurred by the assessee. Instead, M/s Anjali jewelers incurred packaging cost when the said firm sold gold ornaments to its own retail customers at its own show rooms. Accordingly, the packaging cost incurred by the assessee was exclusively allocable to the quantity of ornaments sold to retail customers. The average cost of packaging material per gram of gold sold to retail customer, therefore worked out as follows:

Sales made to retail customers (in gms) 872208.78 gms Packing charges Rs.55,72,914/- 
Average packing charges per gram                       Rs.6,38/ gm
Sold to retail customers

Anjali Jewellers Pvt. Ltd.   v. DCIT, Cir-10(1) Kol.                           Page 13
Testing & refining charges were directly connected with the purchase of gold. For working out the sales price, the testing & refining charges are therefore considered by the assessee as a component of the metal value and not the "making charges". Accordingly, the cost of gold metal sold during the year works out as follows:
Average cost of gold (as computed above) 1504.68 / gm Testing charges (1,20,11,512/13,35,984) 8.99 / gm Average cost of gold sold 1513.687 / gm The remaining direct costs i.e. wages & labour, incurred per gram of gold sold during the year worked out as follows: 
Total quantity of metal sold                            12,63,965 gms
Wages & labour                                         6,23,51,872/-
Average cost of labour per gram                        Rs.49.33 / gm
components included in invoices and arrived at wrong conclusion. We are of the view that in view of the foregoing facts the assessee recovered "melting loss" component of the cost by way of "metal sale" value billed to customers and not "making charges". In the circumstances the melting loss of Rs.10,87,26,931/- should have been excluded from the manufacturing cost of Rs.18,86,63,231/- for ascertaining the true manufacturing costs incurred vis-à- vis the "making charges" billed to customers.

14. In regard to making charges, these were never part of "manufacturing cost" and it was wrong to presume that such cost was recovered in form of "making charges". It was explained that testing & refining charges were paid accredited agencies to verify the purity of gold re-purchased from the customers and testing & refining charges were inextricably linked to the purchase value of gold. The testing charges therefore formed part of the metal component of the invoiced value and not the "making charges". The "metal sales value" of Rs.1550 per gm charges from M/s Anjali Jewellers or for that matter Rs.1567 per gm charges from the retail customers was more than the average per gm metal cost of Rs.1504.68 per gm (excluding testing charges) if per gm testing charge component is included in the gold metal cost then the same stands increased to Rs.1513.67 / gm. On the other hand, the sale price of metal to Anjali Jewellers and the retail customers was Rs.1550 and Rs.1567 per gm respectively which was sufficiently higher than the cost of the gold sold. In view of these facts it was stated that the testing charges of Rs.1,20,11,512/- was wrongly considered by CIT to be part of "manufacturing cost" recouped by way of "marking charges". Hence, we are of the view that testing charges were part of "manufacturing cost" but Anjali Jewellers Pvt. Ltd. v. DCIT, Cir-10(1) Kol. Page 17 these were not recouped in the form of "making charges" but "metal sale"