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6.1 The product of Unit-I, i.e., NH coke is mainly used for captive consumption at Unit-II. Further, as stipulated by the Government of India, a part of the produce of Unit-I viz., NH coke was compulsorily exported at predetermined price to group company in the United Kingdom. From the very inception, i.e., from the year 1975, the company had been importing this material from its collaborators in the UK at substantial cost of foreign exchange. The reason for importing the said material was that the company did. not possess the expertise and technical know-how for producing the same. This resulted in high input cost resulting in insignificant profits and even losses upto the asst. yr. 1992-93. Later on, after prolonged discussions and negotiations with its foreign collaborators, the company finally obtained the expertise and know-how for in-house production of NH coke in 1993 and then accordingly set up Unit 4 for manufacture of NH coke. The project started commercial production during the financial year 1993-94. This led to substantial reduction in costs and the company was transformed into a profit-making concern from the very first year of commercial production, i.e., 1993-94. This is clearly evident from the details of profit/loss of the company for financial years 1983-84 to 1998-99 :

6.2 Unit-I, being a new industrial unit set up in the financial year 1993-94 for manufacture of intermediary product viz., NH coke, qualified for deduction under the erstwhile Section 80-IA. Accordingly, the company claimed deduction under Section 80-IA for 6 years upto financial year 1998-99 (relevant to asst. yr. 1999-2000). Sec. 80-IA was, however, substituted by Sections 80-IA and 80-IB by Finance Act, 1999, w.e.f. 1st April, 2000. Consequently, the company claimed deduction under corresponding Section 80-IB for 4 years w.e.f. asst. yr. 2000-01 ending with asst. yr. 2003-04. While claiming deduction under Section 80-IB, the transfer value of products used for captive consumption by other unit was valued at Rs. 357.32 per kg., being the notional imported cost (i.e., the landed cost). The said price was higher than the price at which the said product had been exported to group concern as per export stipulations laid down by the Government of India, viz., Rs. 137.45 per kg. The appellant-company claimed that since NH coke was an import substitute, the same had to be valued at the landed cost. The landed cost was determined on the basis of proforma invoice dt. 17th Jan., 2000 received from Morganite Electrical Carbon Ltd. of UK from whom the company used to import NH coke prior to set up of Unit-I. Copy of the said proforma invoice is enclosed at p. 90 of the paper book. Accordingly, the appellant claimed deduction under Section 80-IB for asst. yr. 1999-2000 as under :

Deduction under Section 80-IB (being profit of Unit-I) Amount (Rs.) Sales (export) 1,00,63,741 Value of captive consumption (82,822 kgs. x 357.32) 2,95,93,957 ___________ 3,96,57,698 Less : Expenses of Unit-I 1,83,26,828 ___________ Allowable deduction 2,13,30,870 ___________ The P&L a/c for the year ended 31st Jan., 2000 of the NH coke unit is enclosed at p. 55 of the paper book. 
  Deduction under Section 80-IB                            Amount (Rs.)
Sales (export)                                           1,00,63,741
                                                         ___________
Value of captive consumption (82,822 kgs. x 137.45)      1,13,83,884
                                                         ___________
                                                         2,14,47,625
Less : Expenses claimed                                  1,83,26,828
                                                         ___________
Allowable deduction                                        31,20,797
                                                         ___________