Excise valuation of captive transfers must follow non-sale rules; extended limitation and related penalties fail absent suppression.

Bulk drugs transferred to a sister unit without sale were held to be valuated under Section 4(1)(b) of the Central Excise Act and Rule 6(b)(ii), because the drugs price control declaration was not the normal price for non-scheduled bulk drugs under Section 4(1)(a). The article further notes that the extended period of limitation was not sustainable on the disclosed facts, since suppression was not proved; therefore, the wider-period demand and connected penalties, including those under Section 11AC, did not survive. The duty demand for the normal period remained liable to recomputation.

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Issues: (i) Whether the assessable value of bulk drugs cleared without sale to a sister unit was to be determined under Section 4 of the Central Excise Act, 1944 and Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, and whether the price declared under the drugs price control regime could be treated as the normal price. (ii) Whether the extended period of limitation and the consequential penalties under the Central Excise Act and the Central Excise Rules were sustainable.

Issue (i): Whether the assessable value of bulk drugs cleared without sale to a sister unit was to be determined under Section 4 of the Central Excise Act, 1944 and Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, and whether the price declared under the drugs price control regime could be treated as the normal price.

Analysis: The bulk drugs were not sold but were transferred for captive use by the assessee's other unit. Section 4(1)(a) applies where value is based on a sale price in the course of wholesale trade, while Section 4(1)(b) applies where the goods are not sold. The price data furnished under the drugs price control framework did not, in the case of non-scheduled bulk drugs, amount to a price fixed under law for purposes of Section 4(1)(a). As the goods were not sold, valuation had to proceed under Section 4(1)(b) and the prescribed valuation rules, with Rule 6(b)(ii) being the relevant mechanism.

Conclusion: The declared price could not be treated as the normal price under Section 4(1)(a); valuation had to be made under Section 4(1)(b) and Rule 6(b)(ii), in favour of the Revenue on the valuation principle.

Issue (ii): Whether the extended period of limitation and the consequential penalties under the Central Excise Act and the Central Excise Rules were sustainable.

Analysis: The assessee had disclosed cost-related material to other authorities and had already made substantial voluntary payment, which weakened the allegation of suppression for the extended period. The demand for the larger period was held not to sustain, while the demand within the normal period survived. Since penalty under Section 11AC depended on the extended-period demand, that penalty did not survive. The penalties on the officers also could not stand once the penalty on the company failed. The matter required recomputation of duty for the normal period only.

Conclusion: The extended period demand and all penalties were set aside, while the normal period demand was upheld and remanded for recalculation, in favour of the assessee on limitation and penalty and in favour of the Revenue only for the normal period duty.

Final Conclusion: The valuation issue was answered against the assessee, but the larger period demand and penalties were set aside, and the surviving duty demand was confined to the normal period for fresh computation by the Commissioner.

Ratio Decidendi: Where goods are not sold, valuation must follow the statutory scheme for non-sale removals, and an extended-period demand and related penalties cannot be sustained absent a proved case for extended limitation independent of the surviving normal-period liability.

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