Excise valuation hierarchy requires comparable value first, with quality adjustments considered before cost-based valuation is used.

Valuation under the Central Excise (Valuation) Rules must first be attempted under the comparable value method in Rule 6(b)(i), and the cost-based method in Rule 6(b)(ii) applies only if value cannot be determined under that primary method. The rules operate hierarchically, so direct resort to Rule 6(b)(ii) is not permissible without exhausting Rule 6(b)(i). Any adjustment for quality must also be considered while determining comparable value. The valuation based directly on Rule 6(b)(ii) was therefore unsustainable, and the matter had to be reconsidered under Rule 6(b)(i) after hearing the assessee.

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Issues: Whether valuation under the Central Excise (Valuation) Rules was required to be first attempted under Rule 6(b)(i) by adopting the comparable value method, before resorting to Rule 6(b)(ii) on cost of production.

Analysis: Rule 6(b)(ii) applies only where value cannot be determined under Rule 6(b)(i). The rules operate in a hierarchy, and the subsidiary method of cost construction cannot be invoked unless the primary comparable value method has first been exhausted. The claim for adjustment on account of quality also required consideration while determining comparable value.

Conclusion: The valuation made by directly applying Rule 6(b)(ii) was unsustainable. The matter was required to be reconsidered under Rule 6(b)(i) with appropriate adjustment for quality, after giving the assessee an opportunity of hearing.

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