Captive goods valuation must follow comparable sale price when available; cost of production applies only as a last resort.

Extended limitation under the proviso to section 11A(1) applied where an assessee filing declarations under rule 173C had wilfully suppressed material facts; absence of departmental approval did not prevent invocation of suppression-based limitation. For captively consumed engines, valuation had to follow the nearest ascertainable comparable sale price under the valuation rules, including genuine subsequent factory-gate sales to independent buyers, with reasonable adjustment if needed. Rule 6(b)(ii) cost-of-production valuation was available only if no such comparable value could be determined. The cost-based demand was therefore rejected, while the extended limitation point was upheld.

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Issues: (i) whether the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act, 1944 was available; and (ii) whether the assessable value of captively consumed engines was to be determined under section 4(1)(a) of the Central Excise Act, 1944 read with the valuation rules on the basis of comparable sale price, or under rule 6(b)(ii) on cost of production.

Issue (i): whether the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act, 1944 was available.

Analysis: The relevant period was governed by the substituted declaration procedure under rule 173C, under which the assessee was required to declare the goods and assess duty correctly. On that footing, the absence of departmental approval of the declaration did not bar invocation of limitation based on suppression. If the declaration was erroneous and facts were wilfully suppressed, the extended period could be invoked.

Conclusion: The extended period of limitation was held applicable, against the assessee.

Issue (ii): whether the assessable value of captively consumed engines was to be determined under section 4(1)(a) of the Central Excise Act, 1944 read with the valuation rules on the basis of comparable sale price, or under rule 6(b)(ii) on cost of production.

Analysis: Where the goods were not sold, section 4(1)(b) applied and valuation had to proceed under the valuation rules through the nearest ascertainable value. Rule 4 permitted adoption of the value of goods sold at any other time nearest to the time of removal, subject to reasonable adjustment, and did not exclude subsequent sale prices. Rule 6(b)(ii), dealing with cost of production, operated only when value could not be determined under the earlier rules. The Tribunal accepted that subsequent genuine factory-gate sales to independent buyers could furnish the comparable price for the earlier captive clearances, and that non-payment of sales tax was not decisive of whether a sale had taken place.

Conclusion: Valuation under rule 6(b)(ii) was rejected, and comparable sale price under rule 4 was held to be the correct basis, in favour of the assessee.

Final Conclusion: The demand and related valuation adopted on cost construction were not sustainable, though the invocation of extended limitation was upheld.

Ratio Decidendi: For captively consumed goods, if a genuine sale price of comparable goods is available, even from a subsequent sale nearest to the time of removal, valuation must be made on that basis under the valuation rules and recourse to cost of production is permissible only when no such ascertainable value exists.

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