Valuation of captively consumed goods must follow comparable market price; cost construction cannot replace factory gate sale price without undervaluation proof.

For captively consumed molasses, valuation under Rule 6(b)(i) was held to depend on comparable market price where such evidence existed, and a certificate of cost of production could not replace actual market-based valuation; the assessee's valuation at Rs. 401 PMT was therefore accepted and the higher figure was rejected. For molasses sold to independent buyers at the factory gate, the sale price could not be displaced by cost construction in the absence of any proof of undervaluation or extra consideration; accordingly, rejection of the factory gate price was unsustainable. Relief was granted to the assessee in the appeals.

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Issues: (i) Whether the assessable value of molasses captively consumed could be determined under Rule 6(b)(i) on the basis of comparable market price rather than a certificate stating cost of production. (ii) Whether, in respect of molasses sold to independent buyers at the factory gate, the cost construction method could be applied in the absence of proof of undervaluation.

Issue (i): Whether the assessable value of molasses captively consumed could be determined under Rule 6(b)(i) on the basis of comparable market price rather than a certificate stating cost of production.

Analysis: Rule 6(b)(i) governs valuation of captively consumed goods. The evidence showed that molasses prices fluctuated considerably in the market and comparable sales by other units existed, making the assessee's adoption of Rs. 401 PMT a reasonable basis for valuation. A certificate from the Chief Sugar Technologist only indicated cost of production and did not establish the transaction value of molasses. The valuation could therefore not be fixed at Rs. 850 PMT merely on that certificate.

Conclusion: The assessable value of captively consumed molasses was correctly taken at Rs. 401 PMT and the higher valuation based on the certificate was unsustainable.

Issue (ii): Whether, in respect of molasses sold to independent buyers at the factory gate, the cost construction method could be applied in the absence of proof of undervaluation.

Analysis: Where goods are sold to independent buyers, the sale price at the factory gate cannot be displaced by cost construction unless undervaluation is established. The record disclosed no allegation or proof of extra consideration, and the cost of production certificate could not by itself justify rejection of the actual wholesale price.

Conclusion: The cost construction method was inapplicable and the sale price could not be rejected.

Final Conclusion: The common order was modified to the extent that the captively consumed goods were to be valued at Rs. 401 PMT, while the valuation based on cost construction for independently sold goods was rejected, resulting in relief to the assessee in all the appeals.

Ratio Decidendi: For captively consumed excisable goods, valuation under the applicable rule must rest on comparable market price where available, and a mere certificate of cost of production cannot override actual sale evidence; cost construction cannot replace factory gate sale price unless undervaluation is proved.

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