Valuation of goods cleared for manufacture and return must follow cost-based rules, not ordinary sale value, where CAS-4 applies.

PCB sub-assemblies cleared to a buyer for manufacture of TV sets and later returned as finished TVs were not to be valued as ordinary sales under section 4(1)(a). The valuation had to be worked out under the applicable cost-based valuation rules instead. The earlier cost computation was found inconsistent with Circular No. 692/8/2003-C.E. and CAS-4, which require determination of cost of production on a proper basis. The valuation exercise was set aside and the matter remanded for fresh determination after hearing the assessee.

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Issues: Whether the valuation of PCB sub-assemblies cleared on sale basis to a buyer who used them to manufacture TV sets and returned the finished TVs could be assessed under section 4(1)(a), and whether the matter had to be remanded for fresh valuation on a cost-based basis in accordance with the Board circular and CAS-4.

Analysis: The clearances were not treated as ordinary sales in the normal course because the components were sold for eventual repurchase in the form of finished TV sets. On that footing, section 4(1)(a) valuation was not upheld. The valuation was therefore required to be determined under the appropriate valuation rules. The order also noted that the cost computation adopted below was not in accordance with Circular No. 692/8/2003/C.E. dated 13-2-2003, which requires determination of cost of production in terms of CAS-4. The proper course was to set aside the valuation exercise and require fresh determination after hearing the assessee.

Conclusion: Valuation under section 4(1)(a) was rejected, and the matter was remanded for fresh determination of value under the appropriate cost-based valuation method after re-computation of cost in accordance with the Board circular and CAS-4.

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