Factory gate valuation prevails over depot prices, but proven extra cash receipts may still be added to assessable value.

Where genuine factory gate sales existed, depot or branch prices could not replace the normal factory gate price for valuation merely because they were higher, and the different plywood grades were treated as commercially real. Additional cash recovered in connection with Calcutta-region sales, supported by seized records and parallel-invoice material, was includible in assessable value to the extent proved, but the department's broader figure was not fully accepted. Interest under Section 11AB was not sustainable for the relevant period, the company's penalty was reduced, and penalties on individual noticees and the agency personnel were set aside because Rule 209A required a basis of confiscability.

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Issues: (i) whether, for the relevant period, higher prices realised through depots and branches could be adopted for valuation when factory gate sales at a lower price were also shown; (ii) whether extra cash recovered in connection with Calcutta-region sales and loose-sheet records was includible in assessable value and to what extent; and (iii) whether the penalties and interest imposed on the company and connected persons were sustainable.

Issue (i): whether, for the relevant period, higher prices realised through depots and branches could be adopted for valuation when factory gate sales at a lower price were also shown.

Analysis: The assessable value had to be determined with reference to the normal price at the factory gate during the relevant period, when depots were not treated as places of removal. Since genuine factory gate sales were admitted to exist, the enhanced depot prices could not be adopted for the bulk of clearances. The different grades of plywood were also found to be commercially real and not artificial, as the pricing pattern and discounts varied by grade.

Conclusion: The depot-enhanced prices were not available for general valuation, and the assessee succeeded on this issue except in relation to the Calcutta-region cash realisations dealt with separately.

Issue (ii): whether extra cash recovered in connection with Calcutta-region sales and loose-sheet records was includible in assessable value and to what extent.

Analysis: The evidence showed that all factory gate sales to the Calcutta region were accompanied by additional cash over and above the invoice price, so the declared invoice price for that region could not be accepted as the true value. However, the total amount proposed by the department was not fully proved to relate to plywood sales. Only the amounts admitted or sufficiently established by the seized records, including the parallel-invoice material, were capable of inclusion. The plea that the amount should be treated as cum-duty price was rejected because the extra cash was never intended to represent duty.

Conclusion: An additional amount of Rs. 41,99,460 was held includible in assessable value, and duty was payable thereon at the applicable rate.

Issue (iii): whether the penalties and interest imposed on the company and connected persons were sustainable.

Analysis: Interest under Section 11AB could not be sustained for the relevant period. The company's penalty could not rest on Section 11AC for the entire period, but penalty was still maintainable under the then-applicable rule for suppression and evasion, though it required substantial reduction. As regards the individuals and the branch agency personnel, Rule 209A could not be invoked in the absence of a finding that the goods were liable to confiscation; consequently, those penalties could not stand.

Conclusion: Interest was set aside, the company's penalty was reduced, and the penalties on the individual noticees and the agency were set aside.

Final Conclusion: The demand was upheld only to the limited extent of the proven Calcutta-region cash realisations, while the broader depot-based valuation was rejected and most of the penalties and interest were either set aside or reduced.

Ratio Decidendi: Where genuine factory gate sales exist for the relevant period, depot prices cannot replace normal price for valuation merely because they are higher; however, any additional cash actually realised over and above the invoice price for a particular market may be added to assessable value if proved by reliable evidence. Penalties under Rule 209A require a foundation of confiscability, and interest cannot be imposed for a period when the charging provision was not in force.

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