Inter-unit transfer valuation must follow purchase price after Cenvat credit reversal, not a cost-plus formula.

Inter-unit transfers of goods within the same assessee, after reversal of Cenvat credit, were required to be valued under the applicable excise valuation rule by reference to the purchase price of the goods. The Department's attempt to adopt a cost of production plus profit margin method was not sustainable on these facts. The assessable value was therefore to be based on the original purchase price, and the differential duty demand with consequential penalty could not survive.

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Issues: Whether, for goods transferred by one unit of the assessee to another unit during the relevant period after reversal of Cenvat credit, the assessable value was to be determined on the basis of cost of production plus profit margin or by adopting the purchase price of the goods under the valuation rules.

Analysis: The goods were transferred between the assessee's own units, and the assessee had reversed the Cenvat credit already taken. In these circumstances, the applicable valuation method was held to be Rule 11 of the Central Excise Valuation Rules, under which the purchase price paid by the first unit was the proper basis for assessable value. The demand based on cost of production plus 15% profit margin was therefore not sustainable.

Conclusion: The valuation adopted by the Department was rejected and the assessee's appeal was allowed.

Final Conclusion: The differential duty demand and consequential penalty could not survive on the valuation method applied by the Department.

Ratio Decidendi: For inter-unit transfers of goods within the same assessee, where Cenvat credit has been reversed, assessable value is to be determined under the applicable valuation rule by reference to the purchase price rather than by applying a notional cost-plus formula.

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