Rule 8 valuation for EOU clearances to sister units upheld; export price could not replace cost-based assessable value.

For clearances by a 100% Export Oriented Unit to sister units without sale, assessable value was to be worked out under Rule 8 of the Central Excise (Valuation) Rules on cost of production. The exemption notifications applicable to such clearances treated the goods as if cleared by a DTA unit and did not import Customs Act valuation provisions. On the facts, there was no basis to adopt the export price of similar goods for valuation, so the assessee's Rule 8 valuation was upheld and the demand and penalty failed.

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Issues: Whether the assessable value of goods cleared by a 100% Export Oriented Unit to sister units had to be determined with reference to the export price of similar goods and the Customs valuation provisions, or under Rule 8 of the Central Excise (Valuation) Rules read with Notifications No. 8/97-C.E. and 23/2003-C.E.

Analysis: The goods were manufactured wholly from indigenous raw materials and cleared to sister units without sale. The valuation was admittedly worked out under Rule 8 of the Central Excise (Valuation) Rules on cost of production. The exemption notifications applicable to such clearances treated the goods as if they were manufactured and cleared by a DTA unit, and did not import the Customs Act valuation machinery. By contrast, the general regime under Section 3(1) of the Central Excise Act, 1944 and Notification No. 2/95-C.E. was distinguishable. In the facts of the case, there was no warrant to adopt export price of similar goods for determining assessable value.

Conclusion: The assessee's valuation under Rule 8 was correct, and the demand founded on export price and the impugned penalty could not stand.

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