Comparable sales govern captive consumption valuation when independent buyer prices exist and goods remain materially similar.

Comparable sales of the same captively consumed reinforced paper to independent buyers required valuation under rule 6(b)(i) of the Central Excise Valuation Rules, 1975. The smaller quantity sold compared with captive consumption did not justify ignoring the sale price, particularly where no favoured sales were alleged. The marginal difference between reels and sheets could be adjusted for labour charges in conversion, leaving the goods comparable. Accordingly, the comparable-instances method applied, the cost construction method under rule 6(b)(ii) was not warranted, and the assessee's valuation was upheld.

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Issues: Whether, for valuation of captively consumed reinforced paper, the existence of sales of comparable goods to independent buyers required adoption of rule 6(b)(i) of the Central Excise Valuation Rules, 1975, or whether recourse could be had to the cost construction method under rule 6(b)(ii).

Analysis: Comparable sales of the same goods to independent buyers were available during the relevant period. The mere fact that the quantity sold was smaller than the quantity captively consumed did not justify ignoring the sale price, especially when there was no allegation of favoured sales. The difference between reels and sheets was only marginal and related to labour charges for conversion, which could be adjusted while treating them as comparable goods. In such circumstances, the valuation method based on comparable instances had to be applied and the cost construction method was not warranted.

Conclusion: Rule 6(b)(i) was applicable and the assessee's valuation was upheld; the demand based on rule 6(b)(ii) did not survive.

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