Captive consumption valuation under Rule 8 fails where part of production is sold to independent buyers; Revenue's demand was set aside.

Rule 8 of the Central Excise (Valuation) Rules, 2000 does not apply where an assessee sells part of its production to independent buyers and transfers the remaining goods to a sister unit. The Tribunal noted that the assessee had adopted the same assessable value used for outside sales for sister-unit clearances, while the Revenue sought cost-construction valuation. It also held that when costing is prepared at the Revenue's instance, the correct revised costing must be considered. Applying the Larger Bench view that Rule 8 is confined to cases of entire captive consumption, the Tribunal rejected the Revenue's valuation method and set aside the demand and penalties.

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Issues: Whether Rule 8 of the Central Excise (Valuation) Rules, 2000 could be applied to value clearances transferred to a sister unit when part of the same production was sold to independent buyers at the assessable value adopted by the assessee.

Analysis: The assessee was partly selling the goods to independent wholesale buyers and partly transferring them to its sister unit. The value adopted for clearances to outside buyers was also used for the sister unit, while the Revenue sought to substitute cost construction valuation. The cost audit report relied on by the Revenue was later revised, and the Tribunal held that, where costing is undertaken at the instance of the Revenue, the correct costing must be considered. More importantly, the Tribunal relied on the Larger Bench ruling that Rule 8 applies only where the entire production of the relevant commodity is captively consumed, and not where part of the production is sold to independent buyers.

Conclusion: Rule 8 was not applicable and the cost construction based assessable value adopted by the Revenue was unjustified; the demand and penalties were set aside and the appeals were allowed.

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