Captive-consumption valuation must account for material differences in comparable goods before adopting another factory's sale price.

Captive-consumption valuation under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 must be based on comparable goods only after the proper officer examines material differences between the assessed goods and the comparator, including grade and other relevant characteristics; a mere reliance on another factory's sale price is insufficient. Where similarly placed notices founded on the same comparison had been withdrawn, the authority was expected to follow the same course to maintain judicial discipline. On that basis, the notice and consequential demand were treated as unsustainable.

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Issues: (i) Whether the value of molasses captively consumed by the assessee could be determined solely with reference to the sale price of molasses sold by another sugar factory, without examining the material characteristics of the goods; (ii) Whether the impugned show cause notice and consequential demand could be sustained when other similarly placed notices on the same basis had been withdrawn.

Issue (i): Whether the value of molasses captively consumed by the assessee could be determined solely with reference to the sale price of molasses sold by another sugar factory, without examining the material characteristics of the goods.

Analysis: Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 required valuation of goods used or consumed in manufacture to be based on comparable goods, and the proviso required reasonable adjustment with due regard to all relevant factors, particularly differences in the material characteristics of the goods to be assessed and the comparable goods. The notice proceeded only on the sale price of molasses sold by a nearby factory and did not show that the proper officer had examined whether the two lots of molasses were of the same grade or had similar material characteristics. In the absence of such consideration, the foundational requirement for adopting the comparable sale price was not met.

Conclusion: The valuation adopted in the notice was unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether the impugned show cause notice and consequential demand could be sustained when other similarly placed notices on the same basis had been withdrawn.

Analysis: The record showed that other notices based on the same comparison had been withdrawn, and the only distinction suggested was that a specific objection on grade was not repeated in the reply to the present notice. The Court held that, on a similar factual foundation, the authority ought to have followed the same course in order to maintain judicial discipline.

Conclusion: The impugned notice and demand could not be sustained on this ground as well.

Final Conclusion: The rule was made absolute and the challenge to the impugned valuation notice and demand succeeded.

Ratio Decidendi: Where captive-consumption valuation under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 is based on comparable goods, the proper officer must first determine and account for material differences between the assessed goods and the comparator; a mere reference to another factory's sale price is insufficient.

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