Comparable sale valuation for captive consumption prevails over cost construction when reliable independent buyer prices are available.

Where comparable sales of similar castings to independent buyers are available, assessable value for captively consumed goods must be fixed under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975, and cost construction under Rule 6(b)(ii) applies only if no reliable comparable value exists. On the facts noted, invoices for external sales were accepted and the Revenue failed to show material differences in the goods or any unreliability in the comparison, so undervaluation was not established. For the same reason, suppression or wilful misstatement was not proved, and the extended period and penalty under Section 11AC were not sustainable.

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Issues: (i) whether the assessable value of castings captively consumed by the assessee was required to be determined on the basis of the price of comparable goods sold to independent buyers under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975, or by cost construction under Rule 6(b)(ii); and (ii) whether the demand invoking the extended period and penalty under Section 11AC could be sustained.

Issue (i): whether the assessable value of castings captively consumed by the assessee was required to be determined on the basis of the price of comparable goods sold to independent buyers under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975, or by cost construction under Rule 6(b)(ii)

Analysis: The assessee had supplied similar castings to independent buyers at prices higher than the declared value for captive clearances. The record contained invoices showing sales to independent buyers, and the Revenue did not produce evidence to establish that the goods sold were materially different or that the invoice dates made the comparison unreliable. Where the value of comparable goods sold in the market is available, valuation must be taken under Rule 6(b)(i); recourse to cost construction under Rule 6(b)(ii) is permissible only when such comparable value is not available. No material was shown to doubt the bona fides of the external sales or to support an allegation of under-valuation.

Conclusion: The assessable value was correctly determined with reference to comparable sales, and recourse to cost construction was not justified; this issue is decided in favour of the assessee.

Issue (ii): whether the demand invoking the extended period and penalty under Section 11AC could be sustained

Analysis: In the absence of reliable evidence of under-valuation, and in view of the accepted comparison with independent buyer sales, the basis for alleging suppression or wilful misstatement to justify the extended period was not made out. The foundation for penalty under Section 11AC also depended on the same allegation of evasion and therefore could not survive once the valuation dispute failed on merits.

Conclusion: The invocation of the extended period and the penalty under Section 11AC were not sustainable; this issue is also decided in favour of the assessee.

Final Conclusion: The Revenue's challenge to the Commissioner's order failed on both valuation and limitation, and the demand and penalty were not revived.

Ratio Decidendi: When comparable sales of similar goods to independent buyers are available, assessable value must be determined on that basis, and cost construction can be adopted only if no such comparable value is available; unsupported allegations of difference in goods or dates are insufficient to displace that valuation method or to justify the extended period.

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