Transparent CAS-4 valuation for captive consumption cannot sustain extended-period duty demand without proof of suppression or evasion.

Captive-consumption valuation disclosed through monthly CAS-4 working, supported by CAS-4 certificates and ER-1 returns, was treated as transparent on the facts, and the department's preference for an annual CAS-4 computation did not by itself justify a differential duty demand. Because the record did not establish suppression, fraud, or intent to evade duty, invocation of the extended period was held unsustainable. The consequential interest and penalty also fell once the underlying demand could not survive, and excess duty paid in some months was not required to be ignored merely because the department challenged the valuation method.

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Issues: Whether the differential duty demand on captively consumed intermediate goods, computed by insisting on annual CAS-4 based valuation instead of the assessee's monthly CAS-4 method, along with consequential interest and penalty and invocation of the extended period, was sustainable.

Analysis: The intermediate goods were cleared to sister units on payment of duty and the assessee had disclosed the valuation method and filed CAS-4 certificates with ER-1 returns. The dispute arose because the department insisted that the correct assessable value had to be derived from final annual CAS-4 figures, whereas the assessee had been using monthly CAS-4 figures with inflation adjustments. The assessment records showed that in some months excess duty had also been paid. On the facts, the assessee's method was adopted openly, the department was aware of the practice, and the material did not establish suppression, fraud or intent to evade duty. The Tribunal also held that, in the circumstances, the demand could not be sustained merely by treating the valuation exercise as provisional or by rejecting the adjustment of excess duty against short payment. Once the duty demand itself could not survive, the consequential interest and penalties also could not survive.

Conclusion: The demand of differential duty was not sustainable, the extended period could not be invoked, and the consequential interest and penalty were set aside in favour of the assessee.

Final Conclusion: The appeal was allowed and the impugned demand, interest and penalty were quashed.

Ratio Decidendi: Where captive-consumption valuation is transparently adopted and disclosed, and the record does not establish suppression or intent to evade duty, an extended-period demand and consequential penalty cannot be sustained merely because the department prefers a different CAS-4 computation method.

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