Weighted average valuation and revenue neutrality barred extended limitation in a soap noodles duty dispute.

Assessable value of soap noodles could not be fixed by applying isolated peak raw-material prices across the entire period where inputs were procured from different sources; a weighted average reflecting actual procurement was the proper basis, and the departmental enhancement was rejected. In a revenue-neutral inter-unit arrangement, the duty paid by the supplier was available as credit to the recipient, so no intent to evade could be inferred; the extended limitation period was therefore unsustainable and the demand and penalty failed.

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Issues: (i) Whether the assessable value of soap noodles was required to be determined by adopting peak prices of the raw material for the entire period, or by a weighted average basis reflecting procurement from different sources; (ii) Whether the demand was barred by limitation in view of revenue neutrality and absence of intent to evade.

Issue (i): Whether the assessable value of soap noodles was required to be determined by adopting peak prices of the raw material for the entire period, or by a weighted average basis reflecting procurement from different sources.

Analysis: The appellant procured the principal raw material partly through job work and partly from independent manufacturers. The declared value had been based on the transfer price of inputs received from the job worker. Adoption of isolated peak prices from one source for the entire clearances was held to be unjustified, and the proper approach was to adopt a weighted average of the inputs obtained from different sources.

Conclusion: The enhanced valuation based on peak prices for the entire period was not justified and the assessee's method was accepted.

Issue (ii): Whether the demand was barred by limitation in view of revenue neutrality and absence of intent to evade.

Analysis: The duty payable by the appellant unit was available as credit to the recipient unit, making the transactions revenue neutral. In that background, no intent to evade duty could be attributed. The notice covered an earlier period and the invocation of the extended period was held to be unsustainable.

Conclusion: The demand was barred by limitation and penalty was not sustainable.

Final Conclusion: The appeal succeeded because the valuation method adopted by the department was rejected and the demand was held time-barred in a revenue-neutral situation, entitling the appellant to consequential relief.

Ratio Decidendi: In revenue-neutral inter-unit transactions, the extended period cannot be invoked absent intent to evade, and valuation must reflect a rational average of inputs rather than isolated peak purchase prices.

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