Valuation of inputs transferred to a sister unit must follow the credit-based rule, not independent buyer sale prices.

Inputs cleared as such to a sister unit after reversal of Cenvat credit were not required to be valued by reference to the price at which similar inputs were sold to independent buyers. The governing valuation rule and Board circular distinguished between removals as such by sale and transfers to a sister unit without sale, and for intra-group transfer the relevant approach was the valuation framework based on the invoice value on which credit was originally taken. The earlier identical ruling also rejected loading post-manufacturing elements into the amount payable. The lower authorities' valuation was therefore unsustainable, and the assessee's appeal succeeded.

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Issues: Whether inputs cleared as such to a sister unit, after reversal of Cenvat credit, were to be valued on the basis of the price at which similar inputs were sold to independent buyers, or on the basis contemplated by the applicable valuation rule and circular.

Analysis: The governing rule and the Board circular drew a distinction between inputs removed as such on sale and inputs removed by transfer to a sister unit without sale. Where sale to unrelated buyers exists, transaction value may be adopted. Where the movement is only by transfer to a sister unit, the proper approach is to determine value in the manner indicated by the circular and the valuation framework, which accepts the invoice value on the basis of which credit was originally taken. The earlier binding decision on an identical factual pattern had already applied this approach and rejected loading post-manufacturing elements into the amount payable.

Conclusion: The valuation adopted by the lower authorities was unsustainable. The inputs transferred to the sister unit were not required to be valued on the basis of sale price to independent buyers, and the appeal succeeded in favour of the assessee.

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