Transaction value for clearances to interconnected undertakings could not be rejected without proof that related-person valuation rules applied.

Transaction value for clearances to interconnected undertakings could not be rejected merely on that ground. Valuation under section 4(1)(a) remained applicable because the statutory conditions for invoking related-person valuation rules were not shown to exist, and rule 9 could not be applied without such material. The attempt to shift to a cost-based method had no valid basis where the department had earlier accepted transaction value on similar facts. The valuation dispute was decided in favour of the assessee.

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Issues: Whether, for clearances to interconnected undertakings, the transaction value could be rejected and the assessable value determined by a cost-based method instead of valuation under section 4(1)(a) of the Central Excise Act, 1944.

Analysis: The clearances for the relevant period were on facts similar to earlier proceedings involving the same assessee, where the departmental stand had consistently accepted transaction value. The mere fact that buyers were interconnected undertakings did not, by itself, justify rejection of transaction value. Valuation rules, including rule 9, apply only where the statutory conditions concerning sales to or through related persons are satisfied. The distinction attempted by the original authority was found unsupported, and the shift to a costing method had no valid basis in the absence of material showing that the statutory valuation provisions for related persons were attracted.

Conclusion: The transaction value could not be rejected merely because the buyers were interconnected undertakings, and valuation by the cost-based method was unwarranted; the issue was decided in favour of the assessee.

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