Sequential valuation methods must be exhausted first, with comparable goods tested before cost-based valuation for captive consumption.

Where a valuation rule prescribes sequential methods for captive consumption, the comparable-goods method under Rule 6(b)(i) must be tried first, with reasonable adjustments for relevant differences. Only if value cannot be determined under that method may the cost-based method under Rule 6(b)(ii), including profit, be applied. The authority was required to compare the price of goods sold to independent buyers with the value declared for transfer to the sister unit and then adopt the correct method after giving an opportunity of hearing. The valuation dispute was remitted for fresh determination on that basis.

---

---

Issues: Whether valuation of goods cleared for captive consumption was to be determined under Rule 6(b)(i) before resorting to Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975.

Analysis: Rule 6(b)(i) requires adoption of the value of comparable goods first, with reasonable adjustments for relevant differences. Rule 6(b)(ii), based on cost of production or manufacture including profit, operates only if value cannot be determined under sub-clause (i). The authority was therefore required to compare the price charged to independent buyers with the value declared for clearance to the sister unit and then determine the applicable method in accordance with law after granting opportunity of hearing.

Conclusion: Rule 6(b)(ii) cannot be applied automatically unless Rule 6(b)(i) is found inapplicable; the matter was remitted for fresh determination.

Final Conclusion: The valuation dispute was sent back to the adjudicating authority for reconsideration with directions to first test the applicability of the comparable-goods method and then proceed to the cost-based method only if necessary.

Ratio Decidendi: Where a valuation rule prescribes sequential methods, the primary method must be exhausted before the fallback method can be invoked.

---