Valuation of captive clearances: DPCO-controlled comparable price must be used before cost-based assessment under the valuation rules.

For excisable goods cleared to a sister unit and not sold, valuation must follow the Central Excise (Valuation) Rules in sequence. The primary basis is the value of comparable goods manufactured by the assessee or another assessee under Rule 6(b)(i); cost of production with notional profit under Rule 6(b)(ii) applies only if comparable-price data is unavailable. A DPCO price of comparable goods was held to remain a valid sale price for comparison, so it could not be ignored merely because it was price-controlled. The department was therefore not justified in bypassing the comparable-price method and moving directly to cost-based valuation, and the demand was unsustainable.

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Issues: Whether, for valuation of goods cleared to a sister unit and not sold, the DPCO price of comparable goods could be accepted under the valuation rules and the assessable value could be determined on cost basis only after Rule 6(b)(i) was ruled out.

Analysis: The valuation scheme requires the authorities to apply the relevant rules in sequence. Where excisable goods are not sold by the assessee, the primary basis is the value of comparable goods produced or manufactured by the assessee or any other assessee under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975. Only if that basis is unavailable can recourse be taken to Rule 6(b)(ii) and the cost of production with notional profit. The price of comparable goods was available from another manufacturer, and the fact that it was a Drug Price Control Order price did not disqualify it from being a sale price for comparison. The departmental approach of bypassing the comparable-price method and directly adopting costing was therefore incorrect.

Conclusion: DPCO price was a valid comparable price and had to be preferred over valuation by the cost method. The impugned demand was unsustainable and the assessee succeeded.

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