Depot-clearance valuation must use the price nearest factory removal; post-clearance prices cannot justify higher duty demands.

In depot-clearance valuation, assessable value must be based on the depot price prevailing on or nearest to the date of factory removal; post-clearance depot prices cannot be used to increase duty demand, so demand on that basis was unsustainable. The limitation challenge failed because concealment of higher-price clearances and non-disclosure of material facts justified extended limitation. Excess duty could not be directly adjusted against short payment in the same proceeding where a separate refund claim was pending. Penalty under Section 11AC was not justified in an initial-period dispute involving unsettled depot-clearance valuation, and was deleted.

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Issues: (i) Whether, in depot clearances, assessable value could be determined by taking depot prices prevailing after the date of removal from the factory. (ii) Whether the demand was barred by limitation. (iii) Whether excess duty paid could be adjusted against short payment without a separate refund adjudication. (iv) Whether penalty under Section 11AC was sustainable.

Issue (i): Whether, in depot clearances, assessable value could be determined by taking depot prices prevailing after the date of removal from the factory.

Analysis: For clearances from the factory to a depot for onward sale, valuation had to be worked out on the basis of the price prevailing at the depot on the date nearest to removal from the factory. The valuation rules and the Board circular contemplated adoption of the depot price available on or before the date of clearance, or at the nearest time to such removal. Adoption of prices reflected in depot invoices issued after the date of factory clearance was not consistent with the valuation scheme.

Conclusion: The demand based on depot prices taken from dates subsequent to factory clearance was unsustainable, and the corresponding demand was set aside.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The record showed concealment of the relevant higher-price clearances and non-disclosure of material facts relating to the valuation adopted. In that backdrop, the extended limitation was held to be available and the show-cause notice was not time-barred.

Conclusion: The challenge on limitation failed and the demand was not liable to be set aside on that ground.

Issue (iii): Whether excess duty paid could be adjusted against short payment without a separate refund adjudication.

Analysis: The appellant had already filed a separate refund claim in respect of excess payment. Such claim was to be considered independently in separate proceedings, and the request for direct adjustment in the present appeal was not entertained.

Conclusion: No order was passed permitting adjustment of excess duty against the demand.

Issue (iv): Whether penalty under Section 11AC was sustainable.

Analysis: The dispute arose in the initial period after commencement of manufacture, at a time when depot-clearance valuation was still in flux and the Board had issued clarificatory instructions. In these circumstances, the imposition of penalty was not justified.

Conclusion: The penalty was set aside.

Final Conclusion: The duty demand was sustained only to the extent found supportable on the proper valuation basis, the plea of limitation was rejected, no adjustment order was made on excess duty, and the penalty was deleted.

Ratio Decidendi: In depot-clearance cases, assessable value must be based on the depot price existing at or nearest to the time of removal from the factory, and post-clearance depot prices cannot be used to enhance duty demand.

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