Inter-unit valuation must follow the declared cost basis where only a small quantity is later resold at a higher spare-parts price.

Inter-unit clearances were valued on the assessee's cost construction basis because the higher price at which a small portion of the goods was later sold as replacement spares did not provide a proper comparable for all transfers. The bulk of the goods was captively consumed in manufacture, and the valuation rules allowed cost construction where a reliable comparable value was unavailable. The sporadic resale price of the minority quantity could not justify rejection of the declared assessable value for the remaining clearances, so the assessee's valuation method was upheld.

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Issues: Whether the assessable value of goods cleared by one unit to its sister unit was required to be fixed on the basis of the higher price at which a small portion of the same goods was sold by the receiving unit as replacement spares, or on the cost construction basis adopted by the assessee.

Analysis: The dispute concerned clearances from one unit to another, where about 98% of the goods were captively consumed in manufacture and only about 2% were sold by the receiving unit as spares at a higher price. The valuation provisions permit resort to cost construction only where comparable value is not available. The higher price of a small quantity sold as spares could not be treated as the proper benchmark for all the clearances, particularly when the show cause notice itself was directed only at the supplying unit and the bulk of the goods were not sold in the open market but consumed captively. The reasoning accepted that the sporadic resale price of the 2% quantity did not justify rejection of the declared assessable value for the remaining clearances.

Conclusion: The higher spare-parts price was not liable to be adopted as the assessable value for the clearances in question, and the assessee's valuation basis was upheld.

Ratio Decidendi: A small quantity of goods sold by the receiving unit at a higher price cannot, by itself, be used as the comparable value for all inter-unit clearances where the substantial portion is captively consumed and the declared valuation is otherwise in accordance with the prescribed valuation method.

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