Captive valuation of goods for repacking must use cost of production where comparable goods are not truly comparable.

Valuation of bulk goods supplied for repacking was held to fall under cost of production with a reasonable profit under Rule 6(b)(ii), because the alleged comparable goods were not truly comparable on process, technology, composition, unit size, and terms of supply. The department's adoption of a notional profit element was treated as reasonable, and the challenge to valuation failed. On limitation, declarations describing the assessable value as based on comparable goods were found to involve wilful misstatement, so the demand was not time-barred. The impugned order was upheld and the appeal was dismissed.

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Issues: (i) Whether the assessable value of goods supplied in bulk packing for repacking was to be determined under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 on the basis of comparable goods, or under Rule 6(b)(ii) on cost of production including profit; (ii) Whether the demand was barred by limitation in view of the declaration filed by the appellant.

Issue (i): Whether the assessable value of goods supplied in bulk packing for repacking was to be determined under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 on the basis of comparable goods, or under Rule 6(b)(ii) on cost of production including profit.

Analysis: The goods were not sold by the assessee to the processor but were used in the manufacture of retail packs, attracting valuation under Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 6(b). The record showed differences in manufacturing process, technology, composition, ingredients, size of unit, time and place of removal, and the price charged by the other manufacturer was tied to an agreement with the appellant. On these facts, the goods could not be treated as comparable goods for Rule 6(b)(i), and the proviso requiring reasonable adjustments did not alter that conclusion. The basis adopted by the department, namely cost of production with a notional 10% profit, was found reasonable.

Conclusion: The valuation was correctly made under Rule 6(b)(ii), and the appellant's challenge on this issue failed.

Issue (ii): Whether the demand was barred by limitation in view of the declaration filed by the appellant.

Analysis: The declarations filed for the relevant years stated that the assessable value was based on comparable goods, whereas the authority recorded a categorical finding that the assessee had made wilful mis-statement in the price declarations. In view of that finding, the plea of time bar was not accepted.

Conclusion: The demand was not barred by limitation.

Final Conclusion: The impugned order was upheld in full, and the appeal was dismissed.

Ratio Decidendi: Where goods are captively valued for repacking use and the alleged comparable sale price is not truly comparable, valuation must fall back on cost of production with profit under the prescribed rule; a proven wilful misstatement defeats the plea of limitation.

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