Inter-unit valuation cannot be based on isolated spare-sale prices where most goods are captively consumed and cost construction is supported.
Where goods are cleared from one unit to another and only a small portion is later sold as spares at a higher price, that isolated spare-sale price cannot automatically be used to value the entire inter-unit clearances when the bulk is captively consumed in further manufacture. The assessee's cost-construction basis was not shown to be untenable, so the department's attempt to substitute the higher spare-sale price for the balance clearances was unjustified. The valuation method adopted by the assessee was therefore upheld and the demand did not survive.
Issues: Whether the assessable value of goods cleared from one unit to another was required to be determined on the higher price at which a small portion of the goods was later sold as spares, or on the cost construction basis adopted by the assessee.
Analysis: The goods were cleared from the Pondicherry unit to the Pallavaram unit, and only a small portion was subsequently sold as spares at a higher price while the bulk was captively consumed in further manufacture. The higher sale price of the small spare quantity could not be treated as the proper comparable value for the entire clearances from the supplying unit. The valuation adopted by the assessee on cost construction basis was therefore not shown to be untenable, and the department's attempt to apply the spare-sale price to the balance clearances was not justified.
Conclusion: The higher spare-sale price was not liable to be adopted as the assessable value for the impugned clearances, and the assessee's valuation method was upheld.
Final Conclusion: The demand did not survive, and the departmental appeal was rejected.
Ratio Decidendi: Where only a minor portion of transferred goods is later sold as spares at a higher price, that isolated sale price cannot automatically govern valuation of the entire clearances when the bulk is captively consumed and the assessee's adopted valuation basis is otherwise supported.
TaxTMI 
AI Drafter ✕
TaxTMI 
