Excise valuation of captive clearances: comparable unrelated-sale prices applied under the earlier rules, and unamended Rule 8 did not cover partial sales.

For rough castings cleared to a sister unit, valuation under the Central Excise Valuation Rules, 1975 was to follow comparable prices realised from unrelated buyers under Rule 6(b)(i) where no material distinction was shown between the goods sold externally and the goods transferred internally, and Rule 6(b)(ii) applied only if Rule 6(b)(i) failed. Under the Central Excise Valuation Rules, 2000, Rule 8 did not extend to partial captive clearances because its unamended language covered goods not sold by the assessee; the later amendment widening it to goods not sold in whole or in part supported that reading. On that basis, the demand, interest and penalty could not stand.

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Issues: Whether rough castings cleared by the assessee to its sister unit were to be valued, for the period under the Central Excise Valuation Rules, 1975, on the basis of comparable prices of goods sold to unrelated buyers under Rule 6(b)(i), or on cost construction basis under Rule 6(b)(ii); and whether, for the period under the Central Excise Valuation Rules, 2000, Rule 8 applied to such clearances despite sales to unrelated buyers, thereby requiring valuation at cost plus 115%.

Analysis: For the period governed by the 1975 Valuation Rules, the relevant question was whether the price realised from unrelated buyers constituted the normal price of comparable goods. The record showed that the assessee had sales to unrelated buyers and that the adjudicating authority had not shown any material distinction between the goods sold to such buyers and the goods cleared to the sister unit. In the absence of a finding that the contract price was not the normal price or was otherwise inapplicable as a comparable value, the valuation could not be pushed to Rule 6(b)(ii), which applies only when Rule 6(b)(i) fails. For the period governed by the 2000 Valuation Rules, Rule 8 then in force used the expression that the excisable goods are not sold by the assessee. The assessee sold part of its production to unrelated buyers, and the plain language of the rule did not justify extending the cost-based formula to only partially captive clearances. The subsequent amendment by Notification No. 14/2013-CE (NT) showed that the rule was later widened to cover whole or part of the goods not sold, which supported the assessee's construction for the earlier period. The demand, interest, and penalty did not survive once the valuation issue was decided in the assessee's favour.

Conclusion: The assessee was entitled to value the clearances to its sister unit on the basis of comparable prices realised from unrelated buyers for the relevant periods, and Rule 8 of the 2000 Valuation Rules did not apply before its amendment.

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