Excise valuation of contract-supplied inputs must follow the contractual price where value is determinable, not market comparables.

Valuation of excisable goods under Section 4 of the Central Excise Act, 1944 is to be based on the normal price in wholesale trade where the contract itself fixes the value of supplied inputs and the value remains determinable from that arrangement. In this dispute over silver used to manufacture batteries supplied to the Ministry of Defence, the contractual supply and rebate structure was treated as part of the ordinary trade arrangement, so recourse to comparable market values under residual valuation rules was unwarranted. The assessable value was therefore required to be taken at the contractual rate, and the Revenue's market-based valuation was unsustainable.

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Issues: Whether the assessable value of silver used in the manufacture of batteries supplied to the Ministry of Defence was to be taken at the contractual rate at which the Ministry obtained silver from the mint, or at the open market price on the basis of comparable goods.

Analysis: Valuation under Section 4 of the Central Excise Act, 1944 is ordinarily based on the price at which excisable goods are sold in the course of wholesale trade, and recourse to the valuation rules for comparable goods is warranted only when the value cannot be determined under the normal price mechanism. The contract here specifically provided for supply of silver by the Ministry at a fixed rate, and when mint stock was depleted, old batteries were supplied only to recover silver for use in manufacture. That arrangement did not make the value of silver indeterminable. The contractual supply of silver and the corresponding rebate structure formed part of the normal practice of the wholesale trade for these goods, so the open market value of silver was not the correct basis.

Conclusion: The assessable value of the silver had to be taken at Rs. 2,500 per kg, and not at the market price; the valuation adopted by the Revenue was unsustainable.

Ratio Decidendi: Where excisable goods are sold under a contract that fixes the value of supplied inputs and the value is determinable from that arrangement, assessment must proceed on the normal price under Section 4 and not on comparable market values under the residual valuation rules.

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