Excise valuation must follow bona fide factory-gate price to unrelated buyers, and a new demand theory cannot be raised on appeal.

Valuation under excise law had to rest on the assessee's bona fide wholesale price to independent buyers where such factory-gate sales satisfied Section 4(1)(a), and the Revenue could not substitute the related buyer's resale price. The adjudicatory authority also could not sustain the demand on a ground not set out in the show cause notice or the Collector's order, because a new case could not be made out at the appellate stage. The first proviso to Section 4(1)(a) was inapplicable on a supposed regional classification of dealers, and Section 4(1)(b) could not be used when a normal price was available. The valuation adopted by the Tribunal was therefore unsustainable.

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Issues: (i) Whether the adjudicatory authority could sustain the demand on a ground different from that stated in the show cause notice and the Collector's order. (ii) Whether, where a bona fide wholesale price to independent buyers satisfying Section 4(1)(a) was available, that price had to be adopted even for sales to a related buyer. (iii) Whether the first proviso to Section 4(1)(a) could be invoked on the footing that dealers in different regions constituted different classes of buyers, and whether Section 4(1)(b) could be applied despite availability of a factory-gate normal price.

Issue (i): Whether the adjudicatory authority could sustain the demand on a ground different from that stated in the show cause notice and the Collector's order.

Analysis: The proceedings were initiated only on the footing that the buyer was a related person and that valuation had to be based on the buyer's resale price under the third proviso to Section 4(1)(a). The appellate Tribunal, however, upheld the demand on an entirely different basis by invoking the first proviso to Section 4(1)(a) on the theory of different classes of buyers. A demand cannot be sustained on a case not put forward in the notice or in the order under challenge, and the Tribunal is not competent to make out a new case for the Revenue.

Conclusion: The Tribunal's order was unsustainable because it travelled beyond the show cause notice and the Collector's order, and this contention was accepted in favour of the assessee.

Issue (ii): Whether, where a bona fide wholesale price to independent buyers satisfying Section 4(1)(a) was available, that price had to be adopted even for sales to a related buyer.

Analysis: The record showed substantial sales to independent, unrelated dealers at the factory gate and no dispute regarding the genuineness of those sales or the price charged. Where such a normal price exists, it is the proper basis of valuation even for sales to a related buyer. The Tribunal's contrary approach ignored the established principle that the price to unrelated wholesale buyers, if satisfying Section 4(1)(a), governs valuation and that the Revenue cannot shift to the related buyer's resale price when a normal price is available.

Conclusion: The price charged to independent wholesale buyers had to be adopted for valuation, and the Tribunal's rejection of that basis was incorrect, in favour of the assessee.

Issue (iii): Whether the first proviso to Section 4(1)(a) could be invoked on the footing that dealers in different regions constituted different classes of buyers, and whether Section 4(1)(b) could be applied despite availability of a factory-gate normal price.

Analysis: The first proviso applies only where different prices are charged to different classes of buyers and each price otherwise satisfies Section 4(1)(a). It does not apply where the sales sought to be compared are not direct sales by the assessee at all, but sales by the related buyer. Further, the Board's circulars during the relevant period stated that dealers in different regions do not become different classes merely because of location, and those circulars bound the Department. Section 4(1)(b) is a residual provision and cannot be resorted to when a normal price at the factory gate is ascertainable and substantial sales to independent buyers exist.

Conclusion: The first proviso to Section 4(1)(a) was inapplicable, Section 4(1)(b) could not be invoked, and the valuation adopted by the Tribunal could not stand, in favour of the assessee.

Final Conclusion: The impugned order of the Tribunal was set aside and the appeal succeeded on the valuation question, leaving the assessee free from the disputed duty basis adopted by the Revenue.

Ratio Decidendi: Where an assessee's bona fide wholesale sales to unrelated buyers furnish a normal price under Section 4(1)(a), valuation must be based on that price and cannot be reworked on a new theory not contained in the show cause notice; the residual and proviso-based valuation mechanisms cannot be invoked inconsistently with the existence of such normal price.

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