Transaction value in excise valuation upheld where inter-company pricing showed no undisclosed consideration or non-commercial element.

Excise valuation under the transaction value regime can be displaced only if the department proves that the declared price does not reflect real consideration, such as by showing flow back or other undisclosed benefit. On facts, inter-company sales between oil marketing companies made under a Government-directed arrangement, aimed at better facility use and lower transport costs, remained commercial transactions at arm's length. Mutual benefit, import-parity pricing, and different prices to different buyers were not enough to reject the declared value without proof of extra consideration. The valuation was therefore accepted, and the duty demand, penalties, and extended limitation were not sustainable.

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Issues: Whether the value adopted for clearances to other oil marketing companies under the inter-company agreement could be rejected and duty demanded by treating the arrangement as one involving mutuality of interest and non-commercial pricing.

Analysis: The transaction value regime governs excise valuation, and it can be displaced only where the department shows that the declared value does not reflect the real consideration, such as through a flow back or other undisclosed benefit from buyer to seller. The agreement between the oil companies was entered into pursuant to Government direction and was intended to improve the utilisation of marketing facilities and reduce transportation costs. Different prices to different buyers are permissible where the sales are otherwise on a commercial basis, and the department did not establish that the price charged to the other oil companies was influenced by any extra consideration or that the transactions were not at arm's length. The basis of pricing on import parity and the existence of mutual benefit by themselves were insufficient to reject the declared transaction value. The invocation of the longer period was also held to be unjustified.

Conclusion: The valuation adopted by the appellant could not be disturbed, and the duty demand, penalties, and extended limitation were not sustainable.

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