Comparable-goods valuation must be tried before cost construction for sister-unit clearances under sequential excise valuation rules.

Under the sequential valuation scheme in Rule 6(b), excisable goods cleared to sister units could not be valued straightaway on a cost construction basis where comparable goods were available. Comparable-goods valuation under Rule 6(b)(i) had to be attempted first, and cost-based valuation under Rule 6(b)(ii) was permissible only if value could not be determined on that basis. Direct resort to cost construction without exhausting the comparable-goods method was impermissible, so the demand based on that approach was unsustainable and the order confirming duty, penalty, and interest was set aside.

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Issues: Whether the value of excisable goods cleared to sister units, when comparable goods were available, could be determined straightaway under the cost construction method under Rule 6(b)(ii), or whether valuation had first to be undertaken under Rule 6(b)(i).

Analysis: The valuation scheme in Rule 6(b) places comparable-goods valuation under sub-clause (i) before resort to cost-based valuation under sub-clause (ii). Where comparable goods manufactured by the assessee or any other assessee are available, the proper course is to adopt that basis first and move to cost construction only if value cannot be determined under sub-clause (i). The demand in the present case proceeded directly on the cost construction basis without first exhausting the comparable-goods method, and that approach was held to be impermissible.

Conclusion: Valuation had to be determined under Rule 6(b)(i) first, and direct resort to Rule 6(b)(ii) was not justified. The demand order was unsustainable.

Final Conclusion: The order confirming duty, penalty, and interest was set aside, and the appeal was allowed with consequential relief.

Ratio Decidendi: Under a sequential valuation rule, the method based on comparable goods must be exhausted before cost construction can be applied for captive or sister-unit clearances.

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