Provisional assessment and composite invoice valuation: demand fails where final assessment was not completed and goods were not segregated.

Provisional assessment remains operative until a proper final assessment is made under Rule 9B(5); on that footing, recovery proceedings based on an assumed finalisation are premature. The text also emphasises that valuation must be confined to the excisable goods actually manufactured and removed from the factory, and cannot be taken from a composite commercial invoice covering bought-out items, other-unit supplies, and incidental services. Because the adjudication did not separate excisable from non-excisable or separately supplied elements, the duty demand and penalties were vitiated. The matter was therefore remitted for fresh finalisation in accordance with law and the contractual documents.

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Issues: (i) whether the show cause notice was premature because the clearances remained under provisional assessment and had not been finally assessed under Rule 9B(5); (ii) whether the duty demand and penalties could be sustained on the basis of consolidated commercial invoices without separating excisable goods manufactured at the assessee's factory from goods and services supplied under the composite contract.

Issue (i): whether the show cause notice was premature because the clearances remained under provisional assessment and had not been finally assessed under Rule 9B(5).

Analysis: The initial provisional assessment order remained operative, and the subsequent communications from the department were only steps towards finalisation. The endorsement on RT-12 and the letter dated 10-3-97 did not amount to a final assessment order under Rule 9B(5), because the proper officer had not adjusted the provisional duty against a final determination as required by the rule. The record also showed that the bond and bank guarantee continued, and no valid final assessment was made for the period covered by the notice. Once the amended Rule 9B(1) applied, the clearances covered by the pending request were deemed provisional until a proper direction or final assessment was issued.

Conclusion: The show cause notice was premature and the assessee's clearances were still to be finalised under Rule 9B(5).

Issue (ii): whether the duty demand and penalties could be sustained on the basis of consolidated commercial invoices without separating excisable goods manufactured at the assessee's factory from goods and services supplied under the composite contract.

Analysis: The correspondence and contract documents showed that the department had been informed about the practice of issuing consolidated commercial invoices for customer convenience, including supplies from other units, bought-out items, and incidental services. The contract itself contemplated goods and services, with provisional pricing and separate incidental services, so the consolidated commercial invoice could not automatically be treated as the assessable value of goods manufactured at the Palakkad factory. The adjudication failed to distinguish duty-paid manufactured goods from non-excisable or separately supplied items and proceeded on an overbroad comparison of commercial and excise invoices, which distorted the valuation exercise and vitiated the finding of suppression.

Conclusion: The duty demand and penalties could not be sustained on the valuation adopted by the Commissioner.

Final Conclusion: The appeals succeeded, the impugned order was set aside, and the matter was sent back for fresh finalisation of assessment in accordance with law and the contract-related observations recorded.

Ratio Decidendi: Where provisional assessment has not been lawfully concluded by a final assessment under the governing rule, recovery proceedings based on the supposed finalisation are premature, and valuation must reflect only the excisable goods actually manufactured and removed, not the composite contract price for goods and services.

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