Captive consumption valuation must follow the approved sale price until the valuation regime changes, then cost construction applies.

For captively consumed aluminium hydroxide gel, where identical goods had been sold to a Research Institute and the approved sale price had earlier been upheld, that price governed valuation up to 31-3-1994. After 1-4-1994, when the price-list procedure ceased to operate, valuation had to shift to the applicable cost-construction method. On the facts, the valuation dispute did not warrant penalty, and the demand was confined to the earlier period with re-quantification directed for the later period under the correct method.

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Issues: (i) Whether the value of aluminium hydroxide gel captively consumed by the assessee had to be determined on the basis of the price at which identical goods were sold to the Research Institute up to 31-3-1994, or by the cost-construction method; (ii) Whether any penalty was sustainable in the facts of the case.

Issue (i): Whether the value of aluminium hydroxide gel captively consumed by the assessee had to be determined on the basis of the price at which identical goods were sold to the Research Institute up to 31-3-1994, or by the cost-construction method.

Analysis: The goods sold to the Research Institute were cleared in bulk quantities and the prior decision concerning the same product and the same buyer had upheld the use of the approved sale price as the basis for valuation of identical captively consumed goods. In the absence of any subsequent price-list or any change in law, that price continued to govern the valuation for the earlier part of the dispute. However, after 1-4-1994, when the price-list procedure ceased to operate, the assessee was entitled to value the captively consumed goods on the basis of cost-construction under the applicable valuation method.

Conclusion: The assessee was liable to pay differential duty up to 31-3-1994, but for the period from 1-4-1994 onwards the duty liability had to be worked out on cost-construction basis.

Issue (ii): Whether any penalty was sustainable in the facts of the case.

Analysis: The order ultimately accepted the assessee's case for part of the disputed period and treated the valuation dispute as one not warranting penal consequence on the facts as found.

Conclusion: No penalty was leviable.

Final Conclusion: The appeal succeeded in part. The duty demand was restricted to the period up to 31-3-1994, the matter was remitted for re-quantification and for examination of the later period under the correct valuation method, and the penalty was set aside.

Ratio Decidendi: For captively consumed goods, where identical goods are sold and a prior approved price has been upheld, that price can govern valuation until the relevant valuation regime changes, after which valuation must be made under the method then applicable.

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