CAS-4 valuation for captive consumption must use actual cost, not notional transfer price; periodical, revenue-neutral demand fails.

For captively consumed goods, excise valuation under Rule 8 must be based on CAS-4 actual cost of production, including actual input and manufacturing costs, and cannot be replaced by a notional internal transfer price used only for accounting purposes. The periodical show cause notice could not attract the extended limitation period because the relevant facts were disclosed in returns and no suppression with intent to evade duty was shown. The demand also failed on revenue neutrality, since any duty short-paid would be creditable to other units, negating both evasion and extended limitation. The assessee's valuation was therefore upheld.

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Issues: (i) Whether the cost of production under CAS-4 for valuation under Rule 8 is to be computed on actual costs of inputs and manufacture or on the basis of the assessee's internal notional transfer price; (ii) whether the extended period of limitation can be invoked in respect of a periodical show cause notice; (iii) whether the demand can be sustained where the entire demand is revenue neutral.

Issue (i): Whether the cost of production under CAS-4 for valuation under Rule 8 is to be computed on actual costs of inputs and manufacture or on the basis of the assessee's internal notional transfer price.

Analysis: The valuation for captively consumed goods must follow CAS-4, which is based on actual landed cost of inputs, fabrication cost, and other actual manufacturing costs. The internal transfer price used only for management information and accounting purposes is a notional figure linked to market prices and does not reflect actual cost of production. The binding departmental circular also requires CAS-4 based valuation, and the notional transfer price cannot replace actual cost for excise valuation.

Conclusion: The issue is decided in favour of the assessee.

Issue (ii): Whether the extended period of limitation can be invoked in respect of a periodical show cause notice.

Analysis: For a recurring or periodical dispute, the extended period is not available where the facts were disclosed in regular returns and the dispute does not disclose suppression with intent to evade duty. The Court treated the notice as periodical in nature and held that the longer limitation could not be invoked on that basis.

Conclusion: The issue is decided in favour of the assessee.

Issue (iii): Whether the demand can be sustained where the entire demand is revenue neutral.

Analysis: Where the duty allegedly short-paid would be available as credit to the assessee's other units and the overall duty incidence remains neutral, there is no sustainable basis for confirming the demand on the footing of evasion. Revenue neutrality also negates the invocation of extended limitation on the facts found.

Conclusion: The issue is decided in favour of the assessee.

Final Conclusion: The valuation adopted by the assessee was upheld, and the objections on limitation and revenue neutrality were rejected, leaving no basis to interfere with the appellate relief granted below.

Ratio Decidendi: For captively consumed goods, excise valuation under Rule 8 must be based on actual cost reflected in CAS-4 and cannot be altered by substituting a notional internal transfer price used only for accounting purposes; a periodical, revenue-neutral demand does not justify invocation of the extended period.

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