Factory-gate price governs captive valuation where genuine arm's length sales exist; small sales volume does not justify notional valuation.

Where factory-gate sales to industrial consumers, Government undertakings and wholesale dealers are established and the price is genuine, that ex-factory price is the proper basis for valuing captively consumed hydrochloric acid under Section 4 of the Central Excises and Salt Act, 1944. The small percentage of such sales does not justify rejection of the actual wholesale price, because the volume of sales is not determinative once arm's length dealings are shown. Resort to a notional valuation under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 was therefore unwarranted.

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Issues: Whether the assessable value of hydrochloric acid captively consumed by the manufacturer was to be determined on the basis of the genuine ex-factory price charged to industrial consumers at the factory gate, or by resort to Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975.

Analysis: The existence of factory gate sales to Government undertakings, industrial consumers and wholesale dealers was not disputed. The rejection of that price by the lower authority rested only on the small percentage of such sales. The governing principle applied was that once wholesale dealings at arm's length are established, the quantum of sales is irrelevant, and a genuine ex-factory price remains the proper basis for valuation under Section 4 of the Central Excises and Salt Act, 1944. Since the sales were to industrial consumers and Government undertakings and the genuineness of the price was not in doubt, resort to a notional valuation under Rule 6(b)(i) was unwarranted.

Conclusion: The assessable value for the captively consumed hydrochloric acid had to be fixed on the basis of the factory gate price charged to industrial consumers, not on a notional valuation under Rule 6(b)(i).

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