Captive consumption valuation must follow comparable wholesale factory-gate price, not customer-specific contract sales under special conditions

Where ferro manganese slag was partly sold and partly captively consumed, the assessable value for captive consumption had to follow the genuine wholesale factory-gate price of comparable goods. Customer-specific contract prices for limited quantities under special conditions could not displace an available approved wholesale price, especially where higher-priced supplies reflected extra processing and expense not incurred for the captively consumed material. The valuation rules did not justify using an isolated contract price when a reasonable wholesale benchmark existed. Accordingly, the captive value was to be taken at the approved wholesale rate, and the higher valuation based on special sales was unsustainable.

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Issues: Whether the assessable value of ferro manganese slag captively consumed within the factory was to be determined at Rs. 150 per MT on the basis of approved wholesale sales, or at Rs. 200 per MT on the basis of certain contracted sales to a particular buyer.

Analysis: The approved Part I price lists showed an accepted wholesale factory-gate price of Rs. 150 per MT at the relevant time. The contracted Part II prices were customer-specific and confined to particular quantities and conditions, and therefore could not displace the general wholesale price where such price was available. The record also showed that some of the higher-priced supplies involved additional processing and expenses that were not incurred for the captively consumed material. Where comparable wholesale sales of the same goods were available, the assessable value for captive consumption had to follow that wholesale price rather than stray or special contract sales. The valuation provisions and the applicable rules did not justify resort to a higher isolated contract price when a reasonable wholesale benchmark already existed.

Conclusion: The assessable value for the captively consumed quantity was required to be taken at Rs. 150 per MT, and the demand based on Rs. 200 per MT was unsustainable.

Ratio Decidendi: For goods partly sold in wholesale trade and partly captively consumed, the assessable value for captive consumption should be based on the available genuine wholesale factory-gate price of comparable goods, not on a customer-specific contract price meant for limited quantities under special conditions.

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