Declared value rejection and costing method failed where valuation evidence was unreliable and commercial pricing reality was ignored.

Declared assessable value of ammonia compressors could not be rejected on the grounds alleged in the notice, because the undervaluation theory based on shifting value to exempt fittings and accessories was not sustained. The alternative costing method was also unreliable: it relied on limited later records, produced the same average price across years despite changing raw material and labour costs, and ignored the commercial reality that components and spare parts are normally priced higher. The authority also failed to verify the assessee's claim that many compressors were sold at the same price whether or not accessories were purchased. On these facts, the duty demand failed and the penalty could not be sustained.

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Issues: Whether the declared assessable value of ammonia compressors could be rejected and a costing method applied for the demand of duty, and whether the penalty was sustainable.

Analysis: The notice proceeded on an allegation of undervaluation by shifting value to exempt fittings and accessories, but the adjudicating authority discarded that basis and instead adopted a costing exercise under the valuation rules. The declared value could not be rejected on the grounds stated in the notice because the principal method used to justify rejection was found unsound, while the alternative comparison with the aggregate value of components ignored the commercial reality that components and spare parts are normally priced higher. The costing data prepared from limited and later records was also unreliable for the relevant period, particularly because it produced an identical average price for each year despite changing raw material and labour costs. The authority further failed to verify the assessee's specific assertion that a substantial part of the compressors had been sold at the same price irrespective of whether accessories were purchased.

Conclusion: The rejection of the declared value was unjustified, the duty demand based on the costing method was not sustainable, and the penalty also could not survive.

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