Captive consumption valuation must follow the prescribed cost-plus rule; private sale prices cannot replace statutory computation.

Captively consumed electric motors must be valued under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 on a cost-plus basis, using raw material cost, manufacturing cost and profit margin, and not by adopting a notional sale price from private records. The Department did not identify any defect in the declared cost elements, so the valuation method it used was invalid. On limitation, the extended period could not be invoked because the relevant facts were already known and no suppression of the required valuation elements was shown; the later notice was therefore time-barred and the earlier notice also failed.

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Issues: (i) whether the assessable value of captively consumed electric motors had to be determined under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 on the basis of cost of raw materials, manufacturing cost and profit margin, or on the basis of the net sale price appearing in the appellant's private records; and (ii) whether the demand for the later period was barred by limitation and whether suppression was established for the earlier period.

Issue (i): whether the assessable value of captively consumed electric motors had to be determined under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 on the basis of cost of raw materials, manufacturing cost and profit margin, or on the basis of the net sale price appearing in the appellant's private records.

Analysis: The motors were not sold but were captively consumed in the manufacture of monoblock pump sets. In such a case, valuation fell under Rule 6(b)(ii), and not under a market-price-based approach. The declared price lists furnished the relevant cost elements contemplated by the rule, and neither the show cause notices nor the adjudication order identified any specific defect, underestimation, or error in any of those elements. The Department's reliance on a notional break-up of sale price in private records was inconsistent with the statutory formula governing captive consumption valuation.

Conclusion: The valuation adopted by the Department was unlawful, and the issue is decided in favour of the assessee.

Issue (ii): whether the demand for the later period was barred by limitation and whether suppression was established for the earlier period.

Analysis: The Department was already aware of the relevant facts by the time the first notice was issued, and the later notice was issued after the relevant period despite that knowledge. For the earlier notice also, no suppression was shown with reference to the cost elements required under Rule 6(b)(ii), and the private statement did not disclose any discrepancy in those elements. The extended period could not therefore be invoked, and the later notice was time-barred.

Conclusion: The demand for the later period was barred by limitation, and the earlier notice also failed for want of suppression; this issue is decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the duty demands and penalty could not survive.

Ratio Decidendi: Where goods are captively consumed, assessable value must be determined strictly under the captive-consumption valuation rule on the prescribed cost-plus basis, and a notional or private-record sale price cannot replace that statutory formula; limitation cannot be extended absent suppression of the relevant valuation facts.

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