Separate approved sale and captive values require duty on diverted goods to be confined to the wrongly assessed quantity.

Where separate approved price lists existed for sales and captive consumption, goods cleared for sale through depots had to be assessed on the approved sale value, while duty already paid on genuinely captively used goods could not be reopened for the entire quantity merely because part was later diverted. The demand was therefore confined to the quantity wrongly assessed at the captive-consumption value, requiring fresh quantification. On limitation, knowledge of the existence of two approved price lists did not amount to knowledge that sale goods were being cleared at the captive-consumption value, so the extended period remained available.

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Issues: (i) Whether duty on goods cleared to depots for sale could be assessed on the value approved for captive consumption, and whether duty could be demanded only on the quantities actually sold at the captive-consumption value. (ii) Whether the demand was barred by limitation on the ground that the department had prior knowledge of the pricing practice.

Issue (i): Whether duty on goods cleared to depots for sale could be assessed on the value approved for captive consumption, and whether duty could be demanded only on the quantities actually sold at the captive-consumption value.

Analysis: Two price lists had been approved for different classes of clearances, one for sales and another for captive consumption. Once the factory-gate sale price was available and approved, goods transferred for sale through depots were required to be assessed on that approved sale value. At the same time, the approval of a captive-consumption value meant that duty already paid on goods genuinely used captively could not be re-opened for the entire quantity merely because a part of the goods was later sold. The demand, therefore, could not extend to the whole captively consumed quantity and had to be confined to the portion diverted for sale at the captive-consumption value.

Conclusion: The demand was sustainable only to the limited extent of the goods sold at the captive-consumption value, and the matter required recalculation.

Issue (ii): Whether the demand was barred by limitation on the ground that the department had prior knowledge of the pricing practice.

Analysis: The record showed knowledge only of the existence of two approved price lists for different uses of the goods. It did not establish departmental knowledge that goods meant for sale were being cleared at the captive-consumption value. The department was therefore justified in invoking the longer period.

Conclusion: The plea of limitation failed and the extended period was rightly invoked.

Final Conclusion: The duty demand was set aside for fresh quantification in accordance with the approved price structure, while the objection on limitation was rejected.

Ratio Decidendi: Where separate approved values exist for sale and captive consumption, duty on diverted goods must be confined to the quantity wrongly assessed at the captive-consumption value, and prior knowledge of the existence of dual price lists does not by itself bar invocation of the extended limitation period.

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