Assessable value must follow factory-gate sales to unrelated buyers, not related persons' resale prices, for valuation purposes.

Assessable value could not be fixed by reference to the resale price charged by related persons where the assessee itself sold a substantial portion of production to unrelated buyers at the factory gate. The record also showed sales to unrelated wholesale dealers, making it unjustified to treat all clearances as sales to related persons. The proper basis for valuation was the wholesale price realised from unrelated buyers, not the higher downstream resale price. Assessment on the related persons' resale price was therefore not sustainable, and factory-gate sales to independent buyers provided the correct measure of assessable value.

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Issues: Whether the assessable value of the goods could be fixed on the basis of sales by related persons to unrelated buyers, or whether the wholesale price at which the assessee sold goods to unrelated buyers at the factory gate was the proper basis of assessment.

Analysis: The assessee maintained that a considerable portion of its production was sold to unrelated buyers at the factory gate, and the show cause notice itself recorded sales to unrelated wholesale dealers. In these circumstances, there was no justification for treating the entire clearances as sales to related persons or for valuing the goods on the basis of the related persons' resale price.

Conclusion: The assessment based on related persons' resale price was not sustainable. The assessee was entitled to assessment on the basis of wholesale sales to unrelated buyers.

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