Modvat credit cannot be added to assessable value where real sale price governs valuation under Section 4(1)(a).

Where valuation under Section 4(1)(a) is based on the real sale price, the mere availability or use of Modvat credit on inputs does not justify adding its effect to the assessable value. The notice and adjudication order were unsustainable because they showed no factual basis for enhancing value on that ground, and the assumption that the normal price must include duty was insufficient. The matter also did not fall within cost-based valuation under Rule 6(b)(2) of the Valuation Rules. On those principles, the document states that the duty demand was not sustainable.

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Issues: Whether duty could be demanded by including the effect of Modvat credit in the assessable value of the goods, and whether the impugned demand was sustainable under the valuation provisions.

Analysis: The notice and the adjudication order did not disclose any factual basis for enhancing the assessable value merely because Modvat credit had been taken on inputs. The reasoning that the normal price would necessarily include duty payable on the goods was found insufficient on the facts, and there was no indication that Modvat credit had been deducted in arriving at the assessable value. The case did not fall within valuation on cost of manufacture under Rule 6(b)(2) of the Valuation Rules, and where price under Section 4(1)(a) governed valuation, the existence or extent of Modvat credit was held to be irrelevant once the real sale price was known.

Conclusion: The duty demand was not sustainable and the appeal succeeded in favour of the assessee.

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