Comparable sales govern captive valuation of excisable goods; cost of production applies only when no reliable market comparison exists.

Captively consumed excisable goods must be valued on the basis of comparable sales where substantially identical goods are sold to independent buyers or franchisees; cost of production applies only if comparable value cannot be determined. The document notes that minor differences such as embossing or other adjustable features do not justify rejecting market-based valuation when relevant sales exist. It also states that sale prices to franchisees may serve as comparable evidence for identical bottles supplied under the same specifications. For jars used in another unit of the same manufacturer, Notification No. 217/86-C.E. and the availability of Modvat credit are discussed as defeating the demand and the basis for extended limitation where suppression is not shown.

---

---

Issues: (i) Whether the assessable value of bottles captively consumed could be rejected in favour of cost of production when comparable goods were admittedly sold by the assessee to independent buyers and franchisees; (ii) Whether the sale price to franchisees and other independent buyers could be taken as the basis for valuation of captively consumed bottles; (iii) Whether the demand on jars could be sustained in view of Notification No. 217/86-C.E., availability of Modvat credit, and absence of suppression for invoking extended limitation.

Issue (i): Whether the assessable value of bottles captively consumed could be rejected in favour of cost of production when comparable goods were admittedly sold by the assessee to independent buyers and franchisees.

Analysis: Rule 6(b)(i) of the Central Excise (Valuation) Rules requires valuation of captively used goods on the basis of comparable goods, and resort to cost under Rule 6(b)(ii) arises only where comparable value cannot be determined. The bottles sold and the bottles captively consumed were substantially identical, and any difference was limited to embossing or minor features which could be adjusted for. The existence of sales of similar bottles established the availability of comparable value, and the rejection of such value on the ground that only a few sales were made or that volume-matched bottles may differ in weight was not justified.

Conclusion: The rejection of comparable-value valuation was unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether the sale price to franchisees and other independent buyers could be taken as the basis for valuation of captively consumed bottles.

Analysis: The record showed that bottles supplied to franchisees were identical to those captively consumed and were used for the same bottled goods. The franchise arrangement also indicated that supplies of packing materials and bottles were to be arranged in accordance with the agreed specifications. In those circumstances, the sale price to franchisees constituted relevant comparable evidence, and the Commissioner was not right in treating the transactions as if no sale of bottles existed. Cost-based valuation was therefore not warranted for this category either.

Conclusion: The assessee succeeded on this issue and the franchisee sale prices were accepted as comparable value.

Issue (iii): Whether the demand on jars could be sustained in view of Notification No. 217/86-C.E., availability of Modvat credit, and absence of suppression for invoking extended limitation.

Analysis: The jars were used in another unit of the same manufacturer, and the notification was not confined to use within the same factory. The claim under Notification No. 217/86-C.E. was therefore wrongly rejected. In any event, Modvat credit would have been available, so the short-levy proceedings lacked revenue significance. On that footing, the demand on jars could not be sustained, and the premise for alleging suppression so as to justify extended limitation also fell away.

Conclusion: The assessee succeeded on this issue and the demand on jars was not maintainable.

Final Conclusion: The valuation demands were set aside in full, with the assessee obtaining complete relief on all contested categories of goods.

Ratio Decidendi: Where captively consumed excisable goods have comparable sales of substantially identical goods, valuation must be based on those comparable goods under the valuation rules, and cost of production can be adopted only when comparable value cannot be determined.

---