Captive consumption valuation must rest on supportable comparable goods, and prima facie limitation grounds can justify stay relief.

Captive consumption valuation of pulp under Rule 6(b)(i) requires a supportable comparison with comparable goods, and the record must justify reliance on prices of sister units or other assessees; where the goods are not sold and material differences in composition exist, cost-based valuation under Rule 6(b)(ii) may be the more defensible basis. On the interim relief request, an arguable valuation dispute together with a prima facie limitation objection, including invocation of the extended period on alleged suppression, was treated as sufficient for waiver of pre-deposit and stay of recovery pending disposal of the appeal.

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Issues: (i) Whether, for valuation of captively consumed pulp, the value had to be determined under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 on the basis of comparable goods, or under Rule 6(b)(ii) on the cost of production basis; (ii) whether the applicants had made out a strong prima facie case on limitation and merits for waiver of pre-deposit and stay of recovery.

Issue (i): Whether, for valuation of captively consumed pulp, the value had to be determined under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 on the basis of comparable goods, or under Rule 6(b)(ii) on the cost of production basis.

Analysis: Rule 6(b)(i) permits valuation on the basis of comparable goods manufactured by the assessee or by any other assessee, with reasonable adjustments for relevant differences. The captively consumed pulp was not sold by the applicants, and the record did not disclose any clear basis for adopting the prices or valuation of sister units situated elsewhere. The composition of the pulp in the applicants' unit and the sister units was also stated to be materially different, making the comparison doubtful on the available material.

Conclusion: The applicants had an arguable case that the Commissioner's adoption of the sister units' prices was not justified, and the issue was in favour of the assessee for the purpose of stay.

Issue (ii): Whether the applicants had made out a strong prima facie case on limitation and merits for waiver of pre-deposit and stay of recovery.

Analysis: A substantial part of the demand arose from a show cause notice in which the extended period had been invoked on the allegation of suppression of facts. The applicants relied on the department's prior knowledge of the sister units, and the order did not discuss limitation in relation to one of the major notices. In view of the arguable merits on valuation and the prima facie limitation point, a strong case for interim relief was made out.

Conclusion: The applicants were entitled to waiver of pre-deposit and stay of recovery during the pendency of the proceedings.

Final Conclusion: Interim relief was granted on the basis of an arguable valuation dispute and a substantial prima facie limitation objection, and recovery was stayed pending disposal of the appeal.

Ratio Decidendi: For captive consumption valuation, comparable goods of any assessee may be used only where the comparison is supportable on the facts, and a strong prima facie case on merits or limitation justifies waiver of pre-deposit and stay of recovery.

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