Factory-gate normal price governs captive transfers; extended limitation fails absent deliberate suppression in a revenue-neutral case.

Where identical engines sold at the factory gate had an ascertainable normal price, valuation of transfers to another unit for captive use had to follow section 4(1)(a), and recourse to section 4(1)(b) was unwarranted. The Department's reliance on differences between engine variants did not justify replacing the sale price of identical goods with a notional basis. On limitation, regular declarations, departmental awareness of the clearance pattern, and revenue neutrality negatived deliberate suppression or wilful misstatement, so the extended period was unavailable. The demand, penalty, and fine were therefore set aside.

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Issues: (i) Whether, for valuation of engines cleared from one factory to another of the same manufacturer for captive use, the sale price of identical goods sold at the factory gate under section 4(1)(a) could be disregarded and resort taken to section 4(1)(b); (ii) whether the demand could be sustained by invoking the extended period of limitation on the allegation of suppression or wilful misstatement.

Issue (i): Whether, for valuation of engines cleared from one factory to another of the same manufacturer for captive use, the sale price of identical goods sold at the factory gate under section 4(1)(a) could be disregarded and resort taken to section 4(1)(b).

Analysis: The available factory-gate sale price of identical goods was the relevant basis for assessment. The goods removed to the other unit were not shown, on the notice as framed, to be non-identical or to lack a true normal price. Where the normal price of sold goods is ascertainable, the valuation scheme does not permit arbitrary departure to a notional basis under section 4(1)(b). The Department's comparison between different engine variants did not justify rejection of the declared sale price for identical goods.

Conclusion: The valuation adopted by the assessee was accepted and the Department's resort to section 4(1)(b) was rejected.

Issue (ii): Whether the demand could be sustained by invoking the extended period of limitation on the allegation of suppression or wilful misstatement.

Analysis: The record showed regular declarations and returns, departmental awareness of the mode of clearances, and a revenue-neutral situation because duty paid at one unit was available as credit at the other. In these circumstances, the element of deliberate suppression or intent to evade duty was not established, and the longer limitation period was not available.

Conclusion: The extended period of limitation was held inapplicable.

Final Conclusion: The duty demand, penalty, and fine were set aside, and the appeals succeeded with consequential relief.

Ratio Decidendi: Where the normal price of identical goods sold at the factory gate is ascertainable, valuation cannot be shifted to a notional basis under section 4(1)(b), and in the absence of deliberate suppression or intent to evade, the extended limitation period cannot be invoked, especially in a revenue-neutral case.

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