c. excise valuation law

8/8/2019 C. Excise Valuation Law

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SRD LEGAL

Valuation underC. Excise Law

Sanjay Dwivedi

Advocate

Mumbai May 03, 2008

SRD LEGAL


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SRD LEGAL

Basis for Charging Duty

Specific Duty: where duty is based on some quantitative measure of

the product, such as volume, weight, length etc.

Compounded Levy (based on Capacity of Production): In this system

the duty is charged on the basis of some measure of the machinesinstalled in the factory.

Duty as a percentage ofassessable value of the goods: Assessable

Value refers to the value at which duty is assessed.


3/27

SRD LEGAL

Value for Assessment

Tariff Value fixed under Section 3 (2)

Assessable Value based on Retail Sale Price [Sec 4A]

Assessable Value based on value of transaction (ad valorem duty)[Sec 4].


4/27

SRD LEGAL

Idea behind Valuation under Section 4

Selling Price

+

Transaction Value

Assessable

Value

Certain other amounts payable

by reasons of or in connectionwith the sale

[At the time & place of

removal] + Additional

Consideration


5/27

SRD LEGAL

Scheme of Section 4

4 (1) (a): Conditions under which value shall be the Transaction Value

4 (1) (b): If any of the aforesaid conditions are not fulfilled, value to be

determined in terms of valuation rules.

4 (2) Tariff Values fixed under Sec 3 (2) to have overriding effect

4 (3) Defines the terms assessee, related person, place of removal, time ofremoval and transaction value


6/27

SRD LEGAL

Some General Principles

Each removal is to be assessed as a separate transaction

Value can be below cost

Duty is payable by manufacturer, irrespective of whether he is owner of the

goods or not.

Duty has to be assessed in the condition in which goods are removed

Deterioration after removal does not affect assessable value


7/27

SRD LEGAL

Conditions for adopting Transaction Value

Value shall be the Transaction Value only if

The goods are soldby the assessee

The sale is fordelivery at the time and place of removal

The sale is to non-relatedbuyer

Price is the sole consideration.


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SRD LEGAL

Definition of Transaction Value [Sec 4(3)(d)]

"transaction value" means the price actually paid or payable for the goods, when

sold, and includes in addition to the amount charged as price, any amount that the

buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in

connection with the sale, whether payable at the time of the sale or at any othertime, including, but not limited to, any amount charged for, or to make provision

for, advertising or publicity, marketing and selling organization expenses, storage,

outward handling, servicing, warranty, commission or any other matter but does

not include the amount of duty of excise, sales tax and other taxes, if any, actually

paid or actually payable on such goods.


9/27

SRD LEGAL

Elements Transaction Value

Price actually paid or payable for the goods

Any amount that the buyer is liable to pay to, or on behalf of, the

assessee

The above amount is includible only if it is payable by reason of, or

in connection with the sale,

Time of payment is irrelevant

Illustrative list of elements includible: any amount charged for, or to

make provision for, advertising or publicity, marketing and selling

organization expenses, storage, outward handling, servicing,

warranty, commission or any other matter

Amounts that are not includible: Duties & Taxes actually paid or payable


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SRD LEGAL

By reasons of or in connection with sale

As condition of sale

By reasons of sale

In connection with sale

In respect of sale

In relation to sale


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SRD LEGAL

Application of Valuation Rules

The principal method Transaction Value

Transaction Value Conditional

Transaction Value to be rejected only if one or more condition not fulfilled

Valuation Rules to be applied only after Transaction Value is rejected


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SRD LEGAL

Conditions for adopting Transaction Value

Value shall be the Transaction Value only if

The goods are soldby the assessee

The sale is fordelivery at the time and place of removal

The sale is to non-relatedbuyer

Price is the sole consideration.


13/27

SRD LEGAL

What is not sale

Transfer to Depot/ Branch

Free Samples/ donations/ gifts

Hypothecation

[Lease or hire purchase is sale under C. Excise. Sale is defined as transfer

of possession of goods . for cash or deferred payment or other valuable

consideration.]


14/27

SRD LEGAL

When sale is not at the time and place of removal

In case of depot sales depot is the place of removal but time of removal is

the time when goods were cleared from factory

If the contract is for delivery at some place other than place of removal [SayF.O.R. Destination]


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SRD LEGAL

Rule 4: The general rule

Text:

The value of the excisable goods shall be based on the value of such goods sold

by the assessee for delivery at any other time nearest to the time of the removal of

goods under assessment, subject, if necessary, to such adjustment on account ofthe difference in the dates of delivery of such goods and of the excisable goods

under assessment, as may appear reasonable to the proper officer.


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SRD LEGAL

Rule 5: When Sale is for delivery at a place other than place ofremoval

Prescription: Deduct the cost of transportation

Actual cost of transportation Equalized cost of transportation (CAS-5)


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SRD LEGAL

Rule 6: When Price is not the sole consideration

Prescription:Add the money value of additional consideration

Additional Consideration includes

(i) value of materials, components, parts and similar items relatable to such

goods;

(ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts

and similar items used in the production of such goods;

(iii) value of material consumed, including packaging materials, in the production

of such goods.(iv) value or engineering, development, art work, design work and plans and

sketches undertaken elsewhere than in the factory of production and

necessary for the production of such goods.


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SRD LEGAL

Additional Consideration

Cost of material supplied free

Landed cost

Copyright charges

Patterns/ dies/ moulds

Drawings

Advance Licence surrendered in favour of seller

Inspection/ Testing charges

Advertisement expenses

Training charges

Interest on advances


19/27

SRD LEGAL

Rule 7: Goods transferred to Depot

Applies when other conditions of Sec 4(1) (a) are fulfilled [Sale at depot to

unrelated buyer, price being sole consideration)

Depot is the Place of removal [cost of transportation from factory to depot not

deductible] Duty to be assessed when the goods are removed from factory [Time of

removal]

Prescription: Value = normal transaction value prevailing at depot

Rule 2(b) "normal transaction value" means the transaction value at which thegreatest aggregate quantity of goods are sold;


20/27

SRD LEGAL

Rule 8: Captive Consumption

Captive consumption means the goods are consumed in the same factory

in which it was manufactured

Prescription: Value = 110% of cost of production or manufacture of suchgoods. [CAS 4]


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SRD LEGAL

Related Person [Sec 4 (3) (b)]

Persons are deemed related if they are

i. They are inter-connected undertakings [Sec 2(g) of MRTP Act, 1969];

ii. They are relatives [Sec 2 (41) of Companies Act, 1956];

iii. Amongst them the buyer is a relative and a distributor of the assessee, or asub-distributor of such distributor; or

iv. They are so associated that they have interest, directly or indirectly, in the

business of each other.


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SRD LEGAL

Rule 9: Sale to or through related person

When goods are not sold except to or through a related person [i.e. when

sale is exclusively through related persons]

Prescription: Value = Normal Transaction Value at which the related personsells it (at the time of removal) [unrelated buyer price being sole

consideration]

If the related person consumes it in the production or manufacture or articles,

value = value under rule 8 [110% of cost]


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SRD LEGAL

Related Person

Relative & Distributor means distributor who is a relative.

Purchaser on principal to principal basis is not a distributor.

Only a natural person can be relative. Companies, firms, trusts cannot be

relatives Theory of lifting of corporate veil can be applied


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SRD LEGAL

Rule 10: Interconnected Undertakings

Based on ownership, control or management: 25% of total controlling power.

Valuation in similar manner as in rule 9

Provision does not apply to all Interconnected Undertakings, but only where:

- The buyer is a holding company or subsidiary company of theassessee; or

- They are related in any of the other three manners.

[In case of sale to any other Interconnected undertaking, the provision

shall not apply]


25/27

SRD LEGAL

Rule 10A: Goods manufactured on job-work basis

Change in law since 01stApril 2007. Earlier, value was based on cost

construction method.

Policy behind prescription: Assess duty as if the principal himself was themanufacturer liable to pay duty.

The goods have to be manufactured from inputs/ goods supplied by the

principle (or by someone authorized by him)

The rule will not apply if merely a few components are supplied free by the

customer.


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SRD LEGAL

Rule 11: Residuary Rule

If the value of any excisable goods cannot be determined under the foregoing

rules, the value shall be determined using

reasonable means consistent with the principles and general provisions

of these rules and

sub-section (1) of section 4 of the Act.


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SRD LEGAL

Thank YouS. R. Dwivedi

Advocate

9320 456 555/ 2589 2706

[email protected]

SRD LEGALAdvocates & Consultants

C. Excise, Service Tax, Customs & Foreign Trade

11/Block 3, Emerald Plaza, Hiranandani Meadows, Thane - 400610

c. excise valuation law

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