Value under the Central
Excise Act, 1944
Transaction Value
Valuation Rules
Valuation of Petroleum Products
Tariff Value
Value on basis of
Maximum Retail Sales Price
Part III
Valuation
- Value under the Central Excise Act, 1944
1.1 Value of the excisable goods has to be necessarily determined when the
rate of duty is on ad-valorem basis. Accordingly, under the Central Excise
Act, 1944 the following values are relevant for assessment of duty.
Transaction value is the most commonly adopted method.
- Transaction value under Section 4.
- Value determined on basis of maximum Retail Sale Price as per
Section 4A.
- Tariff value under Section 3.
- Transaction Value
2.1 Section 4 of the Central Excise Act, as substituted by section
94 of the Finance Act, 2000(No.10 of 2000),has come into force from the 1st
day of July 2000. This section contains the provision for determining the
Transaction value of the goods for purpose of assessment of duty.
2.2 For applicability of transaction value in a given case, for assessment
purposes, certain essential requirements should be satisfied. If any one of
the said requirement is not satisfied, then the transaction value shall not
be the assessable value and value in such case has to be arrived at under
the valuation rules notified for the purpose. The essential ingredients of a
Transaction value are:
- The goods are sold by an assessee for delivery at the time of place
of removal. The term "place of removal" has been defined basically to
mean a factory or a warehouse;
- The assessee and the buyer of the goods are not related; and
- The price is the sole consideration for the sale.
2.3 The definition of "transaction value" needs to be carefully taken
note of as there is fundamental departure from the erstwhile system of
valuation that was essentially based on the concept of ‘Normal Wholesale
Price’, even though sales were effected at varying prices to different
buyers or class of buyers from factory gate or Depots etc. had to be
determined.
2.4 The new section 4 essentially seeks to accept different transaction
values which may be charged by the assessee to different customers, for
assessment purposes so long as these are based upon purely commercial
consideration where buyer and the seller have no relationship and price
is the sole consideration for sale. Thus, it enables valuation of goods
for excise purposes on value charged as per commercial practices rather
than looking for a notionally determined value.
2.5 Transaction value would include any amount which is paid or payable
by the buyer to or on behalf of the assessee, on account of the factum
of sale of goods. In other words, if, for example, an assessee recovers
advertising charges or publicity charges from his buyers, either at the
time of sale of goods or even subsequently, the assessee cannot claim
that such charges are not to be included in the transaction value. The
law recognizes such payment to be part of the transaction value that is
assessable value for those particular transactions. Certain other
elements which are included in the Transaction value are, as follows:
- Receipts/recoveries or charges incurred or expenses provided for in
connection with the manufacturing, marketing, selling of the excisable
goods. In other words, whatever elements which enrich the value of the
goods before their marketing and were held by Hon’ble Supreme court to
be includible in "value" under the erstwhile section 4 would continue to
form part of section 4 value even under new section 4 definition.
- If in addition to the amount charged as price from the buyer, the assessee recovers any other amount by reason of sale or in connection
with sale, then such amount shall also form part of the transaction
value. For example if assessee splits up his pricing system and charges
a price for the goods and separately charges for packaging or warranty,
the packaging charges will also form part of assessable value as it is a
charge in connection with production and sale of the goods recovered
from the buyer. In this context, it may be clarified that it is
immaterial whether the warranty is optional or mandatory. Since the
value can be different for different transactions, wherever warranty
charges are paid or payable to the assessee, in those transactions
warranty charges shall form part of the assessable value. In those
transactions where warranty charges are not recovered, the question of
including warranty charges in transaction value does not arise.
- Interest for delayed payments are a normal practice in industry.
Interest under a financing arrangement entered between the assessee and
the buyer relating to the purchase of excisable goods shall not be
regarded as part of the assessable value provided that:
- the interest charges are clearly distinguished from the price
actually paid or payable for the goods;
- the financing arrangement is made in writing; and
- where required, assessee demonstrates that such goods are actually
sold at the price declared as the price actually paid or payable.
- Discount of any type or description given on any normal price
payable for any transaction will not form part of the transaction value
for the goods, e.g. quantity discount for goods purchased or cash
discount for the prompt payment etc. will therefore not form part of the
transaction value. However, it is important to establish that the
discount has actually been passed on to the buyer of the goods. The
differential discounts extended as per commercial considerations on
different transactions to unrelated buyers if extended can not be
objected to and different actual prices paid or payable for various
transactions are to be accepted. Where the assessee claims that the
discount of any description for a transaction is not readily known but
would be known only subsequently – as for example, year end discount –
the assessment for such transactions may be made on a provisional basis.
However, the assessee has to disclose the intention of allowing such
discount to the department and make a request for provisional
assessment.
- The definition of transaction value mentions that whatever amount is
actually paid or actually payable to the Government or the relevant
statutory authority by way of excise, sale tax and other taxes, such
amount shall be excluded from the transaction value. In other words, if
any excise duty or other tax is paid at a concessional rate for a
particular transaction, the amount of excise duty or tax actually paid
at the concessional rate shall only be allowed to be deducted from
price.
- As per commercial practice, the price for the goods charged,
normally includes the cost of packing charges. However, at times
separate charge may be billed for special packing, as per customer’s
requirements. Whereas in the context of erstwhile section 4 certain
disputes often arose whether certain packing in relation to particular
goods is secondary or primary and whether its value is to be added for
assessment purposes, under the new section 4, such issues are no longer
relevant. Any charges recovered for packing are obviously charges
recovered in relation to the sale of the goods under assessment and will
form part of the transaction value of the goods. In short, it is
immaterial whether packing is ordinary or special. Whatever amount is
charged from the buyer for packing and if not already included by the assessee in the price payable for the goods will be included while
determining the transaction value of the goods.
2.6 Where the assessee includes all their costs incurred in relation to
manufacture and marketing while fixing price payable for the goods and
bills and collects an all inclusive price –as happens in most cases
where sales are to independent customers on commercial consideration -
the transaction price will generally be the assessable value.
Nevertheless, there could be situations where the amount charged by an
assessee does not reflect the true intrinsic value of goods marketed and
total value split up into various elements like special packing charges,
warranty charges, service charges etc. These cases would require to be
scrutinised carefully to ensure that duty is paid on correct value. The
definition of "transaction value" makes it clear that all the elements
of cost which the assessee incurred till the sale/marketing as
aforesaid, continue to be included in the assessable value even under
new section 4.
2.7 The term "place of removal" has been defined in the same manner as
was defined in the erstwhile section 4 prior to its amendment in 1996.
If, therefore, the transaction value is with reference to delivery at
the time and place of removal, such transaction value will be the
assessable value.
- Valuation Rules
3.1 In those cases where any of the three requirements mentioned in para 2
above is missing, the assessable value shall be determined on the basis of
the Central Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2001 notified under Section 4(1)(b) by notification No. 45/2000-CE
(NT), dated 30.6.2000.
3.2 Salient features of the new valuation rules are mentioned below:
- If the assessee and the buyer are not related persons and the price
is also the sole consideration for sale but only the delivery of goods
is made by the assessee at a place other than the factory/warehouse,
then the assessable value shall be the "transaction value" without the
addition of the cost of transportation from the factory/warehouse upto
the place of delivery. However, exclusion of cost of transportation is
allowed only if the assessee has shown them separately in the invoice
and the exclusion is permissible only for the actual cost so charged
from his buyers. If the assessee has a system of pricing and sale at
uniform prices inclusive of equated freight for delivery at factory gate
or elsewhere, no deductions for freight element will be permissible.
- If the goods are not sold at the factory gate or at the warehouse
but they are transferred by the assessee to his depots or consignment
agents or any other place for sale, the assessable value in such case
for the goods cleared from factory/warehouse shall be the normal
transaction value of such goods at the depot, etc. at or about the same
time on which the goods as being valued are removed from the factory or
warehouse. It may be pertinent to take note of the definition of "normal
transaction value" as given in the valuation rules. What it basically
means is the transaction value at which the greatest aggregate quantity
of goods from the depots etc. are sold at or about the time of removal
of the goods being from the factory/warehouse. If, however, the
identical goods are not sold by the assessee from depot/consignment
agent’s place on the date of removal from the factory/warehouse, the
nearest date on which such goods were sold or would be sold shall be
taken into account. In either case if there are series of sales at or
about the same time, the normal transaction value for sale to
independent buyers will have to be determined and taken as basis for
valuation of goods at the time of removal from factory/warehouse. It
follows from the Valuation Rules that in such categories of cases also
if the price charges is with reference to delivery at a place other than
the depot, etc. then the actual cost of transportation will not be taken
to be a part of the transaction value and exclusion of such cost allowed
on similar lines as discussed earlier, when sales are effected from
factory gate/warehouse.
- As a measure of simplification, it has been decided to value
goods which are captively consumed on cost construction method only as
there have been disputes in adopting values of comparable goods. The
assessable value of captively consumed goods will be taken at 115% of
the cost of manufacture of goods even if identical or comparable goods
are manufactured and sold by the same assessee. The concept of deemed
profit for notional purposes has thus been done away with and a margin
of 15% by way of profit etc. is prescribed in the rule itself for ease
of assessment of goods used for captive consumption.
- In the case where price is not the sole consideration for the sale,
but the other requirements of clause (a) of sub-section (1) of section 4
of the Central Excise Act are satisfied, the value shall be determined
in accordance with the provisions of rule 6 of the valuation rules. This
provides for adding, to the transaction value the money value of any
additional consideration flowing directly or indirectly from the buyer
to the assessee. Such additional consideration would include the money
value of goods and services provided free or at reduced cost by or on
behalf of the buyer to the assessee. An Explanation has been added in
the new rule only to remove any doubts with respect to its scope.
- Where goods are sold through related persons, the transaction value
is not applicable. The definition of related persons includes
"inter-connected undertakings" as defined in the Monopolies and
Restrictive Trade Practices Act, 1969. The definition of inter-connected
undertaking in the said Act is comprehensive and includes two or more
under-takings which are inter-connected with each other in any of a
number of ways such as if one owns or controls the other, or where the
undertakings are owned by firm, or if such firms have one or more common
partners, etc. A provision has been made in the Valuation Rules that
even if the assessee and the buyer are ‘inter-connected undertakings’,
the transaction value will be "rejected" only when they are "related" in
the following manner:
- They are relatives.
- The buyer is a relative and a distributor of the assessee, or
sub-distributor of such distributor.
- They have a direct or indirect interest in the business of each
other.
In other cases, they will not be considered related. "Transaction
value" could then form the basis of valuation provided other two
conditions, namely, price is for delivery at the time and place of
removal and the price is the sole consideration for sale are
satisfied. If any of the two aforesaid conditions are not satisfied
then, quite obviously, value in such cases will be determined under
the relevant rule.
- Valuation of Petroleum Products
4.1 The practice being followed is to assess the price administered
petroleum products like motor spirit, HSD, SKO (domestic) and LPG to duty on
the ex-storage sale prices that are fixed by the Oil Coordination Committee
(OCC) from time to time. The assessable value is the same irrespective of
whether the administered petroleum products are sold at the refineries or
through the marketing companies.
- Tariff Value
5.1 For certain items the Government may fix a tariff value as per
provisions of Section 3(3) of the Central Excise Act, 1944. In such cases
the assessment of duty shall be on the basis of the tariff value.
- Value on basis of Maximum Retail Sales Price
6.1 The value is based on maximum retail sale price in terms of
Section 4A of the Central Excise Act, 1944. This is applicable to notified
commodities. The notification issued in this regard indicates the extent of
abatement to be allowed for arriving at the assessable value for
determination of amount of duty.