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Central Government amends Rule 8, Rule 9 and Rule 10 of Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000


3 December 2013





Background

The literal interpretation of Rule 8, Rule 9 and Rule 10 of Central Excise Valuation (Determination of Price
of Excisable Goods) Rules, 2000, which was dealing with determination of assessable value in case of
captive consumption and sale to related person have been amended vide Notification No. 14/2013 – CE
(NT), as it was leading to a conclusion that the valuation methodology prescribed would be applicable only
if all the goods are sold to / through ‘related person’ or exclusively sold only to / through ‘inter-connected
undertaking, as the case may be.
Amendment

On 22 November 2013, the Central Board of Excise & Customs (CBEC) issued a Notification amending the
Valuation Rules, 2000, making provision to cover both the scenarios – where the goods are partly sold to
unrelated buyers and partly to related buyers and also in the case where all the goods are sold to related
persons, in addition to use of such goods partly for ‘own consumption’.





© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.




























The provisions before and after amendment are summarised as follows:


Rule


Provisions before amendment

Provisions after amendment
Rule 8 - Valuation of goods,
used for consumption in
further manufacture
Where the excisable goods are not sold
by the taxpayer but are used for
consumption by him or on his behalf in
the production or manufacture of other
articles, the value shall be 110 percent of
the cost of production or manufacture of
such goods.
Where whole or part of the
excisable goods are not sold by
the taxpayer but are used for
consumption by him or on his
behalf in the production or
manufacture of other articles, the
value of such goods that are
consumed shall be 110 percent of
the cost of production or
manufacture of such goods.

Rule 9 - Valuation of goods
sold to related person
Where the goods are sold exclusively to
or through ‘related person’
1
, the value of
such goods is required to be determined
on the basis of ‘normal transaction
value’
2
at which these goods are sold by
the related person to unrelated buyers.
Where whole or part of the goods
are sold to or through related
person, the value of such goods is
required to be determined on the
basis of normal transaction value
at which these goods are sold by
the related person to unrelated
buyers.

Rule 10 - Valuation of goods
sold to ‘inter-connected
undertaking’
Where the goods are sold exclusively to
or through ‘inter-connected undertaking’
3
,
the value of such goods is required to be
determined as follows:

(a) If the ‘inter-connected undertaking’ is
also a ‘related person or is a holding
company or subsidiary company of
the manufacturer, then the value is
required to be determined as per the
provisions of Rule 9 discussed
above;

(b) In any other case, the value is
required to be determined as if they
are not related persons i.e., on the
basis of ‘transaction value’ under the
provisions of Section 4.
Where whole or part of the goods
is sold by the manufacturer to or
through an ‘inter-connected
undertaking’, the value of such
goods is required to be
determined as follows:

(a) If the ‘inter-connected
undertaking’ is also a related
person or is a holding
company or subsidiary
company of the manufacturer,
then the value is required to
be determined as per the
provisions of Rule 9 discussed
above;

(b) In any other case, the value is
required to be determined as if
they are not related persons
i.e., on the basis of
‘transaction value’ under the
provisions of Section 4.

_______________
1
A person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Central Excise Act,
1944. That is –
 They are relatives; or
 Amongst them the buyer is a relative and a distributor of the taxpayer, or a sub-distributor of such distributor; or
 They are so associated that they have interest, directly or indirectly, in the business of each other

2
‘normal transaction’ means the transaction value at which the greatest aggregate quantity of goods are sold
3
The term ‘inter-connected undertaking’ is defined elaborately under Section 4 of the Central Excise Act, 1944.


© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.




Our comments

Before the amendment, the literal interpretation of the said Rules/ provisions was leading to a conclusion that the
valuation methodology prescribed would be applicable only if all the goods are sold to / through ‘related person’ or
exclusively sold only to/through ‘inter-connected undertaking, as the case may be.

In cases, where the goods are partly sold to unrelated buyers and partly to related buyers, in addition to use of
such goods for ‘own consumption’ or sales to ‘related person’, or sales to ‘inter-connected undertaking’, as the
case may be, the valuation had to resorted thru’ Rule 11.

The valuation methodology in such circumstances was settled in the case of Aquamall Water Solutions Ltd. Vs.
Commissioner of Central Excise Bangalore 2003 (153) E.L.T. 428 Tri-Bang (approved by SC), that, in case the
goods are partly sold to unrelated buyers and partly to ‘related person’, or ‘inter-connected undertaking’, as the
case may be, the valuation prescribed under the provisions of Rule 9/ Rule 10 is not applicable and accordingly
the valuation is required to be done under the residuary provisions of Rule 11 – by adopting the price charged to
the independent buyers for the sale made to related buyers.

The current amendment negates the judgment of the Supreme Court by providing a dual valuation methodology.
i.e. when the goods are partly sold to related parties/interconnected undertakings and partly to unrelated buyers,
two separate valuation methodologies need to be adopted – to the extent of transaction with related parties /
interconnected undertakings Rule 9/10 are to be followed and to the extent sold to unrelated buyers, valuation is to
be in terms section 4. Incidentally this was the scheme of valuation proposed in the Circular No.643/34/2002-CX
dated July 1, 2002.

Same is the case with valuation of goods removed for further processing in terms of Rule 8 of the Valuation Rules
2000.






























© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.



























The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
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