Valuation under C.

Excise Law

Sanjay Dwivedi Advocate Mumbai ± May 03, 2008



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 machines installed in the factory. Duty as a percentage of µassessable value¶ of the goods: Assessable Value refers to the value at which duty is assessed.




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].

Idea behind Valuation under Section 4 Selling Price + Certain other amounts payable by reasons of or in connection with the sale [At the time & place of removal] Transaction Value Assessable Value + Additional Consideration SRD LEGAL .

µplace of removal¶. ‡ 4 (2) Tariff Values fixed under Sec 3 (2) to have overriding effect ‡ 4 (3) Defines the terms µassessee¶. µrelated person¶.Scheme of Section 4 ‡ 4 (1) (a): Conditions under which value shall be the µTransaction Value¶ ‡ 4 (1) (b): If any of the aforesaid conditions are not fulfilled. value to be determined in terms of valuation rules. µtime of removal¶ and µtransaction value¶ SRD LEGAL .

Duty has to be assessed in the condition in which goods are removed Deterioration after removal does not affect assessable value SRD LEGAL . irrespective of whether he is owner of the goods or not.Some General Principles ‡ ‡ ‡ ‡ ‡ Each removal is to be assessed as a separate transaction Value can be below cost Duty is payable by manufacturer.

SRD LEGAL .Conditions for adopting µTransaction Value¶ Value shall be the Transaction Value only if ‡ ‡ ‡ ‡ The goods are µsold¶ by the µassessee¶ The sale is for delivery at the time and place of removal The sale is to non-related buyer Price is the sole consideration.

outward handling. storage. sales tax and other taxes. including. and includes in addition to the amount charged as price. or to make provision for. the assessee. whether payable at the time of the sale or at any other time. or on behalf of. marketing and selling organization expenses. SRD LEGAL . warranty. by reason of. when sold. commission or any other matter but does not include the amount of duty of excise. or in connection with the sale.Definition of µTransaction Value¶ [Sec 4(3)(d)] "transaction value" means the price actually paid or payable for the goods. advertising or publicity. actually paid or actually payable on such goods. any amount charged for. any amount that the buyer is liable to pay to. if any. servicing. but not limited to.

marketing and selling organization expenses. ‡ Time of payment is irrelevant ‡ Illustrative list of elements includible: any amount charged for. servicing. or in connection with the sale. warranty.Elements Transaction Value  Price actually paid or payable for the goods  Any amount that the buyer is liable to pay to. commission or any other matter  Amounts that are not includible: Duties & Taxes actually paid or payable SRD LEGAL . outward handling. storage. or on behalf of. the assessee ‡ The above amount is includible only if it is payable by reason of. advertising or publicity. or to make provision for.

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 SRD LEGAL .

Application of Valuation Rules ‡ ‡ ‡ ‡ The principal method ± µTransaction 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 SRD LEGAL .

Conditions for adopting µTransaction Value¶ Value shall be the Transaction Value only if ‡ ‡ ‡ ‡ The goods are µsold¶ by the µassessee¶ The sale is for delivery at the time and place of removal The sale is to non-related buyer Price is the sole consideration. SRD LEGAL .

Sale is defined as µtransfer of possession of goods ««.] SRD LEGAL . Excise.What is not sale ‡ ‡ ‡ Transfer to Depot/ Branch Free Samples/ donations/ gifts Hypothecation [Lease or hire purchase is sale under C. for cash or deferred payment or other valuable consideration¶.

R.O. Destination] ‡ 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 µtime 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 [Say F.

SRD LEGAL . if necessary. to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment.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. as may appear reasonable to the proper officer. subject.

Rule 5: When Sale is for delivery at a place other than µplace of removal¶ Prescription: Deduct the cost of transportation ‡ ‡ Actual cost of transportation Equalized cost of transportation (CAS-5) SRD LEGAL .

components. blue prints. technical maps and charts and similar items used in the production of such goods. design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods. (iv) value or engineering. parts and similar items relatable to such goods. (iii) value of material consumed. art work. dies. development. (ii) value of tools. including packaging materials. SRD LEGAL . moulds. drawings. in the production of such goods.Rule 6: When Price is not the sole consideration Prescription: Add the money value of additional consideration Additional Consideration includes (i) value of materials.

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 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. SRD LEGAL . price being sole consideration) ‡ Depot is the µPlace 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 the greatest aggregate quantity of goods are sold.

[CAS ± 4] ‡ 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 such goods.

iii.Related Person [Sec 4 (3) (b)] Persons are deemed related if they are i. or a sub-distributor of such distributor. They are so associated that they have interest. They are inter-connected undertakings [Sec 2(g) of MRTP Act. They are relatives [Sec 2 (41) of Companies Act. in the business of each other. 1956]. Amongst them the buyer is a relative and a distributor of the assessee. directly or indirectly. SRD LEGAL . 1969]. or iv. ii.

value = value under rule 8 [110% of cost] ‡ ‡ SRD LEGAL . when sale is exclusively through related persons] Prescription: Value = Normal Transaction Value at which the related person sells 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.Rule 9: Sale to or through related person ‡ When goods are not sold except to or through a related person [i.e.

Related Person ‡ ‡ ‡ ‡ Relative & Distributor means distributor who is a relative. Purchaser on principal to principal basis is not a distributor. firms. trusts cannot be relatives Theory of µlifting of corporate veil¶ can be applied SRD LEGAL . Only a natural person can be relative. Companies.

control or management: 25% of total controlling power. but only where: .Rule 10: Interconnected Undertakings ‡ ‡ ‡ Based on ownership.They are related in any of the other three manners. [In case of sale to any other Interconnected undertaking. or .The buyer is a holding company or subsidiary company of the assessee. Valuation in similar manner as in rule 9 Provision does not apply to all Interconnected Undertakings. the shall not apply] provision SRD LEGAL .

Policy behind prescription: Assess duty as if the principal himself was the manufacturer liable to pay duty. Earlier. value was based on cost construction method. 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. ‡ ‡ ‡ SRD LEGAL .Rule 10A: Goods manufactured on job-work basis ‡ Change in law since 01st April 2007.

Rule 11: Residuary Rule If the value of any excisable goods cannot be determined under the foregoing rules. SRD LEGAL . 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.

com SRD LEGAL Advocates & Consultants C. Hiranandani Meadows. Excise. R. Service Tax. Thane . Customs & Foreign Trade LEGAL SRD 11/Block 3. Dwivedi Advocate 9320 456 555/ 2589 2706 srdlegal@gmail.Thank You S.400610 . Emerald Plaza.

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