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Valuation of
excisable goods is relevant in the context of goods, which are
chargeable to ad valorem
levies. The relevant provisions are:
# Valuation under section 4 of the Central Excise Act, 1944 based
on
transaction value
# Valuation based on Retail Sale Price (RSP) under section 4A of
the
Central Excise Act, 1944, which is applicable to excisable goods
that
are notified by the Central Govt. However, this does not apply
tariff
values fixed under section 3(2) of the Central Excise Act, 1944
# Value under Section 4 of the Central Excise Act, 1944.
The new Section 4 of Central Excise Act as substituted by section
94 of
the Finance Act, 2000 (No. 10/2000) came into force from 1st day
of
July, 2000.
For applicability of transaction value in a given case, for
assessment
purposes, the following requirements should be satisfied:
1. The goods are sold by an assessee for delivery at the time and
place
of removal. The term ?place of removal? includes factory,
warehouse,
depot or premises of a consignment agent
2. The assessee and the buyer of the goods is not related
3. The price is the sole consideration for the sale.
If any one of the above requirements 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.
#
Transaction
value
includes receipts/recoveries or charges incurred or expenses
provided for in connection with the manufacturing, marketing,
selling of the excisable goods to be part of the price payable for
the goods sold.
It would be
seen from the definition of
transaction value that
any
amount which is paid or payable by the buyer to or on behalf of
the
assessee, on account of the factum or sale of goods, then such
amount
cannot be claimed to be not part of the transaction value. 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 includable in the transaction value. The law recognizes such
payment
to be part of the transaction value that is assessable value for
those
particular transactions.
The term
place of removal has been recently redefined to include
depot, premises of consignment agent etc. If, therefore, the
transaction
value is with reference to delivery at the time and place or
removal,
such transaction value will be the assessable value.
In those cases where any of the three requirements mentioned in
para
above is missing, the assessable value shall be determined on the
basis
of the valuation rules.
The valuation rules are notified under section 4(1)(b) by
notification
No. 45/2000-CE (NT), dated 30.6.2000.
Salient features of the new valuation rules
If the assessee and the buyer are not related persons and the
price is
also not 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 form 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.
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.
Thus, the
formula for
determining value is simple. If the cost of production based upon
general principles of costing of a commodity is Rs. 10,000 per
unit, the
assessable value of the goods shall be Rs. 11,500 per unit.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.
Valuation
Of Goods For The Purpose Of Excise Duty
1. Where the rates of duty are on ad valorem basis, assessable
value of
the final Goods are unfit for consumption or for marketing has to
be
found out before the amount of duty leviable thereon is determined
and
paid.
2. Though the value of goods is required to be declared in
assessee's
invoice, the invoice value is not necessarily the acceptable value
under
section 4.
3. The most authoritative exposition of section 4 is contained in
the
case of Union of India vs. Bombay Tyres International Ltd. . In
this
case, the Hon'ble Supreme Court had drawn the line at the factory
gate
up to which all costs incurred to make the Goods complete and
marketable
had to be included in the price. Costs incurred beyond the factory
gate
were not includable. Warranty service and advertisement costs are,
however an exception to this rule because they make the goods
marketable
at the factory gate.
Exceptions
1. If the goods are sold at different wholesale prices to
different
classes of buyers, each such wholesale price is deemed to be an
assessable value.
Thus excisable goods can have more than one
assessable
value,
with regard to class of buyer.
2. If the goods are sold at different wholesale prices at
different
places of removal, each such wholesale price is deemed to be an
assessable
value.
3. If the goods are sold in the course of wholesale trade for
delivery
at the time and place of removal at a price fixed under any law
for the
time being in force, or at a price being maximum, fixed under any
such
law, then such price or maximum price so fixed shall be deemed to
be the normal price; viz.,
assessable
value.
4. If the assessee arranges to sale goods in the course of
wholesale trade only through a
related person,
the price at which goods are sold by such related person is taken
as
assessable
value.
Valuation of goods sold at
buyer's destination: In the case of
M/s.
Escorts JCB Limited , the Tribunal, while interpreting the scope
of the term
place of removal under section 4(4)(b)(iii) of the Central
Excise
Act, 1944, held that where the property in goods passes from the
seller
to the buyer only after the goods reached the destination of the
buyers,
the goods are assessable to duty with reference to value at
buyer's
destination since the seller continues to be the owner of the
goods
during transit period.
Non-adoption of price fixed by the Government:
In the case of
M/s.
Soyabean & Vanaspathi Industries , the Tribunal while interpreting
the
provisions of section 4(1)(a)(ii) held that the maximum price
fixed
under the law shall be deemed to be the normal price and in such a
case
the argument that the goods were actually sold at a price lower
than the
controlled price will have no relevance in view of the clear
provisions
of the Law.
Valuation of
goods sold through depots:
The Tribunal in
the case of
Colgate Palmolive India Limited held that where there is no
ex-factory
sale and entire production is transferred to depots, assessable
value is
to be determined on the basis of depot sale price.
Inadmissible deduction allowed from assessable value:
Freight charges/transportation charges-
The Supreme Court in the
case of
M/s. Bombay Tyre International , held that expenses incurred on
account
of the several factors which have contributed to the value of the
product upto the date of sale, which apparently would be the date
of
delivery, are liable to be included in the assessable value of the
product.
Discount-
As per section
4(4)(d)(ii) of the Central Excise Act,
1944,
value in relation to any excisable goods does not include trade
discount
allowed in accordance with the normal practice of the wholesale
trade
provided that such discount is not refundable on any account
whatsoever. Additional consideration not included in the assessable value: As
per
the provisions of section 4(1)(a) of the Central Excise Act, 1944,
read
with rule 5 of the Central Excise (Valuation) Rules, 1975, where
the
price charged for the excisable goods sold in wholesale trade is
not the
sole consideration for the sale, the assessable value of such
goods
shall be determined based on the aggregate of the price and money
value
of additional consideration flowing directly or indirectly from
the
buyer to the assessee. In the case of
Bombay Tyre International ,
the
Supreme Court held that the value of the article for the purpose
of levy
of excise duty shall include all costs and expenses which have
given the
article its marketability.
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Valuation of Excisable Goods for the Purpose of Charging 
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The
author can be reached at: AashishSrivastava@legalserviceindia.com /
