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VALUATION UNDER CENTRAL EXCISE – Excise

VALUATION UNDER CENTRAL EXCISE :

First it is established that the goods manufactured are excisable. After the excitability is decided, the goods have to be correctly classified. The next is to value the goods so as to compute the duty payable on the excisable goods.

Basis of computing duty payable:

The duty is payable on the basis of any of the following:

(a ) Specific Duty i.e. duty based on some measures like volume ,weight, length etc.

(b ) Duty based on value which can again be –

(i ) Duty as a percentage of  Tariff Value fixed by the Central Government (Section  3 (2 ) of CE Act,1944 )

(ii ) Duty based on assessable value with reference to transaction value  determined in accordance with section 4   (1) of the Central Excise Act,1944.This is called Ad Valorem duty.

(iii) Duty based on MRP     (Section 4A of the CE Act,1944 )

(c ) Compounded levy scheme ( Rule 15 of the central excise rules ,2002 )

(d ) Duty based on capacity of production ( Section 3A of the CE Act ,1944 ).

Specific Duty – In the case of some goods, duty is payable on the basis of certain unit may be length, weight, volume etc.. For instance duty on cigarettes is on the basis of length, Marble slabs and tiles based on per sq. meter Cement clinkers on per ton basis etc. but the drawback is it does not change when prices rise or fall. Hence,  more and more tariff entries are designed based on ad valorem  duty structure.

Duty based on value (Ad valorem duty ) :

(a )   Duty as a percentage of Tariff Value fixed by the Central Government (Section  3 (2 ) of CE Act,1944 ):

The Central Government is empowered to notify the values of goods which will be chargeable to ad valorem duty as per CETA,1975 e.g. Central Government has fixed tariff value for Pan Masala  and readymade garments @30%  of transaction value ,Articles of jewellery other than silver @ 30% of transaction  value known as tariff value.

(b )   Duty as a percentage of assessable value determined in accordance with section 4 of the Central Excise Act,1944: Earlier the valuation under section 4 was based on the principle of ‘normal price’ which was based on the prices at which manufacturers sold the goods .Since 1.7.2000 ,the new concept of ‘transaction value’ ( i.e.the Price actually paid or payable for the goods when sold excluding the amount of excise ,sales tax or any other taxes if actually paid or payable on such goods  ) has been brought in to the central excise law.

Note- In case of cum duty price the Assessable value will be calculated as under-

Assessable Value     =      Cum Duty Price  –  Permissible Deductions   x100

100 + Rate of Excise duty

According to Section 4 (1) Where under this act, the ED is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall be —

  • In a case where goods are sold by the assessee ,for delivery at the time and and place of removal , the assessee and the buyers of goods are not related and price is the sole consideration for the sale ,, be the ‘transaction value’; .

In simple words , ED is charged on ‘normal price’ if the following conditions are satisfied –

  • BUYER IS NOT RELATED PERSON
  • PRICE IS THE SOLE CONSIDERATIONFOR SALE

( Held in case of Tata Iron AND Steel Co. Ltd.v. Collector of central excise, AIR 2003 SC144)

  • In case any of the above conditions is not satisfied ,then value will be determined in accordance with the Central Excise Valuation ( Determination of Price of Excisable Goods ) Rules,2000

(c ) Duty based on MRP:  Statutory requirements of declaring retail sale price on the package of notified excisable goods is a pre-requisite for applying section 4A.

Where the excisable  goods subject to excise duty on ‘normal price’ ,then , notwithstanding anything contained in section 4 above ,such value shall be deemed to be retail sale price declared on such goods less such amount of abatement ,if any, from such MRP as the CG may allow by notification in the Official Gazette.

This has been done under section 4A on many mass consumption products where the retail price and wholesale price of goods are at wide variance and the government wants to raise revenues knowing that the manufacturer has shifted much of the overheads away from the manufacturing location.

The Central Excise ( Determination of Retail Sale Price of Excisable Goods ) Rules ,2008 :

Rule-4 Where a manufacturer removes the excisable goods –

–          Without declaring the RSP on the packages of such goods or

–          By declaring RSP ,not in accordance with rules or

–          By declaring the RSP ,but alters the same after their removal from the place of manufacture ,then, the RSP of such goods shall be ascertained in the following manner ,namely , –

1.       RSP of identical goods within a period of one month ,before or after removal of such goods ,shall be taken;

2.       If RSP not available then the same shall be ascertained by conducting the enquiries in retail market where such goods have normally been sold  at or about the same time of the removal of such goods from the place of manufacture.

If more than one RSP determined – the highest of the RSP ,so ascertained shall be taken.
Rule-5  Where a manufacturer alters or tampers the RSP declared on the packages of goods after their removal from the place of manufacture ,resulting in to increase in RSP ,then such increased RSP be taken as the RSP of all goods removed during a period of 1 month before and after the removal of such goods.

Provided that where the manufacturer alters or tampers the declared RSP resulting in to more than one RSP available on such goods ,then ,the highest of such RSP shall be taken as the RSP of all such goods.
Rule- Valuation in case of multi piece packages:

(a ) If packages can not be sold separately –MRP declared on multi-pack

(b ) If packages can  be sold separately –Aggregate of MRP of pieces comprising the  multi-pack.

Note- If MRP of individual items is not clear or one product is sold free and has no MRP printed on it ,then ,MRP of multi pack will be considered for valuation.

 

 

Note – 1.Meaning of RSP : It means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes ,local or otherwise ,freight, transport charges, commission payble to dealers ,and all charges towards advertisement ,delivery ,packing ,forwarding and the like and the price is the sole consideration for such sale .

However , in case the provisions of the Act ,Rules or Other Law as referred above ,require to declare on the package ,the RSP excluding any taxes ,local or otherwise ,the RSP shall be construed accordingly.

Note-2 In case where area wise different RSP declared on different packages ,then ,RSP shall be the retail sale price for the purpose of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates.

(d ) Compounded levy scheme (Rule 15 of the central excise rules,2002 ):

Central Government is empowered to specify , by notification ,the goods in respect of which an assesses shall have the option to pay the duty of excise on the basis of specified factors relevant to production of such goods ( size of equipment employed ,number and the types of machines used for manufacture etc. at the specified rates. Small manufacturers may benefit from this scheme as they need not maintain detailed accounts, observing day to day central excise formalities etc. after making lump sum periodic payment.

At present Stainless steel pattas/patties and Aluminium circles are covered under compounded levy scheme basis of valuation.

(e ) Duty based on capacity of production: A product which is covered under section 3A  of CETA ,1985 there is no option to adopt valuation under compound levy scheme. This means valuation should be as per production capacity under section 3A. Goods like Pan masala, Gutkha ,chewing tobacco, Zarda scented tobacco and branded unmanufactured tobacco are liable to duty based on capacity of production u./s 3A

Brief Note on Central Excise Valuation ( Determination of Price of Excisable Goods ) Rules ,2000 :

Rule-4 When price of goods is not known at the time and place of removal – Here,the value of excisable goods shall be based on the value of such goods sold by the tax payer for delivery at any other time nearest to the time of the removal of goods under assessment , subject to if necessary,  such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment , as  may appear reasonable to the proper officer. Similarly value of samples shall also be determined
Rule-5 When goods are sold for delivery at a place other than the place of removal . – Here the value of such excisable goods shall be deemed to be the transaction value excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods
Rule-6 When price is not the sole consideration for sale – Here the value of such goods shall be deemed to be the aggregate of – a) Such transaction value and b) The amount of money value of any additional consideration flowing directly or indirectly from the buyer to the manufacturer. However, if the goods are sold by the tax payer at a price less than manufacturing cost and profit , and no additional consideration is following from the buyer than the value of such goods shall be deemed to be the transaction value
Rule-7 When goods are transferred to depot, Premises of consignment agent or any other place from where such goods are sold – Here in case of depot transfer, the value shall be normal transaction value of goods prevalent at depot at the time when goods are removed from the factory. If the normal transaction value cannot be determined at the time when the goods are transferred to the depot, then the price nearest to the time of such transfer shall be taken. Normal transaction value means the transaction value of the goods sold in the greatest aggregate quantity.
Rule-8 When goods are not sold but used for captive consumption- here , where whole or part of the excisable goods are not sold by the manufacturer 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% of the cost of production of such goods . Cost of materials which enter in cost of production is to be taken net of excise duty if CENVAT credit is availed.
Rule-9&10 When goods are sold wholly or partly to or through a related person- where whole or part of – a) the excisable goods are sold by the tax payer to or through a related person and b) the person is related in any one of the manner specified in section  4(3)(b)(ii)/(iii)/(iv) , the value of the goods shall be normal transaction value at which these are sold by the related person at the time of removal to the buyers (not being related persons) or where such goods are not sold to such buyers but to the buyers being the related person , who sells goods in retail. However, in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined at the rate of 110% of the cost of production of the manufacturer.

As per rule 10 where whole or part of the excisable goods are sold by the manufacturer to or through an interconnected undertaking , the value of such goods shall be determined as under

a)      When interconnected undertaking is related in terms of 4(3)(b)(ii)/(iii)/(iv) or buyer is a holding or subsidiary company of the manufacturer then value will be determined as per Rule 9

b)      In any other case , value will be determined as if they are not related person
Rule-10A Valuation in case of Job Work – As per this rule the value of excisable goods produced or manufactured by a job worker on behalf of the principal manufacturer(PM) , the value shall be determined as under-

a)      When the goods are sold by the PM directly from the premises of the job worker , then the value of excisable goods shall be the transaction value of the said goods sold by PM

b)      When the goods are transferred to a depot v/consignment agent, etc. of PM from where they are sold then the value of excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and , where such goods are not sold at or about the same time, then at the time nearest to the time of removal of said goods from the factory of job worker

c)        In a case not covered under a or b , the provisions of foregoing rules, wherever applicable shall apply for determination of value of the excisable goods .
Rule-11 Residuary Rule
Excise | Ruhi Sen |

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