What is Valuation? What is Valuation?

(1)

What is Valuation?

 Valuation is the procedure to determine the Valuation is the procedure to determine the value of excisable goods for the purpose of value of excisable goods for the purpose of

levying duty of excise on such goods.

(2)

What is the basis of payment of Excise Duty?

(3)

Some Important Definitions Some Important Definitions

 Assessee [Sec – 4(3)(a)]Assessee [Sec – 4(3)(a)]

The person who is liable to pay the duty of excise under this Act and The person who is liable to pay the duty of excise under this Act and includes his agent.

includes his agent.

 Related Person [Sec – 4(3)(b)]Related Person [Sec – 4(3)(b)]

The assessee and the buyer shall be deemed to be related persons, if The assessee and the buyer shall be deemed to be related persons, if (i) they are inter connected undertakings, or

(i) they are inter connected undertakings, or (ii) they are relatives; or

(ii) they are relatives; or

(iii) amongst them the buyer is a relative and a distributor of the (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub distributor of such distributor; or

assessee, or a sub distributor of such distributor; or

(iv) they are so associated that they have interest, directly or indirectly, (iv) they are so associated that they have interest, directly or indirectly, in the business of each other.

in the business of each other.

 Place of Removal [Sec – 4(3)(c)]Place of Removal [Sec – 4(3)(c)]

(a) a factory or any other place or premises of production or (a) a factory or any other place or premises of production or manufacture

manufacture

(b) a warehouse or any other place or premises wherein the goods have (b) a warehouse or any other place or premises wherein the goods have been permitted to be deposited without payment or duty

been permitted to be deposited without payment or duty

(c) a depot, premises of a consignment agent or any other place or (c) a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their

premises from where excisable goods are to be sold after their clearance from the factory.

clearance from the factory.

(4)

Inter-connected undertakings [Sec -2(g) of Inter-connected undertakings [Sec -2(g) of

MRTP Act, 1969]

Two or more undertaking which are interconnected with each other in any of the following manner namely – Two or more undertaking which are interconnected with each other in any of the following manner namely – 1.

1. If one owns or controls the otherIf one owns or controls the other

2.2. Where the undertakings are owned by a firm , if such firm have one or more common partnersWhere the undertakings are owned by a firm , if such firm have one or more common partners 3.3. Where the undertakings are owned by bodies corporate Where the undertakings are owned by bodies corporate

a) if one body corporate manages the other body corporate; or a) if one body corporate manages the other body corporate; or

b) if one body corporate is the subsidiary of the other body corporate; or b) if one body corporate is the subsidiary of the other body corporate; or c) if the bodies corporate are under the same management; or

c) if the bodies corporate are under the same management; or

d) if one body corporate exercises control over the other body corporate in any other manner d) if one body corporate exercises control over the other body corporate in any other manner

4.4. Where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more Where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firms,

partners of the firms,

a) hold, directly or indirectly, not less than fifty percent of the shares, whether preference of equity, of a) hold, directly or indirectly, not less than fifty percent of the shares, whether preference of equity, of the body corporate, or

the body corporate, or

b) exercises control, directly or indirectly, whether as director or otherwise, over the body corporate.

5.5. If one is owned by a body corporate and the other is owned by firm having bodies corporate as its If one is owned by a body corporate and the other is owned by firm having bodies corporate as its partners, if such bodies are under the same management.

partners, if such bodies are under the same management.

6.6. If the undertakings are owned or controlled by the same person or by the same group.If the undertakings are owned or controlled by the same person or by the same group.

7.7. If one is connected with the other either directly of through any number of undertakings within the If one is connected with the other either directly of through any number of undertakings within the meaning of one or more foregoing sub-clauses.

meaning of one or more foregoing sub-clauses.

(5)

 Transaction Value [Sec – 4(3)(d)]Transaction Value [Sec – 4(3)(d)]

(a) Transaction value is the price actually paid or payable for the (a) Transaction value is the price actually paid or payable for the goods when

goods when soldsold

(b) It includes in addition to the amount charged as price, any (b) It includes in addition to the amount charged as price, any amount that the

amount that the buyer is liable to pay to the assessee or buyer is liable to pay to the assessee or any other person on behalf of the

any other person on behalf of the assessee by reason of, or in assessee by reason of, or in connection with the sale of the goods

connection with the sale of the goods

(c) The payment may be made at the time of sale or at any other (c) The payment may be made at the time of sale or at any other time

time

(d) It includes any amount charged for – (d) It includes any amount charged for – 1. Advertising or publicity

1. Advertising or publicity

2. Marketing and selling expenses 2. Marketing and selling expenses 3. Storage

3. Storage

4. Outward handling 4. Outward handling 5. Servicing

5. Servicing 6. Warranty 6. Warranty

7. Commission, or 7. Commission, or 8. any other matter 8. any other matter

(e) It does not include the amount of excise duty, sales tax or (e) It does not include the amount of excise duty, sales tax or any other taxes

any other taxes actually paid or payable on such goodsactually paid or payable on such goods

(6)

 Normal Transaction Value Normal Transaction Value

It means the transaction value of the goods It means the transaction value of the goods sold in the greatest aggregate quantity. The term sold in the greatest aggregate quantity. The term

greatest aggregate quantity has not been defined in greatest aggregate quantity has not been defined in

this Act or Rules but it has been taken from the this Act or Rules but it has been taken from the

Custom Valuation Rules, 1988.

On interpreting Custom Valuation Rules, 1988 On interpreting Custom Valuation Rules, 1988 we find that it means the price at which the greatest we find that it means the price at which the greatest

number of units is sold in sales to persons who are number of units is sold in sales to persons who are

not related to the manufacturer.

(7)

Some cases related to Transaction Value Some cases related to Transaction Value

 CCEx. Vs. Maruti Udyog Ltd. [2007] [SC]CCEx. Vs. Maruti Udyog Ltd. [2007] [SC]

Optional extended warranty charges for cars are not Optional extended warranty charges for cars are not

includible in the assessable value of such cars.

 CCEx. Vs. DCM Textiles [2006] [SC]CCEx. Vs. DCM Textiles [2006] [SC]

Trade discount not extended at the time of preparation Trade discount not extended at the time of preparation

of invoice but extended by way of commission based of invoice but extended by way of commission based

on net sale value to independent dealers, is allowable on net sale value to independent dealers, is allowable

as deduction from assessable value.

 CCEx. Vs. CMS Computers Pvt. Ltd. [2005] [SC]CCEx. Vs. CMS Computers Pvt. Ltd. [2005] [SC]

A monitor or printers is not an essential part of A monitor or printers is not an essential part of

computer and thus, the value of monitor and printer computer and thus, the value of monitor and printer

can not be included in the assessable value of the can not be included in the assessable value of the

computers.

(8)

Valuation Valuation

 Section – 4(1)(a)Section – 4(1)(a)

The ad valorem duties are payable on the basis of “Transaction Value” The ad valorem duties are payable on the basis of “Transaction Value”

in case all the following conditions are satisfied – in case all the following conditions are satisfied –

(i) The excisable goods must be sold by the assessee (i) The excisable goods must be sold by the assessee

(ii) The excisable goods must be sold by the assessee for delivery at the (ii) The excisable goods must be sold by the assessee for delivery at the time and place of removal;

time and place of removal;

(iii) The assessee and the buyer of the goods must not be related (iii) The assessee and the buyer of the goods must not be related persons; and

persons; and

(iv) The price must be the sole consideration for sale.

CCEx. Vs. Gurunanak Refrigeration Corpn. [2003] [SC]

Goods can be sold below cost of production and in that case too, the Goods can be sold below cost of production and in that case too, the actual sale price will form the assessable value of goods.

actual sale price will form the assessable value of goods.

 Section – 4(1)(b)Section – 4(1)(b)

In any other case, including the case where the goods are not sold, be In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.

the value determined in such manner as may be prescribed.

Pointing out to Rule 3 of The Central Excise Valuation (Determination of Pointing out to Rule 3 of The Central Excise Valuation (Determination of

price of Excisable Goods) Rules, 2000 price of Excisable Goods) Rules, 2000

(9)

According to Rule 3 of The Central Excise Valuation According to Rule 3 of The Central Excise Valuation (Determination of price of Excisable Goods) Rules, (Determination of price of Excisable Goods) Rules, 2000, the value of any excisable goods shall, for the 2000, the value of any excisable goods shall, for the purposes of clause (b) of sub section (1) of Section 4 of purposes of clause (b) of sub section (1) of Section 4 of

the Act, be determined in accordance with these rules.

Lets see the Rules Lets see the Rules

in next slide in next slide

(10)

Rule 4 Rule 4

When price of goods is not known at the time and When price of goods is not known at the time and

place of removal place of removal

For Example : When goods are distributed free or as gift or For Example : When goods are distributed free or as gift or

donations.

Procedure of Valuation Procedure of Valuation

The value of such goods (i. e. other goods of the same class of The value of such goods (i. e. other goods of the same class of

same manufacturer), sold by the assessee for delivery at any same manufacturer), sold by the assessee for delivery at any other time nearest to the time of removal of goods in question.

other time nearest to the time of removal of goods in question.

(11)

Rule 5 Rule 5

When goods are sold for delivery at a place other When goods are sold for delivery at a place other

than the place of removal.

For example : Factory situated in Rourkela but For example : Factory situated in Rourkela but

sales to buyer at Delhi.

Value of goods = Transaction Value

Value of goods = Transaction Value lessless

Transportation cost from the place of removal Transportation cost from the place of removal

to place of delivery.

(12)

Some Important Points Some Important Points

1. Return journey charges are not 1. Return journey charges are not

deductible from value of goods.

2. Transit Insurance deductible. [UOI Vs.

Bombay Tyres International Ltd.] [1983]

[SC][SC]

3. Profit made by assessee on 3. Profit made by assessee on

transportation will not be included . [Baroda transportation will not be included . [Baroda

Electric Meters Ltd Vs. CCEx] [1997] [SC]

(13)

Rule 6 Rule 6

When price is not sole consideration for sale When price is not sole consideration for sale

For example : Buyer provides goods or services For example : Buyer provides goods or services free of charge or at reduced cost for production free of charge or at reduced cost for production

or sale of such goods or sale of such goods Procedure of Valuation Procedure of Valuation

Such Transaction Value + money value of any Such Transaction Value + money value of any

additional consideration flowing directly or additional consideration flowing directly or

indirectly from the buyer.

(14)

Rule 7 Rule 7

When goods are transferred to depot, premises of When goods are transferred to depot, premises of consignment agent or any other places from where consignment agent or any other places from where

such goods are sold.

> Normal Transaction Value prevalent at above

> Normal Transaction Value prevalent at above places

places

> If Normal Transaction Value can not be

> If Normal Transaction Value can not be determined at the time when the goods are determined at the time when the goods are

transferred to the depot, then the price nearest to transferred to the depot, then the price nearest to

the time of such transfer shall be taken.

(15)

Rule 8 Rule 8

When goods are not sold but used for When goods are not sold but used for Captive Consumption by the assessee Captive Consumption by the assessee

Value = 110% of Cost of production or Value = 110% of Cost of production or

Manufacture Manufacture

The cost of production of captively The cost of production of captively

consumed goods will henceforth be done consumed goods will henceforth be done strictly in accordance with CAS 4 issued by strictly in accordance with CAS 4 issued by

ICWAI.

(16)

Rule 9 Rule 9

When goods are sold to a related When goods are sold to a related

person by the assessee person by the assessee

Procedure of Valuation

Related Person sold to

(17)

(18)

Rule 10 Rule 10

When goods are sold only to or through When goods are sold only to or through

interconnected undertaking interconnected undertaking

(19)

Rule 10A Rule 10A

Valuation in case of Job Work

(20)

Rule 11 Rule 11

When the value of any excisable goods can When the value of any excisable goods can not be determined under the foregoing rules not be determined under the foregoing rules

The value shall be determined using The value shall be determined using reasonable means consistent with the reasonable means consistent with the principles and general provisions of these principles and general provisions of these Rules and Sub Section (1) of Section 4 of Rules and Sub Section (1) of Section 4 of

the Act.

(21)

Section – 4A Section – 4A

Valuation based on Retail Sale Price Valuation based on Retail Sale Price

Conditions Conditions

1. The goods must be excisable 1. The goods must be excisable

2. They are sold in packages 2. They are sold in packages

3. There should be requirement in the Standard 3. There should be requirement in the Standard of Weight and Measures Act to declare the retail of Weight and Measures Act to declare the retail

price on the package price on the package

4. The Central Govt. must have specified such 4. The Central Govt. must have specified such

goods by notification.

(22)

Procedure of Valuation

Value = Retail sale price declared on such goods less abatement notified by the Central Govt.

1. Where on package more than one retail sale price is declared the maximum retail price shall be the retail sale

price

2. Where retail sale price is altered to increase the retail sale price, such altered sale price shall be the retail sale

price

3. Where different retail sale prices are declared on different packages for the sale on different areas, each such retail sale price shall be the retail sale price for the purposes of valuation in the area to which the retail sale

price relates.