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Central Government amends Rule 8, Rule 9 and Rule 10 of Central Excise Valuation
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Central Government amends Rule 8, Rule 9 and Rule 10 of Central Excise Valuation

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The Central Board of Excise and Customs 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 …

The Central Board of Excise and Customs 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’.

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  • 1. KPMG FLASH NEWS KPMG IN INDIA 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.
  • 2. 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 1 or through ‘related person’ , the value of such goods is required to be determined on the basis of ‘normal transaction 2 value’ 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 3 or through ‘inter-connected undertaking’ , the value of such goods is required to be determined as follows: 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. (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 –    2 3 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 ‘normal transaction’ means the transaction value at which the greatest aggregate quantity of goods are sold 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.
  • 3. 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.
  • 4. www.kpmg.com/in Ahmedabad Safal Profitaire B4 3rd Floor, Corporate Road, Opp. Auda Garden, Prahlad Nagar Ahmedabad – 380 015 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Kolkata Infinity Benchmark, Plot No. G-1 10th Floor, Block – EP & GP, Sector V Salt Lake City, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010 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 Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 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.