Useful for CA CS CMA ICWA November/ December 2015 exams

1. Valuation of Excisable Goods
• Ajay Babu Bandi
 Practising Chartered Accountant
 M.Com, FCMA,ACA,IFRS(Certified)

2. After establishing the
excisability of the goods,
classifying them correctly and
finding the applicable rate of
duty , the next step is to pay
DUTY

5. Specific duty
 In case of some goods, duty is payable on the basis of
some units,length,weight, volume etc
 Even if selling price of the product increases, revenue
of Govt. may not increase accordingly
 Eg., Duty payable on cigarettes is on the basis
of length
 Matches (per 100 boxes/packs)
 Sugar (per quintal)
 Marble slabs and tiles (sq. mtr)

6. Compounded Levy Scheme….
 Stainless steel pattas /patties and aluminium
circles are covered under this scheme
 The rate of duty is ` 40,000 and ` 12,000 Pm per
cold rolling machine
 Plus Education Cess & Higher Education Cess

7. Duty based on capacity of
Production ….
 Duty payable without reference to the actual
production
 Eg: Pan masala, Gutkha,tobacco etc. are notified
under this scheme

8. Duty based on value ..ad valorem
 Tariff value
 With reference to Retail Selling Price
 Transaction Value

9. Tariff Value
… in this method the central Government prescribes
the tariff value on which the duty % is to be
calculated
e.g, Jewellery (other than Silver) = 30% of
transaction value declared in Invoice
e.,g Branded Ready made Garments = 30% of Retail
Selling Price

10. With reference to RSP/MSP [Sec 4A]

11. Examples of Abatement
Goods notified under
Section 4A
Rate of Abatement (%)
Biscuits 30%
Toothpaste 30%
Photographic Cameras 30%
Pressure Cookers 25%

12. Meaning of RSP
The maximum price at which the excisable goods
in packaged form may be sold to the ultimate
consumer …
Price is the sole consideration for such sale
Value = RSP printed on the package - Abatement

13. Other considerations in RSP
Maximum RSP is deemed to be RSP, if more than
one RSP declared
Each RSP deemed to be RSP, if different RSPs on
different packages meant for different areas

14. Other considerations in RSP
Increased RSP deemed to be RSP, if RSP is
increased after removal from factory
RSP declaration not mandatory on wholesale
packages (for institutional consumers ,agricultural
farm produce etc.,)

15. Transaction Value (Sec 4)
In case where any of the earlier mentioned
methods of valuation are not applicable ,
assessable value of the goods is required to be
computed
 in terms of “transaction value” of the goods
as provided under Section 4 of the act.
It is also a residual method

17. Conditions for applying transaction
value
 Sale : The Excisable Goods must be sold by the
Assessee
 Delivery : Such sale should be for delivery at the
time and place of removal
 Price: The price must be the sole consideration
for sale …. And ….
 Related Persons: Assessee and the Buyer of the
goods must be related persons

19. Analysis of the definition of TV

20. Conditions not satisfied – Rules
apply
 Where any of the above 4 conditions are not
satisfied , value of the goods determined as
per…
 Central Excise Valuation (Determination of
Price of Excisable Goods) Rules, 2000

21. Each transaction – Separate
Transaction Value – Sec 4(1)(a)

22. Condition I - Sale
 Meaning - Transfer of ownership in goods-in
ordinary course of trade , for cash or
deferred payment
 Consideration-- can be paid by or to third
Party
 Inclusions – Hire purchase and Lease

23. Condition I – Sale…exclusions..
Activity Reason
Transfer to Depot /Branch No sale at the time and Place
of removal
Job work or Processing No sale of goods ,”Job work
charges” cannot be
considered consideration for
transfer
Free Samples / Supply under
Warranty Claims
No Consideration
Hypothecation There is no transfer

24. Condition II – Place of Removal
 Place of Production – Factory or any other
premises of Production or Manufacture of
the Excisable Goods
 Place of Storage – Warehouse or any other
place where Excisable Goods have been
permitted to be deposited without payment
of duty

25. Condition II – Place of Removal
 Place of Sale –Depot, Consignment
Agent premises or any other Place from
where the Excisable Goods are to be sold
after their clearance from the Factory

26. Condition III - Price
 Presumption – Amount received by the
Assessee from the customer on the sale of
goods will be deemed to be the Cum-duty-
Price
 Case ..Maruti Udyog

27. Condition III - Price
 Cum-Duty-Price – Meaning
 Price actually Paid to him for the goods sold (+)
 Money value of additional Consideration ..
Flowing directly or indirectly from the buyer to
assessee in connection with the sale of such goods
(-)
 Sales tax & Other Taxes

29. Condition IV – Related Parties
 Discussed in Rule 9 AND Rule 10 of the Excise
Valuation Rules

30. Transaction Value- Inclusions
Item Inclusions Exclusions
Bought Out Items
They are items
supplied with
Excisable Goods. They
are Essential Parts of
the goods and enrich
its value
Bought out Items
supplied under
Trading Activity
Installation, Erection
& Commissioning
Expenses
Includible in
Assessable Value,
only if such
installation, erection
results in a new
excisable goods
Generally excluded as
it is a post removal
expense

31. Transaction Value- Inclusions
Item Inclusions Exclusions
After sales service
Charges recovered
from Buyer under
Compulsory After
Sales service are
includible in AV
Optional After Sales
service charges are
includible only if the
buyer avails such
services
Price hike due to
Escalation
Hike in price of goods
on account of price
escalation clause is
includible ----
Pre- delivery
Inspection Includible in AV
NOT includible if paid
by the BUYER

32. Transaction Value- Inclusions
Item Inclusions Exclusions
Design & Engg.
Charges
They are essential for
the purpose of
manufacture and
included in AV
If such charges are
not connected to
goods or sale
Consultancy
Charges
Those incurred in
relation to pre
installation planning,
layout design are
includible in AV -----
Testing charges
Recovered by the
Assessee from the Buyer
in terms of the contract,
forms part of AV -----

33. Transaction Value- Inclusions
Item Inclusions Exclusions
Commission to
Agents Included in AV -----
Warranty charges
They should be included
in Transaction Value u/s
4
For optional
warranty, if buyer
does not opt for
warranty facility
Dharmada
Dharmada or charity
collected by an assessee
from the buyer is
includible in AV -----

34. Transaction Value- Inclusions
Item Inclusions Exclusions
Transportation &
Insurance
Costs incurred from
factory gate to the place
of removal are includible.
Any profit on
transportation cost
charged by buyer
includible under Rule 6 of
valuation Rules
Costs incurred from
place of removal to
place of delivery not
includible
Input Handling
Costs
Pre-manufacturing cost is
includible in the AV ---

35. Transaction Value- Inclusions
Item Inclusions Exclusions
Surprise Incentive
Is not deductible to
determine AV ---
Depot Mtce and
Running
Included in AV , as the
price prevalent at the
depot is to be taken
Transportation cost
from depot to the
customer is not
included
Loading &
unloading
Incurred inside the
factory is included in AV
Charges incurred by
a Distributor is not
incuded

36. Transaction Value- Inclusions
Item Inclusions Exclusions
Packing Charges
(a) Packing materials
(whether supplied by the
buyer or not) ---
Packing materials
(b) Durable and
returnable – only
amortised value is
included ---
Packing materials
(c) Not returnable –
included ---
Packing charges
(d) Recovered from
Buyer- included -----

37. Transaction Value- Inclusions
Item Inclusions Exclusions
Free supply in
warranty period Included in AV u/s 4 ---
Instruction manual
If separately sold, it will
be liable to duty
If supplied along
with the product, not
includible
Bank charges ----
Excluded from AV, if
such inclusions are
due to outstation
cheques

39. Transaction Value- Exclusions
 Trade discounts in normal practice
 Regional Discounts - -to compensate for
high incidence of local taxes
 Interest on delayed payment

41. SSI Exemption
 Excise duty concessions have been granted to SSI
units to make them more competitive in the
domestic and global market
 These concessions have been extended to the SSI
units by way of Exemption Notifications
 At present, Notification No.8/2003 CE dtd
01.03.2003 grants SSI exemption

42. Eligible Goods
 Exemption is restricted to the products listed in
the SSI exemption Notification.
 So….. Products like tobacco products, pan masala,
watches, matches and some textile products are
specifically excluded from SSI Exemption

43. Eligible Units
 Value of clearances of excisable goods for home
consumption does not exceed ` 400 lakhs or ` 4
crores in the previous financial year

44. Exemption from Duty
 If the turnover of the SSI unit does not exceed `
400 lakhs during previous financial year.. Duty is
exempted on the first ` 150 lakhs

46. Availability of CENVAT Credit
 A SSI unit can avail CENVAT credit on inputs
only after it starts paying duty
 So.. It cannot avail credit in respect of its first `
150 lakhs

47. Exemption- Not available
 SSI exemption is not available in respect of
clearances bearing a brand name of another
person
 This means they attract …excise duty