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Modes of calculation of
excise duty |
Duty can be payable on basis of
specific duty (based on weight, length, volume etc.), MRP based duty
[section 4A], compounded levy, tariff value [section 3(2)], production
capacity [section 3A] or on ad valorem basis [section 4]. |
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MRP based valuation
[section 4A] |
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Products covered under MRP
provisions |
In case of about 110 products,
duty is payable u/s 4A of Central on basis of MRP printed on the
package, after allowing abatement at specified rates. MRP should be
inclusive of all taxes and duties.
The provision applies only when
product is package intended for retail sale and is
specified in a notification issued u/s 4A. |
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MRP provisions are
overriding |
MRP provisions u/s 4A are
overriding provisions. |
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Assessable value when MRP
not applicable |
Even in case of products
covered u/s 4A, where MRP provisions are not applicable, valuation
will be on basis of ‘value’ u/s 4 i.e. Assessable Value.
MRP provisions do not apply to
free samples, package less than 10gm/10 ml, wholesale package or
package above 25 Kg (50 Kg in some cases) |
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Deemed manufacture of
products u/s 4A |
In case of goods covered under
section 4A, packing or repacking and re-labelling is ‘deemed
manufacture’. |
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Incorrect MRP |
Department can ascertain MRP if
MRP not declared or incorrectly declared or obliterated. Penalty can
be imposed [section
4A(4)(a) of Central Excise Act]. |
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Basic requirement of
Assessable Value [section 4] |
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Transaction value as assessable value |
When
duty is payable on ad valorem basis, it is payable on
assessable value as defined in section 4 of Central Excise Act.
‘Transaction Value’ is taken as Assessable Value only if goods are
sold at the time and place of removal, buyer is unrelated and price is
sole consideration [Section 4(1)(a) of Central Excise Act]. |
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What is transaction value |
Transaction value is the price paid or payable for the goods at the
time and place of removal, ‘by reason of, or in connection with sale’,
inclusive of all expenses but excluding taxes [section 4(3)(d) of
Central Excise Act].
Transaction value does not include duty of excise, sales tax and any
other taxes on goods. Only taxes actually paid or payable are allowed
as deduction. |
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Price to be taken as
inclusive of excise duty |
If goods are cleared without
payment of duty, the price is taken as ‘cum duty’ price and excise
duty payable should be calculated by back calculations CCE v.
Maruti Udyog 122 Taxman 105 = (2002) 3 SCC 547 = 141 ELT 3 (SC
3 member bench). If there is additional consideration, it will be
added to invoice price and then duty payable is calculated by making
back calculations [Explanation to section 4(1) of Central Excise Act]
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Inclusions and exclusions
in ‘transaction value’ |
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By reason of or in
connection with sale of such goods. |
Any amount charged is
includible in assessable value if it is by reason of or in connection
with sale of such goods. |
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Packing and design charges |
Duty is payable on packing
charges and design charges related to manufacture. |
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Price escalation |
Duty is payable in case of
price escalation after clearance, but not when price was final at the
time of clearance. If there is price rise after clearance of goods
from factory, differential excise duty and interest @ 13% is payable. |
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Trade discounts |
Trade discount is allowable as
deduction from assessable value. Cash discount is allowable. Discount
need not be uniform. |
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Notional interest on
advances |
Notional interest on advances
is includible only if there is evidence that it has depressed the
selling price. |
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Warranty charges |
Compulsory charges for after sale service during warranty period are
includible. After sale service charges which are optional are not
includible. |
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PDI and after sales service |
Pre-delivery charges (PDI) and after sale service charges are not
includible if these are incurred by dealer out of his commission. |
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Outward freight after
‘place of removal’ not includible in assessable value |
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Place of removal |
Transport charges upto place of removal are includible in assessable
value. |
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Ownership transferring at factory gate |
If
delivery is ex-works and property is transferred to buyer at factory
gate, outward freight is not includible in assessable value as factory
gate is the place of removal. This will be so even if transport is
arranged by manufacturer and charged to buyer. |
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Contract FOR |
Even
if contract is F.O.R. destination basis, there can be ‘sale’ at
factory gate, since as per section 39 of Sale of Goods Act, delivery
of goods to carrier is prima facie delivery to buyer. If
contract is F.O.R. basis and sale takes place only when goods
are delivered to buyer (i.e. property in goods passes to buyer at
destination only), transport charges are includible in assessable
value. |
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Profit on transport activity permissible |
If
assessee himself provides transport services, reasonable profit on the
transport activity should be permissible i.e. it is not includible in
assessable value. |
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Equalised freight |
Equalised freight is also allowable as deduction, if there is ‘sale’
at factory gate. |
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Bought out goods and
accessories when includible in assessable value |
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Price of essential bought out
goods |
Price of Bought out goods
supplied along with manufactured goods is includible, if these are
essential parts of manufactured goods. |
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Price of parts not fitted at
time of removal |
Since goods are to be assessed
in the condition in which cleared from factory, value of components
not fitted is not required to be added in assessable value, even if
they are essential |
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Price of accessories not
includible |
Price of accessories and
optional bought out items is not includible in Assessable Value
Accessory means an object not
essential in itself but adding to beauty, convenience or effectiveness
of something else. |
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Valuation rules |
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Transaction value not
acceptable |
If
transaction value is not acceptable, valuation is required to be done
as per Valuation Rules [Section 4(1)(b) of Central Excise Act and
Valuation Rule 3] |
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Value of similar goods |
Valuation can be done on value of ‘such’ goods (i.e. goods of same
class of same manufacturer) [Rule 4] |
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Transport upto place of removal |
Cost
of transport upto ‘place of removal’ is includible in assessable value
but not beyond that [Rule 5] |
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Money value of other
consideration includible |
If
price is not sole consideration, money value of other consideration
should be added e.g. cost of material, patterns, dies, designs etc.
supplied by buyer is required to be added to Assessable Value [rule
6]. Value of patterns, dies etc. should be added on pro-rata basis. |
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Captive consumption |
In
case of captive consumption, duty is payable on basis of cost of
production plus 10%. Cost of Production should be calculated on basis
of CAS-4 [Rule 8] |
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Job work |
In
case of job work, duty is payable by job worker. Valuation is done on
the basis of price at which raw material supplier (Principal
Manufacturer) sales the manufactured final product in market [Rule
10A]. If goods are covered under MRP valuation provisions, duty is
payable on MRP basis. |
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Valuation in case of sale
from depot/branch |
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Depot price at the time of
removal |
In case of depot sale, duty is
payable on basis of depot price prevailing at the time of removal of
final product from the factory [Rule 7]. |
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Subsequent sale price not
relevant |
Price at which the goods are
actually sold subsequently is not relevant. Differential duty is not
payable even if goods are sold later at higher price from depot.
Similarly, refund is not available if prices are goods are
subsequently actually sold at lower price. |
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Transport charges after
depot |
Transport charges upto depot
and depot expenses are not allowable as deduction (These are already
included in depot price). Transport charges from depot onwards are not
includible in assessable value. |
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Value addition done at
depot |
Any value addition done at
depot is not includible in assessable value, if activity is not
‘manufacture’ (the reason is that goods are to be assessed in the
condition in which they are removed from factory). |
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Deemed manufacture in case
of MRP |
In case of products covered
under MRP provisions, if packing in retail pack and labelling of MRP
is done at depot/place of consignment agent, it will be ‘deemed
manufacture’ and excise duty will be payable. |
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Valuation when sale through
‘related person’ |
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Price to unrelated buyer relevant |
If
goods are sold through related person, value for purpose of excise
will be the price at which the related buyer sales goods to unrelated
buyer. |
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Inter connected undertaking |
An inter-connected undertaking
will be treated as ‘related person’ for excise valuation only if there
is holding subsidiary relationship [Inter-connected undertaking means
25% common control] |
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Holding and subsidiary |
A holding and subsidiary are
‘related persons’, |
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Rate legal entities |
A mere distributor is not a
related person.
A company or firm is a separate
legal entity and cannot be a ‘related person’ of other company or
firm. |
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Piercing corporate veil |
Even
if the buyer does not fall within the definition of ‘related person’,
sale price to him can be rejected by piercing the corporate veil. His
selling price can be considered if it is found, by piercing corporate
veil, that the transaction is not at arms length i.e. price is not the
sole consideration. |
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Valuation in case of entire sale through related person |
If
goods are sold solely through related person (except in case of inter
connected undertaking, unless there is holding subsidiary
relationship), valuation will be ‘normal transaction value’ at which
the related buyer sales to unrelated buyer [rules 9 and 10 of
Valuation Rules] |
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Supply of goods to related
person for captive consumption |
If
goods are supplied to related person for captive consumption,
valuation will be on basis of cost of production plus 10%. |
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Partial sale through related
person |
If
sale is partly to related person and partly to unrelated person,
valuation shall be done on ‘reasonable basis’ by residual method under
rule 11.
If
related person is only one of the buyers and substantial sales are
made to unrelated persons at same price, that price can be considered
for valuation in respect of sale to related person also. |
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Other provisions relating
to valuation |
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Residuary rule of valuation |
If
valuation is not possible under any of aforesaid rules, valuation will
be on basis of ‘best judgment’ assessment, i.e. value shall be
determined using reasonable means consistent with the principles and
general provisions of Valuation rules and section 4(1) of section 4 of
the Act [Rule 11] |
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Duty based on production capacity |
Section 3A of CEA provides for
payment of duty on basis of production capacity, without any reference
to actual production. Production capacity will be determined as per
Rules. Pan masala and gutkha are covered under these provisions. |
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Compounded levy scheme |
Compounded levy scheme under
rule 15 of Central Excise rules, provides for payment of duty on basis
of production capacity. It is an optional scheme. The scheme is
presently applicable to stainless steel pattas/patties and Aluminium
circles. These articles are not eligible for SSI exemption.
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Tariff value [section 3(2) of Central Excise Act] |
In
some cases, tariff value is fixed by Government from time to time.
This is a “Notional Value” for purpose of calculating the duty
payable. Once ‘tariff value’ for a commodity is fixed, duty is payable
as percentage of this 'tariff value' and not the Assessable Value
fixed u/s 4. |
