DG Education (P) Ltd [CX : Valuation of Goods] VALUATION OF GOODS: VALUATION PROVISIONS NOT APPLICABLE TO GOODS SUBJECT TO SPECIFIC DUTY

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1 DG Education (P) Ltd [CX : Valuation of Goods] VALUATION OF GOODS: VALUATION PROVISIONS NOT APPLICABLE TO GOODS SUBJECT TO SPECIFIC DUTY 1 In Central Excise Law briefly explain: Specific Duty Specific Duty : It is payable on the basis of certain units like weight, length, volume, etc [Nov Marks] For instance, in respect of cigarettes specific duty is payable on the basis of length The major limitation of levying specific duty is that demands frequent revisions in order to increase revenue since while the prices may be increasing, the duty would remain the same when based on units like weight, length etc VALUATION PROVISIONS NOT APPLICABLE TO GOODS NOTIFIED U/SEC 3-A 2 Urvashi Tabacco Pvt Ltd manufactures chewing tobacco, falling under tariff item of the First Schedule to the Central Excise Tariff Act, 1985, manufactured with the aid of packing machine and packed in pouches You are required to advice the basis for valuation of the said goods [ICAI RTP, Nov 2010] Chewing Tobacco manufactured by Urvashi Tobacco Pvt Ltd is notified under section 3-A of Central Excise Act, 1944 and hence, duty is payable by Urvashi Tobacco Pvt Ltd on basis of capacity of production It shall get its annual capacity of production fixed by AC/DC and then, shall pay duty on this capacity as per notified rate Such being the manner of payment, valuation of goods sold is not required at all TARIFF VALUE- SEC 3(2) 3 Briefly explain: Tariff Value [Nov Marks] Tariff Value: It is a notional value fixed by the Central Government, under section 3(2) of the Central Excise Act, 1944, for the purpose of calculating the duty payable For example, Central Government has fixed tariff values for branded readymade garments under Chapter 61 and 62 CG may fix different tariff values for different classes of same goods Further, CG has power to revise tariff values * : Tariff value has been notified for the following goods 1 Readymade garments 2 Articles of jewellery (other silver jewellery and articles of jewellery manufactured from precious metal or old jewellery provided by retail customer) 3 Beauty / Make-up preparations, etc in retail packages intended for sale to ultimate consumer (excluding industrial or institutional consumer), and to which provision of section 4A (RSP-based duty) are inapplicable ABATED MRP VALUE- SEC 4-A 4 Write a note on the valuation of goods on the basis of retail sale price u/sec 4A of the Central Excise Act, 1944 (May Marks) Sec 4A of the Central Excise Act, 1944 provides for valuation of excisable goods with reference to the retail sale price The salient features of this concept have been stated below: i) Sec 4A is applicable only on specified goods which have been notified by Central Government * Though Central Government is empowered to notify any goods under section 4A, notification can cover up only those goods which are statutorily required under Legal Metrology Act to declare retail sale price on the package thereof ii) In respect of goods notified u/s 4A, assessable value shall be deemed to be retail sale price as declared on the package less the specified percentage of abatement Retail sale price 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 payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like If more than one retail sale price is declared on the package, then maximum of such retail sale prices shall be deemed to be retail sale price But if different retail sale prices are declared on different packages for the sale of excisable goods in packaged form in different areas, each such retail sale price shall be taken as

2 retail sale price in respect of clearances to a particular area where the goods are intended to be sold Also, if subsequent to clearance the retail sale price is altered so as to increase it, the altered retail price shall be taken as retail sale price So far as abatement from the retail sale price is concerned, Central Government shall notify percentage of abatement taking into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods iii) If goods notified u/s 4A are removed from the place of manufacture without declaring the retail sale price or upon declaration of untrue retail sale price, then such goods shall be liable to confiscation and their valuation shall be done in manner as notified by CG Similar treatment will be with the goods in respect of which declared retail sale price is tampered with, obliterated or altered subsequent to their removal * Newly Notified products u/sec 4-A: (wef 1 st March, 2015) 1 Extracts, essences and concentrates of tea (Abatement 30%) 2 Natural or Mineral waters, aerated waters, containing added sugar or other sweetening matter or flavour (Abatement 35%) 3 LED lights or fixtures including LED lamps falling under chapter 85 (Abatement 35%) Author: All clearances of aforesaid goods affected on/after 1 st March, 2015 shall be valued as per Sec 4-A [MRP less abatement], irrespective of date of manufacture of such goods [Rule 5 of CER, 2002] 5 (i) Define retail sale price in the light of provisions of Sec 4-A of Central Excise Act, 1944 (4 Marks) Explanation 1 to Sec 4-A defines the term retail sale price for the purposes of Sec -4A It defines retail sale price to mean the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and it shall include all taxes (local or otherwise), freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like Such price shall be the sole consideration for the sale In certain cases, where provisions of Legal Metrology Act, 1976 or the Rules made thereunder require to declare on the package, the retail sale price excluding any taxes, local or otherwise, the retail sale price so declared shall be taken as retail sale price even though it is not inclusive of the taxes (ii) What are the conditions under which MRP based valuation shall apply under the Central Excise? (4 Marks) Sec 4-A of the Central Excise Act, 1944 provides for the valuation of goods based on maximum retail sale price of the goods It stipulates the following two basic conditions for valuation of any goods falling under MRP based valuation system: i) The goods shall be those goods which are statutorily required under the provisions of Legal Metrology Act, 2009 to declare retail sale price on the package thereof ii) The goods shall also have been notified separately by CG under Sec 4-A(1) for the purpose of their valuation being governed by Sec 4-A [The CG shall also notify the corresponding abating which shall be allowed to be made from the declared retail sale price to arrive at the assessable value] (iii) What legal or penal actions can be taken in case the retail sale price is not mentioned or is unduly tampered after the removal? (4 Marks) (May Marks) Sec 4-A ensures that goods which have been notified for the purposes of valuation as per MRP base assessment are cleared only after printing thereon of the genuine retail sale price For that purpose, it has provided certain legal or penal actions which can be taken under excise in case the retail sale price is not mentioned or is unduly tampered with after removal The legal or penal actions as specified in Sec 4-A are as follows: i) Goods shall be liable to confiscation (ie, they will become the property of CG); ii) In respect of such goods, the determination of retail sale price shall be done as per the rules made by Central Government for this purpose Tutorial Note: So far as legal or penal action for undue tampering of printed retail sale price post-removal from the factory is concerned, the legal or penal action can be taken only when such tampering is done by the manufacturer himself Thus, if someone else (let us say trader) does it, the goods shall not be liable to confiscation The reason being that once goods leave the factory, manufacturer has little control over what is done to the goods 6 What would be the outcome, if retail price is not indicated or wrongly indicated at the time of removal? (May Marks) Sec 4-A ensures that goods which have been notified for the purposes of valuation as per MRP base assessment are cleared only after printing thereon of the genuine retail sale price For that purpose, it has provided certain legal or penal actions which can be taken under excise in case the retail sale price is not mentioned or is wrongly indicated with after removal The legal or penal actions as specified in Sec 4-A are as follows: i) Goods shall be liable to confiscation (ie, they will become the property of Central Government);

3 ii) In respect of such goods, the determination of retail sale price shall be done as per the rules made by Central Government for this purpose 7 Comment on the following: (i) Excise Department cannot challenge the responsibility of MRP printed on the package; [1 Mark] Sec 4-A of the Central Excise Act provides for assessment of certain goods on the basis of MRP printed on the packing thereof Although it is responsibility of the producer or manufacturer to print true MRP on the package which constitutes sole consideration for sale, still if goods are sold by buyer trader at a price higher than the MRP as printed on them by the manufacturer, then no allegation as to mis-declaration can be made against the manufacturer unless it can be proved by the Department that sale at higher price is made at the instance of manufacturer Thus, as a general rule excise department cannot challenge the responsibility of printed MRP 8 A Non-SSI unit clears goods with labels carrying MRP of Rs 67 per unit the ordinary course of its business The same goods are supplied at Rs 52 per unit pack marked as MRP under contract to Canteen Stores Department (CSD), which in turn sells them at the same price of Rs 52 per unit pack to Defense Service personnel at various places The labels used for sales to Canteen stores carry the inscription For CSD only The Excise Department insists that the unit should pay duty with reference to the MRP of Rs 67 per unit pack even in respect of the sales to CSD With reference to Section 4A of the Central Excise Act, 1944, briefly discuss whether the stand taken by the department is correct (4 Marks) Section 4A of the Central Excise Act, 1944 empowers the Central Government to levy Central Excise duty, on the basis of MRP specified on the package of the goods The present problem can be answered with the help of amended Explanation 2(c) to Section 4A of the Central excise Act, 1944 This explanation states that where different retail sale prices are declared on different packages for the sale of any excisable goods in packaged form in DIFFERENT AREAS, each such retail sale price shall be the retail sale price for purpose of valuation of the excisable goods intend to be sold in the area to which the retail sale price relates Thus, emphasis is on the price for a particular area and not on the particular class of buyer It is observed that MRP for CSD is for a particular class of buyer and not for a particular area Thus, Explanation 2(c) is not applicable to the facts of the case Besides, Explanation 2(a) is also very important It states that where on a package more than one retail sale price is declared, the maximum of such retail sale price shall be deemed to be the retail sale price for the purpose of this section However, under the given facts, only one price (ie, Rs 52 per unit) has been marked as MRP on supply to CSD Therefore, Explanation 2(a) is also not applicable However, on similar facts in case of GULJAG CHEMICALS (P) LTD 2001, Tribunal has held that Explanation 2(a) applies only when two or more MRPs are indicated on the same retail packages and not when packages are sold at different prices to different classes of buyer If so, in the present case duty is to be paid on the MRP of Rs 52 per unit pack on clearances to CSD Therefore, the action of the Department is not in order 9 P Ltd manufactures 2 products namely A and B A is a specified product under section 4-A of the Central Excise Act, 1944 The sale prices of both the products are Rs 50 per unit and Rs 30 per unit respectively The sale prices of both the products included 1250% BED Central Sales is also included in the selling prices 1,00,000 units each of both the products were removed from the factory for sale Calculate the total ED liability of P Ltd on both the products assuming that 40% abatement is permissible under section 4-A on product A (Nov marks) Statement Showing Computation of Total ED liability AV Rate of Duty (in total) ED (Rs) Product A 30,00,000 [* Refer WN-1] 1250% 3,75,000 Product B 25,88,996 [* Refer WN-2] 1250% 3,23,625 Total ED Liability Working Notes: i) Statement Showing computation of AV of Product A (in terms of Sec 4-A of CEA, 1944) Declared MRP (1,00,000 * 50) 50,00,000 Less: Notified % of Abatement (40%) (20,00,000) ABATED MRP VALUE 30,00,000 ii) Statement Showing computation of AV of Product B (in terms of Sec 4(1)(a) of CEA, 1944) Sale Price (1,00,000 * 30) Less: CST (30,00,000 * 3/103) 30,00,000 (87,379) Cum-Duty AV 29,12,621 Less: ED (29,12,621 * 1250/11250) (3,23,625) ABATED MRP VALUE 25,88, Y Ltd (raw material supplier) supplies raw material to a job worker (manufacturer) Z Ltd The job worker after completion of the job delivers 5000 packets of finished goods to Y Ltd In all these packets retail sale price (maximum) of Rs 30 per packet is marked

4 The product in packaged form is subject to excise duty on the basis of MRP u/s 4-A of Central Excise Act, 1944 and in respect of the same 30% abatement has been prescribed Determine the ASSESSABLE VALUE for purpose of excise duty after considering the following particulars: Cost of raw material supplied Rs 45,000 Job charges including profit Rs 15,000 Transport charges for dispatch to job worker Rs 4,000 (Provide brief explanation and make assumptions where required) (Nov Marks) In the given case, Z Ltd, the job-worker, is the manufacturer within the meaning of provisions of central excise law as clearly held by Hon ble SC in case of UJJAGAR PRINTS-1988 Although Y Ltd has supplied the raw-material processing which final product has been made, but it is only Z who has actually carried out the manufacturing process on an independent basis and thus, Z Ltd is the real manufacture ZLtd being the manufacturer the valuation shall be done in the hands of Z Ltd As the goods manufactured are those which are covered under MRP provisions of Central Excise, their valuation shall be done in terms of Sec 4-A of Central Excise Act, 1944 Sec 4-A is an overriding provision, ie, if a product is covered under provisions of Sec 4-A, valuation shall be on the basis of provisions of Sec 4-A only and not on basis of any other provisions of Excise Act Sec 4-A provides valuation on the basis of abated MRP value which is computing by allowing abatement of notified % from the MRP declared on the package of the goods Thus, in the given situation, assessable value of the goods shall be: AV in terms of Sec 4-A = [(5,000 Rs 30 per packet) less 30% thereof] = Rs 1,05,000/- 11 Asha Ltd supplies raw-material to a job-worker Kareena Ltd After completing the job-work, the finished product of 5,000 packets are affixed with retail sale price as Rs 50/- on each packet The product in the packet is covered under MRP provisions and 40% abatement is available on it Determine the assessable value under Central Excise law from the following details: Rs Cost of raw-material supplied 30,000 Job-worker charges including profit 10,000 Transportation charges for sending the raw-material to the job-worker 3,000 Transportation charges for returning the finished goods to Asha Ltd 3,000 The said goods were sold by Asha ltd to wholeseller at a price of Rs 42/- per unit The wholeseller is to collect delivery from the premises of Job-worker (3 Marks) In the given case, Kareena Ltd, the job-worker, is the manufacturer within the meaning of provisions of central excise law as clearly held by Hon ble SC in case of UJJAGAR PRINTS-1988 Although Asha Ltd has supplied the raw-material processing which final product has been made, but it is only Kareena Ltd who has actually carried out the manufacturing process on an independent basis and thus, Kareena Ltd is the real manufacture Karena Ltd being the manufacturer the valuation shall be done in the hands of Kareena Ltd As the goods manufactured are those which are covered under MRP provisions of Central Excise, their valuation shall be done in terms of Sec 4-A of Central Excise Act, 1944 Sec 4-A is an overriding provision, ie, if a product is covered under provisions of Sec 4-A, valuation shall be on the basis of provisions of Sec 4-A only and not on basis of any other provisions of Excise Act Sec 4-A provides valuation on the basis of abated MRP value which is computing by allowing abatement of notified % from the MRP declared on the package of the goods Thus, in the given situation, assessable value of the goods shall be: AV in terms of Sec 4-A = [(5,000 Rs 50 per packet) less 40% thereof]= Rs 1,50,000/- (MImp) 12 Can the valuation of goods manufactured and cleared as free samples be done on the basis of MRP for excise purposes? [CS Final, Dec 2008] Yes, the valuation of samples of all those goods which are notified u/s 4-A(1) shall be done on basis of MRP In case of CADILA LABORATORIES-2009, Larger Bench of Tribunal while considering valuation of physician samples (samples of medicines notified u/s 4-A) held that valuation of such samples shall fall under Rule 4 of Central Excise Valuation Rules, 2000 as MRP printing is not required in terms of LMA, 2009 on sample clearances Rule 4 provides for valuation of samples at such value on which such goods are sold at the nearest point of time When medicine is sold, then it is valued at abated MRP Accordingly, even samples of medicines shall be valued at such MRP only Very recently, CBEC has also clarified that valuation of samples of all goods notified u/s 4-A shall be done on the basis of decision of Tribunal in case of CADILA LABORATORIES [Circular No 915/05/2010] (Imp) 13 Determine the basis of valuation u/s 4 or 4-A of the CEA, 1944 in the following cases, citing case law wherever available: (i) Packaged products with MRP printed/marked thereon, exported to Nepal (ii) Chocolates distributed as free gift alongwith his bottles of soft-drinks [CS Final, June Marks] Tutorial Note: This question requires deep knowledge of LMA, as one must know when MRP printing is required under LMA and when not

5 Goods notified u/s 4-A is valued on basis of their MRP (MRP declared on the package as reduced by the abatement) In context of valuation of these goods, Hon ble SC in the landmark case of JAYANTI FOOD PROCESSING has held that in those cases, where there is no statutory requirement of printing of MRP on any clearance of such goods, then valuation of such goods shall fall under section 4 (and not u/sec 4-A) Considering the above-cited principles, the valuation under different situation shall be done in following manner: i) When product is exported, then LMA, 2009 does not require printing of MRP on the package Thus, packages cleared for export shall be valued u/s 4 ii) MRP printing is mandatory on retail package Chocolate cleared for distribution as free gift is not retail package as it is not intended to be sold in retail That being so, MRP printing is not required on such packages Thus, its valuation will fall u/s 4 14 Bestcool Ltd, an assessee, is manufacturing refrigerators and selling after packing in factory for transport convenience and putting retail sale price (RSP) on them The assessee has contended that a pre-packaged commodity is such that a consumer purchases it in packed form without opening it, but refrigerators are never sold to customer in packed form These are shown to customer, tested and then sold, so these should be assessed u/s 4 and not u/s 4A Discuss whether the contention of Bestcool Ltd is valid in law You may take help of decided case law(s), if any [CS June marks] Sec 4-A of the CEA, 1944 makes provision for assessment of goods based on their retail sale prices Its applicability, however, is limited only to those goods which are mandatorily required under Legal Metrology Act to declare retail sale price on the package Thus, for deciding applicability of Sec 4-A in the given case, it has to be ascertained whether Bestcool Ltd, the assessee, is required to declare MRP on packages of refrigerator LMA, 2009 makes mandatory to declare MRP on the retail packages LMA, 2009 applies to PRE-PACKED COMMODITY, which is intended to be sold in retail Pre-packed commodity means a commodity/article or articles which, without the purchaser being present, is placed in a package It further provides that where, by reason merely of the opening of a package no alteration is caused to the value, quantity, nature or characteristic of the commodity contained therein, such commodity shall be deemed, for the purposes of these rules, to be a pre-packed commodity, for example, an electric bulb or fluorescent tube is a pre-packed commodity, even though the package containing it is required to be opened for testing the commodity Under the given facts, Bestcool is selling refrigerator and it is a fact that every customer would like to open the package before finalizing to purchase the Refrigerator and he would atleast get it tested and for that purpose the package would be destroyed, does not change the position, as the refrigerators are intended to be sold in retail in packages Therefore, RSP was required to be printed on the package containing the refrigerators Accordingly, the refrigerators were assessable under section 4A of the Act; not under Section 4 of the Act On identical facts, similar view was taken by Hon ble SC in case of WHIRLPOOL OF INDIA LTD SC In view of aforesaid discussion, the contention of the Bestcool Ltd as to valuation of refrigerator u/s 4 and not u/s 4-A is invalid 15 Scream Ltd is engaged in manufacture of ice-cream falling under sub-heading 2105 of CETA, 1985 The company supplied the ice cream in four liters pack to catering industry or hotels, who sell the same in scoops The pack contained a declaration that the pack was not meant for retail sale The Department contended that packs have to be assessed on the basis of value arrived at as per the provision of Sec 4-A of CEA, 1944, which provides for assessment based on MRP and not under Section 4 of CEA, 1944 Assessee contended that the ice-cream pack sold was a bulk pack of 4 liters which was not meant to be sold in retail and they were not required to print the Maximum Retail Price and hence the transaction was a wholesale transaction and assessment under Section 4 of the Central Excise Act, 1944 was correct Further contention of the assessee was that they are entitled to exemption under Legal Meterology Rules, which exempts packs meant for industrial use Examine whether the stand taken by the Department is correct in the light of decided case law (May 2009) As per the facts of the case, M/s Screme Ltd is engaged in manufacture of ice cream It is manufacturing 4 ltrs ice-cream pack and supplying the same to caterers for the purpose of being used by them while providing catering services The said packs are not sold in retail as such and therefore, manufacturer is not required to declare MRP thereon in terms of Legal Metrology Act, 2009 Accordingly, assessee is of the opinion that such packages shall be assessed in terms of Sec 4 of CEA and thus, duty shall be paid on basis of TV However, Department has contended that ice-cream being a notified goods u/s 4-A, such packs shall be assessed in terms of Sec 4-A only and thus, duty shall be paid on basis of their MRP only The issue of consideration is whether such packs shall be assessed on basis of TV or MRP The identical issue arose before Hon ble SC in landmark case of JAYANTI FOOD PROCESSING The SC hold out that sec 4-A would be applicable for valuation of goods only if such goods is mandatorily required to declare MRP on its package and it is notified u/s 4-A Sale by assessee in given case is to industrial consumer and thus, exempted from requirement of mandatory printing of MRP That being the case, MRP printing is not mandatory for this package And since MRP printing is not mandatory on this package, such packs shall be assessed u/s 4 In light of above discussion, Department s contention regarding assessment of ice cream packs u/s 4-A is not correct Author: MRP Based goods sold to Industrial / Institutional Consumers Exempt from requirement of printing MRP and thus, valuation thereof is not governed by Sec 4-A (Abated MRP Value) but is governed by Sec 4(1) (Transaction Value)

6 Definition of Industrial Consumer / Institutional Consumer has been amended in Legal Metrology (Packaged Commodities) Rules (wef 14 th May, 2015) Old Definition New Definition Industrial Consumer Institutional Consumer Industrial Consumer means the industrial consumer who buys packaged commodities directly from the manufacturer for use by that industry Institutional Consumer means any institution, which hires or avails of the facilities or service in connection with transport, hotels, hospitals or such other service institution who buy packaged commodity directly from the manufacturer for use by that institution Industrial Consumer means the consumer who buys packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that industry and the package shall have declaration not for retail sale Institutional Consumer means the institution who hires or avails of the facilities or services in connection with transport, hotel, hospital or other organization which buy packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that institution, and the package shall have declaration not for retail sale Author: The terms industrial and institutional consumers earlier meant consumers who buy goods directly from the manufacturer for use by industry or institutions Given this, a controversy plaguing the implementation of the legal metrology laws has been whether consumers who bought goods through a trader or importer would be covered within the ambit of industrial or institutional consumer considering the fact that goods are not purchased directly from the manufacturer in such cases With this amendment, exemption from labeling requirements is available to the manufacturers even if the sale is made to industrial or institutional customers through wholesale traders Similarly, importers are no longer required to comply with the MRP-labeling requirements in the bonded warehouse before customs clearance if goods are meant for sale to industrial or institutional consumer The only condition is that the goods should contain a declaration that they are not for retail sale 16 M/s Ganga Marketing supplies 12 bottles of mineral water in a single package to Speed Airways (airline company) MRP was printed on the package However, individual bottle of 200 ml each did not carry such Maximum Retail Price (MRP) as these were to be distributed to the passengers by the airline company and not intended for resale M/s Ganga Marketing pays duty of excise assessing the goods under section 4 of the Central Excise Act, 1944 The Department has taken a view that the package of 12 bottles itself is a retail package and duty is payable on the basis of MRP under section 4A of the Central Excise Act, 1944 Examine briefly, with the help of decided case law, if any, whether the stand taken by the Department is correct in law (Nov marks) Under excise, the general provision for valuation of excisable goods is contained in Sec 4(1) which provides for acceptance of transaction value as assessable value However, valuation of certain goods have been made MRP based in terms of sec 4-A of CEA, 1944 Sec 4-A would be applicable for valuation of goods in case following conditions are satisfied: a) The goods fall under Legal Metrology Act (LMA), 1956, under which it is a mandatory requirement to declare MRP on the its package b) The goods is notified under section 4-A(1) of the CEA, 1944 As per the facts of the case, Mineral Water is covered by LMA and it is notified under section 4-A(1) also The only thing which is to be checked is whether when sold to Airline company it is mandatorily required to declare MRP on its package If it is so required, then its valuation shall fall under section 4-A (ie,, it shall be assessed MRP based), otherwise it shall be assessed on basis of its transaction value LMA and related rules provides that MRP printing is not required in respect of packages meant for institutional consumers Institutional consumers have been defined as those consumers who buy packaged commodities directly from the manufacturers/packers for service industry like airways, railways etc Thus, Speed Airways, being an institutional consumer, package of mineral water bottles meant for them is not required to bear any MRP Hence, in the present case, the goods are to be valued under section 4 and not under section 4A of the Central Excise Act, 1944 In the light of above discussion, the stand of the Department as to valuation on MRP basis is not correct 17 Hand blender manufactured by the assessee was cleared as gift along with each unit of juicer, mixer and grinder (JMG) The MRP of Rs 750 though printed on the hand blender box contains clear indication that it is supplied free of cost The package of JMG also shows this The hand blender is not sold separately The Department has issued a SCN that duty should be paid on the hand blender Write a brief note with reference to Section 4A of the Central Excise Act, 1944 whether the notice is sustainable in law (Nov Marks) As per the given facts, assessee has manufactured a hand blender and has given it as gift along with Juicer, Mixer & Grinder (JMG) manufactured by it It had paid duty on the JMG Though MRP is mentioned on Hand Blender also, but no duty has been paid on it Department had demanded duty on hand blender contending that duty shall be payable on hand blender also as duty is payable even on goods cleared as gift Assessee had contended duty on ground that hand blender had not been sold separately rather it had been cleared as a part of set of JMG, so duty paid on JMG shall be treated as duty paid on all

7 The issue for consideration before us is whether duty demand on hand blender which has not been sold separately is sustainable in law It shall be noted that hand blender is not separately sold at all Though MRP is printed on it but that is just with intention of reflecting to the buyer that they are getting a free gift on purchase of JMG of company On similar facts, Hon ble SC in case of SONY INDIA-2004-SC held that where assessee had cleared TV with some free gifts, then assessment made on the basis of MRP of TV is proper (and no addition need to be made for free gifts) Thus, in the instant case, duty paid by assessee on JMG shall be treated as proper payment of duty and no demand shall be made on hand blender [in fact, hand blender case was so decided by Tribunal in case of GUJTRON ELECTRONICS PVT LTD TRI] In view of above discussion, SCN demanding duty on hand blender is not sustainable in law (Expected) HIMALAYA DRUG COMPANY SC Facts Assessee cleared 'face wash gel' free with 'Dandruff Shampoo' bound together with a sticker label Assessee declared combined MRP on label and paid MRP-based duty Department argued that since face wash gel was supplied free, value of ace wash gel was separately includible and liable to duty Held In case of combipacks of goods falling u/s 4A, duty is payable on combined MRP (no further addition is required) 18 M/s Dental Care Ltd has introduced a new product 'CLOVE' toothpaste, notified under Section 4A of the Central Excise Act, 1944, with a notified abatement of 30% Determine the central excise duty payable if rate of duty is 1250%: (i) 1,000 pieces having retail sale price (RSP) Rs 70 per piece are sold in retail packages to wholesale dealer at Rs 50 per piece (ii) 2,500 pieces having RSP Rs 70 per piece are sold in retail packages, but buyer is charged for 2,400 pieces only at Rs 50 per piece (100 pieces have been given free as quantity discount) (iii) 50 pieces were given away as free samples, without any RSP on the pack (iv) 200 multi-packs were cleared at Rs 90 per pack, each containing two toothpaste tubes and one tooth-brush free (without any RSP on it) Each tooth paste tube was having RSP Rs 70, which was scored out and each multi-pack had RSP of Rs 130 (Make suitable assumptions wherever required and show the calculations with appropriate notes) (Nov Marks) Removal from factory No of Units Valuation u/s AV Sales to wholesaler dealer 1,000 Sec 4-A [70,000 30%] = 49,000 6,12500 [MRP= 70/-] 2,400 packets sold and 100 units given as quantity discount 2,500 Sec 4-A [MRP= 70/-] [1,75,000 52,500] = 1,22,500 15, units given as free samples 50 Units Rule 4 of [3,500 1,050] = 2, CEVR, 2000 [No MRP] 200 multi-packs [Each pack = 2 toothpaste + 1 tooth-brush] 200 units Sec 4-A [MRP = 130] [26,000 7,800] = 18,200 2,2,7500 Total ED liability 24,01900 Notes : (1) AV of products notified u/s 4A of CEA, 1944 is MRP declared on the package less abatement, if any (2) Concept of discounting has no relevant u/s 4-A as it provides for charging ED on basis of MRP and not on basis of TV of goods sold Thus, AV will be MRP declared on the package less abatement irrespective of the quantity discounts offered to the buyer [INDICA LABORATORIES TRI] (3) MRP printing is not required to be printed on free samples pack and thus, its valuation will fall u/s 4 Since samples are not goods sold, the AV will be determined as per Sec 4(1)(b) read with Rule 4 of CEVR, 2000 Accordingly, AV = MRP when goods are sold [CADILA LABORATARIES TRI, also clarified by Circular No 915/05/2010] (4) MRP of the multi-pack (Rs 130) is considered and product supplied free (toothbrush) in the multi-pack is not assessed separately Further, since MRP on individual piece in multi-pack has been scored out, MRP of multipack shall be considered for purposes of valuation of excisable goods 19 M/s Fresh Bakery manufactures biscuits named as Choconuts Biscuits are notified u/sec 4-A of CEA, 1944 with an abatement of 30% The following information has been furnished by M/s Fresh Bakery with regard to clearances of packs of Choconuts : (i) 2,500 packs having MRP Rs 70 per pack were sold in retail packages, but buyer is charged for 2,400 packs only at Rs 50 per pack (100 packs have been given free as quantity discount)

8 (ii) 50 packs were given away as free samples, without any MRP on the pack (iii) 400 packs manufactured on job work basis for Modern Bakers, another bakery company, were cleared after putting MRP of Rs 70 each Each such pack is sold by Modern Bakers at Rs 60 to individual customers Cost of raw material supplied by Modern Bakers is Rs 12,000, job charges including profit of M/s Fresh Bakery is Rs 6,000, transportation charges of raw material to M/s Fresh Bakery and biscuits to Modern Bakers is Rs 2,000 (iv) 80 packs of biscuits having MRP Rs 70 each were packed in a single package for protection and safety during transportation and cleared at Rs of such packages were cleared Determine the central excise duty payable, if rate of duty is 1250% Note: Turnover of M/s Fresh Bakery in the previous financial year is Rs 450 lakh [ICAI, RTP MAY 2015] Since the turnover of M/s Fresh Bakery in the previous financial year is Rs 450 lakh, it is not entitled to SSI exemption available under Notification No 8/2003 in the current year Removal from factory No of Units 2,500 packets sold [2400 packets charged and 100 units given as quantity discount] Valuation u/s AV 2,500 Sec 4-A [MRP= 70/-] 50 units given as free samples 50 Units Rule 4 of CEVR, 2000 [No MRP] Manufacture on job work basis 400 units Sec 4-A [MRP= 70/-] 500 packages containing 80 packs each packed for safety in transportation 80 packs Sec 4-A [MRP= 70/-] [1,75,000 52,500] = 1,22,500 15,31300 [3,500 1,050] = 2, [28,000 8,400] = 19,600 2,45000 [(80 x Rs 70 x 500) 30%] = 19,60,000 Total ED liability 2,45, ,63,06900 Notes : (1) Concept of discounting has no relevant u/s 4-A as it provides for charging ED on basis of MRP and not on basis of TV of goods sold Thus, AV will be MRP declared on the package less abatement irrespective of the quantity discounts offered to the buyer [INDICA LABORATORIES TRI] (2) MRP printing is not required to be printed on free samples pack and thus, its valuation will fall u/s 4 Since samples are not goods sold, the AV will be determined as per Sec 4(1)(b) read with Rule 4 of CEVR, 2000 Accordingly, AV = MRP when goods are sold [CADILA LABORATARIES TRI, also clarified by Circular No 915/05/2010] (3) Provisions of section 4A override the provisions of section 4 Therefore, assessable value will be retail sale price declared on the package less abatement and not the value as determined under rule 10A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [viz the price at which the principal manufacturer sells the goods] (4) Outer packaging for protection/safety during transportation is not wholesale package Such packaging does not require details like name/address, cost, month year etc [Raj Marketing (2011) (SC)] Therefore, valuation of such package will be done on the basis of section 4A ie, RSP less abatement TRANSACTION VALUE- SEC 4(1)(a) 20 Explain the non-applicability of Transaction value with reference to Section 4 of Central Excise Act, 1944 (May Marks) Sec 4(1)(a) of the Central Excise Act, 1944 provides acceptance of transaction value as assessable value However, the transaction value is acceptable only when the concerned removal of goods satisfies all of the following conditions: i) There is sale of goods; ii) The terms of sale shall provide for delivery of goods at the time and place or removal; iii) The buyer and seller shall not be related person ; iv) The price for the transaction shall constitute the sole consideration for the sale If the concerned removal of goods doesn t satisfy any of the above-mentioned condition, then transaction value of the goods can t be accepted In such a case, valuation shall be determined in terms of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 Apart from that, the transaction value is also inapplicable in the following other 2 situations:

9 i) Where the good has been notified u/s 4A(1) of the Central Excise Act, 1944 and thus, attracting MRP based valuation; or ii) Where the good has been notified u/s 3(2) of the Central Excise Act, 1944 and tariff value has been fixed by the CG itself 21 Decide the following problem with help of case law, if any- M/s AUL avail of Cenvat credit of the duty paid on inputs namely steel sheets The scrap generated during the manufacture of their final product** was cleared by them without payment of duty Subsequently the department raised a demand of excise duty on the waste and scrap M/s AUL accepted the duty liability, but contested that the price at which the scrap had been sold should be considered to be cum-duty price and assessable value should be determined after deducting the element of excise duty The contention of the department is that as no central excise duty was paid by them while clearing the scrap, no deduction on account of excise duty is available to M/s AUL (5 Marks) As per the given facts, M/s AUL cleared scrap without excise duty payment though it was excisable goods within the meaning of definition given in sec 2(d) of the Central Excise Act, 1944 Upon issuance of demand notice, it has accepted duty liability but has contended that the price shall be considered as cum-duty (ie, inclusive of excise duty element) and not the ex-duty (ie, exclusive of excise duty element) The issue for consideration is whether the sale price realization shall be taken as ex-duty in view of the clear facts that clearance of the scrap was made without duty payment The assessable value of the scrap is to be determined as per the provisions of the Central Excise Act, 1944 Sec 4(1) in this respect provides Transaction Value to be the assessable value of the scrap Though the definition of Transaction Value clearly provides for the exclusion of excise duty, sales tax and other taxes, if any, paid or payable on the goods when sold, the deductibility becomes somewhat doubtful where it is not shown separately in the invoice and particularly, when the assessee admittedly clears the goods without duty payment In this connection, a recent decision of SC has settled the matter, in case of MARUTI UDYOG LTD SC, wherein the Apex Court ruled out that sale price realized by the assessee is to be regarded as the entire price inclusive of excise duty when he has, by necessary implication, taken on liability to pay all taxes on the goods sold and has not sought to realize any sum in addition to the price obtained by it from the purchaser Also, Explanation to Sec 4(1) provides that sale price shall be deemed to include the duty payable on the goods Thus, the Department contention that no excise duty is deductible from the sale realization is incorrect M/s AUL is lawfully entitled to the deduction of the excise duty element form the sale realization **ED on manufactured waste/scrap: Now, it is settled under excise, that manufactured waste/scrap also attracts ED liability [Deemed marketability has been given to them by Explanation to Sec 2(d) and thus, making them excisable goods] 22 A Ltd, a manufacturer, is eligible for Customized Package (a financial package) under Rajasthan Investment Promotion Policy-2010 (RIPS 2010) According to the scheme, it is allowed subsidy (consisting of Investment Subsidy and Employment Generation Subsidy) for a period of 7 years Under the scheme, subsidy shall be 55% of the total amount of VAT which become due to be deposited into the government exchequer Thus, in nutshell, only 45% of vat collected on sales shall be deposited with the state government and 55% shall be retained by the manufacturer Whether should be the permissible deduction while computing transaction value under the provisions of Sec 4 of the CEA, 1944: (a) VAT collected from customer (ie, 100%); or (b) VAT deposited with State Government (ie, 45%) (Nov 2011 Marks 6) Hon ble SC in the case of M/S SUPER SYNOTEX INDIA LIMITED, which clarified that Sales tax, collected from the customers but not paid to the Government under Sales tax incentive scheme, has the character of the consideration paid for transfer of title of goods from the manufacturer to the third party Therefore, the same was required to be included in the assessable value Author: The result of the hon ble SC judgment in case of SUPER SYNOTEX INDIA LTD will, in net result, will reduce the incentive of the assesse (as out of retention portion, ED will be payable) CASH INCENTIVE SCHEME vs Incentive Scheme by way of RETENTION: In case of incentive scheme, where cash incentives are allowed towards establishment of industry and not as a part of sales-tax rebate / refund, such incentive should amount to 'tax actually paid or payable', as sales-tax has been paid in the name of sales-tax and has been received as a compensation / incentive not by way of reduction industry in backward area When State Government wants to provide incentive not by way of reduction of sales-tax but by way of cash incentive, such incentive cannot be charged to excise duty, as it would ultimately reduce the incentive itself It appears that Rs 10 should be regarded as paid and Rs 75 received towards establishment of industry and, thus, entire Rs 10 must be allowed as deduction (Expected ) 23 State what shall be treatment of retrospective price revision by the buyer in the following cases: a Where this revision is due to price escalation clause, which was clearly mentioned in the sales contract; b Where the revision is due to protracted negotiations of buyer and not mentioned in the sales contract (2 marks each)

10 a) Retrospective price revision when such revision was contemplated at the time of sale: SC judgment in case of SKF INDIA LTD-2009-SC / INTERNATIONAL AUTO LTD SC shall be applicable in this case o The assessee was able to demand from its customers the balance of the higher prices by virtue of retrospective revision of the prices It, therefore, follows that at the time of sale the goods carried a higher value and those were cleared on short payment of duty o In such case, differential ED will be payable on the escalation element / price rise recovered from buyer by issuing supplementary invoices o The liability to pay differential duty on such price rise shall relates back to the due date with reference of removal of goods from the factory o The differential ED shall be payable alongwith interest in terms of Sec 11-AA of CEA, 1944 Author: Consider 3 related possibilities: Assessee dealt with escalation in Action on part of CEO following manner 1 ED + Interest paid by assessee No action is required 2 Neither ED nor interest paid Notice for recovery of short-paid ED shall be issued in terms of Sec 11-A SCN u/sec 11-A --- T/L: 1 Year / 5 Years from relevant date (Relevant date= Date on which excise return was filed) Interest u/sec 11-AB shall be payable Penalty u/sec 11-AC shall be payable 3 ED paid, but interest not paid Notice for recovery of short-paid INTEREST shall be issued in terms of Sec 11-A (SEC 11-A(15) as inserted by FA, 2015) SCN u/sec 11-A --- T/L: 1 Year / 5 Years from relevant date (Relevant date= Date on which this ED was paid) However, Interest u/sec 11-AA shall be payable on this unpaid interest Similarly, no penalty u/sec 11-AC shall be leviable b) Retrospective price revision when such revision was contemplated at the time of sale SC judgment in case of HITKARI FIBRES LTD SC shall be applicable in this case o ED is payable at price of goods as prevailing at time of clearance/removal of goods o Any additional amount received at a subsequent stage cannot be added to arrive at AV, except when price of goods was not final at time of clearance/removal of goods (ie, price rise was contemplated at time of removal itself); o In such case, differential ED will NOT be payable on the escalation element / price rise recovered from buyer by issuing supplementary invoices Author: Students shall appreciate difference in 2 situations Facts of SKF India Case and HITKARI Fibres ltd case are entirely different In HITKARI s case, it was also noted by SC that whether price was understated or depressed at time of clearance of goods and additional amount was received subsequently, by a suspicious kind of arrangement, then Department can make addition Consider 3 related possibilities with reference to HITKARI case: Assessee dealt with escalation in Action on part of ASSESSEE following manner 1 Neither ED nor interest paid No action is required 2 ED paid, interest not paid Claim refund in terms of Sec 11-BB (Refund Claim of ED paid wrongly) (of course, refund shall be subject to doctrine of unjust enrichment) 3 ED as well as interest paid Claim refund in terms of Sec 11-BB (Refund Claim of ED + Interest paid wrongly) (of course, refund shall be subject to doctrine of unjust enrichment) 24 M/s XYZ Co Ltd is engaged in the manufacture and sale of machine parts of sugar machinery The goods were sold at certain prices on the basis of which excise duty was paid at the time of removal from the factory Following certain negotiations with the customers the price of goods already cleared were retrospectively revised upwards Consequently, M/s XYZ Co Ltd issued supplementary invoices to its customers and realized the differential price as per the said invoice Whether assesse shall be liable to pay duty on such price rise? As per given facts, XYZ Co sold goods paying ED thereon Subsequently, it revised the price upwards and paid differential ED also resulting from such revision The differential ED was paid immediately with revision of prices However, it was paid without interest CEO had asked for recovery of interest

11 The issue for consideration before us is whether interest is also payable when differential ED is paid immediately on revision From the facts, it appears that the price rise received by M/s XYZ Co Ltd was not contemplated at the time of sale agreement or removal of goods for sale If that is the case, then judgment of Hon ble SC as rendered in case of HITKARI FIBRES LTD-2015-SC shall be applicable in assessee s case and no differential duty shall be payable 25 Whether discount is deductible from computation of AV: (a) Discount passed on to the buyer at the time of sale/removal of goods; (b) Discount passed on to the buyer at year end in respect of entire year purchases, though availability of such discount was known to the buyer at time of removal (2 Marks) TV of goods is price actually paid/payable for the goods, thus, price net of discount shall be acceptable as AV Thus, (a) Discount passed on to the buyer at the time of sale/removal of goods shall be deductible from computation of AV (b) Post-removal discounts are also allowed as deduction as availability of such discount was known at time of removal of goods However, for getting benefit of deduction of such discount, assessee shall resort to provisional assessment in terms of Rule 7 of CER, 2002 (CBEC Circular) HPL SOCOMAC LTD 2015-SC Manufacturer entered into sales agreement with a buyer for supply of 65,000 per unit Contract provided for time bound delivery Manufacturer could supply only 30,000 meters within the stipulated time Buyer directed manufacturer to supply balance 35,000 at reduced price (penal price) Assessee supplied balance per unit What should be the AV for 35,000 units supplied at reduced price? AV= TV, ie, price actually paid or payable Price for 35,000 units was fixed at Rs 600, and it was fixed before removal of goods from factory Hence, such reduced price shall be taken as TV / AV 26 State briefly whether damage discount is permissible as a deduction for the purposes of arriving at the assessable value u/s 4 of the Central Excise Act, 1944 (2 Marks) Deductibility of damage discount is permissible as in terms of CBEC Circular discount of any type or description is deductible if it is given with reference to the list price and is actually passed on to the buyer of goods It shall be noted that even this discount is given on commercial consideration and therefore cannot be objected No objection can be raised as regard to extent of discount even if net price charged is lower than cost of production of goods [GURUNANAK REFIGRATION SC] However, if Damage Discount (which is often termed as Warranty discount also) is only a claim for refund by the buyer for the manufacturing defect in the goods sold by the manufacturer assessee, which is honoured by the assessee in a manner acceptable to both parties (he and the buyer) If availability of such discount was not contemplated at time of removal of goods, then it shall not be deductible from AV It can t be strictly called as discount on the goods being sold It is in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale, hence not deductible from the assessable value [MADRAS RUBBER FACTORY LTD SC] Author: Consider following situation Manufacturer sold goods to buyer for a price of 1,00,000 (duties and taxes etc) Goods were agreed to be delivered to buyer at his premise Transit risk is upon the manufacturer Goods got damaged in transit Buyer accepted damaged goods but asked for price reduction to which manufacturer agreed VIKRAM DETERGENT LTD SC Any damage discount/ charges refundable to the buyer in the form of compensation for damage, breakage or losses or defects occurring after removal from factory, will not be deductible 27 Mr A has fixed price of his Rs 102 per unit (duties and taxes extra) He offers cash discount to the buyer (of Rs 2) in case buyer agrees to make cash purchase Determine the AV of following sales made by him: (a) Cash sales where cash discount was passed on to the buyer (Sale price charged for such sales = Rs 100)

12 (b) Credit sales where cash discount was not passed on to the buyer (Sale price charged for such sales = Rs 102) AV in case of Mr A shall be as follows: (a) Cash (where cash discount actually passed on): AV= 100 (price actually paid/payable for the goods) (2 Marks) (b) Credit (where cash discount NOT actually passed on): AV= 100 * (cash discount shall still be excludible in terms of Hon ble SC judgment in case of PUROLATOR INDIA LTD 2015-SC **) PUROLATOR INDIA LTD SC Sum actually "payable" liable to duty: Expression "actually paid or payable for the goods, when sold" means whatever is agreed to as price for goods forms basis of value, whether such price has been paid, has been paid in part, or has not been paid at all Basis of "transaction value" is therefore agreed contractual price Expression "when sold" is not meant to indicate time at which such goods are sold but is meant to indicate that goods are subject matter of an agreement of sale Cash discount known at time of removal, is deductible even if not availed: Cash discount known at time of removal, is deductible even if not availed Hence, cash discount which is "known" at or prior to clearance of goods, being contained in agreement of sale between assessee and its buyers, must therefore be deducted from sale price in order to arrive at value of excisable goods "at time of removal" 28 State whether the following items are includible in the assessable value u/s 4 of the Central Excise Act, 1944 and the Central Excise Valuation Rules, 2000: Includible Excludible 1) Engineering and design charges Includible 2) Packing Charges Includible (whether such packing is primary, secondary, or special secondary or protective) 3) Dharmada Charges Includible 4) Storage and outward handling Includible 5) Warranty Includible Extended warranty is excludible [MARUTI UDYOG LTD SC] 6) Advertisement, publicity, Marketing and Includible selling organization expenses 7) Sales commission paid to commission agent Includible 8) After sales services and Pre-Delivery Inspection Charges 9) Supply of bought out items which are essential for use of FP 10) Supply of bought out items which are mere accessory to FP 11) Installation charges incurred to bring into existence the ALMIRAH supplied Includible, if collected by manufacturer Includible Not Includible [However, if assessee willfully opts for inclusion of their value, then he can claim credit of ED paid on such accessories] Includible (as these are incurred to bring into existence the excisable goods) 12) Bank Charges for clearance of outstation cheque 13) Freight Charges Transportation charges incurred upto the POR (PoR = Place of Sale, where ownership of goods is getting tfd) shall form part of AV 14) Insurance Charges [Insurance charges constitute part and parcel Insurance charges incurred upto the POR (PoR = Place of Sale, where Such charges are not includible if collected by dealer buyer [TATA MOTORS LTD 2012-BOM HC] Not Includible Transportation charges incurred beyond the POR shall not form part of AV [however, any profit earned on such transportation shall form part of AV] Rule 5 of CEVR, 2000 Insurance charges incurred beyond the POR shall not form part of AV [however,

13 of transportation cost and same principles are ownership of goods is getting tfd) any profit earned on such insurance shall applicable to it] shall form part of AV form part of AV] Rule 5 of CEVR, State whether the following items are includible in the assessable value u/s 4 of the Central Excise Act, 1944 and the Central Excise Valuation Rules, 2000: a Optional Sale service / Warranty charges; b Installation, Erection and commissioning expenses (2 marks each) a) Optional sale service/warranty charges are includible in the assessable value of the goods sold where such option is exercised The reason being that these charges are also in connection with production and sale of goods recovered from the buyer However, there can be no such inclusion where such option is not exercised [Circular No 354/81/2000] b) The inclusion of installation, erection and commissioning expenses will depend upon whether these charges are being incurred to bring into existence an excisable goods or an immovable property If these goods are incurred to bring into existence some immovable property (eg, steel plant as a whole), there arises no question of inclusion since no excise duty liability arise at all in that situation If these charges are incurred to bring into existence any excisable goods, these charges are includible in the assessable value of the goods [Circular No 643/34/2002] 30 Discuss briefly with reference to Section 4 of the Central Excise Act, 1944 and the Central Excise Valuation Rules, 2000 how Value for the purposes of the said section is to be determined in each of the following situations? (i) An assessee splits up the pricing systems and charges a price for the goods and separately charges for packing How would the cost of packing be treated in this case for determining value? (ii) An assessee charges warranty charges separately for all those customers who on an optional basis desire to take the after sales services provided by the assessee Are warranty charges includible for purposes of value in such cases? (iii) The assessee allows the buyers 30 days to make payment for the goods supplied Interest is charged by the assessee from the buyer only if payments are made beyond this period How is interest to be treated for the purposes of determining value? (2*4=8 marks) i) The assessable value shall be determined in accordance with Sec 4(1)(a) of Central Excise Act, 1944 That is to say, transaction value shall be taken as the assessable value As per definition of transaction value, any charges recovered from the buyer by reason of, or in connection with the sale of goods are also includible in the assessable value Undoubtedly, packing charges are also charges recovered in relation to sale of goods and thus, shall form part of assessable value ii) ADDISONS PAINTS & CHEMICALS LTD SC Paints/ varnishing packed in tins and plastic containers, and then put in paper carton boxes for transportation from factory gate to sale to individual customers Held: Value of cartons shall be includible in AV of paints The assessable value shall be determined in accordance with Sec 4(1)(a) of Central Excise Act, 1944 That is to say, transaction value shall be taken as the assessable value Transaction value includes any charges recovered from the buyer on account of provisioning of warranty Thus, such charges shall form part of assessable value whenever after-sale service is opted for by the customer iii) The assessable value shall be determined in accordance with Sec 4(1)(a) of Central Excise Act, 1944 That is to say, transaction value shall be taken as the assessable value CBEC has clarified that interest for delayed payment shall not be regarded as part of assessable value subject to fulfillment of following conditions: a Such charges are clearly distinguished from the price actually paid/payable for the good *; b The financing arrangement is in writing; and c Where required, assessee demonstrates that such goods are actually sold at price declared as the price actually paid/payable for the goods Assuming that assessee satisfies all the said condition, interest for delayed payment of 30 days shall not form part of the assessable value 31 Having regard to the provision of section 4, compute/derive AV of excisable goods, given the following information: Particulars Rs Cum-duty wholesale price including sales tax of Rs 2,000 15,000 Normal Secondary Packing cost 1,000 Cost of special secondary packing 1,500 Cost of durable and returnable packing 1,500 Freight 750 Insurance on freight 200 Trade discount (normal practice) 1,000 Rate of duty 1250% Ad-valorem State in your answer, reasons for the admissibility or otherwise of the deductions NOTE: Ownership of goods gets transferred to the buyer at the time of removal of goods from the factory

14 STATEMENT SHOWING COMPUTATION OF ASSESSABLE VALUE Particulars Cum-duty wholesale price Less: Sales Tax (WN-2) 2,000 Normal Secondary Packing cost (WN-3) Not deductible Cost of special secondary packing (WN-3) Not deductible Cost of durable and returnable packing (WN-4) 1,500 Trade discount (normal practice) (WN-5) 1,000 Freight (including transit insurance) (WN-1) 950 (8 Marks) Rs 15,000 5,450 Cum-duty assessable value Less: Excise duty (9,550 * 1250/ 11250) 9,550 (1,061) ASSESSABLE VALUE 8,489 Working Notes: 1 Since ownership of goods gets transferred to the buyer at the time of removal of goods from factory, transportation charges (freight as well as transit insurance) shall not form part of AV o SC in case of BOMBAY TYRES INTERNATIONAL has held that cost of transportation will include the cost of transit insurance For that reason, cost of transit insurance is also deductible as cost of transportation (It has been assumed that freight and insurance have been charged on actual basis) 2 Sales tax is deductible from the price to arrive at TV as definition of TV specifically provides for exclusion of sales tax 3 CBEC has clarified that charges for packing are also includible in the transaction value as these charges are also by reason of, or in connection with sale of goods It is immaterial whether the packing is normal, secondary or special secondary (Circular No 354/81/2000) 4 Cost of durable and returnable packing shall not be included in the transaction value as charges thereof can t be said to be by reason of, or in connection with the sale 5 CBEC has clarified that discount of any type or description is deductible if it is established that it has actually been passed on to the buyer (Circular No 354/81/2000) Assuming that given trade discount has actually been passed on, it is also deductible 32 Determine the total amount of Excise duty payable on a machine using the details given below : Rs (i) Sale price of the machine excluding taxes and duties 2, 00,000 (ii) Sales tax 20,000 (iii) Design and Development charges paid by buyer on behalf of seller to a third party 20,000 (iv) Warranty charges charged separately by the seller 5,000 Rate of Excise duty-1250% Calculations should be supported by notes wherever, required (May 2009) STATEMENT SHOWING COMPUTATION OF ASSESSABLE VALUE Particulars Rs Sale price of machine excluding taxes and duties (WN-1) Add: Warranty charges charged separately by the seller (WN-2) Add: Design and development charges paid by buyer on behalf of seller to a third party (WN-3) 2,00,000 5,000 20,000 Assessable Value 2,20,000 EXCISE DUTY PAYABLE (2,20,000 * 1250%) 27,500 Working Notes: 1 Sales price given is exclusive of taxes and duties, so Sales Tax and Excise Duty need not be deducted The given sale price is Basic Sale Price 2 Warranty charges are charges payable by buyer by reason of, or in connection with, sale of goods Thus, these shall be includible in AV Definition of TV specifically provides for their inclusion 3 Definition of TV provides any payment which is by reason of, or connection with, sale of goods shall be includible whether such payment is made to the seller directly or it is made to a third party on behalf of seller Thus, payment for design and development charges made by buyer to third party on behalf of seller is also includible 33 Determine the total amount of EXCISE DUTY PAYABLE under section 4 from the following information: Rs (i) Price of machinery excluding taxes and duties 5,50,000 (ii) Installation and erection expenses 21,000 (iii) Packing Charges (primary and secondary) 11,500 (iv) Design and engineering charges 2,000 (v) Cost of material supplied by buyer free of charge 8,500

15 (vi) Pre-delivery inspection charges 500 Other information: (a) Cash on price of machinery was allowed as per terms of contract since full payment was received before dispatch of machinery (b) Bought out accessories supplied along with machinery valued at Rs 6,000 (c) Central Excise duty rate 1250% Make suitable assumptions as are required and provide brief reasons Calculations should be supported by notes wherever, required (Nov Marks) STATEMENT SHOWING COMPUTATION OF ED PAYABLE Particulars Rs Sale price of machine excluding taxes and duties (WN-1) Less: Cash Discount (2% of Price of Machinery, ie, 2% of 5,50,000) (WN-2) Add: Packing Charges (both primary and secondary) (WN-3) Add: Design and Engineering Charges (WN-4) Add: Pre-Delivery Inspection Charges (WN-5) Add: Material Supplied by buyer free of charge (WN-4) 5,50,000 (11,000) 11,500 2, ,500 Assessable Value 5,61,500 EXCISE DUTY PAYABLE (5,61,500 * 1250%) 70,188 (rounded off to rupee) Working Notes: 1 Sales price given is exclusive of taxes and duties, so Sales Tax and Excise Duty need not be deducted The given sale price is Basic Sale Price 2 TV refers to price actually paid or payable for the goods and hence, discount of any type given at the time of transaction is deductible while computing AV 3 Packing Charges are in connection with sale and hence, all kind of packing is includible 4 Design and engineering charges are also payable by reason of, or in connection with sale, and hence, includible 5 Pre-delivery inspection charges shall also form part of AV 6 Material supplied by buyer free of charge is an additional consideration within the meaning of Explanation 1 of Rule 6 of CEVR, 2000 and thus, shall be added for the purposes of computation of AV 7 Regarding bought-out accessories, it is optional for assessee to include their value in AV of the main product It has been assumed that buyer has opted for non-inclusion of their value in AV of main product 8 Assuming that installation and erection charges have not been incurred to bring into existence the purchased machinery, these have also not been included in AV of the machinery 34 ABC Ltd of Kanpur agreed to sell an electric motor to DEF Ltd of New Delhi for Rs on ex-factory basis** Other particulars are: (i) A discount of Rs1000 was given to DEF Ltd on the agreed price on payment of an advance of Rs 3500 with the order (ii) Interest of Rs 800/- was charged from DEF Ltd as it failed to make the payment within 30 days (iii) Packing charges of the motor amounted to Rs1300 (iv) The expenditure incurred by ABC Ltd towards free after sale service during warranty period comes out to be Rs 500 per motor (v) Dharmada charges of Rs 200 were recovered from DEF Ltd (vi) ABC Ltd sold a lubricant worth Rs 250/- along with the motor to the interested customers Lubricant which was purchased from the market by ABC Ltd at Rs 200 ensured durability and high efficiency of the motor DEF Ltd opted for inclusion of the said lubricant Compute the ASSESSABLE VALUE [RTP Nov 2005] *Author: SALE ON EX-FACTORY BASIS = it simply means that ownership of goods will get transferred to the buyer at the time of removal of goods from the factory Thus, transportation (freight and transit insurance) beyond this place shall not form part of AV STATEMENT SHOWING COMPUTATION OF ASSESSABLE VALUE Particular (Amount in Rs) Ex-factory price 15,000 (i) Discount Nil (ii) Interest Nil (iii) Packing Charges 1,300 (iv) Charges for free after-sales service 500 (v) Dharmada 200 (vi) Lubricant - Bought out item (in nature of Accessory) Nil 2,000 Assessable Value 17,000

16 NOTES: (a) Rs 1000 given away as discount on depositing advance of Rs 3500 amounts to an additional consideration Hence, the same is includible in the assessable value Since the ex-factory price of Rs is before discount (ie the price is before discount), hence, no adjustment is required to made ie this amount will not be allowed as deduction (b) Interest for delayed payment of sale price is not related to excisable goods sold Hence, such interest cannot form part of the assessable value, as the same is recovered separately and the same has been charged over and above the agreed sale price (c) Packing charges will form part of the assessable value (d) Charges for free after sale service during warranty period are includible in the assessable value Though the question speaks of cost of free after-sales services, it has been assumed that such cost has been recovered over and above the agreed sale price of Rs Hence, the same is includible in the assessable value (e) Dharmada charges are includible in the assessable value, as they are payable by reason of, or in connection with, sale of excisable goods (f) The value of bought-out item viz Lubricant will not be included in the assessable value as it is a purely trading activity and the sale of main article (motor) is independent of sale of optional bought out item (lubricant) Such lubricant cannot be regarded as part of the motor, as the motor is complete even without lubricant Further, the same cannot be considered to be accessory also Hence, the value of such lubricant and even profit earned on such lubricant is not included in the assessable value of motor [THERMAX LTD TRI] 35 Compute AV of the goods manufactured by Bharat Enterprises, u/sec 4 of CEA, 1944, with the help of the following particulars: Particulars Amount Rs Contracted Sale Price for delivery at buyer s premises** 2,42,000 Contracted price includes the following element of cost 1) Cost of Containers supplied by Buyer 15,200 2) Design and Engineering Charges 22,400 3) Loading and Handling Charges incurred after removal from the factory 6,000 4) Cost of after sales service 10,000 5) Dharmada Charges 2,100 Give reasons with suitable assumptions wherever necessary [ICAI RTP, Nov 2011] ASSUMPTION: Ownership of goods gets transferred to the buyer at the time of removal of goods from the factory (ie, goods have been sold on Ex-Factory basis) STATEMENT SHOWING COMPUTATION OF AV Total Sale Price 2,42,000 Less: Loading and Handling charges incurred after removal (6,000) Sale of goods being presumed to be ex-factory sale, loading and handling charges incurred after removal shall not form part of AV Transaction Value 2,36,000 Working Notes: 1 Cost of containers supplied by buyer also constitutes additional consideration for sale within the meaning of Explanation 1 to Rule 6 That being so, that shall remain includible in AV So, no exclusion in respect of it can be claimed 2 Design and designing charges are definitely charges incurred by reason of or in connection with, sale Thus, shall remain includible in AV So, no exclusion in respect of it can be claimed 3 After sales service charges are definitely charges incurred by reason of or in connection with, sale Even, inclusive part of definition of TV specifically provides for inclusion of it (the word servicing is mentioned therein) Thus, shall remain includible in AV So, no exclusion in respect of it can be claimed 4 Dharmada charges are definitely charges incurred by reason of or in connection with, sale (as held by SC and clarified by CBEC Circular) Thus, shall remain includible in AV So, no exclusion in respect of it can be claimed 36 State the procedure for valuing excisable goods that are to be sold from Depot/Branch or a consignment agent under Central Excise (5 Marks) As per the valuation provisions of Central Excise**, clearances to depot shall be valued at ex-depot price, ie, the price at which goods are sold from Depot So far as time of payment of duty is concerned, duty is payable at time of removal and in the context of sale of goods from depot, branch or premises of consignment agent, time of removal has been defined to mean time of removal from the factory gate itself Thus, the ex-depot price as prevailing on the date of clearance of goods from the factory shall be taken as assessable value In nutshell, valuation of goods that are to be sold from depot, branch or premises of consignment agent shall be done on the basis of transaction value of goods as prevailing on depot, branch or premises of consignment agent on the date of removal of goods from the factory to such place *Author: Depot valuation - Sec 4(1)(a) vs Sec 4(1)(b) read with Rule an academic discussion only

17 View-1: Sales at depot are also sales at place of removal and thus, valuation shall be as per Sec 4(1)(a) [NTV of depot shall be used] View-2: Sales at depot are at place of removal but not at time of removal from factory Sec 4(1)(a) is not applicable Rule 7 shall be resorted to Rule 7 of CEVR, 2000 Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value 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, at the time nearest to the time of removal of goods under assessment Valuation provisions are same in both the cases Irrespective of where valuation is done, AV shall be the same Author is in support of View-1 Students avoid mentioning the specific reference to section / rule They simply mention that As per valuation provisions under Central Excise, 37 Surat Cloth Mills delivered 1000 meters of cloth to Purvanchal Readymade Garments on from its depot located at Rs 110 per meter The goods were dispatched to the depot from the factory located in Surat on Exfactory price on was Rs 90 per meter The sales of identical variety of cloth effected from Ahmedabad depot on the two relevant dates is as follows:- On On Cloth sold (in meters) Rate per meter (Rs) Cloth sold (in meters) Rate per meter , Calculate the assessable value of 1,000 meters of cloth sold by Surat Cloth Mills [ICAI RTP - June, 2009] Computation of assessable value:- Depot clearances shall be valued at Normal Transaction Value as prevailing on depot at time of removal from the factory The price at which the largest quantity of identical variety of cloth is sold on shall be taken as greatest aggregate quantity The largest quantity sold during the day is 850 meters of cloth The price at which it is sold ie Rs 125 shall be considered for computing the normal transaction value Therefore, assessable value of the goods = 1,000 mtrs Rs125 = Rs 1,25,000 (MImp & Expected) 38 A company manufacturing a dutiable product in the factory at Cochin, was making sales through its depot in Mumbai The sale price at Mumbai Depot at Rs 30,000 per piece inclusive of transport charges from Cochin to Mumbai of Rs 3,000 The depot price includes ED@1250% but excludes Maharashtra VAT Annually 2,000 pieces are sold by depot The company decides to make direct sale from Cochin to its customers which would attract CST at 2% to be borne by the company The company wants to close down the depot at Mumbai brining cost saving of Rs 5,00,0000 per annum The sale price will continue to be as earlier Evaluate the implications of the decision [ICWA Inter, June Marks] At present, the company is selling the goods through Depot The excise duty liability in present situation is : AV in respect of goods cleared from Cochin factory to Mumbai Depot = Ex-depot price (exclusive of duties and taxes) prevailing at time of removal of goods from factory = 30,000 ED (30,000 * 1250 / 11250) = Rs 26,667 ED payable at time of removal from factory = [26,667 * 1250%] = Rs 3,333 Net Revenue from sale of goods from Depot = Total Sale realization Transport Charges Excise duty = [30,000 3,000 3,333] = 23,667/- Proposed plan to shut down Depot and direct dispatch of goods from factory to customer at same price of Rs 30,000/- - Since company will be bearing 2% CST, price of Rs 30,000 will now be inclusive of excise and 2% - If the goods are so dispatched, then presuming that during transport goods will be at risk of seller, value of goods for excise purpose shall be computed as per Rule 5 of CEVR, 2000 and thus, transport charges shall be excludible from assessable value

18 - Further, Sales tax is also computable on value exclusive of transport charges (as per provisions of CST provisions) STATEMENT SHOWING COMPUTATION OF ASSESSABLE VALUE Particulars Total Sale price Less: Transport Charges Less: CST [27,000 * 2/102] Less: Excise Duty [26,471 * 1250 / 11250] Rs 30,000 (3,000) 27,000 (529) 26,471 (2,941) ASSESSABLE VALUE 23,530 Net Revenue from sale of goods from Depot = Total Sale realization Transport Charges Excise duty - CST = [30,000 3,000 2, ] = 23,530 Evaluation of decision Net revenue at present Net revenue when Depot is closed Realization from goods (2,000 * 23,667) = 4,73,34,000 (2,000 * 23,530) = 4,70,60,000 Less: Depot Operation Expenses (5,00,000) Net Realization = 4,68,34,000 = 4,70,60,000 Thus, it is economical to close down the depot VALUE AS PER RULES SEC 4(1)(b) RULE 4 39 Briefly examine the correctness or otherwise of following statement: (i) In case of samples distributed free, valuation should be adopted on the basis of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 ie cost of production plus 10% (2 Marks) The given statement is incorrect Samples distributed free of cost can t be said to be captively consumed goods and hence, their valuation can t be governed on basis of Rule 8 of Central Excise Valuation Rules, 2000 (Cost of production plus 10%) Free samples shall be valued in terms of Rule 4 of Central Excise Valuation Rules, 2000 as clarified by CBEC through Circular Thus, such samples shall be valued on the basis of comparable price of identical goods sold at or about the same time RULE 5 In terms of Rule 4, AV of Samples= Value at which similar goods are sold HINDUSTAN SPINNING & WEAVING MILLS LTD 2015-SC In determining price of similar goods, costs not incurred on transaction in question must be deducted In determining value of goods (say, Sample Packet) based on price of 'similar / identical goods' (say, Commercial Packs), if any cost, which is incurred on Commercial pack is not incurred on Sample Pack then, value of Sample Pack = Price of Commercial Pack less Costs not incurred on sample packs Example: Price of Commercial Pack = Rs 100 (Special packing costs Rs 15) Fancy packing costs are not incurred on Sample Hence, Value of Sample Packs = = Rs 85 Author: 1 On logic, such adjustments shall be permissible 2 Valuation doing such adjustment shall be done under Rule 11 read with Rule 4 40 Briefly explain the following expression under the Central Excise Act, 1944 :- Place of removal (Marks 3) Sec 4(3)(c) of the Central Excise Act, 1944 defines Place of Removal to mean following i) FACTORY from where excisable goods are removed; ii) A WAREHOUSE or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty and from where excisable goods are removed;

19 iii) A Depot, premises of a consignment agent or any other place/premises** from where goods are to be sold after clearance from the factory and from where excisable goods are removed Circular No 988/12/2014 [20th October, 2014] [Detailed discussion regarding this circular in CENVAT CREDIT RULES, 2004 (MODULE 3)] Determination of PLACE OF REMOVAL POR = Place of Sale (& Place of Sale shall be determined as per Sales of Goods Act,1930) The place where sale takes place is the place of removal The place where sale has taken place is the place where the transfer in property of goods takes place from the seller to the buyer This can be decided as per the provisions of the Sale of Goods Act, 1930 Sale at Factory Gate / Warehouse Gate / Depot Gate: POR = Factory / Warehouse/ Depot In case of a factory gate sale, sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are sold, after their clearance from the factory), the determination of the place of removal does not pose much problem Sale involving delivery of goods at buyer s place: POR may be buyer s place However, there may be situations where the manufacturer/consignor may claim that the sale has taken place at the destination point because in terms of the sale contract/agreement In such situation, such place shall be the place of removal POR = Place of Sale determined as per Sales of Goods Act, no other factor is relevant It is reiterated that the place of removal needs to be ascertained in term of provisions of Central Excise Act, 1944 read with provisions of the Sale of Goods Act, 1930 ROOFIT INDUSTRIES LTD SC Where transfer of property in goods takes place at premises of buyer, freight upto buyer's premises would form part of value Facts Assessee, a manufacturer of RCC and PSC pipes was clearing said goods to various Government authorities on terms that : (a) goods were to be delivered at buyer's place; (b) acceptance of supplies was to be effected at buyer's place; (c) price ws inclusive of cost of material, central excise duty, loading, transportation, transit risk and unloading charges etc (d) even transit damage / breakage was to be borne by assessee; (e) 100% payment for supplies was to be made by purchaser after receipt and verification of material Assessee claimed deduction of freight, etc from factory to buyer's premises on ground that 'place of removal' was factory Department argued that place of removal was buyer's premises and therefore, entire price was liable to duty Held On facts, clear intent of parties was to transfer property in goods to buyer at premises of buyer when goods are delivered; hence, place of removal was buyer's premises and not factory gate Hence, assessee was not entitled to deducting of freight etc from factory to buyer's premises, Assessee was liable to duty on price inclusive of freight Author: Mr A, manufacturer, enters into a sales contract with Mr B, the buyer Mr A dispatches the goods to Mr B (buyers s place) but reserves the right of disposal with him till Mr B makes payment of goods In this case, in terms of Sales of Goods Act, 1930 [Sec 23], the property in goods stands transferred to buyer only when buyer makes the payment and manufacturer surrenders his right of reservation and unconditionally appropriated the goods in favour of buyer Since transfer of ownership/property takes place at buyer s place, therefore buyers place becomes place of removal in terms of Sec 4(3)(c)(iii) [as this place= any other place from where goods are to be sold after clearance from the factory] This sale shall be treated as sales at place of removal only Expenditure upto this place of removal shall form part of AV Thus, AV shall be price (including transportation costs upto such place) Mr A, manufacturer, enters into a sales contract with Mr B, the buyer Mr A dispatches the goods to Mr B (buyers s place) but does not reserve the right of disposal with him In this case, in terms of Sales of Goods Act, 1930 [Sec 23], the property in goods stands transferred to buyer only when goods are put under transportation Since transfer of ownership/property takes place at factory s gate, therefore factory gate becomes place of removal in terms of Sec 4(3)(c)(i) Now, we need to check whether the transporter/ carrier is carrying the goods as agent of seller or buyer If transporter is carrying goods from factory as an agent of buyer, then delivery to carrier is delivery to buyer Hence, it will be case where delivery is taking place at place of removal/sale Such transaction shall be valued as per Sec 4(1)(a) only TV shall be acceptable as AV [Further, transport/insurance arranged by assessee for buyer has no relationship with manufacturing activity Hence, such cost is not includible in AV If assessee has charged higher amount than actually incurred, the profit so earned shall not be includible in AV] If transporter is carrying goods from factory as an agent of seller, then delivery to carrier is not delivery to buyer Hence, it will be case where delivery is taking place at a place other than place of removal/sale Such transaction shall not be valued as per Sec 4(1)(a) only Rather, valuation of such transaction will fall under Rule 5 In terms of Rule 5, AV shall be [TV (including transportation) Cost of Transport] [If assessee has charged higher amount than actually incurred, the profit so earned shall be includible in AV]

20 Circular No 999/6/2015-CX dated the 28th February, 2015 EXPORT CLEARANCES: Place of Removal Clearance of goods for exports from a factory can be of two types : Case 1 Goods may be exported by the manufacturer directly to his foreign buyer 2 Goods may be cleared from the factory for export by a merchant exporter Place of removal PoR = Port / ICD / CFS Shipping bill is filed by the manufacturer exporter and goods are handed over to the shipping line After Let Export Order is issued, it is the responsibility of the shipping line to ship the goods to the foreign buyer with the exporter having no control over the goods In such a situation, transfer of property can be said to have taken place at the port where the shipping bill is filed by the manufacturer exporter Place of removal would be this Port/ICD (Inland Container Depot)/CFS (Container Freight Station) Eligibility to CENVAT Credit is determined accordingly It was held in INDUCTOTHERM INDIA (P) LTD 2014 GUJARAT HC and DYNAMIC INDUSTRIES LTD GUJARAT HC that in case of export of final product, place of removal would be port of shipment and not factory gate Normally, PoR = Factory / Warehouse / Depot where property gets transferred to merchant exporter (in rare cases, it would extend to port of export) Two transactions are involved : (i) between manufacturer and the merchant exporter; (ii) between the merchant exporter and the foreign buyer Place of removal = Place where the property in the goods passes from the manufacturer to the merchant exporter In most of the cases, this place would be the factory gate since it is here that the goods are unconditionally appropriated to the contract in cases where the goods are sealed in the factory, either by the Central Excise officer or by way of self-sealing with the manufacturer of export goods taking the responsibility of sealing and certification However, in insolated cases, it may extend further also depending on the facts of the case, but in no case, this place can be beyond the Port/ICD/CFS where shipping bill is filed by the merchant exporter Eligibility to cenvat Credit is determined accordingly 41 Mr A sells goods to Mr Rs 100 (duties and taxes extra) The freight from A s factory to B s premises is Rs 10 per unit, which is arranged by Mr A and actual amount paid by A to transporter is Rs 8 Determined the AV in following situation: (i) Ownership in goods gets transferred at factory gate and transporter is an agent of buyer (ii) Ownership in goods gets transferred at factory gate and transporter is an agent of seller (iii) Ownership in goods gets transferred at buyer s place only Situation Valuation as per AV (i) Ownership in goods gets transferred at factory gate and transporter is an agent of buyer Sec 4(1)(a) [Goods sold at PoR (factory) for delivery at PoR (factory) ] AV = TV (excluding freight charges) = 100 (ii) Ownership in goods gets transferred at factory gate and transporter is an agent of seller Sec 4(1)(b) read with Rule 5 [Goods sold at PoR (factory) for delivery at a place other than PoR (buyer s premise) ] AV= [TV- CoT] = [110-8] = 102 (iii) Ownership in goods gets transferred at buyer s place only Sec 4(1)(a) [Goods sold at PoR (buyer s place) for delivery at PoR (buyer s premise)] AV = TV (including freight charges) = 110 Author: PoR = Place of Sale (in terms of Sales of Goods Act, 1930) Place of Delivery = Place where goods are handed over to buyer Simply putting, Cost of transport upto POR (=place of sale) shall form part of AV Cost of transport upto place of delivery is excludible but any profit earned thereon is includible, RULE 6 42 Discuss the procedure outlined for valuation of excisable goods when the price is not the sole consideration by referring to Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000

21 (3 Marks) Rule 6 of CEVR, 2000 provides for valuation of goods when sale of goods satisfies all circumstances of Sec 4(1)(a) except that price is not the sole consideration for sale In such case, AV shall be deemed to be the aggregate of the transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee It has further been clarified that: Where any of the goods/services (like, moulds, dies etc) which are used in connection with goods sold are supplied by the buyer free of cost or at reduced prices, then even supply of such goods or services shall be deemed to be money value of additional consideration to the extent their value is not included in the sale price of goods sold to buyer [Explanation 1 to Rule 6] Further, if the buyer has given advance payments or deposits because of which sale price of goods to the buyer has been reduced substantially, then notional interest on such advance payments may also be added [Explanation 2 to Rule 6] SYNFAB SALES SC Facts Department alleged undervaluation of Final Product' as follows : (a) assessee used to raise bills in name of fictitious buyers at lower price, (b) but, goods were actually delivered at its godown and sold thereform through brokers, at a higher value Assessee argued that said price was same as price charged for direct factory gate sales to other genuine buyers and there was no undervaluation or flowback of additional consideration from any buyer to assessee through any channel Department relied upon stock statements furnished to bank as basis for undervaluation Held Assessee had paid duty on at same rate on same value, as was paid in respect of genuine buyers and there was no allegation that price charged from brokers was different Stock statement furnished to bank for credit facilities, cannot be ground for undervaluation, when there is no proof of flowback of any additional consideration Further, Department could not prove that assessee had any godown Hence, demand was set aside 43 PQR Ltd who are in the manufacture of excisable goods had the practice of providing full re-imbursement to all its dealers towards the value of damaged goods The company used to charge a certain sum towards the cost of freight in the return of damaged goods to it No other consideration was received by the company The Central Excise Department has issued a SCN that the return freight in respect of damaged goods has to be included in the assessable value for the purposes of duty Examine briefly the correctness in law of the SCN (3 Marks) As per the given facts, assessee manufactured and sold excisable goods for a certain price upon which appropriate duty was paid by him Subsequently, the buyer dealer returned such goods on account of finding that such goods are in damaged condition Assessee s trade policy is to provided full (100%) re-imbursement towards value of damaged goods However, cost incurred in receiving back returned goods in the factory is recovered from the buyer In accordance with said policy, a certain sum was recovered from the buyer Considering such sums in the nature of additional consideration for the initial sale transaction, the CEO sought the addition thereof to the originally assessed value and has issued SCN demanding differential duty thereon The issue for consideration before us is whether recovery of said sum can be said to be additional consideration for the sale so as to justify issuance of SCN As clearly evident from the facts of the case, the amount collected by the company was related to the cost of return freight on the damaged goods and hence, did not in any way represent the value of the goods Such sum can t be tainted with the character of additional consideration for the sale Our view also stands fortified (strengthened) with the decision rendered by Tribunal in 2004 in case of NEELKAMAL PLASTICS-2004 Thus, SCN demanding differential duty is not maintainable 44 Briefly answer with reference to the provisions of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 whether in the following cases any notional interest on the advance received is includible in the value for purpose of assessment (i) Assessee sells his goods against full advance payment to X He also sells such goods to Y without any advance payment at the same price per unit (ii) A the assessee manufactures and supplies certain goods as per design and specification of B A takes 50% of the price as advance against these goods and there is no sale of such goods to any other buyer (Nov *2 = 4 Marks) Rule 6 of Central Excise Valuation Rules, 2000 provides for addition of additional consideration to the price in a case where goods are sold for a price which is not sole consideration for sale Explanation 2 to said rule provides that in general, notional interest element shall not be added to arrive at assessable value In case addition is sought, then officer has to establish that advance payment from the buyer has resulted into lowering down of price of goods In light of these provisions, the answer to given situations are as follows: (i) Where assessee sells his goods against full advance payment to X at the same price at which he is selling same goods to Y who does not make any advance payment, then no notional interest shall be added in such situation while valuing goods sold to X as receipt of advance has not resulted into lowering down of price charged from X

22 (ii) Where tailor-made goods have been sold to the buyer against delivery of which advance has been taken, then such advance is merely in nature of security deposit taken for safeguarding interest of seller and hence, no addition of notional interest shall be made unless it can be established that price has been lowered down because of such advance 45 M/s RMT Industries manufactures cigarettes which are sold in wholesale, ex-factory, at cum-duty price to wholesale dealers The price charged to all the dealers for the cigarettes is the same However, the dealers who purchase cigarettes on credit are required to deposit interest-free security with M/s RMT The department has demanded duty from M/s RMT contending that they had earned notional interest on the security deposit received from the dealers which should be included in the assessable value of the cigarettes being the additional consideration Duty on cigarettes is being charged on ad-valorem basis Discuss the stand taken by the department (3 marks) The issue for consideration is whether under the stated facts notional interest on the security deposits can be added to the transaction value so as justify the differential duty demand Explanation to Rule 6 of the Valuation Rules provides that notional interest CANNOT be added to the assessable value UNLESS Central Excise Officer has evidence to the effect that advance receipt has influenced fixation of sale price of the goods by offering a special discount to the buyer who has made the advance deposit As evident from the facts, price at which cigarettes are sold at the factory gate is the same, irrespective of the fact whether the dealers buy the cigarettes on credit or against the payment of money Security deposits are being taken over to cover risk of credit sales The deposit can t be said to have influenced the fixation of sale price of the cigarettes sold on credit Further, on facts identical to stated facts, the Apex Court in case of VST INDUSTRIES-1998-SC has held that where the dealers who have purchased cigarettes on credit gets no discount or are not charged a reduced/lower price then in such a case excise duty shall be charged on uniform sale price without addition of any notional interest In light of above discussion, stand taken by department is not maintainable in law 46 Mr A has entered into contract with Mr B for sale of product x at a particular price Mr B, the buyer, was in possession of Advance License entitling them to import certain goods Mr B surrendered that license in favour of Mr A on account of which Mr A was issued Advance Intermediate Licence for import of inputs Because of the Advance Intermediate License, Mr A could import the inputs without payment of customs duty as well as get them at a lower price than what they would have paid had they purchased the same in India Mr A changes the earlier quoted price of product x after he procured inputs free of duty/concessional rate under Advance Intermediate License Ultimately, goods were cleared to Mr B at reduced/depressed price and duty was paid taking this price as assessable value in terms of Sec 4(1)(a) of CEA, 1944 The Department claimed that the benefit derived by Mr A under the Advance Intermediate Licence, issued to them as a result of surrender of licence by Mr B (the buyer) was additional consideration towards the value of the goods and that this additional consideration formed part of the price for purposes of excise duty Discuss, whether the stand of the Department is correct [CA Final, RTP Nov 2006] The issue for consideration before is whether surrender of advance license by the buyer in favour of supplier manufacturer can be treated as flow of additional consideration from buyer to the assessee leading to application of Rule 6 for determination of AV for purposes of excise duty The same issue arose for consideration before the Apex Court of India very recently in the case of IFGL REFRACTORIES LTD 2005 SC Therein it was held by SC that it is only because of the Advance Licence being surrendered by the buyer and in lieu thereof Advance Intermediate Licence being made available to the assessee manufacturer that the assessee manufacturer could offer lower prices The surrendering of Licences by buyer resulted in additional consideration by way of Advance Intermediate Licence flowing from buyer to the assessee manufacturer The value received therefrom is includable in the price In light of the aforesaid discussion, Department s claim as to inclusion of value of benefit derived by buyer on account of surrender of his license in favour of supplier manufacturer is justified Tutorial Note: Monetary Value of Additional Consideration = [Earlier Quoted Price Subsequently charged price (in invoice) ] INDORAMA SYNTHETICS (I) LTD-2015-SC Held Surrender of advance licence by buyers to enable assessee to reduce 'cost' of final products, amounts to 'additional consideration' (Imp) 47 Sigma Ltd asked for a quotation from Omega Ltd for the supply of 100 complete computer systems Omega ltd furnished the following quotation: (A) Components - CPU - 20,000, Monitor -10,000, Keyboard 5,000 Sub-Total- Rs 35,000 (B) Labour & Overheads - Rs 10,000 (C) Profit - Rs 5,000 TOTAL PRICE PER UNIT (A+B+C) = Rs 50,000 (ED Extra- as applicable) Advance of Rs 20,000 was payable along with order Delivery period was one month from date of receipt of firm order and advance

23 Sigma Ltd accepts the quotation subject to the following alterations which are agreed to by Omega Ltd (i) Keyboard would be supplied free of cost by Sigma Ltd to Omega Ltd since Sigma Ltd is able to purchase the keyboard for Rs 3,000 per unit (ii) Profit charged by Omega Ltd is to be reduced to Rs 4000 since Sigma Ltd would make an advance of Rs 20,000 However, no interest is payable on the advance Determine the assessable value u/sec 4 of CEA, 1944, and the ED 1250% ad-valorem STATEMENT SHOWING COMPUTATION OF ASSESSABLE VALUE & ED LIABILITY Particulars A) Invoice Price Quoted Price 50,0000 Less: Charges for Keyboard (5,000) Less: Reduction in profit margin (1,000) Add: Additional Consideration [in terms of Rule 6 of CE Valuation Rules, 2000] Value of Keyboard supply free of charge [Expl 1 to Rule 6] Notional Interest on Advance Deposit [Expl 2to Rule 6] ASSESSABLE VALUE ED Liability on % = [(100* 50,000) * 1250%] = 6,25,000/- Amount (Rs) 44,000 5,000 1,000 50, XY Pvt Ltd is a leading manufacturer of luxury sedans Manufacturing cost of each sedan is Rs 15,56,000 In order to penetrate the market, XY Pvt Ltd has been selling its sedans at Rs 14,00,000 since August, 2014 The average industry profit on such types of cars is 5% Determine the assessable value of the car manufactured by XY Pvt Ltd [ICAI supplementary material (May 2015)] Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, as amended, provides that where price is not the sole consideration for sale of excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value In the given case, XY Pvt Ltd is selling its sedans below manufacturing cost to penetrate the market Thus, price is not the sole consideration for sale of cars and at the same time no additional consideration is flowing either directly or indirectly from the buyer to XY Pvt Ltd Hence, the assessable value of such goods shall be deemed to be the transaction value, which in the given case is Rs 14,00,000 RULE 8 49 Discuss the validity or otherwise of the following statements, with reasons: (i) Captive consumption of excisable goods should always be valued on the basis of sale price of similar goods manufactured by others (May Marks) The given statement is not valid The assessable value of goods which are not sold but consumed captively shall be determined u/s 4(1)(b) of the Central Excise Act, 1944 read with Rule 8 of the Central Excise Valuation Rules, 2000 Accordingly, the assessable value shall be taken as 110% of cost of production thereof CHACKOLAS SPINNING AND WEAVING MILLS LTD 2015-SC In valuing captive consumption of intermediate products, notional profits at 10 per cent of cost are to be added to value even if assessee is incurring losses from production of intermediate products 50 Raj &Co furnish the following expenditure incurred by them and want you to find the ASSESSABLE VALUE for the purpose of paying excise duty on captive consumption Determine the COST OF PRODUCTION in terms of rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and as per CAS-4 (Cost Accounting Standard): (i) Direct material cost per unit inclusive of excise duty at 10% Rs (ii) Direct wages Rs (iii) Other direct expenses Rs (iv) Indirect materials Rs 7500 (v) Factory overheads Rs (vi) Administrative overhead(25% relating to production activity) Rs (vii) Selling and distribution expenses Rs (viii) Quality control Rs 2500

24 (ix) Sale of scrap realized Rs 2000 (x) Actual profit margin 15% (May Marks) STATEMENT SHOWING COMPUTATION OF COST OF PRODUCTION (IN TERMS OF CAS-4) Particulars Amount (Rs) 1) Direct Material (exclusive of Excise Duty) [880 * 10/110] [WN-1] 2) Direct Labour 3) Direct Expenses 4) Works Overhead [indirect material (75) plus Factory OHs (200)] 5) Quality Control Cost 6) Research & Development Cost 7) Administration Overheads (to the extent relates to production activity) Nil 2500 Less: Realizable Value of scrap (2000) 8) Packing Cost Nil Cost of Production 1,43000 Working Notes: 1 The material cost given is inclusive of ED At present, EC and SHEC are wholly exempted Thus, the material cost must be inclusive of 10% While considering material cost for the purpose of computing cost of production in terms of CAS-4, the duty/tax which are available by way of credit are not to be considered as part of material cost Hence, ED has been excluded from the material costing 2 Administration Overheads shall form part of Cost of Production of goods but only to the extent they relate to production activity 3 Selling and Distribution Overheads shall not form part of cost of production STATEMENT SHOWING COMPUTATION OF EXCISE DUTY LIABILITY Assessable Value = 110% of Cost of Production = 110% of 1,430 1, Alpha Ltd, a manufacturer of excisable goods, has two production units -Unit A and Unit B Unit A of Alpha Ltd manufactures product X 80% of such production is consumed captively by Unit B to further manufacture product Y and the remaining 20% is sold to unrelated buyers at Rs 75 per unit In July, 2015, Unit A has manufactured 1000 units of product X Assuming that there is no opening and closing inventory of product X, compute its assessable value for the purpose of central excise duty from the following information provided by Alpha Ltd in relation to Unit A for the month of July, Particulars Rs Cost of direct materials (inclusive of central excise 1250%)* 22,500 Cost of direct salaries (includes house rent allowance of Rs12,000) 30,000 Consumable stores and repairs 8,400 Depreciation of machinery 500 Quality control cost 4,300 Research & development 2,700 Administrative cost: Production related 2,000 Project management related 1,800 Interest and financial charges 2,400 Cost incurred due to break down of machinery 1,300 Amortised cost of moulds and tools received free of cost from the production unit B for being used only in 600 the manufacture of goods to be consumed by unit B Selling and distribution cost 4,600 Scrap value realized 1,500 *Note: CENVAT credit of the excise duty so paid is available The details of clearances of product manufactured by Unit A and their respect valuation is as stated below: Details of Clearances Nature thereof Applicable Valuation provision AV 8,000 units sold to Unit B Captive consumption Sec 4(1)(b) read with Rule 8 of CEVR, 2000 [ICAI RTP NOV 2014] AV= 110% of CoP, Where COP is determined as per CAS-4 [WN below] = 59,092

25 2,000 units sold into the market to unrelated buyer Normal sale commercial Sec 4(1)(a) AV= TV = (2,000 Units * 75) = 1,50,000 Note: Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, has been amended to clarify that where whole or part of the excisable goods are not sold by the assessee but are used for captive consumption, the value of goods meant for captive consumption shall be 110% of the cost of production or manufacture of such goods thus, in case part of production is captively consumed, then valuation of such partly consumed goods shall be as per Rule 8 Working Note: Computation of cost of production as per CAS-4 and value product 'X' SNo Particulars Rs 1 Material consumed: Cost of direct materials Rs 22,500 Less : Central Excise Duty 2 Direct wages and salaries: RRRR22, Rs 2,500 (Note 1) 20,000 Cost of direct salaries (including house rent allowance of Rs12,000) 30,000 3 Works overheads Consumable stores and repairs 8,400 Depreciation of machinery Quality control cost 4,300 5 Research & development cost 2,700 6 Administrative overheads (relating to production activity) 2,000 Total 67,900 Less : Scrap value realized 1,500 Cost of production of 1,000 units of product 'X' 66,400 Cost of production for 800 units of product 'X' RRRR6666, ,120 11, Add: Amortised cost of moulds and tools received free of cost from unit B for being used only in the manufacture of goods to be consumed by unit B 600 Cost of production of X produced for captive consumption 53,720 Value of 800 units of product X consumed captively [Rs53, %] 59,092 Notes: 1 Since cenvat credit is available on central excise duty paid on direct materials, it has been deducted from the cost of direct materials in accordance with the Cost Accounting Standard-4 [CAS-4] 2 Administrative overheads in relation to activities other than manufacturing activities like project management activities have not been included in cost of production [CAS-4] 3 Interest and financial charge being a financial charge has not been considered to be a part of cost of production [CAS-4] 4 Abnormal cost like break down of machinery does not form part of cost of production [CAS-4] 5 Selling and distribution cost have not been considered while computing the cost of production as they are not in relation to production activity [CAS-4] Author: Goods manufactured in one factory are being consumed in another factory E/N 67/95 is not applicable Thus, it is immaterial whether final product manufactured in Unit A is exempt or chargeable to ED There is no need to state any presumption in this respect RULE 9 / Write a brief note on who could be considered as a related person u/sec 4(3)(b) of the Central Excise Act, 1944 (Nov 2011 Marks 3) Sec 4(3)(b) of Central Excise Act, 1944 defines related persons for the purposes of central excise As per said section, persons shall be deemed to be "RELATED" if i) They are Inter-Connected Undertakings (defined in the Explanation to the definition) ; ii) They are Relatives (as per Sec 6 of Companies Act, 1956); iii) Amongst them the buyer is Relative And Distributor of the assessee, or a Sub-Distributor of such distributor; or iv) They are so associated that they have interest, directly or indirectly, in the business of each other 53 Discuss with reference to the Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000, the following:

26 (i) Goods sold only through ICU (Inter-Connected Undertaking) (May Marks) Valuation of goods sold only through ICU: Valuation of goods sold only through ICU is governed by Rule 10 of Central Excise Valuation Rules, 2000 Rule 10 makes the following provisions in this regard: (a) Where the buyer and seller are ICU on account of holding-subsidiary relationship or where they are also related in terms of Sec 4(3)(b)(ii) / (iii) / (iv), then AV shall be determined by using the spirit of Rule 9 (b) In any other case, the AV shall be determined in a manner as if the person are not related person 54 An assessee sold certain goods to PQR Company Limited for Rs 20,000 on The buyer is a related person as defined under Section 4(3)(b) of CEA, 1944 The buyer did not sell the goods but used it as intermediary product The cost of production of the goods was Rs 16,000 What should be the assessable value? What should be the assessable value, if the goods were sold to unrelated person for Rs 20,000 who also used it as intermediary product? You may assume that the price charged from the buyer is excluding excise duty and other taxes (Nov Marks) Presuming that the assessee and buyer are related persons (not being ICU), the valuation of transaction between them shall be governed by Rule 9 of Central Excise Valuation Rules, 2000 Rule 9 provides that where goods are sold to related person who does not sell the goods further rather captively consumed them, then value of such goods shall be determined in spirit of Rule 8, ie, 110% of the Cost of the production Thus, in the given situation the value of the good shall be 110% of 16,000, ie, 17,600/- In case goods were sold to unrelated person for Rs 20,000, then in that case transaction would have been valued u/s 4(1)(a) and then, assessable value would have been transaction value, ie, Rs 20, The registered offices of a manufacturing company and one of the bulk buyers of its products are situated in the same premises Further, the factory of the assessee company was located in the industrial area owned by such bulk buyer of the assessee for which the assessee company pays a suitable rent The assessee company gives 40% discount to the said bulk buyer, which is similar to the discount given to OTHER bulk buyers The department questions the discount on the ground that the two parties can be deemed to be related persons as the registered offices of both the parties are located in the same premises Examine [CS (Final) Dec marks] Sec 4 of the CEA, 1944 provides for acceptance of transaction value (ie, price actually paid or payable for the goods when sold) as assessable value for the purposes of computation of duty liability However, this is only when the parties are not related as only then the transaction could be said to have taken place on commercial terms The assessee and buyer can be treated as related person only when they fall under any category as mentioned in Sec 4(3)(b) of the CEA, 1944 One of the category is when assessee and buyer are so associated that they have interest, directly or indirectly, in the business of each other The issue in the instant case is whether in the given case assessee and buyer can be said to have financial interest in the business of each other So far as the assessee is concerned, it is operating from the industrial gala owned by buyer but it is paying suitable rent (ie, commercial rent) for that and thus, it is having no financial interest in buyer Similarly, buyer is getting bulk discount from seller but that is similar to discount which is offered to any other bulk buyer and thus, buyer is also not holding any financial interest in seller That being so, neither of the party is having any interest in the business of other Thus, these cannot be hold as related party so as to warrant rejection of transaction value on ground of excessive discount On identical facts, similar view was taken by Hon ble SC in case of DAMNET CHEMICALS PVT LTD 2007-SC Accordingly, the Department s questioning of discount on ground of parties being related person is not tenable in law 56 On account of a prolonged strike in the factory of the ABC Ltd, it is decided to cut down the expenditure incurred on labour, packing, inventory advertising etc One of the bulk buyers of the ABC Ltd s products starts advertising the products purchased from ABC Ltd in order to boost its sales The Assistant Commissioner of Excise contends that ABC Ltd has gradually transferred the expenditure on sales promotion/advertisement of its products to the said buyer and thus, such expenditure should be treated as additional consideration and should be included in the assessable value of the ABC Ltd s products Examine the situation with the help of any decided case law [RTP May 2007] The facts of the case are similar to the case of ALEMBIC GLASS INDUSTRIES LTD-2006-SC In that case, the Apex court held that, where advertisement cost is incurred by the manufactures/customers compulsorily and where manufacturer has enforceable legal right against the customers to insist on incurring of such advertisement expenditure by the customers, the advertisement cost would be includible in the assessable value In the instant case, there was no enforceable legal right with the assessee to insist on the advertisement under the agreement However, circumstances under which the buyer gave an assurance of bulk purchase and commenced advertising the appellant : product indicated that it was a package outlay for the revival of the appellant s factory arrived at between them as a part of cost reduction exercise of the appellant The factual position showed that the transaction was on principal to principal basis Thus the advertisement expenditure incurred by the purchaser on his own account shall not be added in the assessable value of goods Therefore, the contention of the Assistant Commissioner of Excise is not correct

27 57 Explain the term Normal Transaction Value under the Central Excise (Determination of Price of Excisable Goods) Rules, 2000 How the term is used for valuation of excisable goods (Nov Marks) Rule 2 of Central Excise Valuation Rules, 2000 defines the term Normal Transaction Value It has been defined to mean the transaction value at which greatest aggregated quantity is sold CBEC has clarified that it shall be calculated with reference to sales on a particular day For sake of example, if we consider the following data, then the normal transaction value is Rs 100/- pu as at this transaction value greatest aggregate quantity has been sold Sale Quantity Basic Price pu Number of Sales Aggregate quantity sold 1-10 units sales of 5 units 85 Units 5 sales of 3 units units 95 5 sales of 11 unit 55 Units Over 25 units 90 1 sale of 30 units 1 sale of 50 unit 80 Units The term normal transaction value (NTV) has been used under excise in following cases: i) Valuation of goods transferred to Depot: -- AV of goods transferred from factory to depot shall be the NTV at which goods are sold from depot at the time of removal of goods from the factory ii) Valuation of goods sold to Related person: -- In case of sale to related person under rule 9, the value of the excisable goods is the NTV at which these are sold by the related person at the time of removal, to unrelated buyers iii) Valuation of goods manufactured on Job-work and returned to the principal manufacturer for sale at later point of time: Under rule 10A(ii), where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place, the value of the excisable goods shall be the NTV of such goods sold from such other place at or about the same time 58 Determine the value on which excise duty is payable in the following instances (a) A Ltd sold goods to B Ltd at a value of Rs 100 per unit In turn B Ltd sold the same to C Ltd at a value of Rs 110 per unit A Ltd and B Ltd are related, whereas B Ltd and C Ltd are unrelated (b) A Ltd and B Ltd are Interconnected Undertakings A Ltd sells goods to B Ltd at Rs 100 per unit and to C Ltd at Rs 110 per unit, who is an independent buyer (c) A Ltd sells goods to B Ltd at a value of Rs 100 per unit The said goods are captively consumed by B Ltd in its factory A Ltd & B Ltd are unrelated The cost of production of goods to A Ltd is Rs 120 per unit (d) A Ltd sells to B Ltd at a value of Rs 100 Per unit B Ltd sells the goods in retail market at a value of Rs 120 per unit The sale price of Rs 100 per unit is wholesale price of A Ltd also, A Ltd and B Ltd are related [ICWAI Dec 2001] Case (A) Case (B) Case (c) Case (d) Assessee A Ltd A Ltd A Ltd A Ltd Sold to B Ltd B Ltd B Ltd B Ltd Whether related? Yes Yes Interconnected undertakings No Yes Valuation Valuation as per Rule Since no other relation u/s Since parties are Valuation as per 9 (Assumed that 4(3)(b)(ii) to (iv) exists & not unrelated, hence, Rule 9 (assumed parties are not ICU) holding/ subsidiary, hence, transaction value is that parties are not valuation as if they are unrelated acceptable ICU) Value Price charged by B Transaction Value charged by Transaction Value Price charged by Ltd from unrelated C assessee = Rs 100 charged by assessee = B Ltd from Ltd = Rs 110 Rs 100 unrelated parties = Rs Explain briefly, how the value of goods will be ascertained for purpose of excise duty where the assessee sells the goods partly to a related person and the balance to unrelated third parties (Nov Marks) When the goods are sold partly to related person and partly to unrelated person, then valuation of sales transaction with related person shall still be done in terms of Rule 9 (or Rule 10) of CEVR, 2000 as that rule is applicable to that situation also Thus, in such case the valuation shall be done in following manner: i) In relation to goods sold to unrelated person, the valuation shall be done in terms of Sec 4(1)(a) of the CEA, 1944, ie, transaction

28 DG Education (P) Ltd [CX : Valuation of Goods] value shall be taken as assessable value ii) In relation to goods sold to related person, the valuation shall be done in terms of Sec 4(1)(b) of the CEA, 1944 read with Rule 9, (or Rule 10,) as the case may be, of CEVR, 2000 Author: Suppose, Mr A is selling goods manufactured by him to unrelated buyer (X) and related buyer (Y) 80% of his sale is to unrelated buyer Rest 20% of sales are to related buyer Goods are sold at uniform price of Rs 100 pu (taxes & duties extra) to all buyers related as well as unrelated Now, AV in case of sales to unrelated buyer (X) shall be Rs 100 [TV- Sec 4(1)(b)] What will be the AV in case of sales to related buyer (Y)? Whether TV shall be rejected even if circumstances showing that it is not manipulative? In other words, In case where goods are sold to unrelated person as well as to related person and price charged to related buyer is same as charged to unrelated buyer, then whether valuation of sales to related buyer shall be as per spirit of Rule 9 (ie, TV shall be rejected and NTV at which such goods are further sold by related buyer shall be taken as AV)? Literal Interpretation Rule 9 shall be applicable (TV in sales to related buyer shall be rejected even if it is not manipulative) However, it seems to be challengeable Under similar circumstances but under old law, Hon ble SC in case of DETERGENTS INDIA LTD SC held Where it is proved that the same price is paid by related persons as well as arm s length purchasers (who are unrelated) for the same goods, then taking higher AV in case of the former will not be a result as contemplated by the valuation scheme Literal reading would lead to absurdity in such situation In other words, as per Judiciary when goods are sold to related person then it gives rise to a rebuttable presumption that price is concessional or manipulative and thus, not acceptable as AV However, such presumption is rebuttable Once it was rebutted and price was shown to be sole consideration for sale even in case of related person buyer, it shall be acceptable as AV Fresh round of litigation is likely under amended Rule 9 (Rule 10) Hopefully, judiciary will upheld same principles under amended law also J FOUNDATION SC Facts Manufacturer company M/s H was controlled by two groups 'M group' (52%) and 'S group' (48%) M/s H used to sell goods to various buyers : 1) to normal Rs ) to buyers being concerns wholly owned by 'M group' or 'S Rs 840 and said concerns were selling goods at Rs 1550 Department argued that manufacturer M/s H and buyers being concerns owned by two groups were related parties Issue Held How TV of Rs 840 is acceptable? Buyer and seller falling under same 'controlling groups' Mutually of interest established Parties are related Since Manufacturer as well s buyer-concerns were controlled by two groups (ie under same control), there was mutually of interest and they were related RULE 10-A 60 Explain briefly the significance of Rule 10-A of the Central Excise Valuation Rules, 2000 relating to goods produced or manufactured by a JOB WORKER (May Marks) Rule 10-A of the Central Excise Valuation Rules 2000 provides for valuation of goods manufactured on job-work basis It provides that goods manufactured by job-worker shall be valued on following basis: (a) Where goods manufactured by job-worker are sold by principal manufacturer (raw-material supplier) to unrelated buyer for delivery at job-worker s premises and at a price which is the sole consideration for sale, then value of goods shall be the transaction value (b) Where goods manufactured by job-worker are collected by principal manufacturer (raw-material supplier) for subsequent sale from his premises to unrelated buyer at a price which is the sole consideration for sale, then value of goods shall be the Normal Transaction Value at which such goods are sold from such other premises at time of removal of goods from job-worker s factory (c) In any other case**, value of goods shall be determined applying the spirits of Rule 1 to Rule 10 **Important judicial pronouncement: Valuation of goods manufactured on job-work by job-worker which are then used by principal manufacture for further manufacture of excisable goods In such cases, Rule 10-A (i) and (ii) are not applicable (as both of these visualize sale of goods manufacturer on job-work whether

29 directly from premises of job-worker or from premises of principal manufacturer) This situation will fall under Rule 10-A(iii) --- Valuation under Rule 10-A(iii) - whether spirit of Rule 8 shall be applied (and thus, AV= 110% of Cost of Production a notional profit margin of 10% will form part of AV) - Whether goods shall be valued applying principal of UJJAGAR PRINTS-1988-SC, which provides for valuation by aggregating cost of raw-material supplied (excluding credit) + Cost of sending the raw-material to J/Wker premise + Job-worker charges + Jobworker profit margin (actual)] thus, valuing goods on basis of actual profit margin of job-worker In latest case of ADVANCE SURFACTANTS INDIA LTD SC, SC has held that AV in such case shall be aggregate cost of raw-material supplied (excluding credit) + Cost of sending the raw-material to J/Wker premise + Job-worker charges + Jobworker profit margin (actual)] 61 Vasudha Spinners Ltd, supplies yarn to a job worker for dyeing The cost of yarn is Rs2000 Dyeing charges are Rs300/- Process of dyeing is deemed manufacture within the meaning of Sec 2(f)(ii) of CER, 1944 After receipt of dyed yarn from job worker, the finished product is sold at Rs2500/- excluding VAT The rate of duty is 1250% Find out the assessable value and duty payable [CS Final, Dec 2008] Valuation of Job-work is governed by Rule 10-A of CEVR, 2000 In the instant case, valuation will fall under Rule 10-A (ii) as goods have been collected from job-worker premises and then sold from such other place Accordingly, the assessable value shall be Normal Transaction Value (NTV) at which goods are sold from premises of principal manufacturer at the time of removal of goods from factory of job-worker NTV as on date of removal from factory of job-worker shall be determined and ED shall be paid on that (Expected) 62 MB Motors manufactures motor vehicles It gets complete motor vehicles manufactured by sending the chassis of the motor vehicles to BD Works, independent body builders (job-worker), for building the body as per the design/specification given by it The practice followed is that the chassis is transferred to BD Works on payment of appropriate central excise duty on stock transfer basis and is not sold to them BD Works avails the cenvat credit of the duty paid on the chassis and clears the same on payment of duty to the Depot of MB Motors The duty is discharged by BD Works on the assessable value comprising the value of chassis and the job charges The Depot of MB Motors sells the vehicles at a higher price than the price on which duty had been paid Discuss whether the practice followed is correct in terms of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 [RTP, MAY 2010] As per rule 10A (ii) of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 the assessable value for the purpose of charging central excise duty, in cases where the job-worker transfers the excisable goods to the Depot/Sale office/distributor and/or any other sale point of the principal manufacturer, shall be the transaction value on which goods are sold by the principal manufacturer from such a place Accordingly, after the insertion of Rule 10A, the practice of discharging the duty on cost construction method by BD Works is not legally correct CBEC has also clarified that wherever goods are manufactured by a person on job work basis on behalf of a principal, then value for the purpose of payment of excise duty may be determined in terms of the provisions of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 subject to fulfillment of the requirements of the said rule [Circular No 902/22/2009] Thus, BD Works should pay the duty on the transaction value on which vehicles are sold by MB Motors from its depot HYVA (INDIA) PVT LTD Bombay HC [Writ Petition] Issue: Whether Rule 10-A providing for valuation of excisable goods for purposes of charging the duty of excise in the case of jobworker by taking into consideration the transaction value of the goods sold by the principal manufacturer, in any way travels beyond the Act or alters the character or nature of the tax or duty? Or Whether Rule 10-A is ulta-vires to Sec 3 (Charging Section) of CEA, 1944? Held: NO, Rule 10-A is valid Sec 3 creates charge of tax, while Sec 4 deals with measure of tax For the purpose of computation or calculation of the duty liability of the parties like the petitioners there is nothing erroneous if the Legislature takes into consideration and account the price at which the principal manufacturer sells the product or goods to the buyer That is nothing but a measure of the tax In other words, that is how the tax has to be computed and measured Merely because the Legislature devises a mode which reflects full commercial value it cannot be said that Rule 10A of Valuation Rules, 2000 travels beyond Section 3 of CEA, 1944

30 RULE 11 UTC FIRE AND SECURITY INDIA LTD-2015-SC Facts Assessee = manufacturer of smoke detectors and parts thereof Assessee was selling / using same as follows : 1) sales in loose condition; and 2) sales as part of TURNKEY PROJECTS where no separate values are recovered for the sale of these goods but price of the goods forms part of an overall consideration mentioned for such turnkey contracts Assessee valued smoke detectors used in turnkey projects based on 'cost plus 10%' under Rule 11 'Best Judgment Assessment' Issue Held How goods used in turnkey project shall be valued? Manufactured goods (smoke detectors) used in turnkey projects Valuation at 'cost plus 10%' valid Transaction value not available : For consumption in turnkey works contracts, transaction value of smoke detectors and its parts was not ascertainable; hence, valuation was to be carried out as per valuation rules Rule 8 is not applicable: Rule 8 is inapplicable, as goods were not consumed by assessee itself but used in projects for third party Rule 11 read with Rule 8 applies : Hence, Rule 11 'Residuary rule' or ' Best Judgment Assessment' was applicable as none of the preceding rules was applicable Hence, on facts, valuation arrived at by addition of 10% profit margin on cost analysis certified by Chartered Accountant, was valid