Transaction value under Section 4 of the Central Excise Act

Section 4(3)(d) of the Central Excise Act, as substituted by section 94 of the Finance Act, 2000 (No. 10 of 2000), came into force from the 1st day of July, 2000. This section contains the provision for determining the Transaction value of the goods for purpose of assessment of duty.

For applicability of transaction value in a given case, for assessment purposes, certain essential requirements should be satisfied. If anyone of the said requirements is not satisfied, then the transaction value shall not be the assessable value and value in such case has to be arrived at under the valuation rules notified for the purpose. The essential conditions for application of a

Transaction value are :
(a) The goods are sold at the time of removal from the factory or warehouse.
(b) The transaction is between unrelated parties, i.e, the assessee and the buyer are not related parties
(c) The price the sole consideration for the sale

(i) The goods are sold by an assessee for delivery at the time of place of removal. The term “place
of removal” has been defined basically to mean a factory or a warehouse, and will include a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearances from the factory.

(ii) The assessee and the buyer of the goods are not related; and

(iii) The price is the sale consideration for the sale.

Transaction value would include any amount which is paid or payable by the buyer to or on behalf of the assessee, on account of the factum of sale of goods. In other words, if, for example, an assessee recovers advertising charges or publicity charges from his buyers, either at the time of sale of goods or even subsequently, the assessee cannot claim that such charges are not to be included in the transaction value. The law recognizes such payment to be part of the transaction value, that is assessable value for those particular transactions.

As per the new Sec.4, transaction value shall include the following receipts/recoveries or charges,
incurred or provided for in connection with the manufacturing, marketing, selling of the excisable
goods :
(a) Advertising or publicity;
(b) Marketing and selling organization expenses;
(c) Storage;
(d) Outward handling;
(e) Servicing, warranty;
(f) Commission or
(g) Any other matter.

The above list is not exhaustive and whatever elements which enrich the value of the goods before
their marketing and were held by Hon’ble Supreme Court to be includible in “value” under the erstwhile section 4 would continue to form part of section 4 value even under new section 4 definition.

(i) Taxes and duties

(ii) Erection, installation and commissioning charges

(iii) Freight

(iv) Advertising/Publicity expenditure by brand name/copyright owner

(v) Notional interest on security deposit/advances

(vi) Interest on Receivables

(vii) Discounts

(viii) Deemed export incentives earned on goods supplied

(ix) Subsidy/rebate obtained by assessee:

(x) Price of accessories and optional bought out items is not includible in Assessable value.

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