Valuation rules to determine assessable value

As per Section 4(1)(b) of the Central Excise Act, if ‘Assessable Value’ cannot be determined u/s 4(1)(a), it shall be determined in such manner as may be prescribed by rules. Under these powers, Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 have been made effective from 1-7-2000.

In Ispat Industries Ltd. v CCE 2006, it was observed that Excise Valuation Rules should be applied serially. The rules are as below :

(i) Value nearest to time of removal if goods not sold — If goods are not sold at the time of removal, then value will be based on the value of such goods sold by assessee at any other time nearest to the time of removal, subject to reasonable adjustments. [Rule 4].
The rule applies when price at the time of removal is not available as the goods are not sold by the
assessee at the time of removal. Thus, this rule should apply in case of removal of free samples or
supply under warranty claims.
In case of new or improved products or new variety of products, price of similar goods may not be
available. In such case, valuation should be on basis of cost of production plus 10%, in absence of any other mode available for valuation.

(ii) Goods sold at different place — Sometimes, goods may be sold at place other than the place of removal e.g. in case of FOR delivery contract. In such cases, actual cost of transportation from place of removal upto place of delivery of the excisable goods will be allowable as deduction. Cost of transportation can be either on actual basis or on equalized basis. [Rule 5]

“Cost of transportation” includes – (i) the actual cost of transportation; and (ii) in case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing.

(iii) Valuation when the price is not the sole consideration — Where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of —
(a) such transaction value, and
(b) the amount of money value of any additional consideration flowing directly or indirectly from the
buyer to the assessee. [Rule 6]
In case any of the goods and services (listed below) is provided by the buyer free of change or at reduced cost in connection with production and sale of such goods, then, the value of such goods and services, apportioned as appropriate, shall be deemed to be the money value of the additional consideration.

Only the value of the following goods and services are to be added in the transaction value –
(a) materials, components, parts and similar items relatable to such goods;
(b) tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;
(c) material consumed, including packaging materials, in the production of such goods;
(d) engineering, development, artwork, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods.

(iv) Sale at depot/consignment agent — Section 4(3)(c)(iii) provides that in case of sale at depot/consignment agent, the depot/place of consignment agent will be the ‘place of removal’. As per section 4(3)(cc), in case of sale from depot/place of consignment agent, ‘time of removal’ shall be deemed to be the time at which the goods are cleared from factory.

In other words, in case of sale from depot/place of consignment agent, duty will be payable on the price prevailing at the depot as on date of removal from factory. Price at which such goods are subsequently sold from the depot is not relevant for purpose of excise valuation.
When goods are sold through depot, there is no ‘sale’ at the time of removal from factory. In such cases, price prevailing at depot (but at the time of removal from factory) shall be the basis of Assessable Value.
The value should be ‘normal transaction value’ of such goods sold from the depot at the time of removal or at the nearest time of removal from factory. [rule 7 of Valuation Rules].

As per Valuation Rule 2(b), “normal transaction value” means the transaction value at which the greatest
aggregate quantity of goods are sold.

(v) Captive consumption — Since excise duty is on manufacture of goods, duty is payable as soon as goods are manufactured within the factory. Such goods are called ‘intermediate products’ and its use within the factory is termed as ‘captive consumption’. Duty is payable even when goods are despatched from one factory to another factory of the same manufacturer.

Duty payable on intermediated products – In A S Processors v. CCE 1999(112) ELT 706 (CEGAT), it was held that once a new marketable intermediate product comes into existence, it is to be charged to duty if not exempted by a notification – same view in CCE v. Citric India 2001(127) ELT 539 (CEGAT).

Captive consumption for dutiable final products – The intermediate product manufactured within the factory is exempt from duty, if it is consumed captively for manufacture of (a) Capital goods as defined in Cenvat Credit Rules i.e. those which are eligible for Cenvat credit or (b) Used for is or in relation to manufacture of final products eligible for Cenvat, made from inputs which are eligible for Cenvat. [Notification No. 67/1995 dated 16-3-1995].

Duty payable on captive consumption if intermediate product under compounded levy scheme – In Gaya Aluminium Industries v. CCE (2004) 170 ELT 98 (CESTAT), it was held that even if Aluminium Circles are captively consumed, duty will be payable under compounded levy scheme [However, assessee claimed that compounded levy scheme is optional and assessee can opt to pay normal duty. Hence, the matter was remanded to adjudicating authority for consideration].
In Gouri Shankar Industries v. CCE 2004 (173) ELT 247 (CESTAT) also, it was held that duty is payable if Aluminium circles are consumed captively.
Valuation in case of captive consumption – In case of captive consumption, valuation shall be done on basis of cost of production plus 10% [The percentage was 15% upto 5-8-2003]. (Rule 8 of Valuation Rules).

Cost of production is required to be calculated as per CAS – 4.
Captive consumption means goods are not sold but consumed within the same factory or another
factory of same manufacturer (i.e. inter-unit transfers).
The rule may also be helpful if goods are to be transferred to job worker for job work and then brought back for further processing. If job worker is utilizing some of his own material, it may be advisable to clear processed inputs on payment of duty to job worker. The job worker can avail Cenvat credit and then send back the goods manufactured by him on payment of duty.
Rule 8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods.

Captive consumption by related person – In case goods are supplied to a ‘related person’ but consumed by the related person and not sold, valuation will be done on the basis of cost of production plus 10% [Proviso to rule 9]. – CBE&C, vide its circular No. 643/34/2002-CX dated 1-7-2002, ahs clarified that this proviso applies when goods are transferred to a sister unit or another unit of the same factory for captive consumption in their factory.

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