CA – Final
Simplifying the complex laws
FINAL – MAY / NOV 2017
Excise
No.
Chapters
Pg. No.
7
End Used based Exemption Notification
200 - 207
8
Valuation of Goods [Transaction Value]
208 – 231
9
Valuation Rules [CEVR, 2000]
232 - 254
By
Prof. Jimit Doshi
IDT/Excise
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Central Excise (Removal of goods at concessional rate of duty for use in
manufacture of Excisable and Other goods) Rules, 2016.
End Use Based
Exemption
In certain cases, full or partial exemption under section 5A of CEA, 1944, is
granted on any goods subject to their end-use for specified purposes.
In other words, the exemption is based on end use.
If the buyer is entitled to obtain excisable goods at nil or concessional rate of
duty, he is required to follow prescribed procedure as provided in these rules
Reason for such
procedure
To ensure that the exemption/concession based on intended end-use is not misused
and goods cleared are really used for intended purpose.
Applicability –
Subject Goods
These rules shall apply to –
 A manufacturer
 who intends to avail of the benefit of a notification u/s 5A granting
exemption of duty
 to excisable goods (viz “subject goods”) when used for purpose
specified in that notification
Persons involved


Example
Naptha is exempt from duty when used in manufacture of fertilizers. M/s
RM (manufacturer of fertilizer) buys Naptha from manufacturer M/s MSG.
Here –




Manufacturer of subject goods
Recipient manufacturer who receives subject goods for specified use at
concessional rate
Naptha is “subject goods”
M/s MSG is manufacturer of subject goods
M/s RM is recipient manufacturer
These rules will apply for claiming exemption in respect of Naptha
Prof Jimit Doshi – IDT/Excise
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CA – Final
Rule 2 - Application
These rules shall apply to a manufacturer who intends to avail of the benefit of a notification issued
under section 5A(1) of the Central Excise Act, 1944 granting exemption of duty to excisable goods
when used for the purpose specified in that notification
Provided that an un-registered manufacturer including manufacturers of exempted goods or nonexcisable goods shall be eligible to avail the benefits of the provisions of these rules after taking
registration under rule 9 of the Central Excise Rules, 2002.
Whether a manufacturer of non-excisable goods can procure goods in respect of which end-use
based exemption has been issued by CG? If yes, whether he shall be required to take registration
under excise prior to such procurement?
 In terms of newly notified Central Excise (Removal of goods at Concessional rate of Duty for
manufacture of Excisable and Other Goods) Rules, 2016, even manufacturer of non-excisable
goods is entitled to procure goods in respect of which end-use based exemption has been
issued by CG.
 Such assessee shall first obtain central excise registration in terms of Central Excise Rules, 2002.
 Rule 9 of CER, 2002 mandates registration for user of excisable goods if such goods are under end-use
based exemption
Goods in respect of which end-use based exemption has been issued by CG.
Status of Procurer/ Buyer
Procurer = Manufacturer of Excisable goods (dutiable/ exempted)
Procurer = Manufacturer of Non- Excisable goods
Procurer = Not a Manufacturer (say, trader, service provider etc)
IDT/Excise
Allowed
Allowed
Not Allowed
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Rule 4 - Information by applicant manufacturer to obtain benefit.
1) INFORMATION by recipient manufacturer to AC/DC in 2 copies
An applicant manufacturer shall provide an information in duplicate in the Form I to the
jurisdictional AC/DC,
… and AC/DC shall forward one copy of the information to the jurisdictional range
Superintendent of the supplier manufacturer.
2) Numbering of Information
The applicant manufacturer shall number the information filed under sub-rule (1) in each
financial year.
3) Separate information for each supplier / combined information for multiple supplier
The applicant manufacturer may either provide separate information in respect of each of the
supplier manufacturer of subject goods or provide combined information for multiple supplier
manufacturers with details of each of them in Form I.
4) Information for a period of one year or less
The applicant manufacturer shall provide the information from time to time to receive subject
goods in quantities commensurate with expected consumption in the manufacturing process
for a period of one year or less.
5) Execution of Bond
The applicant manufacturer shall execute a general bond with surety or security
Provided that it shall be sufficient to provide a LUT by an applicant manufacturer against
whom no show cause notice has been issued under section 11A (4)/(5) of CEA or where no
action is proposed under any notification issued in pursuance of rule 12CCC of CER, 2002 or
rule 12AAA of CCR, 2004.
6) Forwarding a copy of information to supplier
The applicant manufacturer shall forward a copy of information duly signed by his authorised
signatory, to the supplier manufacturer for procuring subject goods.
IDT/Excise
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Whether buyer intending to purchase the goods at concessional rate of duty (under end-use based
exemption) can claim relaxation from requirement of execution of bond? If yes, under what
circumstances?
 Buyer intending to purchase the goods at concessional rate of duty is mandatorily required to
follow the procedure specified in Central Excise (Removal of goods at Concessional rate of
Duty for manufacture of Excisable and Other Goods) Rules, 2016. These rules allow such buyer
to submit ‘letter of undertaking (LuT)’ instead of ‘execution of bond’ for the intending purchase
of goods at concessional rate of duty.
 The facility of submission of ‘letter of undertaking’ shall be allowed to buyer manufacturer
only if following conditions are satisfied:
a) No SCN has been issued upon such manufacturer u/Sec 11-A (4) or (5), i.e., no demand of
duty has been raised upon the buyer manufacturer on charge of fraud, suppression etc.
b) No Action is proposed against such manufacturer under Rule 12-CCC of CER, 2002 or
Rule 12-AAA of CCR, 2004, i.e., no deterrent action (as to imposition of restrictions) is
proposed to be imposed upon the buyer manufacturer.
Letter of undertaking (LuT)
A letter of undertaking is an assurance by one party to another party that they will fulfill the obligation that
had been previously agreed on, but not written into a contract.
Difference between ‘Bond’ and “Letter of Undertaking’
Bond is executed on stamp paper. Undertaking is given on plain letter.
IDT/Excise
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Rule 5 - Procedure to be followed by the manufacturer of subject goods
1) Exemption on the basis of application received from recipient manufacturer
On the basis of the INFORMATION received, the manufacturer of subject goods shall avail
the benefit of the exemption notification.
2) Records to be maintained
The manufacturer of the subject goods shall maintain record of information received on the
basis of which goods have been removed, the removal details, such as No. and date of invoice,
description, quantity, value of subject goods and amount of excise duty paid at concessional
rate and retain the same in his records.
Rule 6 - Manufacturer to give information regarding receipt of the subject goods and
maintain records.
The applicant manufacturer, receiving subject goods, shall maintain an account indicating the
quantity and value of subject goods, the quantity of subject goods consumed for the intended
purpose, and the quantity remaining in stock, invoice wise and
shall submit a Quarterly return in Form II to the said AC/DC by the 10th day of the following
month.
Rule 7 - Recovery of duty in certain cases.
Where the subject goods are not used by the manufacturer for the intended purpose, the
applicant manufacturer shall be liable to pay
Duty leviable on such goods had there been no such exemption notification
Less : Duty already paid thereon, if any
Interest on the amount as calculated above @ 15% p.a
and the provisions of section 11A [except the time limit mentioned in the said section for
demanding duty] and section 11AA of the CEA, 1944 shall apply mutatis mutandis for effecting
such recoveries.
IDT/Excise
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Provided that where the applicant manufacturer is found to be non-existent,
-
The supplier manufacturer shall be liable to pay
-
The amount equal to the difference between the duty leviable on such goods but for the
exemption and that already paid, if any, at the time of removal from the factory of the
supplier manufacturer of the subject goods,
-
Along with interest and the provisions of section 11a except the time limit mentioned in the
said section
-
And section 11aa of the act shall apply mutatis mutandis, for effecting such recoveries.
PROVIDED THAT if the subject goods on receipt are found to be
 Defective or Damaged or
 Unsuitable or Surplus to the needs of the manufacturer
He may return the subject goods to the original manufacturer of the goods from whom he had
obtained these and every such returned goods shall be added to the non-duty paid stock of the
manufacturer of the subject goods
Explanation
For the removal of doubts, it is hereby clarified that subject goods shall be DEEMED NOT TO
HAVE BEEN USED FOR THE INTENDED PURPOSE
 even if any of the quantity of the subject goods is lost or destroyed by natural causes or by
unavoidable accidents during
 transport from the place of procurement to the manufacturer’s premises or
 transport from the manufacturer’s premises to the place of procurement or
 handling or storage in the applicant manufacturer’s premises.
IDT/Excise
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
Insole were received – sold to some other person

Insole were received – but due to cancellation of “Sport Shoe’s order from customers, found it surplus --- Accordingly, the buyer manufacturer return the goods back to original supplier – Sales return being
accepted by seller manufacturer

Insole were received – put in to store room – but a fire broke out in the factory – entire stock of insole
gets destroyed in that fire

Insole were received – used in manufacture of Sports shoes – but a fire broke out in the factory – entire
stock of “Sport Shoes” gets destroyed in that fire
Conclusion

Intention to use is not enough, Actual use is necessary

If the goods are not actually used for their intended purpose, duty shall be payable by consignor
(receiver of goods) along with interest
Write a brief note with reference to the Central Excise (Removal of Goods at Concessional Rate of
Duty for Manufacture of Excisable and Other Goods) Rules, 2016 on the provisions relating to the
following cases:
a) Consequence of goods not being used for intended purposes.
b) Defective, damaged, unsuitable, surplus goods returned to manufacturer;
c) Goods lost or destroyed by natural causes or unavoidable accident and not used for
intended purpose.
IDT/Excise
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COMPARISON Old Rule
Central Excise (Removal of goods at concessional
rate of duty for use in manufacture of Excisable
goods) Rules, 2001
Rules stipulated submission of application* (4
Copies – 2 copies retained by Dept and 2 handed
over to the applicant)
What was old system?: Buyer manufacturer was
required to obtain permission/ certifications from
the Central Excise Authorities in order to obtain
goods at concessional rate.
Rules stipulated submission of separate application
in respect of goods from different suppliers.
Rules stipulated execution of Bond, with surety or
security.
New Rule
[w.e.f. 16th March, 2016]
Central Excise (Removal of goods at concessional
rate of duty for use in manufacture of Excisable and
Other goods) Rules, 2016.
Impact: Now, same set of rules can be used for
clearance of goods for use in manufacture of NONEXCISABLE GOODS by the procurer. Intended
procurer shall first take Registration under Excise.
Rules stipulate submission of information* (2
Copies – copies to be retained with Department)
What is new system?: Buyer manufacturer is no
longer required to obtain permission/ certifications
from the Central Excise Authorities. Rather, he can
procure goods at concessional rate based on selfdeclaration.
Rules permit submission of combined information
in respect of different supplier manufacturers.
Rules stipulate execution of Bond, with surety*.
Rules stipulated filing of Quarterly returns, but no
form was prescribed.
Rules stipulated action against procurer upon
failure to use goods for intended purpose.
Rules stipulate filing of Quarterly returns, and form
has been prescribed [Form-II].
Rules stipulate action against procurer upon failure
to use goods for intended purpose.
… For affecting recovery, Sec 11-A was made
applicable, mutatis mutandis.
… For affecting recovery, Sec 11-A has been made
applicable, mutatis mutandis. However, time limits
of Sec 11-A have been made inapplicable.
Further, Burden has been put on supplier
manufacturer to make sure that the procurer exists.
In even of applicant manufacturer being found to
be non-existent, supplier manufacturer shall be
liable to pay duty. (Further for such recovery, time
limits of Sec 11-A shall also not be applicable)
IDT/Excise
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Valuation of Goods [Transaction Value]
Valuation of excisable goods for purposes of charging of duty of excise – Sec 4
1) Applicability
(a) Where under this Act, the duty of excise is chargeable on any excisable goods with reference
to their value, then, on each removal of the goods, such value shall in a case where
 the goods are SOLD by the assessee,
 for DELIVERY at the time and place of the removal,
 the assessee and the buyer of the goods are NOT RELATED AND
 the price is the SOLE CONSIDERATION for the sale,
BE THE TRANSACTION VALUE
(b) in any other case, including the case where the goods are not sold, be the value determined in
such manner as may be prescribed.
(2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff
value has been fixed under sub-section (2) of section 3.
Applicability
of Section 4
Value =
Transaction
value
 This section applies if –
 The duty of excise is chargeable on any excisable goods with reference to
their value;
 No tariff value has been fixed in respect of such excisable goods under
Section 3(2);
 The goods are not required to be valued under Section 4A
 Section 3(2) and Section 4A have an overriding effect over this section
Thus, Value = Transaction Value – if certain conditions are satisfied [Section
4(1)(a)]: If
i. the excisable goods are SOLD by the assessee,
[assessee is defined in section 4(3)(a)]
ii. such sale is for DELIVERY at the time and place of the removal,
[time and place of the removal is defined in section 4(3)(c) and (cc)]
iii. the assessee and the buyer of the goods are NOT RELATED
IDT/Excise
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[related persons is defined in section 4(3)(b)]
iv. the price is the SOLE CONSIDERATION for the sale,
Valuation
Rules

If any of the aforesaid conditions are not satisfied, then Valuation shall be
determined as per the Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 [for short – Central Excise Valuation Rules, 2000]
When to
Value goods?

ED is payable at removal and is assessed at that time (Rule 4 read with
Rule 5 of CER, 2002) and hence, goods are valued at each removal

Each removal is a separate transaction and is valued independently/
separately

If removal satisfies the conditions mentioned in Sec 4(1)(a), then AV = TV
(which is basically Basic Sale Price excluding of duties and taxes).
 But if removal is not fulfilling any of the conditions mentioned in Sec
4(1)(a), then Central Excise Valuation Rules, 2000 shall be applied for
arriving at the valuation

Goods are to be assessed at the time of removal from factory. Thus, the state
in which they are removed is highly relevant for valuation.
CONDITIONS
Goods are SOLD
Sale provides for delivery at
the PLACE OF REMOVAL
Seller Manufacturer and buyer
are NOT RELATED
Sale Price = SOLE
CONSIDERATION
CEVR, 2000
Relevant
Rules
Free Samples
Captive Consumption
Goods manufacture on JW
Delivery of goods at Buyer’s premises
Related Person (Other than ICU)
ICU
Additional consideration obtained from Buyer
History of Valuation

The definition of "transaction value" needs to be carefully taken not of as there is fundamental departure from the erstwhile
system of valuation that was essentially based on the concept of "Normal Wholesale Price", even though sales were effected
at varying prices to different buyers or class of buyers from factory gate or depots etc., had to be determined.
IDT/Excise
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
The new section 4 essentially seeks to accept different transaction value which may be charged by the assessee to
different customers, for assessment purposes so along as these are based upon purely commercial practices rather than
looking for a notionally determined value.
CERTAIN DEFINITIONS PROVIDED IN SECTION 4(3)
Sec 4(3)(a) “assessee” means the person who is liable to pay the duty of excise under this Act and
includes his agent;
Sec 4(3)(b) persons shall be deemed to be “related” if (i)
they are inter-connected undertakings [holding – subsidiary];
(ii)
they are relatives;
(iii)
amongst them the buyer is a relative and a 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.
Explanation. — In this clause (i) “inter-connected undertakings” shall have the meaning assigned to it in clause (g) of section 2 of
the Monopolies and Restrictive Trade Practices Act, 1969; and
(ii) “relative” shall have the meaning assigned to it in clause (77) of section 2 of the Companies Act,
2013;
Inter-Connected Undertakings - - - > Used in Rule 10

No need to understand the definition of Inter – Connected Undertakings
Mutually Interested Person - - - > Used in Rule 9

Mutually Interested Person – Sec 4(3)(b)(iv)

There must be reciprocity of relationship/ mutuality of interest. However, the degree of
interest which each has in the business of the other may be different

Interest of one in the business of the other may be direct, while the interest of the latter
in the business of the former may be indirect. That would not make any difference as
long as each has got an interest, direct or indirect, in the business of each other
IDT/Excise
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Relatives - - - > Used in Rule 9
2(77) ‘‘relative’’, with reference to any person, means any one who is related to another, if—
i.
they are members of a Hindu Undivided Family;
ii.
they are husband and wife; or
iii.
one person is related to the other in such manner as may be prescribed;
Companies (Specification of definitions details) Rules, 2014
Section 4 - List of relatives in terms of clause (77) of section 2.A person shall be deemed to be the relative of another, if he or she is related to another in the
following manner, namely:1) Father
2) Mother
3) Son
4) Son’s wife
5) Daughter
6) Daughter’s husband
7) Brother
8) Sister

Thus Relatives – Sec 4(3)(b)(ii) =

In relation to HUF – All member of HUF

In relation to Individual – Spouse + 8 Relations
Relative & Distributor - - - > Used in Rule 9

Relative & Distributor – Sec 4(3)(b)(iii)

Distributor shall be treated as ‘Related person’ only if he is RELATIVE

Sub-distributor shall be treated as ‘Related person’ if Distributor is relative.

Sub-distributor need not be ‘relative’ of manufacturer – if Distributor is relative, then
sub-distributor automatically becomes related person
Thus, it covers a relative (natural relationship) of the assessee who is also a distributor. Since relative is
already covered in (ii) above, this clause is meant to cover sub-distributors of relative distributors
IDT/Excise
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Place of Removal – Sec 4(3)(c) and Time of Removal – Sec 4(3)(cc)
Sec 4(3)(c) “place of removal” means –
(i)
Factory;
(ii)
Warehouse or any other place or premises wherein the excisable goods have been permitted to
be deposited without payment of duty;
(iii)
Depot, premises of a consignment agent or any other place or premises from where the
excisable goods are to be sold after their clearance from the factory;
from where such goods are removed
Sec 4(3)(cc) “time of removal”, in respect of the excisable goods removed from the place of removal
referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are
cleared from the FACTORY
The relevant position is given in the table below:
Case
1 – Normal
2- Warehouse
3 - Depot
4 – Export
5 – Freight on
Receipt Basis
(FOR basis)
IDT/Excise
Place of Removal [PoR]
PoR = Factory
[Sec 4(3)(c)(i)]
PoR = Warehouse
[Sec 4(3)(c)(ii)]
PoR = Depot
[Sec 4(3)(c)(iii)]
ToR = Port
[It was held that in Inductotherm India
Pvt Ltd – 2014 that in the case of export
of final product, place of removal would be
port of shipment and not factory gate]
PoR = Customer’s premises
[Refer CCR provisions]
Time of Removal [ToR]
ToR = Factory
[Rule 5 of CER, 2002]
ToR = Warehouse
[Rule 5 of CER, 2002]
ToR = Factory
[As per Section 4(3)(cc), ToR = Demmed
to be the time at which such goods are
cleared from Factory]
ToR = Factory
[Rule 5 of CER, 2002]
ToR = Factory
[Rule 5 of CER, 2002]
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Circular No. 988/12/2014-CX - Determination of place of removal

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

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.

Payment of transport, inclusion of transport charges in value, payment of insurance or who bears
the risk are not the relevant considerations to ascertain the place of removal. The place where sale
has taken place or when the property in goods passes from the seller to the buyer is the relevant
consideration to determine the place of removal.

If:
1) the ownership of goods and the property in goods remains with the seller of the goods till the
delivery of the goods in acceptable condition to the purchaser at his door step;
2) the seller bore the risk of loss of or damage to the goods during transit to the destination; and
3) the freight charges were an integral part of the price of goods,
then, POR would be ‘buyer’s premises’
Thus, in conclusion 
Accordingly, if excisable goods are removed from the factory, then, the place of removal shall be the
factory.

Excise duty is payable on removal of excisable goods as per Rule 4 and Rule 5 of CER, 2002. Hence,
time of removal plays an important role in determining the effective date of rate of duty and tariff value
applicable

Generally, the value of excisable goods includes all expenses incurred upto place of removal

Further, even if place of removal is depot etc, the time of removal shall be the removal from factory.
Thus, value shall include all expenses upto depot, but duty shall be payable at the time of removal from
the factory.
IDT/Excise
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TRANSACTION VALUE – SEC 4(3)(D)
(d) “transaction value”
means - - - > the price actually paid or payable for the goods, when sold, and
includes - - - > in addition to the amount charged as price, any amount that the buyer is liable to pay
to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the
time of the sale or at any other time,
including, but not limited to - - - > any amount charged for, or to make provision for, advertising
or publicity, marketing and selling organization expenses, storage, outward handling, servicing,
warranty, commission or any other matter;
but does not include - - - > the amount of duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods.
Transaction Value - - Means

the price actually paid or payable for the goods, when sold, and
Includes




in addition to the amount charged as price, any amount
that the buyer is liable to pay to, or on behalf of, the assessee,
BY REASON OF, OR IN CONNECTION WITH THE SALE,
whether payable at the time of the sale or at any other time,
Including
but not
limited to

any amount charged for, or to make provision for,
 Advertising or Publicity, Marketing and selling organization expenses,
 Storage, Outward handling, Servicing,
 Warranty, Commission or any other matter
but does
not include

the amount of duty of excise, sales tax and other taxes, if any, actually paid
or actually payable on such goods
IDT/Excise
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PRICE-CUM-DUTY
Price-Cum-Duty - Sales tax and other taxes actually paid = Price-cum-duty deemed to be inclusive
of the duty payable on such goods
Price actually paid for the goods sold + Money value of the additional consideration, if any,
flowing directly or indirectly from the buyer to the assessee in connection with the sale of such
goods
The following points merit consideration in this regard:
Situations when the price charged will be taken as price-cum-duty:
•
If the assessee has collected less duty from buyer than what is due; or
•
If the assessee has not collected any duty from the buyer even though the product is liable to
duty; or
•
If the assessee has paid duty on lesser value due to receipt of additional consideration.
In the above situations, the price charged (exclusive of sale-tax/local taxes) shall be regarded as
price-cum-duty.
Question - - What will be the assessable value of the excisable goods in the following cases?
a) The price-cum-duty of excisable goods sold by ‘A’ is Rs 120 per unit. Excise duty @ 20% has
been charged by ‘A’ on such goods. However, ‘A’ comes to know that the actual rate of duty
chargeable on the goods sold by him is 30% and not 20%. ‘A’ has collected only Rs 120 per
unit from the customers.
b) ‘B’ sells his excisable goods @ Rs 120 per unit (inclusive of excise duty @ 20%).
Subsequently, it was found that the price cum duty was in fact Rs 140 per unit as the
assessee has collected Rs 20 per unit separately
c) The price of the excisable goods sold by ‘C’ is Rs 120 per unit. ‘C’ does not charge any duty
of excise in his invoice on the belief that the goods sold by him are exempt from payment of
duty vide an exemption notification. However, he comes to know that the goods are not
exempt from excise duty but are liable to duty @ 20%.
IDT/Excise
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TV – ALL TAXES (EXCISE DUTY/ SALES TAX/ OTHER TAXES) EXCLUDIBLE
Note the following points –

All kinds of Excise Duties, whether payable under Central Excise Act or under any other law is
deductible

All kinds of Sales tax, whether known as Sales tax or VAT or Turnover tax, surcharges thereon or
additional sales – tax etc are deductible

Deduction only if the price is inclusive of such duties

Deduction is available only to the extent such tax/ duty are actually paid or payable on such goods
•
In case of Full exemption – nothing is deductible
•
In case of Partial exemption – effective tax is deductible
‘Actually Payable’

The words " actually payable" in the context of the amount of duty of excise, sales tax and
other taxes would normally come into play only in those situations where the amount of
excise, sales tax or other taxes is not paid at the time of transaction but paid subsequently
For example –
In many states, manufacturer collects sales tax but sales tax payments to State Government is
deferred for a particular period (Such scheme are commonly referred as – DEFERRED
SCHEME). In such cases, sales tax is ‘payable’ and hence, shall be deductible from total sales price
[CBEC Circular – 354/81/2000]
In contrast, some State Government allow sales tax exemption to new industries in first few
years as an Incentive. Sales tax is neither collected nor payable. Since, no tax is ‘payable’ by
such industries, they are not eligible to claim any deduction on account of sales tax.
Gist - Where assessee is allowed to retain a part of sales-tax collected by it under a scheme
framed by State Government, then, in computing assessable value such retained sales tax is not
allowed as deduction from Transaction Value
Super Synotex (India) Ltd – 2014 – Supreme Court
Maruti Suzuki India Ltd – 2014 – Supreme Court
Facts of the
> The assessee was a prestigious unit manufacturing and selling vehicles in the
Case
State of Haryana.
> Under a scheme framed under Haryana General Sales Tax Rules, 1975 –
the assessee could collect sales tax from its customers but was required to
IDT/Excise
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deposit only 50 per cent thereof with the State Government while retaining the
balance 50 per cent by way of a tax concession [Retention]
Department’s  Retained sales tax was neither actually paid nor actually payable to the State
contention
Government
 Accordingly the assessee was liable to tax excise duty thereon along with
interest and penalty.
Assessee’s
 Under the scheme, 50 per cent of sales tax collected from the customers was
contention
allowed to be retained by by the State Government [as a subsidy], and such
retained amount should not be included in the transaction value of the goods.
Issue before
Whether retention of sales-tax is includible in transaction value?
consideration
Held
Retained amount was neither paid nor payable to State Government at any point of time
Example
Therefore, same could not be deducted in arriving at transaction value
 Suppose, price charged is Rs 100 (inclusive of duty) and Rs 10 sales tax.
 Assessee collects Rs 110 but pays only Rs. 2.5 towards sales-tax and Rs. 7.5, though
payable to State Government, is allowed as cash incentive by State Government
[Retention Scheme]
 Here, Cum-duty price would be Rs. 100 + 10 - 2.5 = Rs. 107.5
 If rate of duty is 12.5%, then, duty would be Rs 107.5 × 12.5 ÷ 112.5 = Rs 11.94
Thus the following conclusion arises –
Type of Scheme – State Government
Exemption Scheme [No tax collected at all]
Deferment [Tax collected but payment is
deferred]
Retention / Incentive [Tax collected fully but
amount paid to State Government only say
25%]

Deductibility
Administrative Charges
Charges Collected
Nature of Tax
Held –
IDT/Excise
Administrative Charges
Administrative charges required to be paid by sugar factory for product
sold and recovered from Customer in terms of Uttar Pradesh Sheera
Niyantaran Adhiniyam, 1964
 Taxes as such are not defined in Central Excise Act. If the expression
Page | 217
CA – Final
Chhanta Sugar Co.
Ltd – 2004 – Supreme
Court

‘tax’ is to be understood in the absence of any definition, broad
meaning shall be assigned and 'tax' in its widest sense would include
all money raised by taxation, including taxes levied by the Union and
State Legislatures and rates and other charges levied by local
authorities under statutory powers
 Administrative charges (recovered under Statutory provisions and
paid over to the concerned authority) would be covered under “other
taxes” because it is a compulsory exaction made under an Act
Steel Development Charges
Charges Collected
Nature of Tax
Held –
Tata Iron & Steel –
2002 – Supreme
Court
IDT/Excise
Steel Development Charges
This element was compulsorily required to be added by the members of
the Steel Plants as per the decision of the Joint Plant Committee (JPC –
was formed by the members themselves) for constituting a fund for
modernization, research and development of steel plants for common
benefit of all the members
 In the present case, there is no backing of any statutory provision for
the creation of these funds.
 These main steel plants were the only member of steel plants. The
levy was only on them and the fund was created for the utilization by
these member steel plants only.
 The addition of an element to the ex- works price has no statutory
backing or force. It is not by the Central Government or the State
Government or any local authority. It is a levy by a Committee
majority of whose members are representatives of the steel plants.
The purpose of creating funds is for the benefit of these member steel
plants.
 Such a levy, even though, it may be compulsory can never be "tax“
and accordingly not deductible
Page | 218
CA – Final
Question 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 (i.e., 100%); or
(b) VAT deposited with State Government (i.e., 45%)
Role of Inclusion part in the definition of TV

Logic of this inclusion part
 Where the assessee charges an amount as price for his goods, the amount so charged and paid or
payable for the goods will form the assessable value.
 Thus, if assessee splits up his pricing system and charges a price for the goods and separately
charges for packaging, the packaging charges will also form part of assessable value as it is charge
in connection with production and sale of the goods recovered from the buyer.
 Inclusion part would take care of these cases where assessee adopts “Split-up pricing”
 It is felt that where the assessee includes all their costs incurred in relation to manufacture and
marketing while fixing price payable for the goods and bills and collects an all inclusive price- as
happens in most cases where sales are to independent customers on commercial considerationvaluation should not pose any problem as the transaction price will generally be the assessable
value.
For eg – Basic Sale Price Rs 1000; Excise Duty @ 12.5%
 Nevertheless, there could be situations where the amount charged by an assessee does not reflect
the true intrinsic value of goods marketed and total value split up into various elements like
special packing charges, warranty charges, service charges etc., These cases would require to be
scrutinized carefully to ensure that duty is paid on correct value
For eg – Basic Sale Price Rs 800; Warranty charges Rs 200; Excise Duty @ 12.5%
IDT/Excise
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CA – Final

Scope of inclusion part

It seeks to cover “payment” which are made by buyer in addition to the sale price charged for
the goods

It does not intend to cover “EVERY ADDITIONAL PAYMENT” – it restricts its scope only upto
inclusion of those payments which can be said to be made either
o
By Reason of Sale
o
In Connection with Sale
 Dharmada Charges / Charity

Sometimes, some amount is collected by seller in the invoice as ‘Dharmada’ (charity)
and spent for charitable purposes.

The amount so collected in "not retained" by the manufacturer but used solely for
religious or charitable purposes, thus the amount collected doesn't go to the
manufacturer or doesn't form part of his income
Dharmada Charges - - - > _________________________
Circular - 354/81/2000
The issue whether the amount of "Dharmada" collected from the buyers by the assessee is includible
in the assessable value or not has been subject matter of dispute in a number of cases.
Recently, this issue again came up before the Hon'ble Supreme Court in the case of M/s.
Panchmukhi Engg. Works & Ors. and the Hon'ble Supreme Court allowed the appeals in favour of
Revenue. The Revenue's stand in the said of case had been that "Dharmada" is includible in the
assessable value.
It is therefore clarified that "Dharmada" collected by the assessee from the buyer in includible in the
assessable value of the goods.
The assessee was manufacturer of Paper and Paper Board chargeable to Central Excise duty. The assessee
recovered dharmada charges @ 0.25% of the value of the goods from their customers.
Dharmada charges are includible in assessable value - Shreyans Industries v. CCE (2014) (CESTAT).
IDT/Excise
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CA – Final
 Packing charges / Cost of packing
Packing Charges - - - > _________________________

Circular - 354/81/2000
It may be pertinent to note that new section 4 does not make any specific reference to packing
charges. This does not mean that charges relating to packing will not form part of assessable
value. As per commercial practice, the price for the goods charged, normally includes the cost of
packing charges. However, at times separate charge may be billed for special packing, as per
customer’s requirements.

Any charges recovered for packing (whether Primary / Secondary / Special Secondary or
Other) are obviously charges recovered in relation to the sale of the goods under assessment
and will form part of the transaction value of the goods.

In short, it is immaterial whether packing is ordinary or special.

Whatever amount is charged from the buyer for packing and if not already included by the
assessee in the price payable for the goods will be included while determining the transaction
value of the goods for assessment to duty.
X Ltd is manufacturer of Parker Pens. On occasion of Diwali, Y Ltd has ordered 100
Parker Pens (at Rs 100 each) from X Ltd but has requested X Ltd to do a special packing
for the same. X Ltd will charge additionally Rs 20 per box.
X Ltd is manufacturer of LED TV. Such TV are sold in packed condition – packed in
thermocol and cartons – at a sale price of Rs 40,000. Mr Y has ordered for a TV but has
requested X Ltd to do an additional wooden packing (protective packing) for
transportation. X ltd has charged Rs 2,000 extra for such packing
Packing supplied by buyer
[just like cost of any other material supplied by buyer to seller is includible, this is also
includible as this is an additional consideration from buyer to seller]
Secondary Packing has been done to avoid scratch and breakage of goods
Durable / Returnable / Reusable packing – Cost of such packing (glass bottles, crates etc) is
depreciated and is already included in cost; hence, it need not be added separately. However, if
audit of accounts reveal that value has been understated by not including them, then, they are included.
Testing charges for durable and returnable containers - In CCE v. Grasim Industries (2014) 304 ELT
310 (CESTAT), containers (termed as tonners) were brought by customer. At the request of
IDT/Excise
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CA – Final
customer, these were tested by the manufacturer assessee before filling Liquid Chlorine. It was
held that charges for such testing are not includible in assessable value as only those charges
which contributed to value of goods to make them marketable are includible [However, service tax
will be payable].
 Warranty Charges

The head ‘warranty’ have been specifically included in definition of payment includible
in ‘transaction value’
Warranty Charges - - - > _________________________

Circular - 354/81/2000
If any assessee charges warranty charges for any goods in particular transaction, then the
warranty charges shall be included in the transaction value for the goods and duty will be
payable on this part value recovered from the buyer.

This will be even so if such warranty charges do not already form part of the price charged by
the assessee for such transaction. In other words, if the warranty charges are charged
separately and not considered as "price" of goods by the assessee, then also warranty charges
will be includable in the transaction value forming basis of valuation.

In this context, it may be clarified that it is immaterial whether the warranty is
optional or mandatory.

Since the value can be different for different transactions, wherever warranty charges are paid
or payable to the assessee, in those transactions warranty charges shall form part of the
assessable value.

In those transactions where warranty charges are not recovered, the question of including
warranty charges in transaction value does not arise
Determine the Assessable Value of a machine using the details given below
(i)
Sale price of the machine (excluding taxes and duties)
2,00,000
(ii)
Sales Tax
20,000
(iii) Cost of durable and returnable packing included in the sale price given at (i) above
5,000
(iv) Warranty charges charged separately by the seller
5,000
(v)
20,000
Design and Development charges paid by buyer on behalf of seller to a third party
IDT/Excise
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CA – Final
 Design and Engineering charges
Design and Engineering Charges - - - > ________________

They are specific to the goods produced

Goods cannot be produced without them

These expenses are in the nature of ‘by reason of’ or ‘in connection with sale’.
 Consultancy charges
Consultancy Charges - - - > ________________
They are includible if they relate to 
Design, layout etc of final product;

Such activity is done upto place of removal
 Testing & Inspection charges
Testing Charges - - - > ________________

If they are recovered by assessee from buyer for testing of FP manufactured by assessee in terms
of contract prior to sale

Additional testing/ inspection is got done by assessee from a third party at the request of the
buyer as a condition of sale

However, independent testing got done by the buyer himself from a third party is not includible
 Royalty charges for trademark used on FP
Royalty Charges - - - > ________________
Whether the royalty amount collected by it from the bottlers for use of the trademark 'Pepsi’ on the soft
drink beverages manufactured out of the 'concentrate' sold by the appellant is includible in the
assessable value of the concentrates.

If the assessee sells its final product subject to conditions of payment of royalty charges by buyer
for the trademark/ brand name used on the final product, such royalty is includible in AV
IDT/Excise
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CA – Final
In franchise agreements, royalty is charged for permission to use the brand name e.g. Pepsi and Coca
Cola manufacture concentrate and supply the same to bottlers. The bottlers make soft drinks and sell it
directly in the market. The bottlers have to pay royalty to Pepsi/Coca Cola for use of the brand name.
Since they are under obligation to buy concentrate only from Pepsi/Coca Cola, the royalty payable
is includible in the price of concentrate sold by Pepsi/Coca Cola to the bottlers. The reason is,
when royalty is charged separately, price is not the sole consideration. Moreover, payment of royalty to
the supplier of concentrate is clearly ‘by reason of sale’ or ‘in connection with sale’
 Bought Out Items

Bought out items – Often some articles are purchased (duty-paid) by the manufacturer
and supplied along with his manufactured product (eg remote control purchased from
outside and supplied with TV manufactured by assessee). Such goods are referred as
‘Bought Out Items’
Essential Bought out items (can be referred as ‘Parts’)

AV of final product shall include the value of part
Non-Essential Bought out items (can be referred as ‘Accessory’)

Bought out accessories are not necessary for functioning of final product;

They merely add to beauty / effectiveness of final product. Purchase and Sale thereof amounts
to ‘trading activity’ of assessee and is not related to ‘manufacturing activity’. Hence it is not
includible in assessable value.
However, if the assessee still pays duty on value inclusive of value of accessory, then he
shall be allowed Cenvat credit of duty paid on accessory
Please note that – CCR treats any product cleared alongwith FP as an eligible input, if
value of such product is included in the value of FP – Rule 2(k) of CCR, 2004
Battery supplied along with UPS
Part
TV booster to boost TV signal
Accessory
Tool kits and jacks supplied with Car
Accessory Measuring cup and hand gloves
Accessory
Car seat cover
Accessory Tyre of Car
Part
Pre-filter with water filter-cum-purifier
Accessory Music System of Car
Accessory
*Whether an item is an accessory or not would depend upon how the item is considered in common parlance
IDT/Excise
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CA – Final
 Pre – Delivery Inspection and After Sale Service
Pre – Delivery Inspection and After Sale Service - - - > _____________
Circular 936/26/2010
Since these services are provided free by the dealer on behalf of the assessee, the cost towards this is
included in the dealer's margin (or reimbursed to him).
This is one of the considerations for sale of the goods (motor vehicles, consumer items etc.) to the
dealer and will therefore be governed by Rule 6 of the Valuation Rules on the same grounds as
indicated in respect of Advertisement and Publicity charges.
That is, in such cases the after sales service charges and PDI charges will be included in the assessable
value
Gist – PDI / After – sale services carried out by dealer out of dealer’s margin is not includible in
assessable value of manufacturer.
22 Tata Motors Ltd vs Union of India – 2012 – Bombay High Court
Facts of the
 Assessee, a car manufacturer, was selling cars to its dealers. Under sale
Case
agreement, dealers had to provide pre-delivery inspection (PDI) and free after
– sales services out of their profit margin.
 Department sought to include charges for PDI and after – sale services carried
out by dealer in value of cars for payment of excise duty by assessee
Held
 The dealer had to perform PDI / after – sales services as a part of his responsibility as
per dealership agreement.
 Assessee didn’t charge any sum from dealer for expenses incurred by dealer towards
PDI / after – sale services.
 Assessee had nothing to do with such expenses incurred by the dealer.
 Hence, PDI / After – Sale service charges were not includible in assessable value of
cars for payment of Excise duty.
 PDI – After Sale service charges can be included in Assessable Value only when they
are charged by assessee to the buyer / dealer
Example
 Tata Motors Ltd sells cars at Rs 5 Lakhs to X Ltd, a dealer. X Ltd sells car at Rs 6
Lakhs to the customer.
 Out of this, Rs 1 lakh is the margin of X Ltd. Rs 40,000 is spent on PDI and after –
sale services to be provided by X Ltd under dealership agreement.
 This 40,000 cannot be included in value of Tata Motors Ltd for valuation of Car
IDT/Excise
Page | 225
CA – Final
 Interest on Delayed Payment / Financing charges
Interest on Delayed Payment / Financing Charges - - - > _____________ Circular 354/81/2002

Interest for delayed payments it is normal practice in industry to allow the buyers some credit
period for which no interest is charges. That is to say, the assessee allows the buyers some time
(normally 30 days, which could be less or even more depending upon industry) to make the
payment for the goods supplied. Interest is charged by him from the buyer only if the payments
are made beyond this period.

Charges for interest under a financing arrangements entered between the assessee and the
buyer relating to the purchase of excisable goods shall not be regarded as part of the assessable
value provided that:

the interest charges are clearly distinguished from the price actually paid or payable for
the goods;

the financing arrangements is made in writing; and

where required, assessee demonstrates that such goods are actually sold at the price
declared as the price actually paid or payable.
This is correct for the following reasons 
Payment of interest is ‘by reason of late payment’ and not ‘by reason of sale’.

If the interest is held as includible, assessment of goods at the time of removal will be impossible. Excise
Law expects assessment at the time of removal. Provisional Assessment is an exception, not a rule.
Thus, any interpretation which will make assessment at the time of removal virtually impossible
cannot be termed as ‘harmonious interpretation’.
 Bank charges for collection of sale proceeds [outstation cheques]

The principle discussed above will apply in respect of bank charges for collection of sale
proceeds and these should not be includible
IDT/Excise
Page | 226
CA – Final
 Discount
Discount - - - > _____________

Circular 354/81/2002
The duty is chargeable on the net price paid or payable and discount of any description
actually given will not be includible in transaction value.

Thus if in any transaction a discount is allowed on declared price of any goods and actually
passed on to the buyer of goods as per common practice, the question of including the amount
of discount in the transaction value does not arise.

Discount of any type or description given on any normal price payable will, therefore, not
form part of the transaction value for the goods

•
Quantity discount for goods purchased or
•
Cash discount for the prompt payment etc..
•
Differential discount is also permissible.
Where the assessee claims that the discount of any description for a transaction is not readily
known but would be known only subsequently e.g. year-end discount, the assessment for such
transactions may be made on a provisional basis.
> However, the assessee has to disclose the intention of allowing such discount to the
department and
> Make a request for provisional assessment
Trade discount
Differential discount to different buyers
Cash discount
Area – wise different discount
Quantity discount
Turnover discount
All forms of discount are deductible, provided they are allowed to buyer
Damage Discount - If damage discount is allowed to the buyer at the time of removal of goods
from the price actually paid or payable for not returning any defective goods, then, it is deductible.
But, any warranty/damage discount/charges payable/refundable to the buyer in the form of
compensation for damage, breakage or losses or defects after removal from the factory, will not be
deductible. - CCE v. Vikram Detergent Ltd. [2001] 127 ELT 641 (SC)
IDT/Excise
Page | 227
CA – Final
Question How will the assessable value, under the subject transaction, be determined under section 4 of the Central
Excise Act, 1944? Contracted sale price for delivery at buyer's premises - Rs 9,00,000. The contracted
sale price includes the following elements of cost:
a) Cost of moulds and dies used in production of the goods, supplied by buyer
Rs 4,000
b) Cost of primary packing
Rs 3,000
c)
Rs 7,000
Cost of packing at buyer's request for safety during transport
d) Excise duty
Rs 1,11,200
e)
VAT (Sales tax)
Rs 37,000
f)
Octroi
Rs 9,500
g) Freight and insurance charges paid from factory to depot
Rs 20,000
h) Actual freight and insurance from depot to buyer's premises
Rs 42,300
Question - - Decent Footwear is a leading manufacturer of shoes. Legal Metrology Act, 2009 requires declaration of
retail sale price on the package of shoes and shoes are also notified under section 4A of Central Excise Act,
1944 (RSP based valuation provisions). Calculate excise duty payable on a pair of shoes (@12.5%)
Abatement available on shoes
25% of retail sale price
MRP marked on the package
Rs 2,000 per pair of shoes
Price at which Decent Footwear sells the shoes to their wholesalers Rs 1,300 per pair of shoes
Price at which wholesalers sell the shoes to retail shop owners
Rs 1,500 per pair
Price at which shoes are sold by retailers to final consumers
Rs 1,900 (Rs 100 – discount)
What would be your answer if the shoes are not notified u/s 4A of CEA.
IDT/Excise
Page | 228
CA – Final
Question - - Determine the transaction value and the duty payable from the following particulars:
 Price of machinery excluding taxes and duties
8,50,000
 Installation and erection expenses [Machinery has been fixed to the earth] 30,000
 Packing charges (primary and secondary)
12,500
 Design and engineering charges
4,000
 Cost of material supplied free of charge by buyer
10,000
 Pre-delivery inspection charges
1,000
Other information:
a) Cash discount @ 2% on price of machinery was allowed as per terms of contract since full
payment was received before dispatch of machinery.
b) Bought out accessories valued at Rs 8,000. The accessories are optional and provide ease of use of
the machinery.
c) Central excise duty @ 12.5%
Make suitable assumptions as are required and provide brief reasons.
Question - - Super Lasting Ltd. sold a machine, manufactured by it, to Goel Steel Ltd. (GSL) at a price of Rs
10,00,000 (excluding taxes and duties). Further, following additional amounts were also charged from
GSL:
Sr No
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Particulars
Outward handling charges (from factory to GSL‘s premises)
Protective packing charges
Expenses pertaining to installation and erection of the machine at
premises of GSL (machine was permanently affixed to earth)
Testing and inspection charges (testing done by Super Lasting Ltd.)
Delayed payment charges
Dharmada (charged in the invoice and recovered from GSL)
Rs
5,000
12,500
26,000
40,000
3,000
10,000
Determine the assessable value and total amount of central excise duty payable on the machine from the
aforesaid information assuming that the machinery has been sold at the factory gate.
IDT/Excise
Page | 229
CA – Final
Inclusions/Exclusions while computing Transaction Value
Items of cost
Dharmada
(Charity)
Packing
Warranty
Include / Exclude
Includible
Cost of all forms of packing
are includible
• Primary
• Secondary
• Special Secondary
• Others - Protective, etc.
Includible
Design and
Engineering
charges
Consultancy
charges
Testing &
Inspection
charges
Includible
Royalty charges
for trademark
used on FP
Bought out items
and
accessories
Includible
Pre – Delivery
Inspection and
IDT/Excise
Remarks
Can’t be said to be ‘other taxes’ as not collected under
the force of an enactment
Cost of durable/reusable packing is not included as it
is amortized and included in the cost of product itself
It is immaterial whether the warranty is optional or
mandatory [Mandatory - in every case & Optional –
whenever option exercised)
Extended Warranty is not includible as charges for
extended warranty cannot be said to be charges by
reason of, or in connection with, sale of goods under
consideration
Specific to the goods produced + ‘by reason of’ or ‘in
connection with sale’
Includible
They relate to design, layout etc of final product
Includible
If they are recovered in terms of contract prior to sale
However, independent testing got done by the buyer
himself from a third party is not includible
Essential Items- Includible
As product cannot function without the same.
Optional bought out items
and accessories- Not
includible.
Reimbursed separately –
Includible
Accessory means an object or device not essential in
itself but adding to beauty, convenience or
effectiveness of FP
PDI / After – sale services carried out by dealer out of
dealer’s margin is not includible [Tata Motors Ltd]
Page | 230
CA – Final
After Sale Service
Price escalation
clause - Increase
Price escalation
clause - Decrease
Interest on
Delayed Payment
/ Financing
charges
Bank charges for
collection of sale
proceeds
Discount
Taxes and Duties
(Actually paid or
payable)
IDT/Excise
Includible
Refund subject to DoUE
Exclude
Exclude
Discount of any type or
description – Exclude
Exclude
• Excise Duty;
• Sales Tax;
• Other taxes (like Octroi/
Entry Tax)
Price indicated by the supplementary invoice is
directly relatable to the value of the goods on the date
of clearance
Differential Duty + Interest
Advisable to go in for provisional assessment
C1: Clearly distinguished from price for the goods;
C2: Written Financing arrangement
C3: Whenever required – assessee can establish that
declared sale price is the actual sale price for goods
It is ‘by reason of improper payment’ and not ‘by
reason of sale’
Trade discount; Cash discount; Quantity discount;
Differential discount to different buyers; Area – wise
different discount; Turnover discount
C1: Discount is from the normal price;
C2: Actually passed on to the buyer
Cash Discount is in nature of interest and is allowable
as deduction in computing assessable value under
Central Excise, whether or not it is availed of
Nomenclature is not relevant
• Administrative Charges levied on molasses – under
UP SHEERA NIYANTARAN ADHINIYAM --Deductible (Being compulsory exaction of money
under force of an enactment) [KISAN SAHKARI
CHINI MILLS - SC]
• Steel Development Charges levied due to direction
by Joint Plant Steel Committer --- Not Deductible
(as don’t Have the force of law) [TISCO-SC]
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CA – Final
Central Excise Valuation Rules, 2000
Rule 7 - Depot Valuation
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.
(cc) In respect of excisable goods removed from the place of removal referred to in Sec 4(3)(c)(iii),
“time of removal” shall be deemed to be the time at which such goods are cleared from the factory
Applicability
Value
 Rule 7 is applicable if the excisable goods –
(a) are not sold by the assessee at the time and place of removal
(b) transferred to a depot from where it will be sold
(c) where the assessee and the buyer of the said goods are not related
(d) price is the sole consideration for the sale
Normal Transaction Value [NTV] of identical goods which are sold at or about
the same time
[However, if identical goods are not sold at or about the same time then, the
NTV at the time nearest to the time of removal of the goods from the factory]
TOR and POR
 Place of removal = the depot/place of consignment agent from where
goods are to be sold and are removed
 Time of removal = deemed to the time at which the goods are cleared from
FACTORY
∴ Duty is payable on removal from factory at NTV in force at depot at the time of
clearance from factory at rate of duty in force at the time of removal from factory
IDT/Excise
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CA – Final
Conclusion
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].
Illustration

The factory is at Mumbai and the storage Depot is at Ahmedabad, then for a consignment meant for
Ahmedabad Depot, cleared from Mumbai factory on say 1st Jan, the price at which an earlier
consignment of goods of the same destination, is sold from Ahmedabad depot on 1st Jan will be the
basis for arriving the assessable value of the goods cleared from Mumbai on 1st Jan.

If this consignment is sold on 1st March from Ahmedabad Depot at a lower or higher price, such a
price will be the basis for valuation of clearance on 1st March and so on

In short, price ruling at the depot, but at the time of removal from the factory will be relevant. It does
not matter if subsequently the goods are actually sold from depot at higher or lower price
How assessable value will be determined at the factory gate in respect of goods to be cleared
from other place of removal such as Depot etc?
 Assessment need not be kept provisional till the actual sale price of the excisable goods cleared from place
of removal other than factory gate is known
The assessee may be asked to declare and pay duty at the price prevailing at such other place of removal
on the date, such goods meant for that other place are cleared from the factory gate
 Clearance to Depot shall be valued at “Ex-Depot price” as prevailing at the “time of removal” from
Factory. Duty will be payable at the “time of removal” from the Factory.
What about clearances to new Depot?
 Provisional Assessment becomes necessary in such situation - Provisional Assessment till availability of
first sale transaction.
 Manufacturer will have to pay differential duty (along with interest) or be entitled to refund after
finalization of provisional assessment after the goods are sold from depot
IDT/Excise
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CA – Final
If goods are sold from Depot at various prices to different buyers, then what sale price shall be
used for valuation
 In such a situation, AV = Normal Transaction Value (using the spirit of R-2 of CEVR, 2000)
What if ex-depot price is not available as on the Date of Removal of goods from Factory?
 Ex-depot price of nearest day (PAST DAY) shall be considered
What if Company is having various Depots (and correspondingly various ex-depot price)
 Clearance to each depot shall be valued at its respective Ex-Depot prices
Rule 2 - Definition
“Normal Transaction Value” means the transaction value at which the greatest aggregate quantity of
goods are sold

Concept of NTV (Normal TV) is of use when goods are sold at various prices. In that situation,
each sale price constitutes TV and out of these multiple TVs, one TV is to be selected as NTV – In
terms of Rule 2, NTV shall be that TV at which Greatest Aggregate Quantity (GAQ) of goods is
sold


In particular, concept of NTV is used under the following rules:

Rule 9 and Rule 10 – Sale to Related Party

Rule 10-A – Goods manufactured on Job-Work

Rule 7 – Depot Valuation
Determination of NTV

Step 1 – Compute different TV [This will be computed in same manner as provided in Sec

4(3)(d)
Step 2 – Determine at which TV, ‘GAQ’ of goods have been sold
CBEC Circular

NTV shall be determined with reference to the sales for the whole day and the Transaction
Value of the "greatest aggregate quantity" would refer to the price at which, the largest
quantity of identical goods are sold on a particular day irrespective of the number of buyers.
IDT/Excise
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CA – Final

In case the “normal transaction value" from the depot is not ascertainable on the day identical
goods are being removed from factory, the nearest day when clearances of the goods were
effected from the depot should be taken into consideration.
Sale quantity
Unit price
1-10 units
100
11-25 units
Over 25 units
95
90
Number of sales
Total quantity sold at each price
10 sales of 5 units,
5 sales of 3 units
5 sales of 11 units
1 sale of 30 units,
1 sale of 50 units
65
55
80
The greatest number of units sold at a price is 80, therefore, the unit price in the greatest aggregate
quantity is Rs. 90/Question - - Surat Cloth Mills delivered 1000 meters of cloth to Purvanchal Readymade Garments on 10th Jan from its
depot located at Ahmedabad @ ₹ 110 per meter. The goods were dispatched to the depot from the factory
located in Surat on 05th Jan. Ex-factory price on 05th Jan was ₹ 90 per meter. The sales of identical variety
of cloth effected from Ahmedabad depot on the two relevant dates is as follows:On 5th Jan
Cloth sold (in Mtrs)
Rate per Meter
100
135
850
125
500
120
450
115
On 10th Jan
Cloth sold (in Mtrs)
Rate per Meter
200
120
1000
110
550
115
375
108
Calculate the AV of 1,000 meters of cloth sold by Surat cloth mills.
Question - - Compute the assessable value and amount of excise duty payable under the Central Excise Act, 1944 and
rules made there under from the following information (i) Goods transferred from factory to depot on 8th
February – 1,000 Nos. On that day, price at factory was Rs 200 per unit and price at depot was Rs 220
per unit. Rate of duty was 10% ad valorem (ii) Goods actually sold at depot on 18th February - 750 Nos.
On that day, price at factory was Rs 225 per unit and price at depot was Rs 250 per unit. Rate of duty
was 8% ad valorem.
IDT/Excise
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CA – Final
Rule 4 – When TV is not known at the time of removal (Sample Valuation / Comparable
goods method)
If the price of the goods is not known at the time of removal, then the value of the excisable goods shall
be based on

the value of such goods sold by the assessee (ie IDENTICAL GOODS SOLD)

for delivery at any other time nearest to the time of the removal of goods under assessment,

subject, if necessary, to such adjustment on account of the difference in the dates of delivery of
such goods and of the excisable goods under assessment, as may appear reasonable.
Applicability
Value
CBEC Circular
Samples + Goods
under Sec 4A
Hindustan
Spinning &
Weaving Mills
This 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
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
 In case of Free Samples, the value shall be determined under Rule 4 of
CEVR, 2000
 Samples may be distributed free as a part of marketing strategy, or as
gifts or as donations
 Therefore, Value of samples = Value of Identical goods removed at time
nearest to time of removal of samples, subject to adjustment in rates
 Value of Samples of goods notified under Section 4A = Value of Identical
goods = RSP – Abatement
 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
 In determining value of goods (say A) based on price of similar /
identical goods (A-1), if any cost, which is incurred on A-1 (but not
incurred on A), then value of A = Price of A-1 less Cost incurred on A-1
Question
Compute the AV under CEA, 1944 in the following cases Production – 2000 Units on 1st Jan
Quantity Sold – 450 units @ Rs 200/- per unit and 650 units @ 190 /- per unit
Sample Clearance: 50 units
Balance in stock = 850 units (at the end of Jan month)
IDT/Excise
(CA Final, May 2010 – 3 Marks)
Page | 236
CA – Final
Question
R R Pharma Ltd. manufactures a particular drug, which is not covered by MRP. On 12-3- 2014, 2000
units of this drug were cleared from the factory for distribution as free samples to physicians. The MRP
of a unit is Rs. 202, inclusive of VAT at 1% and excise duty at 12.5%. Cost of production per unit is Rs.
160 per unit.
The company has approached you with the following views:
a) Free samples given to the doctors cannot be sold by anyone, as per the Drug Control Act; hence they
are not marketable. As a logical corollary, excise duty is not leviable;
b) If this has to be valued, the company makes no profit and hence should be valued at cost.
Advise the company suitably, as regards the value to be adopted for the free samples
Rule 5 – Place of Delivery other than Place of Removal
Where any excisable goods are sold in the circumstances specified in section 4(1)(a) of the Act
except the circumstances in which the excisable goods are sold for delivery at a place other than the
place of removal, then the value of such excisable goods shall be deemed to be

the Transaction Value,

Excluding the cost of transportation from the place of removal upto the place of delivery of such
excisable goods
Explanation 1 - “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.
Mr A (Manufacturer) enters into a contract for sale of product “X” to Mr B. Sale Price – Rs 1
Lakh. Under the contract, Mr B is to collect the goods from the buyer

Mr A (Manufacturer) enters into a contract for sale of product “X” to Mr B. Sale Price – Rs 1
Lakh. Mr B makes request to Mr A for arrangement of delivery of goods at his place. Mr A
makes it clear to Mr B that during transportation; goods will be at the buyer’s risk (i.e any loss
during transportation has to be borne by the buyer). Mr B agreed to that. Mr A arranges for
transport and recovers charges from Mr B
IDT/Excise
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CA – Final
Charges incurred on transportation = Rs 1,000
Charges recovered from Mr B = Rs 1,000
 Ownership stands transferred to the buyer at the factory gate.
 Goods have been handed over to the CARRIER (transporter) for delivery to buyer at his premise.
When goods are so handed over, then delivery to carrier is treated as delivery to buyer [(as under such
situation, carrier is acting as an agent/ representative of buyer (and not that of seller manufacturer)] –
Escorts JCB Ltd – 2002 – SC
 In this regard, Sec 39 of the Sale of Goods Act is also relevant which has been reproduced below:
39. Delivery to carrier (1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the
buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer, is prima facie deemed to be a delivery of the goods to the buyer.
 In a nutshell, the sale transaction gets complete at factory gate (place of removal). Thus, this is also a
case where goods have been sold for delivery at factory (place of removal)
 Sec 4(1)(a) shall be applicable to such situation
 Accordingly., AV = TV = Basic Sale Price = Rs 1,00,000
Mr A (Manufacturer) enters into a contract for sale of product “X” to Mr B. Mr B makes
request to Mr A for arrangement of delivery of goods at his place. And such transportation
would be at the manufacturer’s risk. Mr A charges Rs 1,01,000 for the transaction (invoice is
not showing transportation charges separately)
Charges incurred on transportation (in actual) = Rs 1,000
 In such case, Sale is not complete till delivery to buyer has taken place (since seller continues to bear
the risk) and hence, transportation charges are in nature of payment by reason of, or, in connection
with sale and hence shall form part of TV
 However, Rule 5 provides for exclusion of Cost of Transportation for purpose of Valuation
Mr A (Manufacturer) enters into a contract for sale of product “X” to Mr B. Mr B makes
request to Mr A for arrangement of delivery of goods at his place. And such transportation
would be at the manufacturer’s risk. Mr A charges Rs 1,02,000 for the transaction (invoice is
showing transportation charges of Rs 2,000 separately)
Charges incurred on transportation (in actual) = Rs 1,000
 Exclusion / Deduction shall be of “Cost of Transportation” - - - the cost actually incurred in
transportation
 Any profit earned on making such transportation arrangement shall form part of TV
IDT/Excise
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CA – Final
Equalized freight [understand with example]

If Manufacturer charges Average freight (average freight = equalized freight), average cost of
transportation computed as per costing principles (as set out in CAS-5) shall be deductible.

Note – in such system, if actual cost is less than freight charged, then such profit earned will
not form part of AV. In fact, there may be loss also to assessee in such system – still
deduction is always of average element
Question
A manufacturer having a factory at Jaipur has uniform price of Rs 1,000 per unit (excluding taxes) for
sale anywhere in India. During the financial year 2015–16, he made the following sales :
1. Sale at factory gate in Jaipur: 1,000 units — no transport charges.
2. Sale to buyers in Delhi: 500 pieces — actual transport charges incurred Rs 12,000.
3. Sale to buyers in Chennai: 600 pieces — actual transport charges incurred Rs 48,000.
4. Sale to buyers in Mumbai: 900 pieces — actual transport charges incurred Rs 30,000.
Find assessable value per unit under the central excise
Explanation 2. - For removal of doubts, it is clarified that
The cost of transportation from the factory to the place of removal, where the factory is not the place of
removal, shall not be excluded for the purposes of determining the value of the excisable goods.
What about return freight?
Circular 923/13/2010 - CX
 The Tribunal has in case of DCW Ltd. v. CCE held that “ where onward freight was not includible in
the assessable value of the excisable goods, there was no question of return freight being included in the
assessable value, whether or not the return freight was mentioned in the relevant invoices. The
principle stated by the Tribunal in the cited decision is squarely applicable in respect of such return
freight also”
 It is clarified that cost of return fare of vehicles is not required to be added for determining value
IDT/Excise
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CA – Final
Example on applicability of Rule 5 and treatment of freight and profit on transportation:
Mr A sells goods to Mr B at Rs 100 exclusive of taxes. The freight from A’s factory to B’s premises
is Rs 10 per unit, which is arranged by A and actually amount paid by A to transporter is Rs 8.
There may be three cases:
Case
Place of
Removal
Factory
1) Transfer of title is at factory and transporter is
agent of Buyer Mr B. Here, delivery to buyer’s
transporter is delivery to buyer
2) Transfer of title is at factory and transporter is
Factory
agent of Mr A and Mr A undertakes transport
upto B’s premises
3) Sale is on FoR basis and transfer of title is at B’s B’s Premises
premises
Place of
Delivery
Factory
Assessable
Value
100 [Rule 5
not applies]
B’s Premises
100 + 10 – 8 =
102 [Rule 5]
B’s Premises
110 [Rule 5
not applies]
Hyderabad Industries Ltd v CTO [2015] 49 GST 296 (SC)
FoR price – Freight would form part of ‘taxable turnover’; not deductible therefrom
Where price is quoted on FoR basis (i.e inclusive of freight), then, such FoR price would constitute
taxable turnover and an assessee cannot claim deduction of freight (actual or average basis)
incurred.
Question
Vasudha Electronics Ltd. having its factory at Delhi, furnishes the following information:
(i)
3000 Units sold at factory gate.
(ii)
6000 Units sold to dealers in Nagpur. Actual transport expenses Rs 30,000 charged.
(iii) 1000 Units sold to dealers in Lucknow, actual transport expenses Rs 10,000, but charged to dealers
at Rs 12,000.
(iv) Invoice price for the above is Rs. 10,000 per unit, excluding transport charges and all items below:
a) Sales tax shown separately Rs 40,000
b) Octroi shown separately Rs 18,000
c) Dharmada shown separately collected from dealers Rs 12,000.
The basic rate of excise duty is 12.5%. Determine the total excise duty payable, assuming that the dealer
is not entitled to any exemption.
IDT/Excise
Page | 240
CA – Final
Question How will the assessable value, under the subject transaction, be determined under section 4 of the Central
Excise Act, 1944? Contracted sale price for delivery at buyer's premises - Rs 9,00,000. The contracted
sale price includes the following elements of cost:
i) Cost of moulds and dies used in production of the goods, supplied by buyer
Rs 4,000
j)
Rs 3,000
Cost of primary packing
k) Cost of packing at buyer's request for safety during transport
Rs 7,000
l) Excise duty
Rs 1,11,200
m) VAT (Sales tax)
Rs 37,000
n) Octroi
Rs 9,500
o) Freight and insurance charges paid from factory to depot
Rs 20,000
p) Actual freight and insurance from depot to buyer's premises
Rs 42,300
Question Dharma Manufacturers, engaged in the manufacture of machines, sold a machine to Asha Ltd. The sale
price of the machine (including excise duty but excluding VAT) is Rs. 5,80,000. Trade discount of Rs.
24,000 is given on the sale price of Rs. 5,80,000. Rate of excise duty is 12.5%.
The above sale price includes the following charges:
(i)
Warranty charges
28,000
(ii)
Secondary packing
6,000
(iii) Design and engineering charges of machine
20,000
(iv) Primary packing
10,000
(v)
4,500
Cost of return fare of vehicles
(vi) Advertisement and publicity charges borne by Asha Ltd.
16,000
(vii) Pre-delivery inspection charges (charged by Dharma Manufacturers)
22,000
(viii) After sales service charges (charged by Dharma Manufacturers)
18,000
Determine the assessable value of the machine for purpose of central excise duty.
IDT/Excise
Page | 241
CA – Final
Rule 6 – When Price is not the Sole Consideration
Where the excisable goods are sold in the circumstances specified in section 4(1)(A) of the Act
EXCEPT the circumstance where the price is not the sole consideration for sale, the value of such
goods shall be deemed to be
- - - > the aggregate of such transaction value and the amount of money value of any ADDITIONAL
CONSIDERATION flowing directly or indirectly from the buyer to the assessee.
Provided that where price is not the sole consideration for sale of such 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
[Inserted in year 2014 to nullify the effect of judgment of Fiat India Ltd – SC]
Applicability
What constitutes
Additional
Consideration?
 Rule 6 is applicable when the sale price is not the sole consideration for
the sale ie there is some additional consideration involved in the sale
transaction
 The term ‘consideration’ or ‘sole consideration’ has not been defined
under CEA or Rules
 For additional consideration to exist, there must be some direct or
indirect financial flow from the buyer to the seller (Nirulas Corner House
Pvt Ltd – 2012 – Tri)
 Explanation 1 & 2 hints some of the elements which will constitute
additional consideration
• Supply of any goods or services either free of cost or at concessional
price for use in manufacture of goods (Explanation 1)
• Advance payment from the buyer against delivery of any excisable
goods which leads to reduction in price of goods charged
(Explanation 2)
 Whether following will constitute additional consideration?
- Government subsidy
- Subsidy from buyer of goods
Mazagon Dock Ltd
In this case, subsidy of 20% was paid by the Government and 10% was paid
by the buyer.
IDT/Excise
Page | 242
CA – Final
The subsidy of 20% from the Government cannot be said to be additional
consideration as it is not received from the buyer directly or indirectly.
Therefore, that would not be includible in AV
However, 10% subsidy received by the assessee from the buyer is the
additional consideration received by the assessee from the buyer. Therefore,
that would be includible in AV
Valuation of fertilizers for the purpose of levy of excise duty – non inclusion of
Recent Circular
subsidy component in the assessable value
983/7/2014 Fertilizer subsidy  In the case of fertilizers, the manufacturers are mandated to sell the
goods at the prices notified by the Government. In the case of urea, the
not includible in
cost of production varies greatly from manufacturer to manufacturer
value
depending upon the use of feedstock, technology and overheads. The
Government reimburses the differential between the cost of production
and the notified price to the manufacturers in the form of subsidy
 The fertilizer policy of the Government of India is aimed at providing
fertilizers to farmers at affordable prices for sustained agricultural
growth and to promote balanced nutrient application. The subsidy is not
linked to the buyer and it cannot be said that the subsidy given by the
Government to the manufacturer is part of the consideration flowing from the
buyer to the manufacturer. Likewise, it cannot be said that fertilizer
manufacturers have under-declared the value with a view to penetrating
the market or competing with the other manufacturers of similar
fertilizers
 It is, therefore, clarified that in respect of fertilizers for which subsidy is provided
by the Government, the excise duty will not be chargeable on the subsidy
component provided by the Government
AV = TV + Money Value of Additional Consideration
Computation of
AV
For the removal of doubts, it is hereby declared that the price-cum-duty of
Explanation to
the excisable goods sold by the assessee shall be the price actually paid to
Section 4(1)
him for the goods sold and the money value of the additional consideration,
if any, flowing directly or indirectly from the buyer to the assessee in
connection with the sale of such goods, and such price-cum-duty, excluding
sales tax and other taxes, if any, actually paid, shall be deemed to include the
duty payable on such goods.
IDT/Excise
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CA – Final
Explanation 1 –
For removal of doubts, it is hereby clarified that the value, APPORTIONED as appropriate, of the
following goods and services, whether supplied directly or indirectly by the buyer, free of charge or
at reduced cost, for use in connection with the production and sale of such goods, to the extent that
such value has not been included in the price actually paid or payable, shall be treated to be the
amount of money value of additional consideration flowing directly or indirectly from the buyer to
the assessee in relation to sale of the goods being valued and be aggregated accordingly, namely : (i) value of materials, components, parts and similar items relatable to such goods;
(ii) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar
items used in the production of such goods;
(iii) value of material consumed, including packaging materials, in the production of such goods;
(iv) value of engineering, development, art work, design work and plans and sketches undertaken
elsewhere than in the factory of production and necessary for the production of such goods.
Explanation 2 –
Where an assessee receives any advance payment from the buyer against delivery of any excisable
goods, no notional interest on such advance shall be added to the value unless the Central Excise
Officer has evidence to the effect that the advance received has influenced the fixation of the price of
the goods by way of charging a lesser price from or by offering a special discount to the buyer who
has made the advance deposit.
The word ‘Special discount’ in Explanation 2 suggests that addition under Explanation 2 would
not arise merely because a trade/cash discount has been allowed as per normal trade practice. Eg
Mr A sells goods for Rs 300 /- p.u but if buyer pays in cash, then Rs 298 is charged, then this
discount is normal and hence, Rs 298 will be the AV
IDT/Excise
Page | 244
CA – Final
Illustration 1 – Same price charged from buyer giving advance – No addition to be made
X, an assessee, sells his goods to Y against full advance payment at Rs. 100 per piece. However, X also
sells such goods to Z without any advance payment at the same price of Rs. 100 per piece. No notional
interest on the advance received by X is includible in the transaction value.
Illustration 2 – No evidence of lowering down price due to advance – No addition
A, an assessee, manufactures and supplies certain goods as per design and specification furnished by B
at a price of Rs. 10 lakhs. A takes 40% of the price as advance against these goods and there is no sale of
such goods to any other buyer. There is no evidence available with the Central Excise Officer that the
notional interest on such advance has resulted in lowering of the prices. Thus, no notional interest on
the advance received shall be added to the transaction value.
Illustration – CS, Dec 2011
1. Unfair Ltd sold 100 units manufactured by it for Rs 12,000 per unit. It received interest – free deposit
of Rs 6,00,000 from the buyer for the whole of the year. Compute the AV of 100 units sold in
following independent cases [Normal rate of interest is 12% p.a.]:
 The price charged for other buyers is Rs 11,600 per unit
 The price charged for other buyers is Rs 12,800 per unit
Note of Fiat Judgement
•
As per section 4 of Central Excise Act, transaction value is the basis of Assessable Value for purpose of
payment of excise duty, if price is the sole consideration. Thus, cost of production is really irrelevant
for purpose of excise valuation.
•
In Guru Nanak Refrigeration Corpn - SC, it was held that if there is no allegation of flow-back of
money from buyer to assessee, if price is the sole consideration and if dealings between assessee and
buyer are at arm’s length, Assessable Value will be decided on basis of selling price, even if it is below
manufacturing cost.
•
In CCE v. Fiat India P Ltd (SC), it has been held that if goods are sold below the cost of production,
the price would not be ‘normal price’. The price charged would not be ‘sole consideration’. Intention to
penetrate the market or meet the competition would be the additional consideration. In that case, excise
duty will be payable on the basis of cost of production plus profit and not on basis of transaction value
(selling price) - review petition filed by assessee dismissed by SC in November 2012
IDT/Excise
Page | 245
CA – Final
Question - - ABC Ltd. of Kanpur agreed to sell an electric motor to DEF Ltd. of New Delhi for Rs 15000 on ex-factory
basis. Other particulars are:
a) A discount of Rs 1000 was given to DEF Ltd. on the agreed price on payment of an advance of Rs
3500 with the order. (Ignore notional interest on advance)
b) Interest of Rs 800 was charged from DEF Ltd. as it failed to make the payment within 30 days.
c) Packing charges of the motor amounted to Rs 1300.
d) The expenditure incurred by ABC Ltd. towards „free after sale service‟ during warranty period comes
out to be Rs 500 per motor.
e) Dharmada charges of Rs 200 were recovered from DEF Ltd.
f) 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 the said lubricant.
Compute the assessable value.
Question - - Compute the assessable value of the goods manufactured by Bharat Enterprises, under section 4 of the
Central Excise Act, 1944, with the help of the following particulars:Particulars Amount
Contracted sale price for delivery at buyer’s premises
(Rs)
2,42,000
The contracted sale price includes the following elements of cost:a) Cost of containers supplied by the buyer
15,200
b) Design and engineering charges
22,400
c) Loading and handling charges incurred after removal from the factory
6,000
d) Cost of after sale service
10,000
e) Dharmada charges
2,100
IDT/Excise
Page | 246
CA – Final
Rule 8 – Captive Consumption
Where whole or part of 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 110% of the Cost of Production / Manufacture of such goods.
Explanation – The cost of production/manufacture has to be determined according to the general
principles of costing
CBEC Circular
CBEC, vide Circular No. 692/8/2003 dated 13-2-2003, has clarified that for the purpose of valuation of
excisable goods in case of captive consumption as per Rule 8 of Central Excise Valuation Rules, 2000,
calculation of cost of production should be as per CAS-4 issued by Institute of Cost Accountants of
India

Rule 8 applies when goods are not sold but used/consumed in manufacture of other goods.
[Such use/consumption is referred as ‘Captive Consumption’ – as is indicated by title of Rule
8

Rule 8 covers:
 Manufacture of goods by one division & consumption of goods by another division in the
same factory, where such consumption is for manufacturing another product
 Manufacture of goods by one unit (factory) and consumption of goods by another unit of
same assessee, where such consumption is for manufacturing another product
Particulars
Amount
Remarks
Direct Materials (Net of
credit/ trade discounts/
rebate)
XXXX
Purchase price + Freight inwards + insurance +
other expenditure directly attributable to
procurement – Discount – Rebate
Direct Wages and Salaries
XXXX
It means payment to employees directly
engaged in manufacturing activity
Direct Expenses
XXXX
It means the expenses other than direct material
cost and direct employee cost which can be
identified with the product – like cost of
utilities such as power, fuel, water etc, royalty
IDT/Excise
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CA – Final
based on production etc

PRIME COST
XXXX
Works OH
XXXX
Quality Control Cost
XXXX
Research & Development
XXXX
Packing Cost
XXXX
Administrative OH
XXXX
Less : Realizable value of
waste/scrap
XXXX
COST OF PRODUCTION
XXXX
It means indirect cost incurred in production
process – like depreciation, repairs and
maintenance, insurance of plant and
machinery, factory building etc
Addition on account of Administration OH
shall be only to extent they relate to
PRODUCTION (i.e overhead relating to
marketing, project management, corporate
office expenses etc shall not be included)
Following cost shall NOT be considered for computation of Cost of Production:
 Interest and Financial charges
 Abnormal and non-recurring costs arising due to unusual or unexpected occurrence of
events (such as heavy break-down of plants, accident, abnormal idle capacity, payments
like VRS, retrenchment compensation etc)
 Selling and Distribution OH

Captive consumption of goods notified u/s 4A – Valuation at 110% of Cost:
Requirement of declaration of RSP arises only when the goods are meant for sale in retail
packages. Since captively consumed goods are never meant for sale, hence, there is no
requirement to declare RSP thereon. Hence, section 4A shall not apply. The value will be
determined as per section 4 read with Rule 8 of CEVR, 2000
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Question - - The following information is provided in respect of manufacture of a product “X” for the purpose of
captive consumption in the same factory. You are required to determine the value for purpose of duty of
excise in terms of rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2000:
Cost of direct materials (includes central excise duty Rs 1,500)
16,500
Cost of direct employees
12,300
Consumable stores and repairs
8,400
Quality control cost
4,300
Research & development cost
2,700
Administrative cost:
-
Production related
3,000
-
Others
1,500
Selling and distribution cost
3,600
Scrap value realized
1,500
Note: CENVAT credit of the excise duty so paid is available.
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Rule 9 – Sale to Related Person
When the assessee so arranges that whole or part of the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of
Sec 4(3)(b)(ii)
Sec 4(3)(b)(iii)
Sec 4(3)(b)(iv),
the value of the goods shall be
a) In case further sale is made to a person not being related
- - - > the normal transaction value at which these are sold by the related person at the time
of removal, to unrelated buyers;
b) In case further sale is made to a related person
- - - > the normal transaction value at which these are sold by the related person at the time
of removal, to another related person, who sells such goods in retail
Provided that in a case where the related person does not sell the goods but uses or consumes such
goods in the production or manufacture of articles, the value shall be determined in the manner
specified in rule 8.
Case
Valuation
(A)
Further sale is to unrelated person
(B)
Further sale to related person
(C)
Captive Consumption
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Rule 10 – When excisable goods are sold to / through an ICU
When the assessee so arranges that the whole or part of the excisable goods are not sold by him except to or through an inter-connected undertaking, the value of goods shall be determined in the
following manner, namely :(a)
If the undertakings are so connected that the buyer is a holding company or subsidiary company
of the assessee or they are also related in terms of Section 4(3)(b)(ii)/(iii)/(iv)
then the value shall be determined in the manner prescribed in rule 9.
(b)
in any other case, the value shall be determined as if they are not related persons (ie AV = TV).
Question
Cool Drinks Ltd. manufactured three health drinks viz. A, B and C. A was sold only to M Ltd., a
subsidiary company of Cool Drinks Ltd. B was sold to N Ltd., where the Managing Director of Cool
Drinks Ltd. was a manager. C was sold to O Ltd. who was the sole distributor of Cool Drinks Ltd. and
was coming under the management of Cool Drinks Ltd.
Determine the transaction value of the three products in the hands of Cool Drinks Ltd. on the basis of the
following information:
Price of Cool Drinks Ltd. to M Ltd.
Rs 200
Price of Cool Drinks Ltd. to N Ltd.
Rs 150
Price of Cool Drinks Ltd. to O Ltd.
Rs 120
Price of M Ltd. to Consumer
Rs 220
Price of N Ltd. to Consumer
Rs 160
Price of O Ltd to Consumer
Rs 130
Question
An assessee sold certain goods to PQR Company Limited for Rs.20,000 on 09.09.2015. The buyer is a
related person as defined under section 4(3)(b) of the Central Excise Act, 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.
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Rule 11 – Best Judgment Valuation
If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be
determined using reasonable means consistent with the principles and general provisions of these rules
and sub-section (1) of section 4 of the Act.
Rule 10A – Goods manufactured on Job-Work
Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person
(hereinafter referred to as principal manufacturer), then, (i)
in a case where -

the goods are sold by the principal manufacturer

for delivery at the time of removal of goods from the factory of job-worker,

where the principal manufacturer and the buyer of the goods are not related

and the price is the sole consideration for the sale,

the value of the excisable goods shall be the transaction value of the said goods sold by
the principal manufacturer
(ii)
in a case 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 from where the said goods
are to be sold after their clearance from the factory of job-worker and

where the principal manufacturer and buyer of the goods are not related and

the price is the sole consideration for the sale,

the value of the excisable goods 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 said goods from the
factory of job-worker;
(iii) in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever
applicable, shall mutatis mutandis apply for determination of the value of the excisable goods
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A.
Goods manufactured by J/Wker are lying in the premises of J/Wker. At the same time, Mr X
is able to find the unrelated buyer of goods. Goods are sold to these unrelated buyers at a
basic sale price of Rs 30,000. The buyer is to collect the goods from the premises of J/Wker
B.
Goods manufactured by J/Wker are collected by Mr X (principal manufacturer) from the
premises of J/Wker. Mr X stores the goods into his premises. Later on, after a period of few
months, he is able to find one buyer. The goods are sold to this unrelated buyers at a basic
sale price of Rs 31,000. The buyer takes the delivery of goods from the premises of Mr X
C.
Goods manufactured by J/Wker are lying in the premises of J/Wker. While goods are lying at
J/Wker premises, Mr X is able to locate a buyer. Mr X offers to sell these goods to this
unrelated buyer at a basic sale price of Rs 30,000. The buyer is to take a delivery from J/W
premises. The buyer surrenders his advance licence in favour of Mr X because of which Mr X
reduces the sale price to Rs 25,000. The ultimate sales takes place at basic sale price of Rs
25,000
D.
Goods manufactured by J/Wker are lying in the premises of J/Wker. While goods are lying at
J/Wker premises, Mr X is able to locate a buyer. Mr X offers to sell these goods to this
unrelated buyer at a basic sale price of Rs 30,000. The buyer is supposed to take a delivery
from J/W premises. However, buyer requested for delivery of goods at his own premises. Mr
X agrees to give delivery at buyers premises subject to recovery of Rs 5,000 towards
transportation on actual basis. The ultimate sales takes place at basic sale price of Rs 35,000/-
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Question
Consider the following data –
Gopal is doing job work for Mohan by charging Rs 120 per product (including Rs 35 as his profit)
The cost of material supplied to him for the job work is Rs 100 per product (inclusive of excise duty Rs 10
of which credit has been availed)
The cost of transport of materials upto Gopal’s factory is Rs 12
Calculate the assessable value and excise duty payable @ 12.5% in the following cases –
(i)
Goods are sold by Mohan from factory of Gopal to unrelated party M/s Shyam at transaction value
of Rs 250 per unit;
(ii)
Goods are removed from the factory of Gopal and transferred to depot of Mohan on 1st May, on
which date price (exclusive of taxes) prevalent at depot is Rs 275, but, such goods are sold on 2 nd
May at Rs 280 per unit;
(iii) Goods are sold by Mohan from factory of Gopal to related party Pyare at transaction value of Rs 250
p.u. and Pyare normally sells to unrelated buyer Girdhar at transaction value of Rs 260 p.u.
(iv) Goods are not sold by Mohan from Gopal’s factory but are received by him at his factory for use in
manufacture of excisable goods. Transport from Gopal’s factory to Mohan’s factory is Rs 25
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