What is excise duty ?

Valuation of Excisable GoodsAjay Babu BandiPractising Chartered Accountant

M.Com, FCMA,ACA,IFRS(Certified)

After establishing the excisability of the goods, classifying them correctly and finding the applicable rate of duty , the next step is to pay DUTY

Specific duty In case of some goods, duty is payable on the basis of some units,length,weight, volume etc

Even if selling price of the product increases, revenue of Govt. may not increase accordinglyEg., Duty payable on cigarettes is on the basis of lengthMatches (per 100 boxes/packs)Sugar (per quintal)Marble slabs and tiles (sq. mtr)

Compounded Levy Scheme.Stainless steel pattas /patties and aluminium circles are covered under this scheme

The rate of duty is ` 40,000 and ` 12,000 Pm per cold rolling machinePlus Education Cess & Higher Education Cess

Duty based on capacity of Production .Duty payable without reference to the actual production

Eg: Pan masala, Gutkha,tobacco etc. are notified under this scheme

Duty based on value ..ad valoremTariff value With reference to Retail Selling PriceTransaction Value

Tariff Value in this method the central Government prescribes the tariff value on which the duty % is to be calculatede.g, Jewellery (other than Silver) = 30% of transaction value declared in Invoicee.,g Branded Ready made Garments = 30% of Retail Selling Price

With reference to RSP/MSP [Sec 4A]

Examples of AbatementGoods notified under Section 4ARate of Abatement (%)Biscuits30%Toothpaste30%Photographic Cameras30%Pressure Cookers25%

Meaning of RSPThe maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer Price is the sole consideration for such sale

Value = RSP printed on the package - Abatement

Other considerations in RSPMaximum RSP is deemed to be RSP, if more than one RSP declaredEach RSP deemed to be RSP, if different RSPs on different packages meant for different areas

Other considerations in RSPIncreased RSP deemed to be RSP, if RSP is increased after removal from factoryRSP declaration not mandatory on wholesale packages (for institutional consumers ,agricultural farm produce etc.,)

Transaction Value (Sec 4)In case where any of the earlier mentioned methods of valuation are not applicable , assessable value of the goods is required to be computed in terms of transaction value of the goods as provided under Section 4 of the act.It is also a residual method

Conditions for applying transaction value Sale : The Excisable Goods must be sold by the AssesseeDelivery : Such sale should be for delivery at the time and place of removalPrice: The price must be the sole consideration for sale . And .Related Persons: Assessee and the Buyer of the goods must be related persons

Analysis of the definition of TV

Conditions not satisfied Rules applyWhere any of the above 4 conditions are not satisfied , value of the goods determined as per Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000

Each transaction Separate Transaction Value Sec 4(1)(a)

Condition I - SaleMeaning - Transfer of ownership in goods-in ordinary course of trade , for cash or deferred paymentConsideration-- can be paid by or to third PartyInclusions Hire purchase and Lease

Condition I Saleexclusions..Activity ReasonTransfer to Depot /BranchNo sale at the time and Place of removalJob work or ProcessingNo sale of goods ,Job work charges cannot be considered consideration for transferFree Samples / Supply under Warranty ClaimsNo ConsiderationHypothecationThere is no transfer

Condition II Place of RemovalPlace of Production Factory or any other premises of Production or Manufacture of the Excisable GoodsPlace of Storage Warehouse or any other place where Excisable Goods have been permitted to be deposited without payment of duty

Condition II Place of RemovalPlace of Sale Depot, Consignment Agent premises or any other Place from where the Excisable Goods are to be sold after their clearance from the Factory

Condition III - PricePresumption Amount received by the Assessee from the customer on the sale of goods will be deemed to be the Cum-duty-PriceCase ..Maruti Udyog

Condition III - PriceCum-Duty-Price MeaningPrice actually Paid to him for the goods sold (+)Money value of additional Consideration .. Flowing directly or indirectly from the buyer to assessee in connection with the sale of such goods (-)Sales tax & Other Taxes

Condition IV Related PartiesDiscussed in Rule 9 AND Rule 10 of the Excise Valuation Rules

Transaction Value- InclusionsItemInclusionsExclusionsBought Out ItemsThey are items supplied with Excisable Goods. They are Essential Parts of the goods and enrich its valueBought out Items supplied under Trading ActivityInstallation, Erection & Commissioning ExpensesIncludible in Assessable Value, only if such installation, erection results in a new excisable goodsGenerally excluded as it is a post removal expense

Transaction Value- InclusionsItemInclusionsExclusionsAfter sales serviceCharges recovered from Buyer under Compulsory After Sales service are includible in AVOptional After Sales service charges are includible only if the buyer avails such servicesPrice hike due to EscalationHike in price of goods on account of price escalation clause is includible----Pre- delivery InspectionIncludible in AVNOT includible if paid by the BUYER

Transaction Value- InclusionsItemInclusionsExclusionsDesign & Engg. ChargesThey are essential for the purpose of manufacture and included in AVIf such charges are not connected to goods or saleConsultancy ChargesThose incurred in relation to pre installation planning, layout design are includible in AV-----Testing chargesRecovered by the Assessee from the Buyer in terms of the contract, forms part of AV-----

Transaction Value- InclusionsItemInclusionsExclusionsCommission to AgentsIncluded in AV-----Warranty chargesThey should be included in Transaction Value u/s 4For optional warranty, if buyer does not opt for warranty facilityDharmadaDharmada or charity collected by an assessee from the buyer is includible in AV-----

Transaction Value- InclusionsItemInclusionsExclusionsTransportation & InsuranceCosts incurred from factory gate to the place of removal are includible. Any profit on transportation cost charged by buyer includible under Rule 6 of valuation RulesCosts incurred from place of removal to place of delivery not includibleInput Handling CostsPre-manufacturing cost is includible in the AV ---

Transaction Value- InclusionsItemInclusionsExclusionsSurprise IncentiveIs not deductible to determine AV---Depot Mtce and RunningIncluded in AV , as the price prevalent at the depot is to be takenTransportation cost from depot to the customer is not includedLoading & unloading Incurred inside the factory is included in AVCharges incurred by a Distributor is not incuded

Transaction Value- InclusionsItemInclusionsExclusionsPacking Charges(a) Packing materials (whether supplied by the buyer or not) ---Packing materials(b) Durable and returnable only amortised value is included---Packing materials(c) Not returnable included---Packing charges (d) Recovered from Buyer- included-----

Transaction Value- InclusionsItemInclusionsExclusionsFree supply in warranty periodIncluded in AV u/s 4 ---Instruction manualIf separately sold, it will be liable to dutyIf supplied along with the product, not includibleBank charges----Excluded from AV, if such inclusions are due to outstation cheques

Transaction Value- ExclusionsTrade discounts in normal practiceRegional Discounts - -to compensate for high incidence of local taxesInterest on delayed payment

SSI ExemptionExcise duty concessions have been granted to SSI units to make them more competitive in the domestic and global marketThese concessions have been extended to the SSI units by way of Exemption NotificationsAt present, Notification No.8/2003 CE dtd 01.03.2003 grants SSI exemption

Eligible GoodsExemption is restricted to the products listed in the SSI exemption Notification.So.. Products like tobacco products, pan masala, watches, matches and some textile products are specifically excluded from SSI Exemption

Eligible UnitsValue of clearances of excisable goods for home consumption does not exceed ` 400 lakhs or ` 4 crores in the previous financial year

Exemption from DutyIf the turnover of the SSI unit does not exceed ` 400 lakhs during previous financial year.. Duty is exempted on the first ` 150 lakhs

Availability of CENVAT CreditA SSI unit can avail CENVAT credit on inputs only after it starts paying dutySo.. It cannot avail credit in respect of its first ` 150 lakhs

Exemption- Not availableSSI exemption is not available in respect of clearances bearing a brand name of another personThis means they attract excise duty