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CENTRAL EXCISE ACT

Charging Section Section 3 of the Central Excise Act (often called the ‘Charging Section) states that “There shall be levied and collected in such a manner as may be prescribed duties on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India.

‘Levy’ means imposition of tax. Once a tax or duty is imposed, it has to be quantified (assessed) and then ‘collected’

As per section 3 of Central Excise Act (CEA) excise duty is levied if: -1) There is a good.2) Goods must be moveable3) Goods are marketable4) Goods are mentioned in the central excise tariff act (CETA).5) Gods are manufactured in India.

Therefore we can say that excise duty is not levied on:1) Services such as doctors treating the patients, accountants preparing the accounts, in these cases service tax are levied.2) Immovable goods such as roads, bridges and buildings.3) Non-Marketable goods, i.e., goods for which no market exists, e.g., melted iron ore at 1600 degree Celsius.4) Goods that are not mentioned in CETA; and5) Goods manufactured or produced out of India.

GOODSGoods have not been defined in Central Excise Act. As per Article 366(12) of Constitution of India, Goods includes all material commodities and articles.

Sale of Goods Act defines that “Goods” means every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

Goods must be: i) Movable; and ii) Marketable

Moveable means goods, which can be shifted from one place to another place, e.g., motor car, mobile phone, computer etc.The goods attached to earth are immovable goods, such as, Dams, Roads, and Buildings etc.

Marketable means goods which are capable of being sold, e.g., Molten iron ore at 1300 degree to 1400 degree Celsius is not marketable, therefore not a good. Similarly, flour produced in own factory for use as raw material in own factory for further production of bread is a good because it is marketable.

Actual sales are not relevant for calling any item as goods.

Moveable Goods are manufactured or produced but immoveable goods are constructed.Goods produced for free distribution, as sample, gifts, or replacement during warranty period is also liable of excise duty.

If production or manufacture is in special economic zone then no excise duty is levied

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EXCISABLE GOODS

Section 2(d) of Central Excise Act defines Excisable Goods as ‘Goods specified in the Schedule to Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt.”

MANUFACTURE

According to Section 2(f) of Central Excise Act “manufacture” includes any process: -

1. Incidental or ancillary to the completion of manufactured product or

2. Which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, or

3. Which, in relation to goods specified in third schedule to the CEA, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consumer?

Clause (2) and (3) are called deemed manufacture. Thus, definition of manufacture’ is inclusive and not exhaustive.

The word Manufacture as specified in various Court decisions shall be called only when a new and identifiable goods emerge having a different name, character, or use; e.g., manufacture has taken place when table is made from wood or of pulp is converted into base paper, or sugar is made from sugarcane

DEEMED MANUFACTURE

Deemed manufacture is of two types: –

1. CETA specifies some processes as ‘amounting to manufacture’. If any of these processes are carried out, goods will be said to be manufactured, even if as per Court decisions, the process may not amount to ‘manufacture’ [Section 2(f) (ii)].

2. In respect of goods specified in third schedule of Central Excise Act, repacking, re-labelling, putting or altering retail sale price etc. will be ‘manufacture’. The goods included in Third Schedule of Central Excise Act are same as those on which excise duty is payable u/s 4A on basis of MRP printed on the package. [Section 2(f) (iii)].

MANUFACTURERManufacturer is a person who actually manufactures or produces the excisable goods. A person who gets the production of other and sell it after putting its own brand then he will not be called manufacturer, e.g., if Khaitan company gets the fans made from some person and sell it after putting their brand name, the Khaitan company will not be manufacturer. The person actually making the fans will be called manufacturer.

TYPES OF DUTIES

Basic Excise Duty [CENVAT] Basic excise duty (also termed as Cenvat as per section 2A of CEA added w.e.f 12-5-2000) is levied at the rates specified in the First Schedule to Central Excise Tariff Act, read with exemption notification, if any – [Section 3(1)(a) of CEA)]. General rate of excise duty is 8% w.e.f. 24 – 2 – 2009.

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National Calamity Contingent Duty (NCCD) A ‘National Calamity Contingent Duty’ has been imposed vide section 136 of Finance Act, 2001 on some products. At present NCCD is payable on branded chewing tobacco, cigarettes, pan masala containing tobacco, domestic crude oil and mobile phones.

NCCD of 1% has been imposed on mobile phones w.e.f 1 – 3 – 2008

Additional Duty: An additional duty by way of surcharge has been imposed on cigarettes at specific rates ranging from Rs. 15 to Rs. 180 per thousand cigarettes. Duty at a rate equal to 10% of normal rates of excise duty has also been imposed on pan masala and certain specified tobacco products.

Duty on Medical and Toilet preparations A duty of excise is imposed on medical preparations under Medical and Toilet Preparations (Excise Duties) Act, 1955.

Additional duty on mineral products Additional duty on mineral products (like motor spirit, kerosene, diesel and furnace oil) is payable under Mineral Products (Additional Duties of Excise and Customs) Act, 1958.

Education Cess : An education cess has been imposed on all the excisable products at the rate of 2% on the excise duty payable.

Secondary and Higher Education Cess: A Secondary and Higher Education cess has been imposed on all the excisable products at the rate of 1% on the excise duty payable.

Cess - A cess has been imposed on certain products. The rates are specified for the products under the respective Acts. 

CENTRAL EXCISE VALUATION RULES

Valuation Valuation is the procedure to determine the value of excisable goods for the purpose of levying duty of excise on such goods

Excise duty is payable on the basis of:1. Specific duty based on measurement like weight, volume, length etc.2. Percentage of Tariff value.3. Maximum Retail Price.4. Compounded levy Scheme.5. Percentage of Assessable Value (Ad-valour duty)6. Duty based on annual production capacity under section 3A inserted w.e.f 10th May, 2008.

Specific Excise Duty: Specified excise duty is the duty on units like weight, length, volume, etc.Items Basis of Specific Excise DutyCigarettes length of cigaretteMatches per 100 boxesSugar per quintalMarble slab and tiles square meterColour TV screen size in cm.Cement per tone

Tariff Value Tariff value is fixed by government from time to time. This is a “notional value” for purpose of calculating the duty payable. Once ‘tariff value’ for a commodity is fixed duty is payable as percentage of this ‘tariff value’ and not the assessable value fixed u/s 4. This is fixed u/s 3(2) of Central excise Act. Government can fix different tariff values for different classes of goods or goods manufactured by different classes or sold to different classes of buyers.

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Compounded levy scheme Rule 15 of Central Excise Rules provides that Central Government may, by notification, specify the goods in respect of which an assessee shall have option to pay duty of excise on the basis of specified factors relevant to production of such goods like size of equipment employed etc. and at specified rates. Central Government can specify procedure for payment, abatement allowable, interest and penalty payable etc. this is termed as ‘Compounded Levy Scheme’.

Duty based on production capacity Some products (e.g. pan masala, rolled steel products) are perceived (seemed) to be prone to duty evasion. In case of such products, Central government, by notification specifying that duty on such notified products will be levied and collected on the basis of production capacity of the factory [Section 3A(1) of Central Excise Act inserted w.e.f 10th May, 2008].

When such notification is issued, annual capacity will be determined by Assistant Commissioner [Section 3A (2) (a) of CEA].Factors relevant to determine production capacity will be specified by rules issued by Central Government [Section 3A (2)(b)(i)].

VALUE BASED ON RETAIL SALE PRICE

Section 4A of CEA empowers Central Government to specify goods on which duty will be payable based on ‘retail sale price’. The provisions for valuation on MRP basis are as follows: -

1. The goods should be covered under the provisions of Standards of Weights and Measures Act or rules [Section 4(A)]

2. Central Government has to issue a notification in Official Gazette specifying the commodities to which the provision is applicable and the abatement permissible. Central government can permit reasonable abatement (deductions) from the ‘retail sale price’ [Section 4 A (2)].

3. While allowing such abatement, central Government shall take into account excise duty, sales tax and other taxes payable on the goods [Section 4 A (3)].

4. The retail sale price should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges.

5. If more than one retail sale price is printed on the same packing, the maximum of such retail price should be considered.

6. Tampering, altering or removing MRP is an offence and goods are liable to confiscation [Section 4 A (4)]. If price is altered, such increased price will be the ‘retail sale price’ for purpose of valuation.

Q1 Refrigerators under heading No. 841810 carry ‘abatement rate’ of 40% and they are specified only in the First Schedule to the Central Excise Tariff Act, 1985. Find out the amount of duty, if the maximum retail price [MRP] of a refrigerator is Rs 20,000 only and the rate of excise duty is 16% plus education cess as applicable.Ans. Since abatement of 40% is available, assessable value of refrigerator will be Rs 12,000 (MRP Rs 20,000 – Abatement @ 40% Rs 8,000). Basic excise duty @ 16% will be Rs 1920. Education cess @ 2% of Rs 1920 is Rs 38.40. SAH education cess @ 1% of Rs 1920 is Rs 19.20.

MRP provisions are overriding provisions When Section 4 A is applicable; provisions of Section 4 for determination of assessable value are not applicable.

Q2 Asha Ltd., supplies raw material to a job worker Kareena Ltd. After completing the job – work, the finished product of 5,000 packets are returned to Asha Ltd. Putting the retail sale price as Rs 20 on each packet. The product in the packet is covered under MRP provisions and 40%

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abatement is available. Determine the assessable value under Central excise law from the following details:

1. Cost of Raw material supplied Rs 30,0002. Job worker’s charges including profit Rs 10,000.3. Transportation charges sending the raw material to the job worker Rs 3,0004. Transportation charges for returning the finished packets to Asha Ltd. Rs 3,000

Ans. If a product is covered under provisions of section 4 A, valuation will be on the basis of provisions of Section 4 A, valuation will be done on the basis of section 4 A and not on the basis of material cost plus job charges. Hence, in this case, assessable value will be Rs 12 per piece (after allowing 40% abatement from MRP. Hence assessable value for Rs 5000 packets is Rs 60,000.

Q3 1, 00,000 units of product ‘P’ were manufactured during the period. The product is covered under section 4A, abatement (rebate) 40%. The product carries MRP different packages as under: -

Maximum Retail Price/unit Quantity removed (units)South 100 50,000North 120 25000East 110 28000Central 108 12000West 115 30000

Excise duty rate is 8%. Education cess and SAH as applicable.Ans.

Maximum retail price

Rebate40%

MRP after rebate(A)

Quantity removed(B)

A×B duty rate (including cess)

Duty payable

South 100 40 60 50,000 30,00,000 8.24% 247200North 120 48 72 25,000 18,00,000 8.24% 148320East 110 44 66 28,000 1848000 8.24% 152275.2Central 108 43.2 64.8 12,000 777600 8.24% 64074.24west 115 46 69 30,000 2070000 8.24% 170568

145,000 Total 782437.44

Q4 In above question what will be the total duty payable if the same package contains various MRP.Ans. As per Section 4A if more than one retail sale price is printed on the same packing, the maximum of such retail price should be considered. Therefore duty is payable at (Rs 120 less abatement 40%) as this is the maximum retail price. The total assessable value is 145000 units × 72 = 10440000 and duty payable is Rs 860256.

RELATED PERSON [SECTION 4(3)(b)The assessee and the buyer shall be deemed to be related persons, if(i) They are inter connected undertakings, or(ii) They are relatives; or (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.

INTER – CONNECTED UNDERTAKINGS [Sec -2(g) of MRTP Act, 1969] Two or more undertaking which are interconnected with each other in any of the following manner namely –1. If one owns or controls the other

2. Where the undertakings are owned by a firm , if such firm have one or more common partners

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3. Where the undertakings are owned by bodies corporate a) if one body corporate manages the other body corporate; orb) if one body corporate is the subsidiary of the other body corporate; orc) if the bodies corporate are under the same management; ord) if one body corporate exercises control over the other body corporate in any other manner

4. Where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firms,

a) hold, directly or indirectly, not less than fifty percent of the shares, whether preference of equity, of the body corporate, or

b) exercises control, directly or indirectly, whether as director or otherwise, over the body corporate.

5. If one is owned by a body corporate and the other is owned by firm having bodies corporate as its partners, if such bodies are under the same management.

6. If the undertakings are owned or controlled by the same person or by the same group.

7. If one is connected with the other directly or indirectly through other interconnected undertaking.

RULE 9 WHEN GOODS ARE SOLD THROUGH RELATED PERSON

1. Manufacturer sold goods to related person and related person sold goods to unrelated buyer transaction value is the value at which related person sold the goods to unrelated person.

Example A Ltd. sold goods to B Ltd., at a value of Rs 200 per unit, In turn, B Ltd. sold the same to C Ltd. at a value of Rs 300 per unit. A Ltd. and B Ltd. are related, whereas B Ltd. and C Ltd. is unrelated.Ans. As per above rule, the transaction value is Rs 200. As B and C are unrelated person, therefore transaction value is the value at which B (related) sells the goods to C (unrelated buyer).

2. Manufacturer sold goods to related person and related person further sold goods to related person and then related person sold goods to unrelated person in retail transaction value is the value at which related person sold to unrelated person.

Example A Ltd. sold goods to B Ltd., at a value of Rs 200 per unit, In turn, B Ltd. sold the same to C Ltd. at a value of Rs 300 per unit and C also sold the goods to D at a value of Rs 400 A Ltd. and B Ltd. are related, B Ltd. and C Ltd. are also related whereas C Ltd and D Ltd are unrelated. Ans. As per above rule, the transaction value is Rs 400. As A and B are related and B and C are also related person, but C and D are unrelated therefore transaction value is the value at which C (related) sells the goods to D (unrelated buyer).

3. Manufacturer sold goods to related person and related person consumed the goods transaction value as per rule 8 i.e. cost of production + 10%

Example A Ltd. sold goods to B Ltd., at a value of Rs 200 per unit. The cost of production of goods is Rs 150. B Ltd consumes the goods within the factory. A Ltd. and B Ltd. are related.

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Ans. Transaction value in this case is cost of production + 10% as per rule 8 i.e. Rs 150 + 15 = Rs 165.

Q5 A Ltd. sells to B Ltd. at a value of Rs 100 per unit. B Ltd sells the goods in retail market at a value of Rs 120 per unit. The sale price of Rs 100 per unit is wholesale price of A Ltd. Also, A Ltd. and B Ltd. are related.Ans. The transaction value is Rs 120 i.e. the price at which B sells the goods in retail.

Q6 An Assessee sales certain goods to a buyer who is a related person for net price (excluding excise duty) of Rs 1400. The buyer does not sale the goods but uses it himself as intermediate product. The cost of production of the goods is Rs 1,000. What is the assessable? What will be the assessable value if the goods were sold to unrelated person at net price of Rs 1400, who does not sale it, but uses it as intermediate product?Ans. If goods were sold to related person, the assessable value is Rs 1100. [in case of captive consumption by related, valuation is cost of production plus 10%]. If goods were sold to unrelated buyer, the assessee value will be Rs 1400.

RULE 10 When goods are sold only to or through interconnected undertaking

Q7 A Ltd. and B Ltd are inter – connected undertakings, under section 2(g) of MRTP Act. A Ltd. sells goods to B Ltd. at a value of Rs 100 per unit and to C Ltd at Rs 110 per unit, who is an independent buyer.Ans. As per Rule 10 of valuation rules, interconnected undertakings are considered as related person only if there is ‘Holding Subsidiary’ relationship. Since there is no such relationship, transaction value will be Rs 100 in case of sale to B and Rs 120 in case of sale to C.

Q8 An assessee sales goods to ABC Co. Ltd. the buyer is a ‘related person’ as defined u/s 4(3) (b) of Central Excise Act for Rs 10,000 on 15th December 2009. On that date, the net price (excluding excise duty) of related person to an unrelated buyer was Rs 12000. What will the assessable value in each of the following cases: -

Procedure of Valuation

When ICU is related in term of Sec 4(3)(b)(ii)/(iii)/(iv) or buyer is a holding or

subsidiary company of assessee

Value = As per Rule 9

In any other case

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a) The related person sales the goods to an unrelated buyer on 5th February 2010 at Rs 12,500 exclusive of excise duty.b) The related person sales the goods to an unrelated buyer on 10 th February 2010 at Rs 11,000 exclusive of excise duty.c) The buyer is treated as ‘related person’ as it is an interconnected undertakings’ in relation to manufacturer (assessee). However, the buyer is not a holding or subsidiary of assessee. Buyer and seller do not have interest in each other.Ans. In case (a) and (b) the ‘Assessable Value’ will be Rs 12,000. The normal transaction value shall be considered as on date of removal from the factory. Thus, the actual price at which such goods are sold later by related person will not be relevant. The price of related person ruling at the time of removal from factory of assessee will be relevant.

In case (c) the assessable value will be Rs 10,000 as per rule 10. [Since the buyer is a limited company, it cannot be a relative of assessee. An artificial person cannot be ‘relative’ of other. Hence, buyer cannot fall in any other definition of relative’]

Q9 X Ltd. manufactures three health drinks viz. Slim, Trim, Prim. Slim was sold only to Y Ltd., a subsidiary company of X Ltd. Trim was sold to Z Ltd., where the Managing Director of X Ltd. is a Manager. Prim is sold to P Ltd. who are sole distributor of X Ltd., and was coming under the same management of X Ltd. Determine the Assessable Value/Transaction value of the three products in the hands of X Ltd. on the basis of the following information: 1. Price of X Ltd. to Y Ltd. Rs 1002. Price of X Ltd. to Z Ltd. Rs 503. Price of X Ltd. to P Ltd. Rs 204. Price of Y Ltd. to consumer Rs 1205. Price of Z Ltd. to consumer Rs 606. Price of P Ltd. to consumer Rs 30.Ans. As per CE valuation rules, if goods are sold exclusively through a ‘related person’ the price at which goods are sold to unrelated person by the related person will be the transaction value for the purpose of Central Excise.

1. Product Slim was sold exclusively to ‘Y’ which is a related person as per Section 4(3) (b) of Central Excise Act. Hence, Transaction value will be Rs 120 as per rule 9 i.e. price at which Y sales to Ultimate consumer.

2. Product Trim is sold to Z where MD of the manufacturer is Manager. Hence they are interconnected undertakings. However as per Rule 10 of Valuation Rules, inter connected undertakings are considered as related person only if there is Holding Subsidiary relationship. Since there is no such relationship, transaction value wil be RS 50 only i.e. price at which X sales to Z.

3. Product Prim was sold to P. since X and P are under the same management, they are interconnected undertakings. However as per Rule 10 of Valuation Rules, inter connected undertakings are considered as related person only if there is Holding Subsidiary relationship. Since there is no such relationship, transaction value wil be RS 20 only i.e. price at which X sales to P.

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Cost sheet as CAS - 4Particulars Total

costCost/unit

1. Material consumed (net of excise duty)2. direct wages and salaries3. Direct expenses4. Work overheads5. Quality control cost6 Research and development cost7 Administrative overheads related to production only8 Total ( 1 to 7)9 Add – opening stock of WIP10 Less – closing stock of WIP11 Total (8 + 9 – 10)12 Less – credit for recoveries/scrap/by – products/mis income13 Packing cost14 Cost of production (11 – 12 +13)15 Add – inputs received free of cost16 Add – amortised cost of moulds, tools, dies etc. received free of cost

Rule 8When goods are not sold but

used for Captive Consumption by the assessee

Procedure of Valuation

Value = 110% of Cost of production or Manufacture

The cost of production of captively consumed goods

will henceforth be done strictly in accordance with

CAS 4 issued by ICWAI.

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17. Cost of production for goods produced for captive consumption (14 + 15 + 16)

18 Add - opening stock of finished goods19 Less – closing stock of finished goods20 Cost of production of goods dispatched (17 + 18 – 19)

Q10 Determine the cost of production on manufacture of the under – mentioned product for purpose of captive consumption in terms of rule 8 of the Central Excise Valuation (DPE) Rules, 2000 - RsDirect material 11,600Direct wages and salaries 8,400Works Overheads 6,200Quality control costs 3,500Research and Development cost 2,400Administrative cost 4,100Selling and Distribution Costs 1,600Realisable Value of scrap 1,200

Administrative overheads are in relation to production activities. Material cost includes Excise duty Rs 1600.Ans.

Particulars Total cost

Cost/unit

1. Material consumed (net of excise duty) 10,0002. direct wages and salaries 84003. Direct expenses ------4. Work overheads 62005. Quality control cost 35006 Research and development cost 24007 Administrative overheads related to production only 41008 Total ( 1 to 7) 34,6009 Add – opening stock of WIP -----10 Less – closing stock of WIP -------11 Total (8 + 9 – 10) 3460012 Less – credit for recoveries/scrap/by – products/mis income 120013 Packing cost ----14 Cost of production (11 – 12 +13) 33,40015 Add – inputs received free of cost -----16 Add – amortised cost of moulds, tools, dies etc. received free of cost ------17. Cost of production for goods produced for captive consumption (14 + 15 +

16)33400

18. Add – 10% as per rule 8 334019. Assessable value 36,740

Q11 Thunder TV Ltd. is engaged in the manufacture of colour television sets having its factories at Banglore and Pune. At Bangalore the company manufactures pictures tubes which are stock transferred to Pune factory where it is consumed to produce television sets. Determine the excise duty liability of captively consumed picture tubes from the following information: -

Rs/unitDirect material cost 600Indirect material 50Direct labour 100Indirect labour 50Direct expenses 100Indirect expenses 50

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Administrative expenses 50Selling and distribution expenses 100

Profit margin as per annual report of the company for 1999 – 2000 was 12% before Income tax.Material includes excise duty paid Rs 100. Excise duty rate applicable is 8% plus education cess as applicable.Ans.

Particulars Total cost

Cost/unit

1. Material consumed (net of excise duty) 5502. direct wages and salaries 1003. Direct expenses 1004. Work overheads 1005. Quality control cost ----6 Research and development cost -----7 Administrative overheads related to production only 508 Total ( 1 to 7) 9009 Add – opening stock of WIP -----10 Less – closing stock of WIP -------11 Total (8 + 9 – 10) 90012 Less – credit for recoveries/scrap/by – products/mis income -----13 Packing cost ----14 Cost of production (11 – 12 +13) 90015 Add – inputs received free of cost -----16 Add – amortised cost of moulds, tools, dies etc. received free of cost ------17. Cost of production for goods produced for captive consumption (14 + 15 +

16)900

18. Add – 10% as per rule 8 9019. Assessable value 99020. Excise duty @ 8% 79.221 Education cess @ 2% 1.5822 SAH cess @ 1% .79

Notes:1. Indirect labour and indirect expenses have been included in Works Overhead2. In absence of any information, it is presumed that administration overheads pertain to

production activity.3. Actual profit margin earned is not relevant for excise valuation.

Q12 A manufacturer manufactured some furniture within the factory for his own use. He purchased material of Rs 27,500 for this purpose. Cost of the operation carried out by him, as certified by a cost accountant as per CAS – 4 is Rs 12,200. The furniture is liable for duty @ 8% plus education cess of 2%. The manufacturer generally earns profit of 18% on his total cost. Excise duty on furniture is 8% plus education cess as applicable. State Vat rate is 4%. Find the excise duty and state Vat payable.Ans. In case of captive consumption duty is payable @ cost of production plus 10%. Cost of production is material cost plus processing cost i.e. Rs 39700. [Rs 27,500 + Rs 12,200]. Add 10% i.e. Rs 3,970 as per rule 8. Thus the assessable value will be Rs 43,670 [Rs 39700 + 3970]. Hence basic excise duty will be 8% of Rs 43,670 i.e. Rs 3493.6 plus education cess @ 2% 69.876 plus SAH cess @ 1% Rs 34.94. No sales tax is payable as goods are not sold.

RULE 10 A

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VALUATION IN CASE OF JOB WORK

Notes: -1. Principal manufacturer and the buyer of the goods are not related and price is the sole consideration for sale.2. Cost of transportation from premises from which goods are sold to place of delivery will not be included in the assessable value.

Q13 A trader supplies raw material of Rs 1150 to processor. Processor processes the raw material and supplies finished product to the trader. The processor charges Rs 450, which include Rs 350 as processing expenses and Rs 100 as his (processor’s) profit. Transport cost for sending the raw material to the factory of the processor is Rs 50. Transport charges for returning the finished product to the trader from the premises of the processor is Rs 60. The finished product is sold by the trader at Rs 2100 from his premises. He charges Vat separately in his invoice at applicable rates. The rates of duty are 8% plus education cess as applicable. What is the AV, and what is total duty payable?Ans. Assessable Value is to be calculated on the basis of selling price of trader which is Rs 2,100. This price is to be treated as inclusive of excise duty. Hence assessable value will be (2100 × 100) ÷ 108.24 i.e. Rs 1940.13. Basic excise duty @ 8% will be 155.21. Education cess @ 2% i.e. Rs 3.104 and SAH cess @ 1% is Rs 1.55. Total duty payable will be 159.87.

Q14 M/s Bharat (trader) supplies raw material costing Rs 4,500 to processor. Processor processes the raw material and supplies finished product to the trader. The processor charges Rs 1050, which include Rs 800 as processing expenses and Rs 250 as his (processor’s) profit. Transport cost for sending the raw material to the factory of the processor is Rs 400. Transport charges for returning the finished product to the trader from the premises of the processor is Rs 450. The finished product is sold by the trader at Rs 6700 from his premises. He charges Vat separately in his invoice at applicable rates. The rates of duty are 8% plus education cess as applicable. What is the AV, and what is total duty payable?Ans. Assessable Value is to be calculated on the basis of selling price of trader which is Rs 6,700. This price is to be treated as inclusive of excise duty. Hence assessable value will be (6700 × 100) ÷ 108.24 i.e. Rs 6189.95 Basic excise duty @ 8% will be 495.20. Education cess @ 2% i.e. Rs 9.904 and SAH cess @ 1% is Rs 4.95. Total duty payable will be 510.056

PROCEDURE FOR VALUATION

Goods sold from the premises of Job Worker 10A (i)

Goods Sold from the place other than the premises of Job Worker [depot, branch, godown 10 A (ii)

If valuation is not possible as per 10A (i) or 10 A (ii)

Transaction Value is the value at which goods are sold by the principal manufacturer.

Value = Normal Transaction Value of goods at or about the same time’ by the principal manufacturer from such place.

Value = Rule 4 to Rule 10, as applicable will be applied

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Q15 A trader is owner of a brand name ‘J-17’. He supplies materials to a job-worker. The job worker manufactures goods with brand name ‘J-17’ and supplies the goods to the trader. Cost of inputs is Rs. 360 per piece, inclusive of transport cost upto the factory of job worker. Job worker charges Rs. 130 per piece to manufacture the product. The trader sells the goods in market at Rs. 630 per piece. The rate of duty is 8%. Find the Assessable Value. What is the duty payable per piece?Ans. Assessable Value is to be calculated on the basis of selling price of trader which is Rs 630. This price is to be treated as inclusive of excise duty. Hence assessable value will be (630 × 100) ÷ 108.24 i.e. Rs 582.04 Basic excise duty @ 8% will be 46.56. Education cess @ 2% i.e. Rs 0.931 and SAH cess @ 1% is Rs0.465. Total duty payable will be Rs 47.95

Q16 Ram and Co. are dealers in engineering goods. They obtained an order for an engineering item ‘A’. They quoted a price of Rs 5,000 per piece for ‘A’ plus Vat at applicable rate. Ram and Co. then approached Laxman and Co. who was manufacturer of engineering items. It was agreed that Ram and Co. will supply raw material required for manufacture of ‘A’ to Laxman and Co. free of cost. Laxman and Co. will manufacture product ‘A’ and supply it to Ram and Co. it was agreed that Laxman and Co will charge Rs 1500 per piece as their job charges per piece. Other information is as follows: -1. Raw material supplied by Ram and Co. to Laxman and Co was purchased by Ram and Co. from the manufacturer ‘Z’. the break – up of the invoice ‘Z’ was as follows – Net price per Kg of Raw material – Rs 40. Excise duty – Rs 6.40. Sales tax – Rs 1.86. Total – Rs 48.26. Ram and Co. generally sales goods after adding 10% to their purchase price.2. Product A requires 50 kg of raw material per piece, including normal wastage of 5%.3. Transport charges incurred by Ram and Co. for delivering raw material to factory of Laxman and Co – Rs 100 per piece.4. Transport charges for returning the finished product to the Ram and Co. by issuing a separate debit note. The rate of duty is 8% plus education cess as applicable. Who is liable for payment of excise duty? What will be the assessable value?Ans. Duty is payable on basis of selling price of Ram and Co. which is Rs 5,000 per piece. Hence, assessable value will be Rs (5000 × 100) ÷ 108.24 i.e. 4619.36. Basic duty is Rs 369.55. Education Cess is Rs 7.39 and SAH cess is Rs 3.69. Total duty payable will be Rs 380.63. The manufacturer is Laxman and Co. It will be his liability to pay duty. Laxman and Co is liable to pay duty on the selling price of Ram and Co. which is Rs 5000 per piece.

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NORMAL TRANSACTION VALUEAs per Valuation rule 2(b) it means the transaction value of the goods sold in the greatest aggregate quantity. The term greatest aggregate quantity has not been defined in this Act or Rules but it has been taken from the Custom Valuation Rules, 1988.On interpreting Custom Valuation Rules, 1988 we find that it means the price at which the greatest number of units is sold in sales to persons who are not related to the manufacturer.

Q17 Depot price of a company are: -Place of removal

Price at depot on 1.1.2010

Price at depot on 31.1.2010

Actual sale price at depot on 1.2.2010

Amritsar depot Rs 100 per unit Rs 105 per unit Rs 115 per unitBhopal depot Rs 120 per unit Rs 115 per unit Rs 125 per unitCuttack depot Rs 130 per unit Rs 125 per unit Rs 135 per unit

Additional information:1. Quantity cleared to Amritsar Depot – 100 units2. Quantity cleared to Bhopal depot – 200 units3. Quantity cleared to cuttack depot – 200 units.4. The goods were cleared to respective depots on 01/01/2010 and actually sold at the depots on 01/02/2010.Ans. Under Rule 7, the price prevailing at the depot on the clearance from the factory will be relevant value to pay excise duty.

Rule 7When goods are transferred to

depot, premises of consignment agent or any other places from

where such goods are sold.

Procedure of Valuation

> Normal Transaction Value is price prevalent at above places

at the time of removal from factory

> If Normal Transaction Value can not be determined at the

time when the goods are transferred to the depot, then

the price nearest to the time of such transfer shall be taken.

15

Hence – (i) Clearance to Amritsar depot will attract duty based on the price as on 01/01/2010. Transaction value Rs 100 × 100 units = Rs 10,000

(ii) Clearance to Bhopal Depot. Depot price on 01/01/2010. Transaction Value Rs 120 × 200 units = Rs 24,000.

(iii) Clearance to Cuttack Depot. Depot Price on 01/01/2010. Transaction Value = Rs 130 × 200 units = Rs 26,000

Note The relevant date is 01/01/2010, since the goods were cleared to the depots on that date. No additional duty is payable even if goods are later sold from depot at higher price.

Q18 An assessee clears certain goods from his factory on 21st August, 2009 to his depot at Faridabad. On that day, his net selling price (excluding excise duty) is Rs 1,000 for sale from factory gate and Rs 1100 if sale is from depot. The goods reach Faridabad on 29th August 2009.

1. The assesses increases his selling prices on 1st September 2009 as follows – Rs 1050 for sale at factory gate and Rs 1150 if sale from depot. Goods actually sold from Faridabad depot on 5th September 2009 at Rs 1150. What is the assessable value?2. The assessee reduced the prices and goods actually sold from Faridabad at Rs 900. What is the assessable value? If assessee had paid duty at higher rate, can he get refund?Ans. The Assessable Value is Rs 1100 in both the cases. Once goods are removed from factory, it does not matter whether subsequently they are sold at higher prices or lower prices from depot. Assessee is not entitled to get refund even if goods are sold at lower price from depot at a later date. As per rule 7, the price prevailing at the depot on the clearance from the factory will be relevant value to pay excise duty.

Q19 Price of ‘X’ is Rs 100 if sold from the factory at Ahmadabad, Rs 120 ex – depot Mumbai and 130 ex – godown of consignment agent at Chennai. M/s ABC Co. Ltd. sold 200 pieces from factory at Ahmedabad on 30 – 10 – 2009. On the same day, 30 pieces were cleared for Mumbai depot and 70 pieces were cleared for Chennai godown of consignment agent. The prices are exclusive of all taxes. What is the AV in each case? Ans. The A.V will be Rs 100, 120 and Rs 130 respectively.

Q20 Price of ‘Z’ is Rs 1000 if sold from factory at Varanasi; Rs 1150 if sold from his depot at Kolkata and Rs 1,100 if sold from ex – depot Kanpur. On 30th October 2009, assessee dispatched 100 pieces of ‘Z’ to his depot at Kolkata. The goods reached Kolkata depot on 16th November 2007. The assessee increased his selling prices on 1st November, 2007. As per increased prices, the ex – factory price was Rs 1050 and ex – Kolkata depot price was Rs 1200. The goods were actually sold from Kolkata at Rs 1200 on 9th December 2007. What is the duty payable? Rate of excise duty is 8% plus education cess of 2% (all aforesaid prices are exclusive of taxes and duties).

What wil be the position if 90 pieces are sold from Kolkata @ 1200, four pieces are sold @ Rs 1,150 and six pieces were transferred to another depot from which they were sold later @ Rs 1400 per piece.Ans. In this case, duty payable is on the basis of price ruling ex – depot Kolkata on the date of removal from factory, i.e. 30th October 2007. Thus duty payable is Rs 92 per piece plus education cess of Rs 1.84 plus SAH of Rs 0.92. total duty payable on 100 pieces will be Rs 9200 + 184 + 92 = Rs 9476. Any subsequent change in prices has no effect on the duty payable.

16

For Example : When goods are distributed as free samples or as gift or donations.

Procedure of Valuation

The value of such goods (i. e. other goods of the same class of same manufacturer), sold by the assessee for delivery at any other time nearest to the time of removal of goods in question.

Q21 X Ltd. is engaged in the manufacture of ‘paracetamol’ tables that has an MRP of Rs 9 per strip. The MRP includes 8% excise duty plus cess of 2% and SAH education cess of 1%. Abatement of 40% is available on MRP on drugs. The Company cleared 1, 00,000 tablets and distributed as physician’s samples free of cost. The package was marked ‘Free samples’ and MRP was not marked. Following data is available – (a) Cost of production of the tablet calculated as per CAS – 4 is Rs 3.40 per tablet (b) the company sales the goods in market to wholesalers at Rs 4.00 (excluding excise duty and CST). Determine the total duty payable (ICWA)Ans. If the product is not covered under MRP Provisions, valuation provisions u/s 4A do not apply. In that case valuation is required to be done as per Central Excise Valuation Rules. CBE&C, vide circular No. 813/10/2005 – CX dated 25 – 4 – 2005, has clarified that in case of samples distributed free, valuation should be done on the basis of rule 4, i.e. valuation should be on the basis of value of identical goods cleared at or around the same. Hence, ‘value’ will be Rs 4 per piece i.e. total Rs 4, 00,000. Excise duty will be Rs 32,000 plus education cess of Rs 640 plus SAH education cess of Rs 320

Rule 5

Rule 4When price of goods is not known at

the time and place of removal

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When goods are sold for delivery at a place other than the place of removal.

For example : Factory situated in Rourkela but sales to buyer at Delhi.

Procedure of Valuation

Value of goods = Transaction Value less Transportation cost from the place of removal to place of delivery.

EQUALISED FREIGHT1. Sometimes manufacturer fix uniform all India price of the goods. The actual cost of transport will obviously vary from place to place. In such case, though the invoice shows the uniform price, deduction will be available on the basis of average freight i.e. equalized freight.

2. The deduction is allowable only if there is ‘sale’ at factory gate i.e. factory is ‘place of removal’ even if seller has agreed to bear freight charges.

3. The provision of equalized freight applies only when there is sale from factory. If sale is from depot, freight from factory to depot is not allowable as deduction.

4. In Pepsico India v. CCE2005, assessee claimed deduction of equalized freight. Actual freight charged was more. It was held that no duty can be levied on profit earned on transportation activity.

Q22 A manufacturer having factory in Delhi has uniform price of Rs 500 (excluding taxes) for sale anywhere in India. During 2008 – 09, he made following sales – (a) Sale at factory gate in Delhi – 1000 pieces – no transport charges (b) Sale to buyers in Chandigarh – 500 pieces – actual transport charges incurred - Rs 15,000 (c) Sale to buyers in Chennai – 700 pieces – actual transport charges incurred – Rs 50,000 (d) Sale to buyers in Ahmedabad – 800 pieces – Actual transport charges - Rs 25,000. Find assessable value.Ans. The total pieces sold are 3,000. The actual transport charges incurred are Rs 90,000. Hence equalized (average) transport charges per piece are Rs 30). This will apply to all 3000 pieces sold by the manufacturer.

Rule 6When price is not sole consideration for sale

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For example: Buyer provides goods or services free of charge or at reduced cost for production or sale of such

goods

Procedure of Valuation

Such Transaction Value + money value of any additional consideration flowing directly or indirectly from the buyer.

Q23 A Ltd. sells motor spirit to B Ltd. at a value of Rs 31 per litre. But motor spirit has administered price of RS 30 per litre fixed by Government. Ans. Duty is payable on basis of transaction value and hence Rs 31 will apply

ValuationSection – 4(1) (a)

Transaction Value [Sec – 4(3)(d)](a) Transaction value is the price actually

paid or payable for the goods when sold(b) It includes in addition to the amount

charged as price, any amount that the buyer is liable to pay to the assessee or any other person on behalf of the assessee by reason of, or in connection with the sale of the goods

(c) The payment may be made at the time of sale or at any other time

(d) It includes any amount charged for – 1. Advertising or publicity2. Marketing and selling expenses3. Storage 4. Outward handling 5. Servicing 6. Warranty7. Commission, or8. any other matter(e) It does not include the amount of excise

duty, sales tax or any other taxes actually paid or payable on such goods

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The ad valorem duties are payable on the basis of “Transaction Value” in case all the following conditions are satisfied –

(i) The excisable goods must be sold by the assessee(ii) The excisable goods must be sold by the assessee for delivery at the time and place of

removal;(iii) The assessee and the buyer of the goods must not be related persons; and (iv) The price must be the sole consideration for sale.

CCEx. Vs. Gurunanak Refrigeration Corpn. [2003] [SC]Goods can be sold below cost of production and in that case too, the actual sale price will form the assessable value of goods.

Section – 4(1)(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.

TIME AND PLACE OF REMOVALSection 4(1) (a) states that transaction value shall be assessable value when goods are sold by assessee, for delivery at the time and place of removal.

Time of removal As per section 4(3) (cc), in case of sale from depot/place of consignment agent ‘time of removal’ shall be deemed to the time at which the goods are cleared from factory.

Place of removal ‘Place of removal’ has been defined in section 4(3) (c). ‘Place of removal’ means: -1. A factory or any other place or premises of production or manufacture of the excisable goods from where such goods are removed or2. A warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty from where such goods are removed or3. A depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from factory.

INCLUSIONS AND EXCLUSIONS IN TRANSACTION VALUE

Inclusions 1. Primary packing/secondary packing/special secondary packing2. Design and engineering charges.3. Consultancy charges relating to manufacturing.4. Loading and handling charges within the factory.5. Royalty charges in connection with sale6. Advertising charges.7. Advance authorization (advance license) surrendered in favour of seller is additional

consideration and includible.8. Free after sale service/warranty.9. Pre – delivery inspection charges.10. Commission to selling agents.11. Freight and Insurance from factory to depot.12. Dharmada charges

Exclusions1. Quantity discount2. Trade discount

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3. Cash discount4. Installation and erection expenses5. Interest on delayed payments.6. Taxes (sales tax, excise, octroi and other duties levied)7. Subsidy/rebate8. Durable and returnable container and packing.9. Amount of security deposit10. Regional discount11. Bank charges for collection of sale proceeds.

Q23 How would you arrive at the assessable value for the purposes of levy of excise duty from the following particulars-cum-duty selling price exclusive of sales-tax Rs. 10,000 - Rate of excise duty applicable to the product: 8% - Trade discount allowed - Rs. 1,200 - Freight Rs. 750. (ICSI Final Dec. 1989)Ans. Trade discount of Rs 1,200 and freight of Rs 750 are allowed as deductions. Hence, net price is Rs 8,050 [Rs 10,000 – 1,200 – 750]. Since the price is inclusive of excise duty of 8.24% (including education cess@ 2% and SAH 1%) Excise Duty will be Rs (8050 x 8.24)/108.24 i.e. Rs 612.82 and Assessable Value is Rs 7437.17 [8050- 612.82].

Q24 How would you arrive at the assessable value for the purpose of levy of excise duty from the following particulars: * Cum-duty selling price exclusive of sales tax Rs 20,000 * Rate of excise duty applicable to the product 8% * Trade discount allowed Rs. 2,400 * Freight Rs. 1,500 (ICSI Final December, 1998).Ans. Trade discount of Rs 2,400 and freight of Rs 1,500 are allowed as deductions. Hence, net price is Rs 16,100 [Rs 20,000 – 2,400 – 1,500]. Since the price is inclusive of excise duty of 8.24% ( including education cess@ 2% and SAH 1%) Excise Duty will be Rs (16,100 x 8.24)/108.24 i.e. Rs 1225.64 and Assessable Value is Rs 14874.36 [16,100 - 1225.64]

Q25 The selling price of a product, inclusive of excise duty and sales tax is Rs 300 per piece. Sales tax rate is 4%. Tariff rate of excise duty is 16%. However, as per an exemption notification, excise duty payable is 8%. What is the AV, and what is the total duty payable per piece.Ans.

RsPrice (cum excise duty and sales tax) 300Less: sales tax (300 × 4) 104

12

Balance 288Less: total excise duty (including cess) (288 × 8.24) 108.24

21.92

Assessable value 266.08

Q26 Find Assessable Value and duty payable - . - Maximum Retail Trade Price: Rs. 1,100/- per unit. - Sales-Tax, Surcharge, Octroi and other Local Taxes : 10% - Cash Discount : 2% - Trade Discount: 8% - Primary and Secondary packing cost included in the above MRP : Rs. 100 - Excise duty rate : 8% ad valorem. (ICWA Inter - December 1997) Ans.

RsPrice (given) 1100Less: trade discount and cash discount (10%) 110Balance 990Less: sales tax (990 × 10) 110

90

Balance 900Less: total excise duty (including cess) (900 × 8.24) 108.24

68.51

Assessable value 831.49

21

Packing cost is not allowable as deduction. Hence, price of excise purposes is Rs 990

Q27 A manufacturer has agreed to supply a machine on following terms: - (i) Price of the machine at Rs. 4,50,000.00 (Exclusive of taxes and duties) (ii) Packing for transportation of the machine Rs. 15,000.00, (iii) Transport charges of machinery Rs. 25,000.00, (iv) Development and tooling charges Rs. 40,000.00 (exclusive of taxes and duties), (v) C.S.T. @ 4% (vi) Octroi paid on machine supplied Rs. 2,000.00 (not recovered from party separately) (vii) Excise duty @ 8%, (viii) Interest will be charged @ 16% on delayed payment beyond 30 days,(ix) Special discount of Rs. 5,000.00 if advance of Rs. 2, 00,000.00 is paid with order.

Work out the excise duty liability based on following additional information - (i) Actual transportation cost is Rs. 26,000.00, (ii) Interest of Rs. 5,000.00 was charged as party has failed to make payment within 30 days, (iii) The buyer paid advance with the order. (ICWA Inter - June 1997)Ans.

RsPrice (given) 450,000Add : packing charges for transportation 15,000Developing and tooling charges 40,000Total 505000Less: Octroi paid on machine 2000Balance 503000Less: total excise duty (including cess) (503000 × 8.24) 108.24

38291.94

Assessable value 464708.05

Notes: -

1. Transport charges of final product are not includible in Assessable Value. In this case, transport charges charged were Rs 25,000 against actual charges incurred of Rs 26,000. Hence, question of its addition does not arise. This loss of Rs 1,000 cannot be allowed as deduction, as it is not in connection with sale, it is in connection with additional service of arranging transport for customer, provided to him. It may be noted that even if actual transport charges paid to transporter were less than Rs 25,000 which were charged to customer (say actual transport charges were Rs 24,000), the difference of Rs 1,000 was not required to be added as reasonable profits on other service activities are permissible. This is so if the sale was complete at factory gate itself and transport was arranged as additional service. For more clarification see case Pepsico India v. CCE2005 under equalized freight above.

2. Octroi duty paid Rs 2,000 on final product is allowable as deduction.

3. Special discount of Rs 5,000 is not allowable as deduction. The reason is that 'price' should be sole consideration'.4. Interest on delayed payment is not includible in Assessable Value as it is not in ‘connection’ with sale, but it is in connection with delayed payment. 5. Packing charges are includible in AV.

Q28 Having regard to provisions of section 4 of the Central Excise Act, 1944, compute the assessable value of excisable goods and the duty amount, given the following information –

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1. Cum-duty wholesale price (including VAT Rs 3,000) - Rs 16,000 2. Normal secondary packing cost (already included) - Rs 1,000 3. Cost of special secondary packing (already included) - Rs 2,000 4. Cost of durable and returnable package - Rs 1,000 5. Freight (outward) - Rs 750 6. Insurance on freight - Rs 3007. Trade discount (as per normal practice) - Rs 900. 8. The rate of central excise duty as per the central excise tariff is 8%. (ICWA - Final- June, 1998)Ans.

RsPrice (given) 16,000less : Sales tax 3,000Durable and returnable packing 1,000Freight 750Insurance 300Trade discount 900Balance 10050Less: total excise duty (including cess) (10050 × 8.24) 108.24

765.07

Assessable value 9284.93

Notes: -1. Secondary Packing cost of Rs 1,000 is includible. Cost of special secondary Rs 1,500 is includible if it is in connection with sales. In absence of specific information, it is assumed that it is in connection with sale and hence is addible.

2. Sales tax of Rs 2,000 is allowable as deduction. Cost of durable and returnable packing is not includible.

3. Trade discount of Rs 1,000 is allowable as deduction.

Q29 Catalogue Price Rs 2000 per unitUnits cleared 500Packing charges Rs 40 per unit(Already included)Freight Rs 5000Transit insurance Rs 600Bank charges Rs 200Trade discount 30%Cash discount (subject to advance payment) 10%Ans.

RsPrice 2000Less: trade discount 600Assessable value 1400Total assessable value (1400 × 500) 7,00,000

Notes: -1. Expenses incurred after removal of goods do not form part of assessable value. Hence insurance for transit, outward freight, bank charges have not been included in A.V.2. Trade discount is deductible from sale price. But cash discount for advance payment is not deductible because it has not been allowed normally.

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Q30 Calculate the Transaction Value and excise duty payable from the following information: -Total Invoice price Rs 18,000The invoice price includes the following: -State Vat Rs 1,000Octroi Rs 200Insurance from factory to depot Rs 100Freight from factory to depot Rs 700Rate of excise duty 8%.Ans.

RsPrice (given) 18,000less : Sales tax 1,000octroi 200 Net price excluding taxes but inclusive of duty 16800Less: total excise duty (including cess) (16800 × 8.24) 108.24

1278.9

Assessable value 15521.1

Notes:

1. It is assumed that invoice price is depot price.2. Hence deduction of Insurance from factory to depot and Freight from factory to depot is not available.

Q31 M/s electronics manufactures mixer grinders. They got order for 2,000 mixers. They allow 30% trade discount on retail price and cash discount @ 10% for advance payment. Buyer had paid advance payment of 1000 mixers. Find out assessable value if rate of excise duty is 8% from the following information: Rs

Sale price per mixer 2000Packing charges per mixer 50Insurance for transit 1,000Outward freight 13,000Bank charges for collecting sale proceeds 500

Ans.

RsPrice 2000Less: trade discount 600Assessable value 1400Total assessable value (1400 × 2000) 28,00,000Total excise duty @ 8.24% 230720

Notes: -1. Expenses incurred after removal of goods do not form part of assessable value. Hence

insurance for transit, outward freight, bank charges have not been included in A.V.2 Trade discount is deductible from sale price. But cash discount for advance payment is

not deductible because it has not been allowed normally.

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Q32 Company manufactured 12,000 coloured T.V during the year. Determine the excise duty payable from the following particulars.1. Retail price of T.V Rs 5,000. It includes excise duty.2. Sold 8,000 T.V to wholesalers. Discount allowed @ 20% on retail price.3. T.V sold in retail 2000.4. The balance 2000 T.V not removed from factory.5. The company purchased inputs fro manufacture of T.V Rs 3, 00, 00,000. It includes basic excise duty RS 40, 00,000.6. The closing stock of inputs is Rs 25,00,0007. The company is liable to pay basic excise duty @ 8%.8. Abatement allowed 35%.Ans.

RsT.V sold to wholesalers (8,000 × (5,000 – 20%) 320,00,000T.V sold to retailers 2000 × 5000 100,00,000Total 420,00,000Less rebate 35% 147,00,000Cum duty price 273,00,000Duty payable (273,00,000 × 8.24) 108.24

2078270.51

Less: Cenvat Credit 10,00,000 × 50,00,000) 75,00,000

6,66,666.67

Total duty payable 1411603.8399

Q33 A manufacturer has appointed brokers for obtaining orders from wholesalers. The brokers procure orders for which they get brokerage of 5% on selling price. Manufacturer sells goods to buyers at Rs. 250 per piece. The price is inclusive of sales tax and Central excise duty. Sales tax rate is 4% and excise duty rate is 8%. What is the AV, and what is duty payable per piece?Ans.

RsPrice (cum excise duty and sales tax) 250Less: sales tax (250 × 4) 104

9.615

Balance 240.385Less: total excise duty (including cess) (240.385 × 8.24) 108.24

18.30

Assessable value 222.08Q34 500 pieces of a product were manufactured. 120 pieces were sold at Rs. 700 per piece to Industrial Consumers, 75 pieces were sold to a Central Government department @ Rs. 690 per piece; 210 pieces were sold to wholesalers at Rs. 720 per piece; 70 pieces were sold in retail @ Rs. 800 per piece and 25 pieces were given as free samples. Out of the 75 pieces sold to Government department, 25 pieces were rejected, which were subsequently sold to other customers @ Rs. 300 per piece, without bringing them in the factory. [Note that All the prices are exclusive of excise and sales tax]. The rate of duty on the product is 8%. What is total duty payable?Ans.

Quantity price Total value120 700 84,00075 690 51,750210 720 1,51,20070 800 56,00025 720 18,000

25

360950

The price is exclusive of excise duty and taxes. Hence, Assessable Value is Rs 3, 60,950 and duty @ 8.24% will be Rs 29742.28

Notes:1. Once goods are cleared from factory, no duty is payable even if subsequently goods are sold at higher price2. There is no provision for refund of duty if goods are rejected after they are cleared from factory.3. In case of samples, as per rule 4 of Valuation Rules, value nearest to the time of removal, subject to reasonable adjustments is required to be taken. However, since prices are varying, value nearest to the time of removal may not be ascertainable and will not be acceptable for valuation as the prices are changing. In such case, recourse will be taken to rule 11 of Valuation Rules, i.e. best judgment assessment. We can take recourse to rule 7 and 9 where principle of ‘normal transaction value’ is accepted, when prices are varying. As per rule 2(b) of Valuation Rules, ‘normal transaction value’ means the transaction value at which the greatest aggregate quantity of goods are sold. Since greatest quantity of 210 pieces are sold at Rs 720, that will be ‘normal transaction value’, which can be taken for valuation of free samples.

Q35 1,500 pieces of a product ‘A’ were manufactured during 2008 – 09 Its list price (i.e. retail price) is Rs. 250 per piece, exclusive of taxes. The manufacturer offers 20% discount to wholesalers on the list price. During the year, 840 pieces were sold in wholesale, 510 pieces were sold in retail, 35 pieces were distributed as free samples. Balance quantity of 115 pieces was in stock at the end of the year. The rate of duty is 8%. What is the total duty paid during the year 2008 – 09?Ans.

Quantity price Total value510 250 127500840 200 16800035 200 7,000

302500

The price is exclusive of excise duty and taxes. Hence, Assessable Value is Rs 3, 02500 and duty @ 8.24% will be Rs 24926

Notes:1. Since 115 pieces were in stock at year end, no duty will be payable. Duty will be payable only when goods are cleared from factory2. In case of samples, as per rule 4 of Valuation Rules, value nearest to the time of removal, subject to reasonable adjustments is required to be taken. However, since prices are varying, value nearest to the time of removal may not be ascertainable and will not be acceptable for valuation as the prices are changing. In such case, recourse will be taken to rule 11 of Valuation Rules, i.e. best judgment assessment. We can take recourse to rule 7 and 9 where principle of ‘normal transaction value’ is accepted, when prices are varying. As per rule 2(b) of Valuation Rules, ‘normal transaction value’ means the transaction value at which the greatest aggregate quantities of goods are sold. Since greatest quantity of 840 pieces are sold at Rs 200, that will be ‘normal transaction value’, which can be taken for valuation of free samples.

Q36 1, 00,000 pieces of a product ‘Sigma’ were manufactured during the period. The MRP of the product is Rs 100. The product is covered under section 4A, abatement is 30%. During the period 80,000 units were sold. The assessee purchased inputs for Rs 50 lacs including Cenvat credit of RS 2 lacs.. The assessee also purchased capital goods of Rs 20 lacs including cenvat credit of Rs 1 lacs. Calculate net excise duty payable if BED is 8%

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Ans. RsAssessable Value (100 – 30%) 70Units removed 80,000Total assessable value 5600,000Total excise duty 8.24% 461440Less Cenvat credit Inputs 200,000Capital goods (50%) 50,000Duty payable

211440Q37 B Ltd. manufactures two products namely, Eye Ointment and Skin Ointment. Skin Ointment is a specified product u/s 4A of Central Excise Act, 1944. The sale prices of both the products are at Rs 43/unit and Rs 33/unit respectively. The sale price of both products included 8% excise duty as BED and education cesses as applicable. It also includes CST of 4%. Additional information: -Units cleared Eye Ointment 1, 00,000

Skin Ointment 150,000Deduction permissible u/s 4A 40%Calculate excise duty on both the productsAns. SECTION 4 AND SECTION 4A

Section 4 Section 4APrice (include taxes) 43 33Less: sales tax (43 × 4) 104

1.65 -

Balance 41.35 33Less: total excise duty (including cess) (41.35 × 8.24) 108.24

3.14

Less: abatement 40% 13.20Assessable value per unit 38.21 19.80Units sold 1,00,000 150,000Total assessable value 3821000 29,70,000Excise duty including cess 8.24% 314850.40 244728

CENVATQ1 What is CENVAT? Explain the provisions regarding CENVAT credit.Ans. Cenvat is Central Value Added Tax, which is based on the VAT system of taxation where in credit of duty paid on input, input services and capital goods can be claimed by service provider or manufacturer. New Cenvat Credit Rules, 2004 extends the credit of service tax and excise duty across goods and services. It means that input credit shall be available across the board on both goods and services including the capital goods. It is note that Cenvat credit rules are not mandatory. It is open to an assessee to opt for Cenvat credit scheme or not.

Provisions regarding CENVAT credit

Conditions Rule 4

27

1. The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or premises of the provider of output service [rule 4(1)].

2. CENVAT credit of capital goods can be taken up to 50% in the financial year in which capital goods are received and balance in the subsequent year. [Rule 4(2)].

3. CENVAT credit of capital goods is allowable even if the capital goods are acquired on lease, hire purchase or loan agreement, from a financing company. [Rule 4(3)].

4. No CENVAT credit on duty amount if manufacturer claims depreciation on duty u/s 32 of Income Tax Act. [Rule 4(4)].

5. Inputs and capital goods can be sent out for job work but should be brought back within 180 days [Rule 4(5)].

6. CENVAT credit is available on jigs, fixtures, moulds and dies even if sent to job worker for production of goods on behalf of manufacturer [rule 4(6)]

7. CENVAT credit of input service is allowed only after payment towards value of service and service tax is made [rule 4(7)].

Documents for availing CENVAT credit Rule 9(1)1. An invoice of the manufacturer from factory/depot/consignment agent place.

2. An invoice of the registered importer.

3. An invoice issued by importer from his premises or consignment registered with CE.

4. An invoice issued by registered first stage or second stage dealer.

5. Supplementary invoice by manufacturer.

6. Bill of Entry.

7. Certificate issued by an appraiser of customs in respect of goods imported through foreign post office.

8. TR – 6 or GAR – 7 Challan of payment of tax where service tax is payable by other than input service provider.

9. Invoice, bill or challan issued by provider of input service on or after 10 - 9 – 2004.

10. Invoice, Bill or Challan issued by input service provider under rule 4A of Service Tax Rules.

Utilization of CENVAT credit Rule 31. Any duty on any final product manufactured by manufacturer [Rule 3(4) (a)]

2. Payment of amount if inputs are removed as such or after partial processing [rule 3(4) (b)]

3. Payment of amount on capital goods if they are removed as such [rule 3(4) (c)].

4. Payment of amount if goods are cleared after repairs under rule 16(2) of CE rules [rule 3(4) (d)].

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5. Payment under Rule 6 of CENVAT credit rules of 10% amount on exempted goods or reversal of credit on inputs when common inputs or common input services are used for exempted as well as dutiable final products.

6. Reversal of CENVAT credit, if assessee opts out of CENVAT – Rule 11(2))

7. Payment of amount if goods sent for job work are not returned within180 days – Rule 4(5)(a)

Duties eligible for CENVAT Credit Rule 3(1)1. Basic Excise duty First schedule to CETA. Corresponding CVD on imported goods is allowable.

2. Education cess on manufactured excisable goods and CVD equal to education cess on imported goods.

3. SAH Education cess on manufactured excisable goods and CVD equal to SAH education cess on imported goods.

4. Service tax on input services paid u/s 66 of Finance Act.

5. Education cess paid on service tax.

6. SAH Education cess paid on service tax.

7. National Calamity Contingent Duty (NCCD) leviable under section 136 of Finance Act 2001 and corresponding CVD paid on imported goods.

8. Additional Excise duty under section 85 of Finance Act, 2005.

Reversal of CENVAT credit if final product subsequently exempts Rule 11(3) and 11(4) Where the manufacturer/service provider is availing conditional exemption, the manufacturer or service provider should reverse or pay an amount equal to CENVAT credit availed on : -1. Inputs lying in stock.2. Inputs present in process and final product.There is no necessity to reverse or pay an amount equal to CENVAT credit availed on input service if the manufacturer is not availing the benefit of exemption notification.