Indirect Tax Laws for CA - Final

Valuation
- Concepts and cases

Frantic Hour
Preparation Series on
Excise Valuation
Tharun Raj
www.tharunraj.com

Valuation Rules:
(Central Excise valuation
rules, 2000)

Central Excise Valuation:

Price nearest to the

time of removal
when goods are not
sold

(Central Excise Act, 1944)

Transaction Value
[4(3)(d)]: MEANS

Price paid or payable

by the buyer

To the assessee or any

other person on assessees behalf
The above payment
should be by reason of
sale (or) in connection
with sale.
The above payment can
be made before sale, at
the time of sale, after
sale.
Includes all other payments made indirectly,
which is charged by
assessee in the form of
expenses.
But the above value
does not include taxes
EXCLUSIONS:
1. All taxes, duties, cess
by whatever name
called.

2. Trade discount and

regional discount, if
these are in the normal course of business.
3. All transportation
costs after place of
removal and post removal expenses incurred by assessee
and later collected
from buyer (i.e. Carriage outwards)
4. Interest on advance, if
assessee is not charging lower price to
those buyers giving
advance.
5. Interest collected from
buyer on account of
delayed payment.
SPECIAL POINTS ON INCLUSIONS:
1. All packing costs will
be included, except
durable and returnable packing as such.
[But its amortized cost

Solving Problems on valuation is like eating watermelon

(Beware of seeds!!!)

is included]
2. Optional warranty
charges is not included, when buyer
does not opt for warranty.
3. Dharmada charges
incurred as per statutory provisions is not
included.
4. Loading and unloading charges incurred
by buyer on his own
account is not includible.
Note: While deciding as
to inclusions, check
whether buyer has made
any payment and it is in
by reason of sale i.e. that
payment will not arise, if
there is no sale.

CENVAT Credit Provisions:

(CENVAT Credit rules, 2004)
Computation of net excise duty & Service tax
payable:
Gross excise duty payable on finished goods
(+) Gross service tax payable on output services
(-) Excise duty paid on
Inputs
(-) Service tax paid on
Input services
(-) Excise duty paid on
capital goods

The above excise

duty/service tax paid

on Inputs, Input services and capital

goods is known as
CENVAT credit

Even Additional customs duty paid u/s. 3

(1) (known as CVD) of
customs and additional duty paid u/s. 3
(5) (known as SAD) of
customs is available
as CENVAT credit.

Availement = taking
credit & Utilization =
setoff of credit with
duty/tax payable.

When credit is availed,

transfer made to a
separate account
known as CC RECEIVABLE A/C Debit.

When credit is utilized, that A/c is credited and debit to duty/

tax payable A/c.

When credit is required to be reversed,

that A/c is credited
and debit to purchases/Service
charges/capital goods
A/c.

When goods are sold 5

at buyers premises,
transportation cost
should be deducted
from TV at buyers
premises
Money value of con- 6
sideration to be included in AV, when
price is not sole consideration
For goods removed
7
to depot/branch Price prevailing there
at the time of removal from place of
removal.
For, captive con8
sumption, AV is cost
of production + 10%
When goods are sold 9
to interconnected
undertakings other
than H&S, normal
TV shall be taken
When goods are sold 10
to other related persons (not covered in
rule 9), AV shall be
price at which such
goods are sold to
unrelated buyer by
such related persons, on that date.
(Related wholesale
buyer is also considered as unrelated
buyer)
In case of goods un- 10
der job-work, AV
A
shall be price at RM
supplier place at the
time of removal from
factory of JW. If
goods are sold directly from JW factory, that TV is AV.
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 Tharun Raj

Restrictions on availement and utilization of CENVAT credit:

EC availed should be utilized only

evidence of delivery and location

of Inputs]

for payment of EC.

SHEC availed should be utilized

CC on Input services is available

immediately on receipt of Invoice.
[If payment towards invoice is not
made within 3 months,
credit should be reversed]

only for payment of SHEC.

SAD cannot be utilized for payment of

service tax.

If part payment is

NCCD should be

made by SR, proportionate

credit is available.

utilized only for

NCCD

CC on capital goods

No restrictions on

available upto 50% in the

utilization of CVD.
Compute each portion of first financial year and
CC on inputs availthe duty and CENVAT
balance in the subsequent
credit separately
able immediately on
financial year, immedi(Dont sum up every thing ately on the date of receipt
the date of receipt
as there are restrictions into factory/premises [But
into factory/
on utilization)
premises without
SP should maintain docuany restriction. [But
mentary evidence of delivSP should maintain documentary
ery and location of capital goods]

In case the capital goods are removed as such, CENVAT credit of

100% can be availed and reversed
accordingly.

In case of SSI units, 100% credit

on capital goods available in the
same financial year.

If inputs are destroyed/damaged

before issuing it to production,
CC on inputs not available.

If inputs are destroyed /damaged

after issuing it to production and
if it is normal loss, CC on inputs
available

If inputs are destroyed /damaged

after issuing it to production and
if it is abnormal loss, CC on inputs not available.

If capital goods are destroyed, CC

on capital goods available.

Inputs/Input services & capital goods used for exempted output:

When Inputs, Input services and
capital goods are exclusively used
for dutiable finished goods/ taxable services, CC available.

When Inputs, Input services and

capital goods are exclusively used
for exempted finished goods/
exempted services and if they are
preferential removals, CC available.

When inputs, input services and

capital goods are exclusively used
for exempted finished goods/
exempted services and if they are
other than for preferential removals, CC not available.

Preferential removals include

Exports to countries other than

Nepal and Bhutan [Credit available by way of refund]
SEZ/EOU/EHTP/STP
UN or International organization
and to projects funded by them
Foreign diplomatic missions,
consular missions, career consular officers
International competitive bidding

Power project through competitive bidding

Exempted goods means goods exempted as per exemption notifica-

If output is dutiable, credit

available on Input. If output is
exempted/not dutiable, credit
not available on Input

tion, nil rated goods and goods taxable as per notification 1/2011

Exempted services means services exempted as per exemption

notification, non taxable services,
services eligible for abatement
under notification 1/2006 and
trading.

Determination of Retail Selling Price (RSP) rules, 2008

When applicable?

Clearing goods without declaring

RSP
By declaring RSP, which is not
the RSP required to be declared
By declaring RSP but obliterating
(i.e. removing) the same after
their removal
Tampering/ altering RSP after
their removal.
Consequences:
1. Such goods are liable for confiscation.

is taken into account]

Rule 4(ii): When RSP
cannot be ascertained as
per above rule, enquires
Determination of RSP:
in retail market should
be conducted to ascertain
Rule 4(i): When goods
RSP.
are removed without
RSP or wrong RSP or
Rule 5: When RSP is
obliteration of RSP,
tampered/ altered after
Most of the FMCG are
RSP of identical
covered under MRP based removal, such increased
goods sold within one
RSP shall be taken as
valuation.
[When MRP valuation is RSP of all goods removed
moth prior or later of
the goods in question applicable, no other valua- during one month prior
tion should be adopted] and after.
shall be considered.
[If more than one
RSP is ascertained, highest RSP

2. RSP shall be determined as per the

said rules.

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MRP based Valuation (4A)

AV = MRP
t
Abatemen

Abatement is notified by
CG
3A not applicable to
institutional and
industrial sales.
When different MRPs are
marked on the same
pack, highest MRP shall
be considered.
When different MRPs are
marked on different
packages, every MRP
w.r.to such sales is
considered.
Free samples not packed
along with main product
are also liable for MRP
based valuation.
MRP based valuation
equally applicable for
quantity discounts.
Crossed out MRP does
not have any relevance in
valuation.

SSI Exemption: (Noti. 8/2003)

The SSI exemption during the CY is available when the

turnover of the assessee during the PY is 400 lakhs.

The exemption is upto 150 lakhs of turnover during the

CY. For turnover > 150 lakhs excise duty payable.

The credit as standing on the first day of the financial year

in which the exemption is availed shall be lapsed.

CENVAT credit on inputs purchased, Input services received not available upto the date when turnover is 150
lakhs. Thereafter, credit available.

CENVAT credit on capital goods is available but can be

utilized only when turnover crosses 150 lakhs.

The assessee can opt to pay normal duty and can avail
CENVAT credit.

Manufacturer of excisable goods (other than Tea, pan masala, some tobacco products, sandal wood oil, weapons,
travel sets for toiletries etc.) are eligible for SSI exemption.

The option once availed, will be applicable for entire turnover of a financial year.

Computation of Turnover for SSI exemption:

Particulars
1. Export turnover.
2. Export to Bhutan.
3. Sale to SEZ/EOU/EHTP/STP/UN/
International organisation.
4. Outright sale to a buyer, who then
Exports.
5. Export under Bond through Merchant
Exporter.
6. Sale of Non Excisable goods.
7. Goods manufactured with others
brand name in urban area, cleared on
payment of duty (This is ineligible for
exemption under this notification).
8. Goods manufactured in rural area
under others brand name.
9. Value of Intermediate products when
final product is eligible for SSI Exemption.
10. Value of Job work done under specified notifications - 214/86, 83/94,
84/94.
11. Turnover of goods exempted under
other notification or where no excise
duty payable for any other reason.
12. Value of goods captively consumed
for manufacture of final product which
is exempted under a notification other
than SSI Exemption notification.
Tharun Raj

400 Lak
X

150 Lak
X

X
X

X
X

taxable, it is not considered for SSI exemption.

(point 7) SSI exemption not available and

always excise duty payable. [Consider this
separately in calculation]

(point 9 Vs. 12) When final product is cov-

When the goods are already exempted/not

ered under SSI exemption, intermediate

product is already included in it, so don't
include again for exemption. When final
product is exempted under other notifications, intermediate product is taxable as
per Noti. 67/95, but assessee can avail
SSI exemption on such intermediate product.

If the manufacturer has more than one

factory, the clearances of all such factories will have to be clubbed together.

If more than one manufacturer clears

goods from the same factory, all clearances from the factory will have to be
clubbed together.
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