Valuation of Excisable Goods: 3.1 Basis of Computing Duty Payable

3
Valuation of Excisable Goods

3.1 Basis of computing duty payable
Significance of valuation: Valuation is important to understand as duty under central excise
is payable based on different criterion. As a first step, an assessee has to establish whether
the goods manufactured by him are excisable. After the excisability is decided, the goods
have to be correctly classified. The next step is to value the goods so as to compute the duty
payable on the excisable goods.
Establish
excisability
of the
goods
Classify the
goods and
find the
applicable
rate of duty
Pay the
appropriate
duty
Basis of computing duty payable: The duty is payable on the basis of any of the following:
(a) Specific duty
(b) Duty based on value
(i)
Duty based on the Tariff Value (Section 3(2) of the Central Excise Act, 1944)
(ii) Duty based on the value arrived at on the basis of valuation under Section 4
(iii) Duty based on Maximum Retail Price [MRP] (Section 4A of the Central Excise Act,
1944)
(c) Compounded Levy scheme (Rule 15 of the Central Excise Rules, 2002).
(d) Duty based on capacity of production (Section 3A of the Central Excise Act, 1944)
The Institute of Chartered Accountants of India
3.2
Central Excise
Basis of
computing duty
payable
Specific duty
Compounded
Levy scheme
Duty based
on capacity of
production
Duty based on
the Tariff Value
(Section 3(2) of
the Act)
Duty based
on value (ad
valorem duty)
Duty based on
Retail
Sale
Price (Section
4A of the Act)
Duty based on the

value arrived at on
the
basis
of
valuation
under
Section 4
3.1.1 Specific duty: In the case of some goods, duty is payable on the basis of certain unit,
length, weight, volume, etc. For instance, duty payable on cigarettes is on the basis of length.
However, this method of levying duty demands frequent revisions in order to increase revenue
since while the prices may be increasing, the duty would remain the same quantum when
based on length. Since specific duties do not keep pace with inflation, more and more tariff
entries are designed based on advalorem duty structure.
3.1.2 Duty based on value (Ad valorem duty): In the case of duties charged on the basis of
value, such value may be charged on either of the following basis:
(a) Duty as a percentage of Tariff value fixed by the Central Government u/s 3(2) of the
Central Excise Act, 1944: The Central Government is empowered to notify the values of
goods which will be chargeable to ad valorem duty as per Central Excise Tariff Act, 1975. In
such a case, the task is easy since the value is already fixed. For example, Central
Government has fixed tariff value for jewellery (other than sliver jewellery) under heading 7113
and branded readymade garments under Chapter 61 and 62. The Central Government has
also got the power to alter the tariff value once fixed.
The Central Government may fix different tariff values for different classes or descriptions of
the same excisable goods. The Central Government can also fix different tariff values for
same class or description of the goods but produced or manufactured by different classes of
producers or manufacturers or sold to different classes of buyers. Such tariff values may be
fixed on the basis of wholesale price or average price of various manufacturers as the
Government may consider appropriate.
(b) Duty as a percentage of Assessable Value determined in accordance with section 4
of the Central Excise Act, 1944 (Ad valorem duty): Section 4 deals with the valuation of
goods which are chargeable to duty on the basis of ad valorem. Prior to 1 st July 2000 the
valuation under this section was based on the principle of normal price which was based on
the prices at which manufacturer sold the goods. Since 1st July 2000, the new concept of
transaction value has been brought in to the central excise law.
3.3
(c) Duty may also be fixed on the basis of maximum retail price after giving
permissible deductions: This has been done under section 4A on many mass consumption
products where the retail price and wholesale price of goods are at wide variance and the
Government wants to raise revenues knowing that the manufacturer has shifted much of the
overheads away from the manufacturing location.
Valuation under section 4 and also section 4A (MRP valuation) are discussed in det ail in the
coming paragraphs. The scheme of ad valorem valuation in general is summarised below:
Excisable goods chargeable to

ad valorem duty
Are tariff values being fixed

under section 3(2) for the
goods?
Yes
Valuation under section 3(2)
No
Are the goods notified under
section 4A for valuation with
reference to retail sale price?
Yes
Valuation under section 4A
No
Valuation under section 4
3.1.3 Compounded levy scheme [Rule 15 of the Central Excise Rules, 2002]: Central
Government is empowered to specify, by notification, the goods in respect of which an
assessee shall have the option to pay the duty of excise on the basis of specified factors
relevant to production of such goods (size of equipment employed, number and the types of
machines used for manufacture etc.) at the specified rates. The prescribed duty has to be
paid by the manufacturer for the specified period. The advantage of this scheme is that it
frees the manufacturer from observing day to day central excise formalities and maintenance
of detailed accounts after making the lump sum periodic payment. Thus, small manufacturers
generally benefit from this scheme [Sub-rule (1)].
The Central Government has been empowered to specify the procedure for making an
application for availing of the special procedure for payment of duty, the abatement, if any,
that may be allowed on account of closure of a factory during any period, and any other matter
incidental thereto [Sub-rule (2)].
3.4
Central Excise
The Central Government has notified stainless steel pattas/patties and aluminium circles for
the purpose of compounded levy scheme. These articles are not eligible for SSI exemption.
3.1.4 Duty based on capacity of production in respect of notified goods [Section 3A]
(1) The Central Government in order to safeguard the interest of the revenue may notify
goods on which excise duty shall be levied and collected in accordance with the provisions of
this section. The Government may notify the goods having regard to the nature of the process
of manufacture or production of excisable goods of any specified description, the extent of
evasion of duty in regard to such goods or such other factors as may be relevant. Pan
masala, Gutkha, Tobacco etc. are notified under this section.
(2) Where the goods are so notified, the Central Government may, by rules,
(a) provide the manner for determination of the annual capacity of production of the factory
by an officer not below the rank of Assistant Commissioner of Central Excise. Such
annual capacity shall be deemed to be the annual production of such goods by such
factory; or
(b) (i) specify the factor relevant to the production of such goods and the quantity that is
deemed to be produced by the use of a unit of such factor; and
(ii) provide for the determination of the annual capacity of production of the factory in which
such goods are produced on the basis of such factor by an officer not below the rank of
Assistant Commissioner of Central Excise and such annual capacity of production shall
be deemed to be the annual production of such goods by such factory:
However, where a factory producing notified goods is in operation during a part of the year
only, the annual production thereof shall be calculated on proportionate basis of the annual
capacity of production:
Further, in a case where the factor relevant to the production is altered or modified at any time
during the year, the annual production shall be re-determined on a proportionate basis having
regard to such alteration or modification.
(3) The duty of excise on notified goods shall be levied, at such rate, on the unit of
production or, as the case may be, on such factor relevant to the production, as the Central
Government may, by notification in the Official Gazette, specify, and collected in such manner
as may be prescribed:
However, where a factory producing notified goods did not produce the notified goods during
any continuous period of 15 days or more, the duty calculated on a proportionate basis shall
be abated in respect of such period if the manufacturer of such goods fulfils such conditions
as may be prescribed.
(4) The provisions of this section do not apply to goods produced or manufactured, by a
100% export oriented undertaking and brought to any other place in India.
For the purposes of section 3 of the Customs Tariff Act, 1975, the duty of excise leviable on
the notified goods shall be deemed to be the duty of excise leviable on such goods under the
First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985, read with any
notification for the time being in force.
3.5
Factor relevant to production, as mentioned in sub-sections (2) and (3) includes

factors relevant to production.
3.2 Valuation under section 4

Section 3(1) of the Act is the charging section, and the goods are chargeable with rate of duty
as specified in the Central Excise Tariff Act, 1975. The rates specified in the Tariff for most of
the goods are ad valorem and hence the valuation of the goods becomes very important. With
the intention of making the valuation mechanism simple, from 1 st July 2000 valuation
mechanism based on normal price was replaced by a user friendly and commercially
acceptable mechanism based on transaction value. Valuation provisions are contained in
section 4. Section 4 reads as under:
(1) 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
(a) 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.
Explanation For the removal of doubts, it is hereby declared that the price-cum-duty of the
excisable goods sold by the assessee shall be the price actually paid to 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.
(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.
(3) For the purpose of this section
(a) assessee means the person who is liable to pay the duty of excise under this Act and
includes his agent;
(b) persons shall be deemed to be related if
(i) they are inter-connected undertakings
(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
(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 means two or more undertakings which are interconnected with each other in any of the following manners, namely : (A) if one owns or controls the other;
3.6
Central Excise
(B) where the undertakings are owned by firms, if such firms have one or more
common partners;
(C) where the undertakings are owned by bodies corporate,(I) if one body corporate manages the other body corporate; or
(II) if one body corporate is a subsidiary of the other body corporate; or
(III) if the bodies corporate are under the same management; or
(IV) if one body corporate exercises control over the other body corporate in
any other manner;
(D) where one undertaking is owned by a body corporate and the other is owned
by a firm, if one or more partners of the firm,
(I) hold, directly or indirectly, not less than fifty per cent. of the shares,
whether preference or equity, of the body corporate; or
(II) exercise control, directly or indirectly, whether as director or otherwise,
over the body corporate;
(E) if one is owned by a body corporate and the other is owned by a firm having
bodies corporate as its partners, if such bodies corporate are under the same
management;
(F) if the undertakings are owned or controlled by the same person or by the same
group;
(G) if one is connected with the other either directly or through any number of
undertakings which are inter-connected undertakings within the meaning of
one or more of the foregoing sub-clauses.
Explanation 1. For the purposes of this clause, two bodies corporate shall be
deemed to be under the same management, (i)
if one such body corporate exercises control over the other or both are under
the control of the same group or any of the constituents of the same group; or
(ii) if the managing director or manager of one such body corporate is the
managing director or manager of the other; or
(iii) if one such body corporate holds not less than one-fourth of the equity shares
in the other or controls the composition of not less than one-fourth of the total
membership of the Board of directors of the other; or
(iv) if one or more directors of one such body corporate constitute, or at any time
within a period of six months immediately preceding the day when the question
arises as to whether such bodies corporate are under the same management,
constituted (whether independently or together with relatives of such directors
or employees of the first mentioned body corporate) one-fourth of the directors
of the other; or
(v) if the same individual or individuals belonging to a group, while holding
(whether by themselves or together with their relatives) not less than onefourth of the equity shares in one such body corporate also hold (whether by
3.7
themselves or together with their relatives) not less than one-fourth of the
equity shares in the other; or
(vi) if the same body corporate or bodies corporate belonging to a group, holding,
whether independently or along with its or their subsidiary or subsidiaries, not
less than one-fourth of the equity shares in one body corporate, also hold not
less than one-fourth of the equity shares in the other; or
(vii) if not less than one-fourth of the total voting power in relation to each of the
two bodies corporate is exercised or controlled by the same individual (whether
independently or together with his relatives) or the same body corporate
(whether independently or together with its subsidiaries); or
(viii) if not less than one-fourth of the total voting power in relation to each of the
two bodies corporate is exercised or controlled by the same individuals
belonging to a group or by the same bodies corporate belonging to a group, or
jointly by such individual or individuals and one or more of such bodies
corporate; or
(ix) if the directors of one such body corporate are accustomed to act in
accordance with the directions or instructions of one or more of the directors of
the other, or if the directors of both the bodies corporate are accustomed to act
in accordance with the directions or instructions of an individual, whether
belonging to a group or not.
Explanation II. If a group exercises control over a body corporate, that body
corporate and every other body corporate, which is a constituent of, or controlled
by, the group shall be deemed to be under the same management.
Explanation III. If two or more bodies corporate under the same management
hold, in the aggregate, not less than one-fourth equity share capital in any other
body corporate, such other body corporate shall be deemed to be under the same
management as the first mentioned bodies corporate.
Explanation IV. In determining whether or not two or more bodies corporate are
under the same management, the shares held by financial institutions in such
bodies corporate shall not be taken into account.
Illustration
Undertaking B is inter-connected with undertaking A and undertaking C is interconnected with undertaking B. Undertaking C is inter-connected with undertaking A;
if undertaking D is inter-connected with undertaking C, undertaking D will be interconnected with undertaking B and consequently with undertaking A; and so on.
Explanation V. For the purposes of this clause, group means a group of
(i)
two or more individuals, associations of individuals, firms, trusts, trustees or

bodies corporate (excluding financial institutions), or any combination thereof,
which exercises, or is established to be in a position to exercise, control,
directly or indirectly, over any body corporate, firm or trust; or
(ii) associated persons.
3.8
Central Excise
Explanation VI. For the purposes of this clause,
(I)
a group of persons who are able, directly or indirectly, to control the policy of a
body corporate, firm or trust, without having a controlling interest in that body
corporate, firm or trust, shall also be deemed to be in a position to exercise
control over it;
(II) associated persons(a) in relation to a director of a body corporate, means(i)
a relative of such director, and includes a firm in which such director or

his relative is a partner;
(ii) any trust of which any such director or his relative is a trustee;
(iii) any company of which such director, whether independently or together
with his relatives, constitutes one-fourth of its Board of directors;
(iv) any other body corporate, at any general meeting of which not less than
one-fourth of the total number of directors of such other body corporate
are appointed or controlled by the director of the first mentioned body
corporate or his relative, whether acting singly or jointly;
(b) in relation to the partner of a firm, means a relative of such partner and
includes any other partner of such firm; and
(c) in relation to the trustee of a trust, means any other trustee of such trust;
(III) where any person is an associated person in relation to another, the latter
shall also be deemed to be an associated person in relation to the former.
(ii) relative shall have the meaning assigned to it in clause (41) of section 2 of the
Companies Act, 1956 1;
(c) place of removal means
(i)
a factory or any other place or premises of production or manufacture of the

excisable goods
(ii) a warehouse or any other place or premises wherein the excisable goods have
been permitted to be deposited without payment of duty
(iii) a 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.
(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.
(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
1
Clause (77) of section 2 of Companies Act, 2013
3.9
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.
The scheme of valuation under section 4 can be put in the form of a chart given below:
Duty chargeable with reference to value
under section 4
Whether goods have been delivered

at the time of removal?
No
Goods to be valued as per

Central Excise Valuation
(Determination of Price of
Excisable Goods) Rules, 2000
Yes
Whether goods have been delivered
at the place of removal?
No
Yes
Whether buyer and the assessee are
related persons?
Yes
No
Whether price is the sole
consideration?
No
Yes
3.3 Related Persons
Assessable Value
Section 4(3)(b) states

that persons
= Transaction
Value shall be deemed to be related if :
3.3 Related Persons

Section 4(3) (b) states that persons shall be deemed to be related if:
(a) they are inter-connected undertakings;
(b) they are relatives;
(c) amongst them the buyer is a relative and distributor of the assessee or a sub-distributor
of such distributor; or
(d) they are so associated that they have interest directly or indirectly in the business of
each other.
3.10
Central Excise
3.3.1 Relative: Coming now to the definition of relative, one has to read sections 2(41), 6
and schedule I-A of the Companies Act, 1956 together 2. Section 2(41) of Companies Act,
1956 defines relative to mean persons related as per section 6 and no other. Section 6 of
the said Act, states that the following are relatives:(a) members of a HUF;
(b) husband and wife;
(c) persons related to one another in the manner indicated in Schedule I -A. The Schedule is
a detailed one and enumerates 22 different relationships. Thus, all of the above
categories will be covered within the definition of relatives and transactions between an
assessee and such relatives will be covered within the ambit of section 4(4)(c) of the Act.
3.3.2 Distributor: Section 4(3)(b) governing related person incorporates the word distributor.
The phrase relative and a distributor of the assessee as occurring in the section apparently
implies that even a distributor should be a related person. In its landmark decision in the
Bombay Tyres Internationals case, the Supreme Court has given a narrow and interesting
interpretation of this expression. The Court held that the words a relative and distributor of an
assessee, do not refer to any distributor but they are limited only to a distributor who is also a
relative of the assessee, within the meaning of the Companies Act, 1956 3.
So analyzing the definition of relative read with the decision given by Supreme Court in
Bombay Tyres case, if a company or a firm is appointed as a distributor, it can never be
related person since an impersonal body cannot be treated as a relative under section 4( 3)(b).
The words relative & a distributor of the assessee do not refer to any distributor but the
distributor who is relative of the assessee within the meaning of the Companies Act, 1956 UOI v. Bombay Tyre International Ltd. 1983 (14) E.L.T. 1986 (S.C.)
Price charged by the manufacturer to the distributor is to be assessable value, when the
dealings are on principal to principal basis - UOI v. Mahindra & Mahindra Ltd. 1989 (43)
E.L.T. 611 (Bom.)
3.3.3 Mutuality of business interest: In U.O.I Vs. Atic Industries Ltd. 1984 (17) E.L.T. 323,
the Supreme Court has held that in order to attract the first part of the definition, the assessee
and the person alleged to be a related person must have interest, direct or indirect, in the
business of each other. Each of them must have direct or indirect interest in the business of
the other. The quality and degree of interest which each has in the business of the other may
be different, the interest of the one in the business of the other may be direct, while inter est of
the latter in the business of the former may be indirect. That would not make any difference so
long as each has got some interest, direct or indirect, in the business of the other .
In U.O.I Vs. Hind Lamp 1989 (43)ELT 161, the Supreme Court reiterated the principle that it is
not enough that the assessee has an interest, direct or indirect, in the business of the
assessee. Both must have an interest in the business of each other. The degree and quality of
their respective interests in each other may be different. In CCE Vs. Vikram Engineering Co.
2
3
Section 2(77) of Companies Act, 2013 read with Companies (Specification of Definitions Details) Rules, 2014
Companies Act, 2013
3.11
1989 (39) ELT 143, the Tribunal followed the decision in Atics case by holding that the degree
of mutual interest was not material in order to attract the definition but the existence of some
interest was all that was required.
3.3.4 Summary of various decisions on this issue is given in the following table:
Decision
Citation
The definition of 'related person' requires

mutuality of interest in the business to be
proved.
UOI v. Atic Industries Ltd. 1984 (17)

E.L.T. 323(S.C.)
The mutuality of business interest between the

manufacturer and his buyer can be shown only
if one has special interest in the promotion or
development of the business of another.
Cibatul Ltd. v. UOI 1979 (4) E.L.T. (J407)

(Guj.)
If one of the directors of the buyer company is

also chairman of the manufacturing company, it
cannot be said that they have mutual interest in
the business.
Jay Engg. Works Ltd. v. UOI 1981 (8)

E.L.T. 284 (Del.)
A limited company cannot have indirect

interests in the business carried by one of its
shareholders.
Collector v. T.I. Miller Ltd. 1988 (35)

E.L.T. 8 (S.C.)
The words relative & a distributor of the UOI v. Bombay Tyre International Ltd.
assessee do not refer to any distributor but the 1983 (14) E.L.T. 1986 (S.C.)
distributor who is relative of the assessee within
the meaning of the Companies Act, 1956.
Goods sold to dealers under agreement.
Dealers to have own show room, repair shop
etc. Dealer not a related person.
Moped India Ltd v. AC 1986 (23) E.L.T. 8

(S.C.)
Goods sold to dealers having no funds of their

own or business premises. Dealers merely a
sham and to be ignored.
JK Cotton Spg. & Weaving Mills Co. Ltd

v. CCE 1997 (91) E.L.T. 534 (SC).
Once existence of mutual interest is

established, the extent of such interest is not
material.
UOI v. Atic Inds. Ltd. 1984 (17) E.L.T.

323 (S.C.)
Merely because, goods are manufactured with

customer's brand name and entire production
sold to customer, does not mean that sales are
to related person.
Ceam Electronics P. Ltd. v. UOI 1991

(51) E.L.T. 309 (Bom.)
Regional sale offices/godowns are not related

persons.
Indo-National Ltd. v. UOI 1979 (4) E.L.T.

(J334) (A. P.)
3.12
Central Excise
After sales service by dealers during warranty

period do not make such dealers related
persons.
S.M. Chemicals & Electronics v. R.

Parthasarathi 1980 (6) E.L.T. 197 (Bom.)
Price charged by the manufacturer to the

distributor, to be assessable value, when the
dealings are on principal to principal basis.
UOI v. Mahindra & Mahindra Ltd. 1989

(43) E.L.T. 611 (Bom.)
"Main dealer" cannot be treated as distributor or

related person, when goods are sold through
main dealer as well as independent purchasers.
GOI v. Ashok Leyland Ltd. 1983 (14)

E.L.T. 2168 (Mad.)
Sale of entire production to one buyer does not

make Buyer & Seller related persons.
Ceam Electronics P. Ltd. v. UOI 1991

(51) E.L.T. 309 (Bom.)
Customers can not be treated as related, if the UOI v. Hind Lamps Ltd. 1989 (43) E.L.T.
sales are on principal to principal basis to a 161 (S.C.)
shareholding
company
and
associate
companies of foreign shareholding companies.
Merely because goods are manufactured with
customer's brand name and entire production
sold to him, it cannot be treated as a sale to a
related person.
UOI v. Play World Electronics P. Ltd.

1989 (41) E.L.T. 368 (S.C.)
Brand name value cannot be added to the value

of goods manufactured by manufacturer for
brand name owner unless it is proved that they
are related persons.
UOI v. Purolator India Ltd. 1989 (24)

ECR 216 (S.C.)
Whole sale price at which goods are sold to the

buyer to be the assessable value, when goods
are manufactured under agreement with buyer's
trade mark.
UOI v. Cibatul Ltd. 1985 (22) E.L.T. 302

(S.C.)
Buyer to be held as related person when Snow White Indl. Corpn. v. Collector
manufacturer was to accept back unsold stock 1990 (46) E.L.T. 3 (S.C.)
etc. and the buyer's price held to be assessable
value.
Partner of one of the dealers related to director UOI v. Kantilal Chunilal 1986 (26) E.L.T.
of the manufacturing company to whom only 289 (S.C.)
34% - 40% of production is sold, cannot be
treated as related person and the price at which
goods are sold to him is assessable value.
Dealers cannot be treated as relative of the
manufacturer or even otherwise, when the
dealer is required to deposit specific sum for
each moped, getting fixed commission and all
payments are through bank.
Mopeds India Ltd. v. Asst. Collector 1986

(23) E.L.T. 8 (S.C.)
3.13
When 90% of the goods are sold to the

wholesaler, and only 10% to the related person,
the assessable value will be price charged to
wholesale dealers.
Kirloskar Cummins Ltd. v. UOI 1991(51)

E.L.T. 325(Bom.)
Department can lift the corporate veil even if the

assessee concerned are limited companies.
Calcutta Chromotype Ltd v. CCE 1998

(99) E.L.T. 202 (SC)
Two concerns belonging to the same family and

members thereof sharing the benefits of both
concerns also having common directors who are
relatives, have a direct interest in the business of
each other and mutuality of interest is apparent.
CCE v. I.T.E.C (P) Ltd. 2002 (145) ELT

280 (SC)
Sale of goods by the society to the federation of

which the society is a member will not be
sufficient to hold the federation as a related
person of the society.
UOI v. Kaira Distt. Co-Op Milk Producers

Union Ltd 2002 (146) ELT 502 (SC)
3.4 Place of removal

Section 4(3)(c) defines the place of removal to mean
(i)
a factory or any other place or premises of production or manufacture of the excisable

goods;
(ii) 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.
(iii) a 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.
3.5 Price is the sole consideration

The price should be the sole consideration for sale. Any other consideration in cash or in
kind which forms part of the transaction has to be converted in monetary terms and added
back to the price. Each such transaction has to be at arms length and on principal to principal
basis. If the transaction is not on principal to principal basis, the charges paid are to be added
to the transaction value of the goods.
When the sale is at arms length, sale price of subsequent seller is not relevant and does not
matter that dealings were confined only to two buyers - Atic Inds. Ltd. v. H.H. Dave, Asst.
Collector 1978 (2) E.L.T. (J444) (S.C)
Relationship between manufacturer & sole distributor though a special one is not a proof by
itself to show that price is favourable price - UOI v. Hind Lamps Ltd. 1981 (8) E.L.T. 11 (Del.)
3.6 Ingredients of transaction value

It would be important to see that the definition of transaction value is an all inclusive definition
which seems to extend its scope beyond the normal boundaries of central excise levy.
3.14
Central Excise
While it is true that such a definition is necessary when we have a full fledged VAT system, it
is rather premature to include so many items within the parameters of excise, more so when
the assesses are paying sales tax and service tax.
It is important to note that the Supreme Court has held in the context of customs law in
Associated Cement Companies Ltd. v. CC 2000 (121) ELT 21 that the concept of transaction
value is quite different from the concept of price and such value can include many items which
may classically have been understood to be part of the sale price.
Let us analyse the definition of transaction value through the use of flow charts.
Transaction
Value means the
price
actually
paid or payable
when sold
And includes
in addition to the 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 sale or any time thereafter
The definition also gives an illustration of what amounts are included as additions to price
which the buyer may be liable to pay to or on behalf of the assessee. However, the definition
specifically states as including but not limited to which clearly means that the items included
in the definition are only illustrative and more may be includible.
Advertising
or publicity
Any other
matter
Marketing
and selling
Storage
Items
included in
the
definition
Commission
Servicing
Warranty
Outward
Handling
3.15
It is clear that the above are includible only if the buyer is liable to pay for or on behalf
of the assessee.
Items excluded from the

definition
Excise duty
Sales tax
Other taxes
The above are not includible, if actually paid or payable.

It would be worthwhile to examine the issue of includibility or otherwise of certai n items.
S.
No
1.
2.
3.
4.
5.
6.
7.
Items of Cost
Includibility or otherwise
Advertising and publicity

Warranty
Marketing and selling
Storage and outward handling
Servicing
Commission
Discounts
(Trade and Cash)
8.
Erection,
installation
commissioning
and
9.
Packing
10.
11.
12.
Taxes and duties

Interest on deposits, advances.
Accessories
13.
Dharmada
14.
Freight
Yes
Yes
Yes
Yes
Yes
Yes
No. Since the same is already factored into the
definition of transaction value. See also CBEC
Circular No. 354/81/2000-TRU, dated 30-6-2000
itself clarifies that reference to discounts in the
definition of transaction value is not relevant since
duty is to be charged on net price after allowing
discounts. However, the Circular states that the
discount should be actually passed on to the
buyers.
No. The erection, installation and commissioning
charges should not be included in the assessable
value, if the final product is not excisable.
Yes. The durable and returnable packing is
deductible.
No. Specifically excluded by section.
No.
No. See decision of Supreme Court in Shriram
Bearing Ltd v. CCE 1997 (91) E.L.T. 255
Yes. [CBE&C Circular No. 763/79/2003 C.X. dated
21.11.2003]
No.
3.16
Central Excise
15.
Interest on delayed payment of

receivables
16.
Warranty
17.
18.
Design,
development
engineering charges
Transit insurance
19.
Delayed payment charges
20.
Pre-delivery inspection
after sale services
and
and
No. Interest is nothing but finance charges and

cannot be considered as payment by reason of
sale.
The definition of transaction value itself includes
warranty and service charges. It shall form a part
of transaction value if it is recovered from buyer.
Yes, since it is by reason of sale or in connection
with sale.
No, as it is part of transportation cost [Bombay
Tyres International]. However, it should be shown
separately in the invoice or can be included in the
transportation cost shown separately.
No, as "transaction value" relates to the price paid
or payable for the goods and delayed payment
charge is nothing but the interest on the price of the
goods which is not paid during the normal credit
period. However, to be admissible as deduction it
should be separately shown or indicated in the
invoice and should be charged over and above the
sale price of the goods.
Yes, only if such charges are collected by the
manufacturer [Tata Motors Ltd. v. UOI 2012 (286)
ELT 161 (Bom.)].
However, the above is not conclusive in all cases and would be subject to interpretation of the
Courts in future.
3.7 Situations where transaction value does not apply

As given in the chart for the valuation scheme under section 4 there are four conditions which
have to be fulfilled.
(a) There should be sale of goods
(b) The goods sold should be for delivery at the time and place of removal
(c) The assessee and the buyer of the goods are not to be related persons
(d) The price should be the sole consideration for the sale.
In those cases where any of the above said requirements are missing, the assessable value
shall be determined on the basis of the Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 notified under section 4(1)(b) by Notification No. 45/2000-CE
(NT), dated 30.6.2000.
3.8 Central Excise Valuation (Determination of Price of Excisable

Goods) Rules, 2000
These rules were notified vide Notification No. 45/2000-C.E. (N.T.) dated 30-6-2000. They
3.17
came into effect from 01.07.2000. The text of the rules is given for the reference.
Rule - 1. (1) These rules may be called the Central Excise Valuation (Determination of
Price of Excisable Goods) Rules, 2000.
(2) They shall come into force on and from the 1 st day of July, 2000.
Rule - 2. In these rules, unless the context otherwise requires,(a) "Act" means the Central Excise Act, 1944;
(b) "normal transaction" means the transaction value at which the greatest aggregate
quantity of goods are sold;
(c) "value" means the value referred to in Section 4 of the Act;
(d) words and expressions used in these rules and not defined but defined in the Act shall
have the meanings respectively assigned to them in the Act.
Rule - 3. The value of any excisable goods shall, for the purposes of clause (b) of sub-section
(1) of section 4 of the Act, be determined in accordance with these rules.
Rule - 4. The value of the excisable goods shall be based on the value of such goods sold by
the assessee 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 to the proper officer.
Rule - 5. Where any excisable goods are sold in the circumstances specified in clause (a) of
sub-section (1) of section 4 of the Act except the circumstance 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 up to 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.
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 purpose of determining the value of excisable goods.
Rule - 6. Where the excisable goods are sold in the circumstances specified in clause (a) of
sub section (1) of section 4 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
3.18
Central Excise
value of such goods shall be deemed to be the transaction value.

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 change 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 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 or 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 add ed 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.
Illustration 1: X, an assessee, sells his goods to Y against full advance payment at `100/per piece. However, X also sells such goods to Z without any advance payment at the same
price of `100/- per piece. No notional interest on the advance received by X is includible in
the transaction value.
Illustration 2: A, an assessee, manufactures and supplies certain goods as design and
specification furnished by B at a price of `10 lakhs. A takes 50% 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 the advance
has resulted in lowering of the prices. Thus, no notional interest on the advance receiv ed
shall be added to the transaction value.
Rule - 7. 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 v alue
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.
Rule - 8. 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
3.19
articles, the value of such goods that are consumed shall be 110% of the cost of production or
manufacture of such goods.
Rule - 9. Where whole or part of the excisable goods are sold by the assessee to or through
a person who is related in the manner specified in any of the sub-clauses (ii), (iii) or (iv) of
clause (b) of sub-section (3) of section 4 of the Act, the value of such goods shall be the
normal transaction value at which these are sold by the related person at the time of removal,
to buyers (not being related person); or where such goods are not sold to such buyers, to
buyers (being 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.
Rule - 10. Where whole or part of the excisable goods are sold by the assessee to or through
an inter-connected undertaking, the value of such goods shall be determined in the following
manner, namely:(a) If the undertakings are so connected that they are also related in terms of sub-clause (ii)
or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a
holding company or subsidiary company of the assessee, then the value shall be
determined in the manner prescribed in rule 9.
Explanation- In this clause "holding company" and "subsidiary company" shall have the
same meanings as in the Companies Act, 19564;
(b) in any other case, the value shall be determined as if they are not related persons for the
purpose of sub-section (1) of section 4.
Rule - 10A. 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:
4
Companies Act, 2013
3.20
Central Excise
Provided that the cost of transportation, if any, from the premises, wherefrom the goods are
sold, to the place of delivery shall not be included in the value of excisable goods.
Explanation. - For the purposes of this rule, job-worker means a person engaged in the
manufacture or production of goods on behalf of a principal manufacturer, from any inputs or
goods supplied by the said principal manufacturer or by any other person authorised by him.
Rule - 11. 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.
3.9 Analysis of the Valuation Rules

The salient features of the Valuation Rules are as under:According to rule 3 the valuation rules is invokable only when the condition in section 4(1)(b)
is satisfied that is to say when the valuation is not possible as per section 4(1)(a). When the
goods are clearly valued according to section 4(1)(a) itself then there is no quest ion of
applying the valuation rules.Rule 4 requires adjustment for the differences in the time of removal and the time of delivery
when the delivery time is different from the time of removal. This rule will apply in situations
where the asseseee does not sell goods at the time of removal of goods. Thus, situations like
removal of free samples or free replacement under warranty claims will be covered under this
rule. Valuation of such free samples or replacement will be based on price of identical goo ds
sold by the assessee near about the time of removal of such free samples or replacements.
Valuation of samples: Value of samples distributed free as part of marketing strategy or as
gifts or donations shall be determined under Rule 4 of Central Excise Valuation (Determination
of Price of Excisable Goods) Rules, 2000 [Circular No. 813/10/2005-CX dated 25.04.2005].
Rule 5 provides for the valuation when all the conditions as per section 4(1)(a) which are
mentioned earlier are fulfilled except for the condition that the place of delivery is different
from the place of removal. In such circumstances the rule allows the adjustment for the
transportation from the place of removal to the place of delivery. The actual transportation
cost may be excluded on an averaged or equalized basis. For this purpose, the average
transportation cost shall be computed in accordance with the generally accepted principles of
costing. Where necessary, the assessee may be asked to furnish certification from a Cost
Accountant, inter alia, showing the computations separately in respect of the exempted, non excisable and specific rated products and the basis for apportionment for arriving at the
average cost of transportation.
However, no deduction shall be allowable whether on actual or equalized freight basis, for the cost
of transportation from the factory to the point of removal (if other than the factory gate). Since as
per the amended section 4, place of removal shall include a depot, the premises of the
consignment agent as well as any other place or premises from which the goods are to be sold
after their clearance from the factory, it may be noted that deduction in respect of the transportation
cost from the factory premises to the depot or to any other place of removal shall not be allowed.
In other words, the deduction of average freight or actual freight is only in respect of cost of
transportation beyond the place of removal when the goods are sold for delivery at a place
3.21
other than the place of removal. In case of a depot, the cost of transportation upto the point of
depot or any other place from where the goods are sold will continue to be included.
Cost of transportation when vehicle is owned by the manufacturer: In cases where the
vehicle is owned by the manufacturer, the cost of transportation can be calculated through
costing method following the accepted principles of costing. A cost certificate from a certified
Cost Accountant/Chartered Accountant/Company Secretary, may be accepted. The cost of
transportation should, however, be separately shown in the invoice [Circular No.643/34/2002
CX dated 1st July 2002]
Cost of return fare not to be added for determining value: It has been clarified vide
Circular No. 923/13/2010 CX dated 19.05.2010 that cost of return fare of vehicles is not
required to be added for determining value.
Rule 6 takes up another condition and continues to say that other conditions as said above
are being fulfilled except for the condition of consideration to be received for such goods. If the
price received is not the sole consideration, then the rule requires to add the value of the
additional consideration whether directly or indirectly received (not necessarily from the buyer,
it may be received even from the third party but which should have relation with the goods
being transferred) to the transaction value.
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.
In Explanation 1 to Rule 6 it is said that when any goods or services are given by the buyer
free of cost or at concessional price, the value of such goods or service or the concession so
received may be added or apportioned (in case such goods or service is used for the
manufacture of more than one product) and should be included in the value of the finished
goods. The examples given in the said explanation as to the goods and services are :
(a) value of materials, components, parts and similar items relatable to such goods;
(b) value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar
items used in the production of such goods;
(c) value of material consumed, including packaging materials, in the production of such
goods;
(e) value or 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
Example:
1. A sells goods to B who supplies some raw materials free of cost to facilitate the
manufacture process. The additional consideration represented as free raw materials has to
be added in terms of Rule 6.
2. If X, a manufacturer, receives a subsidy from the buyer even if it is under the policy of
Government it will be treated as additional consideration. However, if X himself manufactures
3.22
Central Excise
patterns and clears them with castings and duty is discharged on transaction value rule 6 is
not applicable.
3. X, a manufacturer, bills ` 5 lakhs towards design charges and shows the same separately in
the invoice along with the price of the material A. In the given case, the value of the design
charges will be included in the assessable value of material A only if such design charges are
related to the material A and not merely because it is shown in the invoice along with material A.
Explanation 2 to Rule 6 clarifies that 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 adv ance
deposit.
Rule 7 says that in cases where the goods are not sold at the factory gate or at the warehouse
but they are transferred by the assessee to his depots or consignment agents or any other
place for sale, the assessable value in such case for the goods cleared from
factory/warehouse shall be the normal transaction value of such goods at the depot, etc. at or
about the same time at which the goods as being valued are removed from the factory or
warehouse.
It may be pertinent to take note of the definition of "normal transaction value" as given in the
valuation rules. What it basically means is the transaction value at which the greatest
aggregate quantity of goods from the depots etc. are sold at or about the time of removal of
the goods being from the factory/warehouse. If, however, the identical goods are not sold by
the assessee from depot/consignment agents place on the date of removal from the
factory/warehouse, the nearest date/time on which such goods were sold or would be sold
shall be taken into account.
In either case if there are series of sales at or about the same time, the normal transaction
value for sale to independent buyers will have to be determined and taken as basis for
valuation of goods at the time of removal from factory/warehouse. It follows f rom the Valuation
Rules that in such categories of cases also if the price charged is with reference to delivery at
a place other than the depot, etc. then the actual cost of transportation will not be taken to be
a part of the transaction value and exclusion of such cost allowed on similar lines as
discussed earlier, when sales are effected from factory gate/warehouse.
Where the valuation in the above discussed manner is not possible, the assessee may opt for
provisional assessment and discharge the duty at estimated values. At periodic intervals the
same should be adjusted for actual values.
Greatest aggregate quantity: Circular No.643/34/2002 CX dated 1st July 2002 has clarified
inter alia that with reference to the term "greatest aggregate quantity" the time period
should be taken as 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.
3.23
In case the "normal transaction value" from the depot or other place is not ascertainable on
the day identical goods are being removed from the factory/warehouse, the nearest day when
clearances of the goods were affected from the depot or other place should be taken into
consideration
Example: Goods are transferred from Chennai factory to Bangalore branch on 17.3.20 XX.
The normal transaction value at Bangalore branch on 17.3.20XX is to be adopted. If there is
no such value available for 17.3.20XX, the transaction value at the nearest time, for instance,
16.3.20XX can be adopted.
Rule 8 provides to value goods which are captively consumed on cost construction method.
The assessable value of captively consumed goods is taken at 110% of the cost of
manufacture of goods even if identical or comparable goods are manufactured and sold by the
same assessee. A margin of 10% by way of profit etc. is prescribed in the rule itself for ease
of assessment of goods used for captive consumption. This rule is applicable irrespective of
whether the whole or a part of the clearances of manufactured goods are c aptively consumed.
The Supreme Court in CCE v. Cadbury India Ltd. 2006 (200) ELT 353 (SC) has held that
intermediate products (milk crumbs, refined milk chocolate and four other intermediate
products) captively consumed in own factory is neither sold nor marketable and therefore,
advertising, insurance and other expenses of factory which produces final produc t
(chocolates) are not includible for valuation of intermediate products i.e., for ascertaining the
cost of production.
Cost of production to be computed as per CAS-4: CBE&C, 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. Cost
Accounting Standard 4 is given below in a summarized form.
Cost of production will include various cost components as defined in Cost Accounting
Standard-1 (Classification of Cost CAS-1). The various cost components are:
Direct Material
Cost
Prime Cost
Cost of
Production
Cost of Sales
Direct Labour Cost
Production Overheads
Selling Cost
Profit
Direct Expenses
Administration Overheads
Distribution Cost
Selling Price
PRIME COST
Research & Development

Expenses (Apportioned)
COST OF SALES
=
Cost of Production
3.24
Central Excise
Cost of Production: Cost of production shall consist of Material Consumed, Direct Wages
and Salaries, Direct Expenses, Works Overheads, Quality Control cost, Research and
Development Cost, Packing cost, and Administrative Overheads relating to production.
To arrive at cost of production of goods dispatched for captive consumption, adjustment for
Stock of work-in-Process, finished goods, recoveries for sales of scrap, wastage etc shall be
made.
Material Consumed shall include materials directly identified for production of goods such as
indigenous materials, imported materials, bought out items, self manufactured items, process
materials and other items
Cost of material consumed shall consist of cost of material, duties and taxes, freight inwards,
insurance, and other expenditure directly attributable to procurement. Trade discount, rebates
and other similar items will be deducted for determining the cost of materials . Cenvat credit,
credit for countervailing customs duty, Sales Tax set off, VAT, duty draw back and other
similar duties subsequently recovered/ recoverable by the enterprise shall also be deducted.
Direct wages and salaries shall include house rent allowance, overtime and incentive
payments made to employees directly engaged in the manufacturing activities.
Direct wages and salaries include fringe benefits such as contribution to provident fund and
ESIS, bonus/ex-gratia payment to employees, provision for retirement benefits such as
gratuity and superannuation, medical benefits, subsidised food, leave with pa y and holiday
payment, leave encashment and other allowances such as childrens education allowance,
conveyance allowance which are payable to employees in the normal course of business etc.
Direct expenses are the expenses other than direct material cost and direct employees costs
which can be identified with the product.
Direct expenses include cost of utilities such as fuel, power, water, steam etc, royalty based
on production, technical assistance/know how fees, amortized cost of moulds, patterns,
patents etc, job charges, hire charges for tools and equipment, and charges for a particular
product designing etc.
Works overheads are the indirect costs incurred in the production process. Works overheads
include consumable stores and spares, depreciation of and machinery, factory building etc,
lease rent of production assets, repair and maintenance of plant and machinery, factory
building etc, indirect employees cost connected with production activities, drawing and
designing department cost., insurance of plant and machinery, factory building, stock of raw
material & WIP etc., amortized cost of jigs, fixtures, tooling etc and service department cost
such as tool room, engineering & maintenance, pollution control etc.
Quality control cost is the expenses incurred relating to quality control activities for adhering
to quality standard. These expenses shall include salaries & wages relating to employees
engaged in quality control activity and other related expenses.
Research and development cost incurred for development and improvement of the process
or the existing product shall be included in the cost of production.
3.25
Administrative overheads in relation to production activities shall be included in the cost of

production. Administrative overheads in relation to activities other than manufacturing
activities e.g. marketing, projects management, corporate office expenses etc. shall be
excluded from the cost of production.
Packing cost includes both cost of primary and secondary packing required for transfer/
dispatch of the goods used for captive consumption. If product is transferred/dispatched duly
packed for captive consumption, cost of such packing shall be included.
Overheads shall be analysed into variable overheads and fixed overheads. The variable
production overheads shall be absorbed in production cost based on actual capacity
utilisation. The fixed production overheads and other similar item of fixed costs such as quality
control cost, research and development costs, administrative overheads relating to
manufacturing shall be absorbed in the production cost on the basis of the normal capacity or
actual capacity utilization of the plant, whichever is higher. Normal Capacity is the production
achieved or achievable on an average over a period or season under normal circumstances
taking into account the loss of capacity resulting from planned maintenance (CAS-2).
Stock of work-in-progress shall be valued at cost on the basis of stages of completion as per
the cost accounting principles. Similarly, stock of finished goods shall be valued at cost.
Opening and closing stock of work-in-progress shall be adjusted for calculation of cost of
goods produced and similarly opening and closing stock of finished goods shall be adjusted
for calculation of goods despatched. In case the cost of a shorter period is to be determined,
where the figures of opening and closing stock are not readily available, the adjustment of
figures of opening and closing stock may be ignored.
In case joint products are produced, joint costs are allocated between the products on a
rational and consistent basis. In case by-products are produced, the net realisable value of
by-products is credited to the cost of production of the main product.
For allocation of joint cost to joint products, the sales values of products at the split off point
i.e. when the products become separately identifiable may become the basis. Some other
basis may also be adopted. For example, in case of petroleum products, each product is
assigned certain value based on its certain properties, may be calorific value and these values
become the basis of apportionment of joint cost among petroleum products.
The production process may generate scrap or waste. Realized or realizable value of scrap
or waste shall be credited to the cost of production. In case, scrap or waste does not have
ready market and it is used for reprocessing, the scrap or waste value is taken at a rate of
input cost depending upon the stage at which such scrap or waste is recycled. The expenses
incurred for making the scrap suitable for reprocessing shall be deducted from value of scrap
or waste.
Miscellaneous income relating to production shall be adjusted in the calculation of cost of
production, for example, income from sale of empty containers used for despatch of the
captively consumed goods produced under reference.
Inputs received free of cost: In case any input material, whether of direct or indirect nature,
including packing material is supplied free of cost by the user of the captive product, the
3.26
Central Excise
landed cost of such material shall be included in the cost of production.

The amortization cost of moulds, tools, dies & patterns etc received free of cost shall be
included in the cost of production.
Interest and financial charges being a financial charge shall not be considered to be a part
of cost of production.
Abnormal and non-recurring cost arising due to unusual or unexpected occurrence of
events, such as heavy break down of plants, accident, market condition restricting sales below
normal level, abnormal idle capacity, abnormal process loss, abnormal scrap and wastage,
payments like VRS, retrenchment compensation, lay-off wages etc. The abnormal cost shall
not form the part of cost of production.
The cost sheet should be prepared in the format as per Appendix 1 or as near thereto as possible.
Statement of Cost of Production of _____________ manufactured / to be manufactured during
the period _____________
Qty
Q1
Q2
Quantity Produced (Unit of Measure)

Quantity Despatched (Unit of Measure)
Particulars
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Material Consumed
Direct Wages and Salaries
Direct Expenses
Works Overheads
Quality Control Cost
Research & Development Cost
Administrative Overheads (relating to production
activity)
Total (1 to 7)
Add: Opening stock of Work - in Progress
Less: Closing stock of Work -in- Progress
Total (8+9-10)
Less: Credit for Recoveries/Scrap/By-Products / misc
income
Packing cost
Cost of production ( 11 - 12 + 13)
Add: Inputs received free of cost
Add: Amortised cost of Moulds, Tools, Dies & Patterns
etc received free of cost
Total Cost
(`)
Cost/unit
(`)

17.
18.
19.
20.
3.27
Cost of Production for goods produced for captive

consumption (14 + 15 + 16)
Add : Opening stock of finished goods
Less : Closing stock of finished goods
Cost of production for goods despatched (17 + 18 - 19)
It should also be noted that Rule 8 is applicable only in cases where excisable goods are not
sold but are cleared for captive consumption.
Rule 9 speaks of the situation where the whole or part of the goods are sold to or through a
related person (except inter-connected undertakings which is dealt in Rule 10). In such cases
the transaction value is not applicable. Here, the value to be adopted will be the price at
which such related person sells to unrelated person.
If such related person sells it to another related person, then the price at which the second
related person sells to unrelated person. Further, it is said when such related person uses
such goods in the manufacture of other goods (captively consumed) then the valuatio n will be
based on the principle of cost plus 10% as per Rule 8.
Example: X sells to its brother Y at `1000. Normal transaction value at which Y sells to
unrelated buyers is `1200. By application of Rule 9 value in hands of X ,would be `1200.
The definition of inter-connected undertaking includes two or more undertakings which are interconnected with each other in any of the ways such as if one owns or controls the other, or where
the undertakings are owned by firm, if such firms have one or more common partners, etc.
Rule 10 is applied in situations where whole or part of the goods are sold to or through inter
connected undertakings and
(a) the buyer is a holding or subsidiary of assessee or
(b) if it is related as per clause (ii),(iii) or (iv) of sections 4(3)(b).
In such cases, valuation will be based on rule 9 i.e., the assessable value will be the normal
transaction value of buyer to unrelated persons.
In all other cases, the sale will be treated as a sale to unrelated person and conc epts relating
to transaction value will apply if the other two conditions, namely, price is for delivery at the
time and place of removal and the price is the sole consideration for sale are satisfied. If any
of the two aforesaid conditions are not satisfied then, quite obviously, value in such cases will
be determined under the relevant rule.
Example: M/s A & Co is a partnership firm that has 2 partners A, B. Goods are sold to M/s B&
Co that has 3 partners B, X,Y. The two firms are interconnected as there is a common partner .
Unless it is established that there is mutuality of business between the two firms, transaction
value would prevail.
Rules 8, 9 and 10 apply irrespective of whether the whole or a part of the clearances of
manufactured goods are covered by the circumstances given in these rules. Each clearance
is required to be assessed according to section 4(1)(a) or the relevant rule dealing with the
circumstances of clearance of the goods, as the case may be.
3.28
Central Excise
For example, if an assessee clears his goods in such a way that first removal of goods is to an
independent buyer, second removal is to such a related person who is covered under rule 9
and third removal is to a person who is covered under rule 10, while some goods are captively
consumed, then the first removal should be assessed under section 4(1)(a), second removal
should be assessed under rule 9 and third removal should be assessed under rule 10, while
captively consumed goods should be assessed under rule 8 of these rules. It may be noted
that Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 are not
required to be followed sequentially.
Rule 10A provides for valuation in case of job-work. The rule provides that where goods are
manufactured by a job-worker on behalf of a person (commonly known as principal
manufacturer), the value for payment of excise duty would be based on the sale value at
which the principal manufacturer sells the goods, as against the past practice where the value
was taken as cost of raw material plus the job charges.
Where the goods are sold by the principal manufacturer from the factory of the job worker s
factory, the price charged by the principal to his customer would have to be taken as the value
on which duty would have to be paid at the applicable rate. If the buyer is related to the
principal manufacturer, the valuation would have to be done as in case of clearances to
related parties.
Where the goods are not removed for sale from the job workers factory but cleared to some
other premises of the principal from where the goods are sold, the valuation at the time of
removal from the job workers premises would be similar to what is followed under rule 7 i.e.,
normal transaction value of goods sold from such other place at the time of removal from the
factory of the job worker or the time nearest to time of removal where such goods are not sold
at the time of removal from the factory of the job worker.
Manufacture of motor vehicles by sending the chassis of the motor vehicles to
independent body builders for building the body as per the design/specification of the
manufacturer: Circular No. 902/22/2009-CX dated 20.10.2009 has clarified the issue as
under:
Issue
Some manufacturers of Motor Vehicles were
getting complete Motor Vehicles manufactured
by sending the Chassis of the Motor Vehicles
to independent body builders for building the
body as per the design/specification of the
manufacturer.
Clarification
It has been clarified that:1.
Following practice was being followed:-
Wherever goods are manufactured

on job work basis, their value
would be determined in terms of
the provisions of rule 10A subject
to fulfillment of the requirements of
the said rule.
Chassis was transferred to the body builder on 2.

payment of appropriate excise duty on stock
transfer basis and was not sold to them. The
body builder availed the CENVAT credit of the
duty paid on the chassis and cleared the same
Rule 10A(ii) stipulates that the

assessable value, in the cases
where the job-worker transfers the
excisable goods to the Depot/Sale
office/Distributor and/or any other

on payment of duty to the Depot/Sales
Office/Distributor of the Motor Vehicle (MV)
manufacturer. The duty was discharged by the
body builder on the assessable value
comprising the value of Chassis and the job
charges i.e. cost construction method. The 3.
Depot/Sales office of the MV manufacturer
sold the vehicles at a higher price than the
price on which duty had been paid.
3.29
sale point of the principal

manufacturer, shall be the
transaction value on which
goods are sold by the principal
manufacturer from such a place.
Accordingly, after the insertion of
rule 10A, the practice of
discharging the duty on cost
construction method by the body
builder is not legally correct.
Rule 11 is a residuary rule, which says when the value of any excisable goods cannot be
determined under any of the aforesaid rules, the value shall be determined using reasonable
means which are consistent with the principles and general provisions of these rule s and subsection (1) of section 4 of the Act.
The Supreme court in case of United Glass Vs. Collector, 1995 (75) ELT 209 (SC) has held
that Rule 11 being in the nature of residuary rule is applicable only when the value cannot be
determined under any rule.
3.9.1 The rules can be summarized through the chart on page 3.30.
3.10 Valuation under different circumstances

3.10.1 Assessable value where the raw material is provided by the customer: The value
of the raw material supplied by the customer would form a part of the assessable value. The
fact that the manufacturer does not pay for the raw material is immaterial. The matter stands
concluded by the judgement of the Supreme Court in the case of Burn Standard Co. Ltd. Vs.
UOI (1991) 36 ECC-1(SC). In this case the assessee manufactured wagons for Railways.
The latter supplied wheel sets and certain other items free of cost. The price charged for the
vehicle did not include the value of the items supplied free of cost. The Supreme Court held
that free supply items like wheel sets etc. form part of the complete wagon and would lose
their identity. It hardly matters as to how and in what manner the components of wagons were
procured by the manufacturer. The assessee would be liable to pay duty on the normal price
of the wagon. The present Valuation Rules follow this.
3.10.2 Effect of price escalation subsequent to the removal of goods, on the assessable
value: The excess amount realised under an escalation clause would form part of the
assessable value and thus attract central excise duty.
3.30
Central Excise
If the goods are removed on payment of duty, based on declared price, subsequent reduction
of price for whatever reason, including Government interference, would not create a claim for
refund of central excise duty paid on the quantum of price reduced.
Central Excise Valuation (Determination of Price of Excisable Goods
Rules), 2000
Value of goods sold nearest to the

time of removal
No
If price is not the sole

consideration
make
adjustments for Cost of
tools,
dies,
moulds,
materials supplied free of
cost includible
Rule 4
Rule 5 determines price at a place other than

removal on deduction of freight.
Adopt other Rules

Rule 6
Yes
Rule 7 only for depot

sales
Value to be the value at
which greatest aggregate
quantity sold at that depot
at the time of removal
from the factory.
Rule 9: for sales to or through

related persons (see also Rule 10)
Rule 10: Sale to interconnected undertakings (one

of the related persons)
Only those related in Section 4(3) (ii), (iii) or (iv) or
holding/subsidiary companies would follow valuation
under Rule 9.
Rule 8
In case of captive
consumption
110% of
production
cost
of
Adopt the price at which related person

sells to unrelated buyers or the value sold
to related persons who in turn sells in
retail.
Rule 10A: If goods are manufactured
on job work basis, adopt the value at
which the principal manufacturer sells
the goods.
Rule 11: When the value

of any
goods
cannot
be determined under
[Refer
toexcisable
page 3.28
(para
3.9.1)]
any of the aforesaid rules, adopt best judgment.
3.10.3 In cases where interest is made payable after the general credit period is over,
such interest will not form part of the assessable value:
Example: Assessee charges `100/- per unit for his goods, if the payment is made within 45
days. `100/- per unit will of course include the interest component pertaining to the general
3.31
credit period of 45 days. Even if the payment is made at the time of delivery `100/- would be
the assessable value, irrespective of the possible inclusion of interest element in the price. If
the assessee charges `102/- per unit after 45 days and `2/- per unit is identifiable as being
relatable to time lag in payment, this amount of `2/- per unit will not form a part of the value.
This is based on the decision of the Supreme Court in GOI vs MRF Ltd. 1995 (77) ELT 433.
3.10.4 Role of notional interest on the advances/deposits taken by the manufacturer
from the buyer in influencing the assessable value: Interest on advance deposits is
includible in the assessable value only if there is a nexus between the advance deposit and
the sale price. The ratio decided in the Metal Box case 1995 (75) ELT 449(SC) requires,
before adding notional interest, establishment of the facts that the interest free advance
reflected favoured or special treatment and that advances had the effect of pegging down the
wholesale price. If the assessee charges the same price from those who give advances and
those who do not, the question of including notional interest on advances does not arise
VST Industries Ltd vs CCE 1998 (97) ELT 395 (SC).
3.10.5 Value of trade mark and assessable value: Where a manufacturer is the owner of
the brand name, the price including the value of the brand name, at which he sells the goods
in the course of wholesale trade, would constitute the normal price. But where the goods are
manufactured by somebody else and then sold to a dealer who owns the brand name, the
value of the brand name cannot be added for computing the assessable value for the brand
name owner cannot be treated as manufacturer and the price at which the brand name owner
sells the goods cannot be taken as assessable value.
3.10.6 Consultancy /technical services and assessable value: The costs towards
drawing, designing and technical specifications are clearly elements of machinery costs and
are to be included in the assessable value. However, the cost towards project report, plant
layout, civil works and training are in the nature of services and are not includible in the
assessable value.
3.10.7 Excess amounts charged to customer whether dutiable: If the amounts recovered
from the customers is in excess of expenditure actually incurred on permissible deductions,
the excess amount will form part of the assessable value.
Amount charged and recovered from customers by separate bills will be considered as gross
receipts or cum duty price and duty payable is to be calculated after working out the
assessable value from the gross receipts.
3.10.8 Handling cost and assessable value: Handling cost incurred before the clearance of
the goods from the place of removal is includible in the assessable value.
3.10.9 Assessable value in case of repair activities: If the assessee replaces certain parts
while repairing a manufactured product, he is liable to pay duty only on value of spare parts
manufactured and used in the said manufactured product.
3.32
Central Excise
3.10.10 Maintenance charges, whether part of assessable value: Maintenance charges

(being optional and distinct from warranty obligations), and site service charges recovered for
rendering special services are not includible in the assessable value. But if the price is marked
up to cover servicing costs, prima facie such amount would form a part of the assessable value.
3.10.11 Cost of preventive maintenance service contract: This cost for life time service of
vehicle would not form part of assessable value for excise [Commissioner v. Volvo India Ltd. 2009 (240) E.L.T. A82 (S.C.)].
3.10.12 Repair and maintenance charges and machine hire charges: These charges
would not form part of assessable value [Commissioner v. Dhillon Kool Drinks & Beverages 2009 (238) E.L.T. A26 (S.C.)].
3.11 Maximum Retail Price (MRP) based valuation [Section 4A]

The provisions relating to duty based on MRP are dealt with under section 4A. Section 4A
was introduced to fight the evil of manufacturers transferring cost to trading companies and
reducing the excise duty payable by them.
The provisions of section 4A are discussed below:
(a) Excisable goods can be valued on the basis of MRP under section 4A, if Legal Metrology
Act, 2009 or related rules or any other law requires declaration of the retail sale price on
the package of such goods and the Central Government has notified said goods for the
purpose of this section [sub-section (1)]. Thus, both the conditions need to be followed
cumulatively i.e., declaration under Legal Metrology Act, 2009 and notification under
section 4A.
(b) Where the goods specified under sub-section (1) are excisable goods and are
chargeable to duty of excise with reference to value, then, notwithstanding anything
contained in section 4, the valuation has to be done on the basis of retail sale price
declared on the package less abatement as prescribed in the notification issued by the
Central Government under sub-section (1) [sub-section (2)]. Abatements can be given
by the Central Government after taking into account the amount of duty of excise, sales
tax and other taxes, if any, payable on such goods [sub-section (3)].
(c) The retail sale price has been defined to mean the maximum price at which the
excisable goods in packaged form may be sold to the ultimate consumer and includes all
taxes, local or otherwise, freight, transport charges, commission payable to dealers, and
all charges towards advertisement, delivery, packing, forwarding and the like, as the case
may be, and the price is the sole consideration for such sale.
However, if the provisions of the Act, rules or other law referred to in (a) above requires
the retail sale price to exclude any taxes, local or otherwise, the retail sale price shall be
construed accordingly [explanation 1].
3.33
(d) It is also stated that where there is more than one retail sale price, the maximum of such
retail sale price will be deemed to be the retail sale price for the purpose of this section
[Explanation 2(a)].
(e) The excisable goods shall be confiscated and the retail sale price will be ascertained in
the manner prescribed by the Central Government if the manufacturer does any of the
following acts:
(i)
removes excisable goods from the place of manufacture, without declaring the retail
sale price of such goods on the packages, or
(ii) declares a retail sale price which is not the retail sale price as required to be
declared under the provisions of the Act, rules or other law referred to in (a) above
or
(iii) tampers with, obliterates or alters the retail sale price declared on the package of
such goods after their removal from the place of manufacture [sub-section 4].
(f)
Where different retail sale prices are declared on different packages for the sale of any
excisable goods in packaged form in different areas, each such retail price shall be the
retail sale price for the purposes of valuation of the excisable goods intended to be sold
in the area to which the retail sale price relates [explanation 2(c)].
(g) If the retail sale price declared on the package of any excisable goods at the time of its
clearance from the place of manufacture, is altered to increase the retail sale price, such
altered retail sale price shall be deemed to be the retail sale price [explanation 2(b)].
ANALYSIS
3.11.1 Statutory requirement of declaring retail sale price on the package of notified
excisable goods is a pre-requisite for applying section 4A :
The provisions of section 4A of Central Excise Act, 1944 would apply only if a particular
product [on which declaration of the retail sale price is required as per the Legal Metrology
Act, 2009] is also notified with abatement under provisions of the Central Excise Act.
Otherwise, such product will be valued as per section 4 of the Central Excise Act, 1944 or as
per section 3(2) of the Central Excise Act, 1944, if tariff values have been fixed for the
commodity.
For instance, hand tools require MRP to be printed on package. However, these are not
notified under section 4A. Therefore, shall not be valued on basis of MRP less abatment
under section 4A of the Central Excise Act.
3.34
Central Excise
Excisable goods need to be valued in terms of provision of

section 4A if the following two conditions are satisfied
cumulatively:
The excisable goods to be

valued are covered under the
Legal Metrology Act, 2009 or
related rules or under any other
law and such law requires
declaration of the retail sale price
on the package of such goods
The Central Government has notified

the said goods as goods in relation
to which the payment of excise duty
will be on the basis of the RSP less
such deductions/abatements as it
may allow in the notification. The
abatement is given as a percentage
of the retail sale price.
A.
MRP provisions are overriding provisions: MRP provisions override the provisions of
section 4. In other words, when the provisions of section 4A are applicable, the
assessable value shall be determined on the basis of MRP less abatement and not on
the basis of section 4 of the Act.
B.
When is MRP required to be declared?: Let us now understand on what kind of goods
the provisions of Legal Metrology Act, 2009 and rules made thereunder are applicable.
The provisions requiring MRP declaration apply only to package intended for retail
sale. Thus, MRP declaration will not be required if good are sold in bulk or they are not
packed or they are not intended for retail sale.
Section 18(1) of Legal Metrology Act, 2009 provides that no person shall manufacture,
pack, sell, import, distribute, deliver, offer, expose or possess for sale any pre-packed
commodity (commodity placed in a package without buyer being present, containing a predetermined quantity) unless such package is in such standard quantities or number and
bears thereon such declarations and particulars in such manner as may be prescribed
under Legal Metrology (Packaged Commodities) Rules, 2011.
Legal Metrology (Packaged Commodities) Rules, 2011, inter alia, envisage two types of
packages (a) Retail package and (b) Wholesale package.
Rule 6(1)(e) provides that every package intended for retail sale shall, inter alia, have
declaration of the retail sale price of the package.
Retail sale price means the maximum price at which the commodity in packaged form
may be sold to the ultimate consumer and the price shall be printed on the package in
the manner given below;
Maximum or Max. retail price......Rs/`inclusive of all taxes or in the form
MRP Rs........./`incl., of all taxes after taking into account the fraction of less than
3.35
fifty paise to be rounded off to the preceding rupee and fraction of above 50 paise and up
to 95 paise to the rounded off to fifty paise [Rule 2(m) of Legal Metrology (Packaged
Commodities) Rules, 2011].
Retail package means the packages which are intended for retail sale to the ultimate
consumer for the purpose of consumption of the commodity contained therein and
includes the imported packages [Rule 2(k) of Legal Metrology (Packaged Commodities)
Rules, 2011].
Retail sale, in relation to a commodity, means sale, distribution or delivery of such
commodity through retail sale shops, agencies or other instrumentalities for consumption
by an individual or a group of individuals or any other consumer [Rule 2(l) of Legal
Metrology (Packaged Commodities) Rules, 2011].
C.
Non-applicability of MRP provisions:

applicable to the following:
The provisions of marking MRP are not
(a) Packages above 25kg/ 25litre: Provisions do not apply to packages of

commodities containing quantity of more than 25 kg or 25 litre [excluding cement
and fertilizer sold in bags up to 50 kg].
(b) Packaged commodities meant for industrial consumers or institutional
consumers: Provisions do not apply to packaged commodities meant for industrial
consumers or institutional consumers (this exclusion is irrespective of weight or
volume of package).
Industrial consumer means the consumer who buys packaged commodities
directly from the manufacturer or from an importer or from wholesale dealer for use
by that industry and the package shall have declaration not for retail sale [Rule
2(bb) of Legal Metrology (Packaged Commodities) Rules, 2011].
Institutional consumer means the institution who hires or avails of the facilities or
services in connection with transport, hotel, hospital or other organisation which buy
packaged commodities directly from the manufacturer or from an importer or from
wholesale dealer for use by that institution, and the package shall have de claration
not for retail sale.[Rule 2(bc) of Legal Metrology (Packaged Commodities) Rules,
2011].
(c) Wholesale packages: Retail sale price is required to be declared only on
packages intended for retail sale and not on wholesale packages. The valuation of
wholesale packages will be as per section 4 of the Central Excise Act, 1944.
Wholesale package means a package containing:
(i)
a number of retail packages, where such first mentioned package is intended

for sale, distribution or delivery to an intermediary and is not intended for sale
direct to a single consumer; or
3.36
Central Excise
(ii) a commodity sold to an intermediary in bulk to enable such intermediary to
sell, distribute or deliver such commodity to the consumer in similar quantities;
or
(iii) packages containing ten or more than ten retail packages provided that the
retail packages are labelled as required under the rules [Rule 2(r) of Legal
Metrology (Packaged Commodities) Rules, 2011].
(d) Small packages of 10gm/10 ml or less: Provisions do not apply to packages
containing commodity if the net weight or measure of the commodity is ten gram or
ten millilitre or less, if sold by weight or measure. However, the provisions of this
clause shall not be applicable for tobacco and tobacco products.
(e) Fast food items: Provisions do not apply to any package containing fast food
items packed by restaurant or hotel and the like.
(f)
Scheduled drugs and formulations: Provisions do not apply to package

containing scheduled formulations and non-scheduled formulations covered under
the erstwhile Drugs (Price Control) Order, 1995 [now DPCO, 2013] made under
section 3 of the Essential Commodities Act, 1955.
(g) Agricultural farm produce: Provisions do not apply to agricultural farm produces in
packages of above 50 kg.
(h) Thread sold in coils to handloom weavers: Provisions do not apply to any thread
which is sold in coil to handloom weavers.
(i)
Bidis for retail sale: Declaration of retail price is not required on any package
containing bidis.
(j)
Domestic LPG gas: MRP is not required to be indicated in domestic LPG of which
the price is covered under Administrative Price Mechanism of Government.
D.
Same product partly sold in retail and partly in wholesale: CBE&C has clarified in
Circular No. 625/16/2002-CX dated 28.02.2002 that when goods covered under section 4A
are supplied in bulk to large buyer (and not in retail), valuation is required to be done under
section 4. Provisions of section 4A apply only where manufacturer is legally obliged to print
MRP on the packages of goods. Thus, there can be instances where the same commodity
would be partly assessed on basis of section 4A and partly on basis of transaction value
under section 4.
E.
Valuation of free samples of the product assessed on the basis of MRP: As

explained earlier, Circular No. 813/10/2005-CX dated 25.4.2005 clarifies that in the case
of free samples, the value should be determined under rule 4.
The CBEC has further clarified vide Circular No. 915/05/2010-CX dated 19.02.2010 that
in respect of the free samples of the products covered under MRP based assessment,
the valuation of these samples shall also be done under rule 4 of the valuation rules by
taking into consideration the deemed value under section 4A(1) notwithstanding the n on
availability of normal price under section 4(1)(a) of the Act. Accordingly, the value for
3.37
excise duty would be determined under section 4A for the similar goods (subject to
adjustment for size, pack etc.).
F.
Some important decisions:

1.
Provisions applicable to all packaged commodities: The provision of Legal

Metrology Act applies to all pre-packaged commodities. Specific notification
indicating classes of goods is not required [Khaitan Electricals v. UOI (2011) 267
ELT 185 (Kar.) and Reebok India Co. v. UOI (2011) 270 ELT 513 (Kar.)]
2.
Provisions not applicable if product is not packed: Provisions of Legal

Metrology Act do not apply to sale of a car [Mahindra and Mahindra v. Director of
Standards of Weights and Measures (2011) 272 ELT 488 (Ker.)].
3.
Outer packaging for protection/safety during transportation not wholesale

package: Such packaging does not require details like name/address, cost, month
year etc. [State of Maharashtra v. Raj Marketing (2011) 272 ELT 8 (SC)].
Therefore, valuation of such package will be done on the basis of section 4A i.e.,
RSP less abatement.
Examples of some goods that are notified along with percentage of abatement under
section 4A is as follows:
(i)
Biscuits
30%
(ii)
Toothbrush
30%
(iii) Photographic cameras
30%
(iv) Pressure cooker
25%
3.11.2 Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules,
2008: Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008
determine the retail sale price of any excisable goods under sub-section (4) of section 4A of
the Act.
Rule 4 provides that where a manufacturer removes the excisable goods:
(a) without declaring the retail sale price on the package or
(b) by declaring the retail sale price, which is not the retail sale price as per law or
(c) by declaring the retail sale price but obliterates the same after their removal ,
then, the retail sale price of such goods shall be
retail sale price of identical goods manufactured by the manufacturer and removed within a
period of one month, before or after removal of such goods,
otherwise, it shall be ascertained by conducting the enquiries in the retail market at or about
the same time of the removal of such goods.
However, if more than one retail sale price is ascertained, then the highest of the retai l sale
price, so ascertained, shall be taken as the retail sale price of all such goods.
3.38
Central Excise
It has been clarified that where the retail sale price is required to be ascertained based on
market inquiries, the said inquiries shall be carried out on sample basis.
Rule 5 provides that where a manufacturer alters or tampers the retail sale price declared on
the package of goods after their removal from the place of manufacture, resulting into increase
in the retail sale price, then such increased retail sale price shall be taken as the retail sale
price of all goods removed during a period of one month before and after the date of removal
of such goods. However, where the manufacturer alters or tampers the declared retail sale
price resulting into more than one retail sale price available on such goods, then, the highest
of such retail sale price shall be taken as the retail sale price of all such goods.
Rule 6 further provides that if the retail sale price of any excisable goods cannot be
ascertained under these rules, the retail sale price shall be ascertained in accordance with the
principles and the provisions of section 4A of the Act and the rules aforesaid.

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3

Valuation of Excisable Goods

The Institute of Chartered Accountants of India

Duty based on the

The Institute of Chartered Accountants of India

Valuation of Excisable Goods

Excisable goods chargeable to

Are tariff values being fixed

Valuation under section 3(2)

Valuation under section 4A

Valuation under section 4

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Valuation of Excisable Goods

Factor relevant to production, as mentioned in sub-sections (2) and (3) includes

3.2 Valuation under section 4

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Valuation of Excisable Goods

two or more individuals, associations of individuals, firms, trusts, trustees or

The Institute of Chartered Accountants of India

(II) associated persons(a) in relation to a director of a body corporate, means(i)

a relative of such director, and includes a firm in which such director or

a factory or any other place or premises of production or manufacture of the

Clause (77) of section 2 of Companies Act, 2013

The Institute of Chartered Accountants of India

Valuation of Excisable Goods

Whether goods have been delivered

Goods to be valued as per

Section 4(3)(b) states

3.3 Related Persons

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India

Valuation of Excisable Goods

The definition of 'related person' requires

UOI v. Atic Industries Ltd. 1984 (17)

The mutuality of business interest between the

Cibatul Ltd. v. UOI 1979 (4) E.L.T. (J407)

If one of the directors of the buyer company is

Jay Engg. Works Ltd. v. UOI 1981 (8)

A limited company cannot have indirect

Collector v. T.I. Miller Ltd. 1988 (35)

Moped India Ltd v. AC 1986 (23) E.L.T. 8

Goods sold to dealers having no funds of their

JK Cotton Spg. & Weaving Mills Co. Ltd

Once existence of mutual interest is

UOI v. Atic Inds. Ltd. 1984 (17) E.L.T.

Merely because, goods are manufactured with

Ceam Electronics P. Ltd. v. UOI 1991

Regional sale offices/godowns are not related

Indo-National Ltd. v. UOI 1979 (4) E.L.T.

The Institute of Chartered Accountants of India

After sales service by dealers during warranty

S.M. Chemicals & Electronics v. R.

Price charged by the manufacturer to the

UOI v. Mahindra & Mahindra Ltd. 1989

"Main dealer" cannot be treated as distributor or

GOI v. Ashok Leyland Ltd. 1983 (14)