Valuation of Excisable Goods

[Srivatsan Krishnamachari]

Dear Learned Friends,

Kindly clarify the following query: A company manufacture several goods which are covered under central excise. In order to push up the sales of a particular product (Product A) of its,it offers another of its products (Product B) free of cost to customers/dealers as a combo by paying the applicable excise duty on the transaction value of Product(A) alone and reverse the proportionate cenvat credit taken on the inputs of the Product(B) there by not paying CED on the Product (B) while clearing the Combo (Product A+ Product B) For instance duty is paid on Thermic Jug which is cleared along with 'free Items' water bottle or say a 'Quilt' with Pillows.Is such type of transaction permissible? I heard there are quite a few decisions by Tribunals and Courts on this kind of 'Combo Offer'. Kindly let me know the correct procedure.

Thanks and Regards,

K.Srivatsan

[YAGAY andSUN]

Dear Srivastsan Krishnamachari,

Please make it clear that the primary product you intent to remove with the secondary free products as combo offer whether falls under Section 4 or under Section 4A of the C.E.Act, 1944?

Please confirm.

Regards

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[Madhukar N Hiregange]

If the products are covered under transaction value - sec 4, then the combined goods removed at the actual value charged would be the value for both. In fact in such cases the cenvat credit need not be reversed on the inputs used in the other product.

If the products are under -MRP based valuation then the MRP less abatement of both would have to be considered.

[YAGAY andSUN]

Dear Srivastsan Krishnamachari,

If no MRP on free gifts/samples, then, valuation would be done on the basis of Section 4 - Jayanti Food Processing v CCE (2007) 10 STT 375 = 215 ELT 327 (SC) = 2007 (8) TMI 3 - Supreme Court and if MRP is printed on free samples, valuation has to be on the basis of MRP - CCE v Godrej Industries 2006 (200) ELT 348 (CESTAT).= 2006 (1) TMI 23 - CESTAT, MUMBAI

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[Rajesh Nathoo]

Dear Mr. Madhukar N Hirenge and Mr. Pradeep Khatri ,

I thank both of you for your prompt replies on such complicated issues . I read your articles and replies with keen interest and always feel enriched . You people are mentors for me. May God Bless both of you.

With Regards ,

Rajesh Nathoo

AI Summary

Valuation of excisable goods determines whether free bundled items are taxed on transaction value or on printed MRP. Valuation of excisable goods in combo offers depends on whether the principal product is valued under Section 4 transaction value or under Section 4A MRP-based valuation. Under transaction value, the actual amount charged for the bundle is taxable and cenvat credit on inputs of the free item need not be reversed; under MRP valuation, MRP (less abatement) applies and affects duty computation and credit reversal.