Rule for value of Excisable Goods.

[Kunal Pawar]

Sir,

If a manufacturer clearing 95% of his finished goods to the related buyer and remaining 5% to other independent buyers, then under what Rule of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the value of the Excisable goods will be determined.

[KASTURI SETHI]

Goods sold/cleared to related buyer will be assessed under Rule 9 of Central Excise (Determination of Price of Excisable Goods), Rules, 2000 and goods sold to independent buyer will be assessed on transaction value. Rule 9 has been amended/substituted vide Notification No. 14/2013-CE(NT) dated 22.11.2013 effective from 1.12.2013

[Vishal Kulkarni]

To clarify further, value of goods to be determined as per CAS -4 +10% i.e. 110% of cost of production in case removal of goods to related party. Cost of production shall be determined as per CAS -4 standard.

Sale to third party shall be on transaction value.

Regards, Vishal

[YAGAY andSUN]

Dear Kunal,

the Hon’ble Supreme Court in the matter of M/s. Nirma Ltd. and Others. = 2015 (11) TMI 605 - SUPREME COURT regarding determination of cost of production as per CAS-4. It was held by the Supreme Court that three elements i.e. interest, depreciation and profit margin not to be included.

Regards,

YS

[KASTURI SETHI]

I agree with both the replies dated 3.12.2015 of Sh.Vishal Kulkarni and M/s. YAGAY and SUN.

Thanks a lot for additional information.

[Kunal Pawar]

Thank you, Shri Kasturi Sir and all.

But, I want to clarify that the sale made by manufacturer is to a trading company having his family members as Directors and the company is doing advertisement and promotional activities and subsequently, selling the goods at higher rates. In this circumstance, what prices would be the value for the purpose of Central Excise, selling price of manufacturer to trading company or sale price of trading company to ultimate buyers.

[Rakesh Singh]

Dear YS,

Depreciation to the extent not forming part of manufacturing overheads is excluded. Such depreciation which form part of manufacturing overheads are part of cost of production.

[Guest]

Dear Pawar,

In this case, valuation on the basis of CAS-4 is not needed as their is sale and not captive consumption. The prices at which manufacturer sells the goods to other buyers who are not related can be considered as normal price for clearances to related company in terms of amended Rule 9 of Valuation Rules, 2000. But the aspect of addition of marketing expenses etc. needs to be examined in detail. Otherwise, the prices at which the related trading company sells goods to customers can be taken as prices for arriving at Excisable Value.

[YAGAY andSUN]

Dear Rakesh,

We hereby request you to please share us with the more information on Depreciation which is required to be added or not required to be added vis-a-vis to Nirma Judgment for the sake of clarity on this aspect.

Thanks in advance for putting more clarity on this subject matter.

Regards,

YAGAY and SUN

[Rakesh Singh]

Dear YS,

Relevant Para of the Hon'ble Supreme Court judgment is reproduced below:-

" The impugned order of the tribunal shall reflect that the Tribunal has kept in mind the Cost Accounting Standard-4 (CAS-4) as adopted by the department itself. On that basis it has come to the conclusion that the three aforesaid elements of cost which were sought to be included by the Department could not be the factors which would be taken into consideration for arriving at the cost of production. After going through the reasons given by the Tribunal in support of the aforesaid conclusion we find no error therein."

The words in bold and italics are important read with Tribunal order Para 2.1.1 .. (i) (a) The depreciation figure which includes depreciation on catalyst has to be reduced to avoid duplication of cost.

To clarify the point, you will appreciate that this part i.e part of the depreciation included in the catalyst was sought to be included by the Department which was also part of the total Depreciation and this part of the Depreciation and rightly so shall not be forming part of the cost of production.

You may also appreciate that as per CAS-4, Depreciation is part of the Manufacturing overheads having relation with the product manufacturing process and not other Depreciation i.e Administration and marketing related.

Therefore the Judgment read with Tribunal conclusions is the right position as per CAS-4 as well.

regards

Rakesh Singh

[KASTURI SETHI]

Dear Sh.Dilip Kudal,

With reference to your reply dated 3.12.2015, I want to point out that Rule 9 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 also talks of Rule 8ibid i.e. for determination of valuation of goods consumed captively.

 

[Guest]

Dear Shri Kasturiji,

In Rule 9, recourse to Rule 8 is made in case there is no sale. Here Shri Pawar has clarified that related company is selling the goods. So, Rule 8 wont attract in this case. Kindly communicate difference of opinion if any.

Regards

AI Summary

Related-party valuation under rule 9: determine excisable value on cost of production plus markup; independent sales on transaction value. Related-party transfers are valued by reference to cost of production under CAS 4 with an added markup, while independent sales use transaction value; CAS 4 excludes interest, profit margin and depreciation components that duplicate cost, but includes depreciation forming part of manufacturing overheads. Authorities may consider prices to unrelated buyers and require adjustments for marketing expenses; valuation provisions for captive consumption apply only where there is no sale.