resale of excisable goods outside the factory gate.

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CA ANIL SHARMA (Querist)
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05 June 2010 Co. ABC Ltd has sold goods on 10/5/2010 of Rs 500000 and rate of duty on that date is 10%. after the clearance of goods from the factory gate the customer denied to take the delivery and the Co. resold these goods on 15/05/2010, without recieving the delivery back at Rs 600000. in the meanwhile a retrospective amandement has taken place which increase the rate of duty to 12% applicable from 5/5/2010.
Now the question is that whether dutu is payable on rs 500000 or rs 600000 and at what rate ?
Can AO demand the duty on Rs 600000 ?

Arjun Chadha

Arjun Chadha (Expert)
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06 June 2010 1. Excise duty is leviable on the manufacture of goods, and is payable at the time of clearance of goods from the factory premises (if the goods are sold from the factory and not from a depot or other sales outlet). As per Section 4(1) of the Central Excise Act,

‘where 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.'

In your case, the goods have been cleared for the initial buyer under the cover of invoice of Rs 500,000. However, subsequently the goods have not been accepted by such buyer, and therefore the sale has not fructified. In this case, it cannot be said that the transaction value is Rs 500,000, since the goods have not been sold for this amount. Instead, the goods have been sold for Rs 600,000, and this value would be the transaction value. The same would also be supported by the invoice against which payment of Rs 600,000 would be received. The earlier invoice of Rs 500,000 representing a void sale would have to be cancelled.

Therefore, the value on which excise duty has to be paid is not the value at which goods are cleared, but the value at which the transaction is completed. Case in point is the practice of issue of supplementary invoices, where prices are increased subsequent to clearance of goods from the factory. In such cases, differential excise duty is also charged by the manufacturers from the buyers alongwith the increase in sale price, since the revised price would be the actual transaction value for excise purposes.

2. With respect to the rate of excise duty, in my experience I have not come across a case of retrospective increase of excise duty. However, assuming that the rate is increased retrospectively, duty would have to be paid on the increased rate i.e. 12%. This is because Section 3 of the Central Excise Act provides that excise duty would be levied at the rates specified in the Central Excise Tariff Act, 1985. Further, Rule 5 of the Central Excise Rules, 2002 clearly provides that the rate of duty applicable shall be the rate in force on the date of clearance of goods from the factory. Also, Section 2 of the Central Excise Tariff Act provides that the rates would be specified in the First and Second Schedules appended to the Act. There is no restriction on increasing rates retrospectively, except in cases where the rates are increased under Section 3 (Emergency powers). Therefore, excise duty has to be paid on the rate prevalent at the time of clearance of goods from the factory. In case of retrospective increase, the increased rate would be deemed to be the rate applicable on the date of clearance.

Moreover, Section 12B of the Central Excise Act presumes that the increased duty burden would be passed on the buyer.

Conclusion: Duty would be levied @ 12% on Rs 600,000.