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Excise valuation- spare parts division

Sanjay Sharma (Astt. Manager-Indirect Taxation) (76 Points)

24 April 2012

“A” company purchase the material from “B” company and “B” Co. repack and labels it and fix the MRP before removed the said goods to “B’ co.’s customers.

While shipping the said goods “A” company charges the excise duty on” Transaction value” if it is direct from their manufacturing unit and on their MRP if it is from their Spare Parts Division.

Query- Why should “B” Co. charge the Excise duty on their MRP basis while I have to pack, re-pack or re-label it, and then discharge the excise duty on our MRP to the ultimate consumers in the retail market. Pls. enlighten us what is the correct position of law in this regard.

Best Regards,

Sanjay Sharma

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2 Replies

Sunil Kumar G (AGM Taxation) (373 Points)
Replied 30 April 2012

Where rate of duty is dependent on value of the goods (ad valorem duty), value has to be determined in accordance with the provisions of Central Excise Act, 1944, as follows:

Tariff value fixed under Section 3
Value based on retail sale price under section 4A.
Value under section 4 including transaction value under this section

2.3.1 Transaction Value: Section 4 of the Central Excise Act, as substituted by section 94 of the Finance Act, 2000, has come into force from the 1st day of July 2000. This section contains the provision for determining the Transaction value of the goods for purpose of assessment of duty. For applicability of transaction value in a given case, for assessment purposes, certain essential requirements should be satisfied. If any one of the said requirement is not satisfied, then the transaction value shall not be the assessable value and value in such case has to be arrived at under the valuation rules notified for the purpose. The essential ingredients of a Transaction value are:

(i) The goods are sold by an assessee for delivery at the time of place of removal. The term "place of removal" has been defined basically to mean a factory or a warehouse;

(ii) The assessee and the buyer of the goods are not related; and

(iii) The price is the sole consideration for the sale.

2.3.2. Tariff Value: For certain items the Government may fix a tariff value as per provisions of Section 3(3) of the Central Excise Act, 1944. In such cases the assessment of duty shall be on the basis of the tariff value.

2.3.3. Value on basis of Maximum Retail Sales Price: The value is based on maximum retail sale price in terms of Section 4A of the Central Excise Act, 1944. This is applicable to notified commodities. The notification issued in this regard indicates the extent of abatement to be allowed for arriving at the assessable value for determination of amount of duty. The Notification No. 49/2008 dated 24^th December 2008 which talks about the product valued under MRP. Accordingly to Medreich Ltd, most of the products are covered under MRP valuation. The detailed list of Valuation of products is attached in Annexure.

If you affix any MRP on the product and product is notificated under Notification No. 49/2008, you are liable to pay duty on MRP Valuation.

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HS Negi (Senior Executive- F&A) (590 Points)
Replied 02 May 2012

Dear Mr. Sanjay Sharma

When you are procureing the spare parts from B and you are the industrial consumer then B can not charge the duty on MRP. Say to him that you are a industrial conssumer, MRP provision can not attract for industrial consumer. Settle the price on traanction value.

When you are packing , repacking, lebelling relebelling and affixing the MRP, then it will be your manufacturing ( refer to section 2(f)3 of the Act). Then you can clear the goods on MRP. Provided goods should be fall in schedule-3.

Regards

HS Negi