The Section 4 of the Central Excise Act, as substituted by section 94 of the Finance Act, 2000, contains the provision for determining the Transaction value of the goods for purpose of assessment of duty.
The definition of "transaction value" needs to be carefully taken note of as there is fundamental departure from the erstwhile system of valuation that was essentially based on the concept of ‘Normal Wholesale Price’, even though sales were effected at varying prices to different buyers or class of buyers from factory gate or Depots etc. had to be determined.
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:
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(i)
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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;
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(ii)
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The assessee and the buyer of the goods are not related; and
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(iii)
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The price is the sole consideration for the sale.
Transaction value would include any amount which is paid or payable by the buyer to or on behalf of the assessee, on account of the factum of sale of goods.
In other words, if, for example, an assessee recovers advertising charges or publicity charges from his buyers, either at the time of sale of goods or even subsequently, the assessee cannot claim that such charges are not to be included in the transaction value. The law recognizes such payment to be part of the transaction value that is assessable value for those particular transactions.
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The new section 4 essentially seeks to accept different transaction values which may be charged by the assessee to different customers, for assessment purposes so long as these are based upon purely commercial consideration where buyer and the seller have no relationship and price is the sole consideration for sale. Thus, it enables valuation of goods for excise purposes on value charged as per commercial practices rather than looking for a notionally determined value.
Certain other elements which are included in the Transaction value are, as follows:
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(i)
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Receipts/recoveries or charges incurred or expenses provided for in connection with the manufacturing, marketing, selling of the excisable goods. In other words, whatever elements which enrich the value of the goods before their marketing and were held by Hon’ble Supreme court to be includible in "value" under the erstwhile section 4 would continue to form part of section 4 value even under new section 4 definition.
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(ii)
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If in addition to the amount charged as price from the buyer, the assessee recovers any other amount by reason of sale or in connection with sale, then such amount shall also form part of the transaction value. For example if assessee splits up his pricing system and charges a price for the goods and separately charges for packaging or warranty, the packaging charges will also form part of assessable value as it is a charge in connection with production and sale of the goods recovered from the buyer. In this context, it may be clarified that it is immaterial whether the warranty is optional or mandatory. Since the value can be different for different transactions, wherever warranty charges are paid or payable to the assessee, in those transactions warranty charges shall form part of the assessable value. In those transactions where warranty charges are not recovered, the question of including warranty charges in transaction value does not arise.
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(iii)
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Interest for delayed payments are a normal practice in industry. Interest under a financing arrangement entered between the assessee and the buyer relating to the purchase of excisable goods shall not be regarded as part of the assessable value provided that:
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(a)
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the interest charges are clearly distinguished from the price actually paid or payable for the goods;
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(b)
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the financing arrangement is made in writing; and
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(c)
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where required, assessee demonstrates that such goods are actually sold at the price declared as the price actually paid or payable.
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(iv)
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Discount of any type or descripttion given on any normal price payable for any transaction will not form part of the transaction value for the goods, e.g. quantity discount for goods purchased or cash discount for the prompt payment etc. will therefore not form part of the transaction value. However, it is important to establish that the discount has actually been passed on to the buyer of the goods. The differential discounts extended as per commercial considerations on different transactions to unrelated buyers if extended can not be objected to and different actual prices paid or payable for various transactions are to be accepted. Where the assessee claims that the discount of any descripttion for a transaction is not readily known but would be known only subsequently – as for example, year end discount – the assessment for such transactions may be made on a provisional basis. However, the assessee has to disclose the intention of allowing such discount to the department and make a request for provisional assessment.
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(v)
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The definition of transaction value mentions that whatever amount is actually paid or actually payable to the Government or the relevant statutory authority by way of excise, sale tax and other taxes, such amount shall be excluded from the transaction value. In other words, if any excise duty or other tax is paid at a concessional rate for a particular transaction, the amount of excise duty or tax actually paid at the concessional rate shall only be allowed to be deducted from price.
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(vi)
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As per commercial practice, the price for the goods charged, normally includes the cost of packing charges. However, at times separate charge may be billed for special packing, as per customer’s requirements. Whereas in the context of erstwhile section 4 certain disputes often arose whether certain packing in relation to particular goods is secondary or primary and whether its value is to be added for assessment purposes, under the new section 4, such issues are no longer relevant. Any charges recovered for packing are obviously charges recovered in relation to the sale of the goods under assessment and will form part of the transaction value of the goods. In short, it is immaterial whether packing is ordinary or special. Whatever amount is charged from the buyer for packing and if not already included by the assessee in the price payable for the goods will be included while determining the transaction value of the goods.
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