Valuation and Declaration under Rule 173C
Valuation of excisable goods.
The valuation of the excisable goods is done in
accordance with either of the two provisions enshrined in the Central
Excise law. These provisions are
1. Valuation under section 4 of the Central Excise Act, 1944 based
on normal price which would be applicable to all cases, where maximum
retail price based valuation is not notified by the Central Govt.,
or where Tariff values have not been fixed for the articles under
section 3(2) of the Central Excise Tariff Act, 1985;
2. Valuation based on maximum retail price (MRP) under section
4A of the Central Excise Act, 1944, which would be applicable to
those excisable goods that are notified by the Central Govt.;
Value under Section 4 of the Central Excise Act,
Definition:- Section 4 levies duty on the
normal price which has following ingredients:-
- The price should be one at which the goods are ordinarily sold
by the assessee;
- The sale should be in the course of wholesale trade;
- The sale should be at the time and place of removal;
- The buyer should not be a related person; and
- The price should be the sole consideration of sale.
This assessable value is, however, subject to four
exceptions, which are set out in the proviso to section 4 (1)(a).
These exceptions are
First exception If the goods are sold at
different whole sale prices to different classes of buyers, each
such wholesale price is deemed to be an assessable value.
Second exception If the goods are sold at
different wholesale prices for different places of removal, each
such price is deemed to be the assessable value.
Thus an assessee can have more than one assessable
value in respect of the same goods.
Third exception If the goods are sold in
the course of wholesale trade at a price fixed by law, such fixed
price is taken as the assessable value. For example the Drugs Price
(Control) Order fixes the wholesale price at which schedule drugs
can be sold. In such cases, the price fixed under the Drugs Price
(Control) Order is taken as assessable value.
Fourth exception If the assessee arranges
to sell the goods in the course of wholesale trade only through
a related person, the price at which the goods are sold by such
related person is taken as the normal price or the assessable value.
This proviso is obviously intended to prevent avoidance of Excise
duty by an assessee who can arrange to sell the goods in wholesale
to a person at a lower price and thus pay lesser amount of duty.
Permissible deductions from wholesale price for
determining assessable value.
Only following items can be deducted from the wholesale
- Cost of packing, provided it is durable in nature and returnable
to the assessee. Secondary packing necessary for making the goods
marketable is includible in the assessable value. However, if
any special packing is provided by the assessee at the instance
of the wholesale buyer, which is generally not provided as a feature
of wholesale trade, the cost of such packing shall be deducted
from the wholesale cash price. The burden of proof that a packing
is a special secondary packing, is on the assessee.
- Cost of transportation (including cost of insurance) from place
of removal to the place or places of delivery. If the freight
is averaged, the average freight is deductible;
- Excise duty, sales tax and other taxes. The quantum of excise
duty is to be determined as per explanation to section 4(4)(d)(ii).
- Trade discount allowable in accordance with the normal practice
of wholesale trade. Such trade discount should not be refundable
on any account, however.
No deduction is permissible in respect of post
manufacturing expenses, like marketing, selling and advertisement
Related person has been defined under section 4(4)(c)
of the Central Excise Act, 1944. The definition is both exhaustive
and inclusive. According to the first part of definition, which
is exhaustive, "a person who is so associated with the assessee
that they have interest, directly or indirectly in the business
of each other" is a related person of the assessee. According
to the second part related person includes holding company, subsidiary
company, a relative and a distributor, a sub-distributor. The term
holding company, subsidiary company and relative have the same meaning
as in Companies Act, 1956. A person will be a related person of
another if there exists mutuality of business interest. This interest
refers to the interest in general between the business of two parties
and does not refer to the interest which is created by sale of goods.
The interest may be pecuniary or of such nature as would have the
effect of promoting the business of each other. The quality and
degree of interest which each has in the business of other may be
different, the interest of one in the business of other may be direct,
while the interest of the latter in the business of the former may
be indirect. This would make no difference so long each has got
some interest, direct or indirect in the business of the other.
Determination of assessable value when there is
no sale by related person.
If the related person does not sell the goods,
but captively utilises them, the proper officer can determine the
assessable value. Section 4(1) contains inherent powers to determine
the true value of the excisable goods after taking into account
any concession shown to a favoured buyer as account of extra commercial
consideration and the provisions of Rule 6(b) of the Central Excise
(Valuation) Rules, 1975.
Determination of assessable value where the related
person sells the goods in retail.
In this situation the value has to be deducted
from the retail price of the goods in the manner specified in Rule
6(a) of the Central Excise (Valuation) Rules, 1975 i.e. a reasonable
amount will have to be reduced from the retail price to arrive at
the price at which the assessee would have sold the goods in the
course of whole sale trade to a buyer other than the related person.
Valuation of goods got manufactured on job work
If the processing results in the manufactured product,
the assessable value will not be processing charges alone but the
intrinsic value of the processed product which is the wholesale
price at which it is sold for the first time in the wholesale market.
Illustration If the cost of raw material
is Rs.50/- and the job conversion charges including job workers
profit is Rs.100/- the assessable value of the goods will be Rs.150/-
as this is the value at which the goods leave the factory and enter
the main stream.
The assessable value where the raw material is
provided by the customer.
The value of the raw material supplied by the customer
would form a part of the assessable value. The fact that manufacturer
does not pay for the raw material, is immaterial. The matter stands
concluded by the judgement of the Supreme Court in the case of Burn
Standard Co. Ltd. Vs. UOI (1991) 36 ECC-1(SC). In this case
the assessee manufactured wagons for Railways. The latter supplied
wheel sets and certain other items free of cost. The price charged
for the vehicle did not include the value of the items supplied
free of cost. The Supreme Court held that free supply items like
wheel sets etc. form part of the complete wagon and would lose their
identity. It hardly matters as to how and in what manner the components
of wagons were procured by the manufacturer. The assessee would
be liable to pay duty on the normal price of the wagon.
The effect of price escalation subsequent to
the removal of goods, on the assessable value.
The excess amount realised under an escalation
clause would form part of the assessable value and thus attract
Central Excise duty.
The effect of reduction in price subsequent to
removal on payment of duty, on assessable value.
If the goods are removed on payment of duty, based
on declared price, subsequent reduction of price for whatever reason,
including Govt. interference, would not create a claim for refund
of Central Excise duty paid on the quantum of price reduced.
The determination of assessable value when the
goods are sold only in retail.
Even if the goods are not sold in wholesale and
wholesale price thereof is not available, the assessable value is
to be determined for charging Central Excise duty. The assessable
value in such cases is determined in accordance with the provisions
of the Central Excise (Valuation) Rules, 1975. The rules provide
for arriving at the assessable value by reducing the retail price
by such amount as is necessary and reasonable in the opinion of
the proper officer. The quantum of deduction is to be determined
after considering the nature of excisable goods, trade practice
in that commodity and other relevant factors.
Assessable value of goods captively consumed.
The assessable value of goods captively consumed
is determined according to Rule 6(b) of the Central Excise (Valuation)
Rules, 1975. The Rule provides for determining the value on the
basis of the value of the comparable goods sold by the assessee
or any other person. In case the value of comparable goods is not
available, the value is based on the cost of production or manufacture
including profits, if any, which the assessee would have normally
earned on the sale of such goods. This profit is only a notional
profit. The gross profit of the previous years, as per audited balance
sheets, is added to the cost of production.
The position of interest received on account of
delayed payments in influencing the assessable value.
Within the general credit period, the price is
same whether it is paid on the date of delivery or on any day within
such general credit period. The interest will be included in the
In cases where interest is made payable after the
general credit period is over, such interest will not form a part
of the assessable value.
Illustration. Assessee charges Rs.100/-
per unit for his goods, if the payment is made within 45 days. Rs.100/-
per unit will of course include the interest component pertaining
to the general credit period of 45 days. Even if the payment is
made at the time of delivery Rs.100/- would be the assessable value,
irrespective of the possible inclusion of interest element in the
price. If the assessee charges Rs.102/- per unit after 45 days and
Rs.2/- per unit is identifiable as being relatable to time lag in
payment, this amount of Rs.2/- per unit will not form a part of
the assessable value.
Role of notional interest on the advances/deposits
taken by the manufacturer from the buyer in influencing the assessable
Interest on advance deposits is includible in the
assessable value only if there is a nexus between the advance deposit
and the sale price. The ratio decidendi of the Metal Box case
1995 (75) ELT 449(SC) requires, before adding notional interest,
establishment of the facts that the interest free advance reflected
favoured or special treatment and that advances had the effect of
pegging down the wholesale price.
The value of trade mark and assessable value.
Where a manufacturer is the owner of the brand
name, the price including the value of the brand name, at which
he sells the goods in the course of wholesale trade, would constitute
the normal price. But where the goods are manufactured by somebody
else and then sold to a dealer who owns the brand name, the value
of the brand name cannot be added for computing the assessable value
for the brand name owner cannot be treated as manufacturer and the
price at which the brand name owner sells the goods cannot be taken
as assessable value.
The Royalty paid to another person regularly for
using patented know how and the assessable value.
If royalty is paid to another person regularly
for using the patented know how, such a sum has direct nexus with
the goods manufactured. Such royalty would be included in the assessable
Consultancy /technical services and assessable
The costs towards drawing, designing and technical
specifications are clearly elements of machinery costs and are to
be included in the assessable value. However, the cost towards project
report, plant layout, civil works and training are in the nature
of services and are not includible in the assessable value.
Technical knowhow fee paid to the foreign collaborator is includible
in the assessable value as it enhances the marketability of the
product on account of improved quality.
Inspection charges and testing charges, whether
includible in the assessable value.
Where the manufacturer bears the cost towards inspection
and testing of goods prior to their removal, such costs are included
in the assessable value. The inspection and testing charges incurred
subsequent to the clearance of the goods are also to be included
in the assessable value if they form part of agreement for sale
Excess amounts charged to customer whether dutiable.
If the amounts recovered from the customers is
in excess of expenditure actually incurred on permissible deductions,
the excess amount will form part of the assessable value.
Amount charged and recovered from customers by
separate bills will be considered as gross receipts or cum duty
price and duty payable is to be calculated after working out the
assessable value from the gross receipts.
Handling cost and assessable value.
Handling cost incurred before the clearance of
the goods from the place of removal is includible in the assessable
Whether the rental charges or payment of interest
on deposits towards safe return of durable packing is a constituent
of assessable value.
The retention charges/rentals and charges incurred
for maintenance and service of durable and returnable containers
are not to be included in the assessable value. As the cost of durable
packing does not form a part of assessable value, there cannot be
any rationale for inclusion of rental charges incurred in respect
The assessable value in case of repair activities.
If the assessee replaces certain parts while repairing
a manufactured product, he is liable to pay duty only on value of
spare parts manufactured and used in the said manufactured product.
Maintenance charges, whether, part of assessable
Maintenance charges (being optional and distinct
from warranty obligations), and sight service charges recovered
for rendering special services are not includible in the assessable
value. But if the price is marked up to cover servicing costs, prima
facie such amount would form a part of the assessable value.
Warranty expenses and the assessable value.
After sales service expenses for the warranty period
are a part of the assessable value. But the expenditure incurred
for after sale servicing under taken by the assessee after the expiry
of the warranty period is not includible in the assessable value.
The cost of accessories supplied by the buyer,
whether part of the assessable value.
There is a distinction between the component and
the accessory. A thing is a part or a component of the other only
if the other is incomplete without it. A thing is an accessory of
the other if the thing is not essential for the other, but only
acts to its convenience or effectiveness. The cost of accessory
supplied by the buyer as a package of sale of the manufactured goods
will be included in the assessable value if Modvat credit is taken
in respect of the accessories.
Admissible and inadmissible discounts.
Discounts known at or prior to the removal of the
goods are allowable if the discounts are actually given. Trade discounts
not given uniformly can be rejected considering the circumstances
There is no reason to suppose that a trade discount
is always in the form of money. A quantity discount is an accepted
form of trade discount and is allowable on goods sold in wholesale,
is deductible like cash discount.
Turnover discount given depending upon the purchases
made by each dealer is an admissible discount.
Prompt payment discount is a trade discount and
allowable as deduction.
Free samples of medicines given to the physician
constitute an admissible discount.
TAC/Warranty discount is in the nature of benefit
given to the customers by way of compensation for loss suffered
by them on the previous sale. As it is not in accordance with the
normal practice of the wholesale trade at the time of removal of
goods in respect whereof the claim is made, the discount is inadmissible.
Year end discount or Campaign discount are in the
nature of bonus or incentive given much after the removal of goods
is complete and are, therefore, not deductible.
Computation of assessable value from wholesale
The assessable value is computed from the wholesale
price by using the equation :
Assessable value = Wholesale price Permissible deduction
1 + rate of duty
Requirement of filing price declaration in certain
cases (Rule 173C).
An assessee is required to file price declaration
with the Superintendent of Central Excise having jurisdiction over
his factory in a prescribed form in the following cases:-
- where the assessee sells goods to or through related persons;
- where the assessee uses such goods captively for manufacture
and production of other goods;
- where the assessee removes such goods for free distribution;
- where the assessee removes such goods in any other manner which
does not involve sale;
- where the assessee removes goods of the same kind and quality
from his factories located in the jurisdiction of different Commissioners
of Central Excise or Assistant Commissioner of Central Excise
The declarations are to be filed in triplicate
at the beginning of each financial year and thereafter as and when
there is a change in the value or marketing pattern.
In case the value declared by the assessee is not found to be correct,
the divisional Assistant Commissioner may cause necessary enquiry
to be conducted as contemplated in Rule 173C(3) of the Central Excise
Check list in respect of declaration filed under
Please check whether:-
- the declaration has been filed in the correct
proforma in required number of copies;
- declaration date has been mentioned on the proforma;
- description of goods, heading, sub-heading, ECC code no. has
- the declaration contains the prices in respect of goods of each
description and the excise duty, other taxes, discounts and all
such deductions and addition made by the assessee to arrive at
the assessable value;
- appropriate mention has been made in case of sales to
an independent wholesaler or a related person or own depots or
- a certificate to the effect that the price declared represents
sole consideration and there is no additional consideration flowing
directly from such sales, has been given in the declaration;
- the status of related person/depot/consignment agent and his
relation with assesee has been mentioned and the copies of such
agreements or contracts have been enclosed.
What is provisional assessment.
Where the assessee is unable to determine the value of excisable
goods in terms of section 4 of the Central Excise Act, 1944 on account
of non availability of any document or any information or where
the assessee is unable to determine the correct classification of
goods while filing classification declaration under Rule 173B, the
said assesee may request the jurisdictional Assistant Commissioner
in writing for permitting provisional assessment to duty. The Assistant
Commissioner after causing such enquiry as he deems fit may direct
that the duty leviable on such goods shall be assessed provisionally
at such value or rate as may be indicated by him. This value or
rate may not necessarily be the same as mentioned by the assessee.
The provisional assessment is subject to the execution of bond in
proper form by the assessee, with such surety or such sufficient
security or under such conditions as the Assistant Commissioner
may deem fit. The security amount is taken as 25% of the bond amount.
The bond binds the assessee for payment of difference between amount
of duty as provisionally assessed and as finally assessed.
All the excisable goods covered under such request by the assessee
are deemed to be cleared on provisional assessment till the date
when the direction of the Assistant Commissioner is issued and communicated
to the assessee.
Where the Assistant Commissioner is satisfied that the self assessment
made by the assessee is not in order, he may direct the assessee
to resort to provisional assessment.
Finalisation of provisional assessment.
As per provisions of Rule 9B(6), the Provisional Assessment
is to be fianalised by the Assistant Commissioner after causing
the necessary enquiries. The Assistant Commissioner is to issue
a speaking order for finalisation of assessment and demand of differential
duty, if any, after observing the principles of natural justice.
In case the assessee is aggrieved by the order, he may appeal to
the Commissioner (Appeals)