Changes From 1st July- Transaction Value
From the 1st day of July 2000, the new Section 4 based on Transaction Value is in to effect substituting the existing Section 4. Basically the existing concept of "Normal Price" is replaced with the concept of "Transaction Value".
The new Section 4 reads as under:-
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, such value shall-
• In case where the goods are sold by the assessee, the assessee and the buyer of such goods are not related persons and the price is the sole consideration for the sale, be the transaction value,
• In any other case including the case where the goods are not sold be the value determined in such manner as may be prescribed.
Transaction value for the purpose of this section means the price actually paid or payable for the goods when sold and include in addition, to the amount charged as price, any amount that the buyer is liable to pay to the assessee by reason of, or in respect of the sale, whether payable at the time of sale, or at any other time, including any amount charged for or to make provision for, advertising, financing, servicing, warranty, commission or any other matter, but does not include the amount of duty of excise, sales tax, other taxes, if actually paid on such goods.
The new Section 4 has inclusions on which the value is charged. Packing charges now will be included whether primary or secondary or special packing. Advertising charges, Publicity Charges, commissioning, warranty charges etc. all will be included in the assessable value now. The major difference between the new Section 4 and the old Section 4 is that the concept of deductions, discounts etc have been replaced with that of specific inclusions and actual price paid or payable on goods sold by the assessee. There is no reference of deductions on account of cost durables, returnable packings, cost of transportation including cost of insurance from place of removal to the place of delivery and trade discount has been made. Thus the price actually paid or payable does not include such factors and therefore, the question of deductions of such factors does not arise. It is emphasised upon the fact that even the excise duty, sales tax or any other tax, if any, have been "not included" in the value.
The new Section 4 "Transaction Value" will be determined in the following manner with the following ingredients:
• The excisable goods attract Ad valorem rate of duty.
• The goods are sold by the assessee.
• The buyer of such goods should not be a related person to the assessee.
• The price charged by the assessee from such a buyer is the sole consideration for the sale.
The excisable goods should attract ad valorem duty :
Duty of excisable goods levied which is based on value is called as ad valorem duty and this concept has been introduced keeping in mind this kind of rate of duty.
The goods are sold by the assessee:
The value of the goods have to be determined when the goods are sold by the assessee and no other person, which means he should be the seller of goods. An assessee for the purpose of Section 4 is the person who is liable to pay duty and not any other person.
This definition has been the same in case of old Section 4 as well as the new Section 4.
The buyer of such goods should not be related person of the assessee:
The term related person has been very well defined under new Section 4 (3) (b). From the comparison of the definition of "related person" under existing Section4 with that of new Section4, the depots, which are owned by the persons working as employees under the same employer would be treated as related as related person under the new Section4 and even the stock transfer to the depots from the factory cannot be considered as "sale".
The price charged by the assessee from such a buyer is the sole consideration for the sale:
This means that the transaction value shall be the price actually paid or payable at the time of sale. The words used when sold with the price actually paid or payable for the goods infer that the "Transaction value" shall be determined at the time of sale by the assessee or his agent and shall include certain amount also as mentioned in the definition of "Transaction value".
The inclusions in the assessable value of the Transaction value :
This is the amount charged and payable at the time or sale or any other time including but not limited to provision made for advertising or publicity, marketing and sale expenses, storage, outward handling, servicing, warranty, commission, or any other matter. The exclusions in the transaction value is : Permissible deductions, discount and statutory levies.
In case of captive consumption or comparable goods :
The assessable value of goods captively consumed goods will be taken at 115% of cost of manufacture of goods even if identical or comparable goods are manufactured and sold by the same assessee.
Transaction value and the new Section 4, it will not be surprising a heavy rise in litigation as even if the concepts are clear there are lot of confusions relating to concepts like 115% to be paid on the cost of production in case of captive consumption. Maybe in the near future things might become more clear after the Valuation Rules have clarifications and amendments made from time to time.