Inclusion or non- inclusion of bought out items in the assessable value for payment of duty under Central Excise

CA Pooja Indani

In Union Budget for the year 2000-2001, the Finance Minister changed the valuation concept altogether. Before amendment in Sec. 4 valuation used to be done as per “Normal Price” basis but after amending the section “Transaction Value” has been taken as base for assessment purpose.

The purpose behind introducing new concept of Transaction Value is to cover up most of the things, which are directly or indirectly related to manufacturing and selling of goods. The main intension behind amending the section was to mobilize the revenue of government and less avoidance of duty on the part of the assessee.

Amended sec 4 of central Excise Act, 1944 is as follows:-

Sec4(3)(a)

“ Transaction Value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling servicing warranty commission or any other matter but does not include the amount of duty of excise , sales tax and other taxes, if any, actually paid or actually payable on such goods.

From the above definition, and the contents of section 4(1)(a), it can be seen that the following ingredients to be present to invoke the provisions of new sec.4

1. The removal from the factory must constitute a sale
2. The sale should be for delivery at the time and place of removal
3. The assessee and buyer are not related
4. Price should be the sole consideration for the sale.

If any one of the above criteria is not fulfilled, the Transaction Value concept will not apply and for purpose of arriving at the value in such situations, the assessee should resort to Central Excise Valuation (determination of price of excisable Goods) Rules,2000

To clear out the concept for inclusion or non-inclusion of bought out items in valuation we just consider the 4^th point i.e. price should be the sole consideration for the sale.

Rule 6 of Central Excise Valuation (determination of price of excisable Goods) Rules,2000 contemplates the circumstance where the price is not the sole consideration for sale, i.e. if the value of any additional consideration flowing directly or indirectly from the buyer to the assessee then that additional consideration must be includable in the assessable Value.

Explanation 1- clarified that items which are to the consider as additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely:-

1. Value of material, components, parts and similar items relatable to such goods;
2. Value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;
3. Value of material consumed, including packging material, in the production of such goods;
4. Value of engineering, development, art work, design work and plan and sketches undertaken else where than in the factory of production and necessary for the production of such goods.

So,   it is no where mentioned under Rule 6 about inclusion of value of bought out items for assessment. Its just resort to Adding the value of items which are used or utilized at the time of manufacturing of products or adding the value of goods which are sold at a price less than manufacturing cost or free of charge.

Inclusion/non- inclusion of value of bought out items in assessable value is dependent on following circumstances:-

If the above conditions are satisfied then only bought out items value should be considered in assessment. But, the excise officials are lining the provisions of Rule 6 and Inclusion/non- inclusion of value of bought out items as a equal concept and this is not the real interpretation of law.this can be clear out with the discussion of one of the case herein below:-

Assessee was engaged in the management of HDPE Tarpauline. HDPE Fabric, Agricultural Waste conversion device, wastage “ falling under chapter heading No 39239090,39269090& 39159090 of the First schedule to The Central Excise Tariff Act [ CETA], 1985.During the scrutiny of the sale invoices and purchase orders for the period from April-2012 to March-2015 it was observed by the department that the assessee has received purchase order from Himachal Pradesh Agro Industries corporation Limited (a a Government undertaking ) shimla bearing No AIC15-12/2013/3042 DATED 20.10.2014 FOR SUPPLY AND INSTALLATION OF IS MARKED Vermi Beds along with Vermi wash pipes at different places in the state of Himachal Pradesh.

assessee have cleared final product i.e vermi Bed along with bought out item vermin Wash pipes to the various customers in the state of Himachal Pradesh as well as in the state of Maharashtra and Madhya Pradesh during the period from April-2012 to March-2015.

Department alleged that the assessee have not included the value of bought out item i.e. Vermi Wash Pipes in the value of finished goods for the period from April 12-March 15 and issued a show cause notice demanding the duty along with interest and penalty by adding the value of on Vermi Wash pipes with vermin beds supplied.

The buyer was a manufacturer of Bio- fertilizer using vermi bed provided by   assessee. It doesn’t require vermi Wash pipes to manufacture Bio- fertilizer. Though Vermi wash pipes are required to remove the wastage Water during the course of manufacturing of Bio-fertilizer in agriculture field, but main purpose of producing Bio-fertilizer gets satisfied with the use by vermi- bed only and hence Vermi Wash pipes supplied by the assessee is not an essential item so as to include its value in Vermi Bed for payment of duty.

Under law, a clear definition has not been given for base to be taken for determining the essentialness of goods , but it is dependent on case to case. It should be determined on the usability &purpose of buyer. Supreme court and Tribunals have given there decisions in various cases relating to valuation of bought out items which are as follows:-                      

Case laws dealing with the above issue :-

1. Commissioner of central Excise, Trichy Vs. Neycer india Ltd 2015 (320) E.L.T.28(S.C)
2. Cheema Boilers Ltd Vs. CCE Chanidgarh-II 2014 (314) ELT 419 (Tri.Del)
3. T& I Ltd Vs. CCE-Dibrugarh 2011 (266) ELT 414 (Tri. Kolkata)
4. Kerala state Electronic Dev. Corpn Vs. CCE Trivandrum 2008(224) ELT 88(Tri. Bang)
5. CCE Mumbai Vs. Voltas Ltd 2006 (196) ELT 358(Tri-Mumbai)
6. Peterplast synthetics Pvt Ltd Vs.CCC Vadodara 2005 (192) ELT 842 (Tri-Mumbai)
7. CCE Hyderabad Vs. Ravi Krishna casting Ltd 2004 (176) ELT 556 (Tri. Bang)
8. Suz- Dent (india) Pvt Ltd. Vs.CCE-Jaipur 2003 (156) ELT 1019 (Tri-Del.)
9. Asha Pavro Electronics Pvt Ltd Vs. CCE Mumbai –III 2002 (143)elt 543 (Tri- Mumbai )
10. uptron india Ltd Vs. CCE Kanpur 2001 (135) ELT 311 (Tri.Del)

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