CA Rajesh Kumar T R;
CA Ashish Chaudhary
Valuation is one of the most crucial aspects for a manufacturer engaged in manufacturing of jewellery considering high value transactions and frequent fluctuation in prices leave little margin for error. This also necessitates that the value adopted for duty purpose is properly documented with supporting evidence so that the valuation is not questioned by excise officers at the time of enquiries, audits, scrutinizes or investigation proceedings.
The government has come out with circular no. 1021/9/2016-CX dated 21.3.2016 clarifying inter alia that payment of excise duty shall be based on first sale invoice value. What is meaning of first sale invoice is not clear but in the view of authors, this could be considered first sale invoice for the day. The clarification has been given by way of circular and no suitable amendments have been made in the law yet. Hence, the paper writer continues to discuss the valuation aspects based on statutory provisions.
Basis of valuation under Central Excise: There are three valuation methodologies under Central Excise
(i) Duty based on the Tariff Value u/s 3 (2)
(ii) Duty based on the value arrived at on the basis of valuation u/s 4 and
(iii) Duty based on Maximum Retail Price (MRP) u/s 4A. Each of the methods of valuation has separate law and procedure.
The valuation applicable in case of jewellery is transaction value under section 4. Hence, the discussion is made in the present article on various aspects related to valuation under the said section 4 and rules made thereunder.
Meaning of Transaction value: Transaction value means price actually paid or payable for the goods when sold. It also includes any amount that the buyer is liable to pay to or on behalf of assessee by reason of or in connection with the sale. Price may be payable at the time of sale or at any other time either before or after sale.
Transaction value is assessable value: Where jewellery is (i) sold from the factory (workshop) to the customer, (ii) the customer and seller are not related; (iii) and price is the sole consideration (i.e. no other consideration is flowing other than price agreed with customer), (iv) the price is for the time and place of removal, the transaction value is considered assessable value on which duty needs to be paid @ 1%/12.5%.
Transaction value to be rejected: The transaction value can be assessable value if all four conditions as discussed above are satisfied cumulatively. If any of the conditions are not met, the transaction value needs to be rejected and the assessable value needs to be determined based on valuation rules prescribed in this behalf. The discussion is made on various practical scenarios where transaction value is rejected.
1. Jewellery sent from workshop to showroom for stocking purpose: When goods are sent from the workshop to showroom, it is not by way of sale but is mere stock transfer. There is no transaction value in such case. Hence, the duty needs to be calculated and paid on some other representative value. This value is called “Normal Transaction Value” (NTV) which means the price at which greatest aggregate quantity is sold. E.g. a ring of 22 karrot is transferred from workshop to showroom on 25.3.2016. On the same day, the rate per 10gm at which transaction has taken place at showroom with unrelated buyer is as follows:
|5 rings||Rs. 28,000/-|
|8 rings||Rs. 28,500/-|
|13 rings||Rs. 28,200/-|
|9 rings||Rs. 27,500/-|
As the greatest aggregate quantities have been sold at Rs. 28,200/-, the assessable value for removal of goods from workshop to showroom shall be taken at 28,200/-. However in the circular dated 21st March 2016 cited above, before the report comes in this regard first invoice value is permitted to be adopted.
2. Jewellery made as per customer ordersent from workshop to showroom:Where jewellery is manufactured as per customer’s order and the price is fixed (or atleast the manner of calculating price is agreed), the price agreed with customer shall be assessable value for excise duty payment purpose. The prevalent market price is irrelevant. Similar value must have been taken for VAT purpose also.
3. Consideration received in the form of old jewellery/gold: Consideration could be wholly or partly in form other than in money. i.e. customer giving old jewellery in lieu of cash for purchase of jewellery. In such situation the assessable value shall be the value of jewellery so supplied. E.g. a diamond neckless of market value of Rs. 20 lacs is sold to customer who pays consideration in the form of old antique jewellery. The duty would be paid based on value (not cost) of such antique jewellery which could be more than or less than Rs. 20 lacs.
4. Jewellery removed on sample basis: The value will be value of such jewellery sold by assessee for delivery at the time nearest to the time when jewellery is removed for sample purpose. However, if there is difference in the dates of delivery of such goods, then the suitable adjustment should be made to arrive at assessable value. i.e. ear ring of 20 gms removed for sample purpose. Similar ear ring was sold two days ago at 65k. There has been no significant fluctuation in 2 days, hence the assessable value of sample ear ring shall be taken at 65k. No say if the price of gold has increased by 10% in 2 days, then assessable value shall be 110% of 65K i.e. comparable transaction value.
If jewellery duty paid jewellery (paid at the time of removal from workshop to showroom) is removed from the showroom on sample basis, there is no need of payment of duty and hence no valuation provisions shall be applicable.
5. Jewellery removed for exhibition:The value shall be determined in the same manner as discussed above for sample purpose.
6. Jewellery taken from showroom on approval basis:Sometimes it could be possible that the jewellery is taken by customer from showroom on sale or approval basis. Duty needs to be paid on all removal irrespective of purpose. Hence, duty shall also be applicable on removal of jewellery on approval basis also. The value shall be price quoted to customer or transaction value of similar jewellery sold at or about the same time.
Here again, if the jewellery sold is already duty paid, there is no need to pay duty on removal on approval basis. Further, it could be possible that the goods sent on approval is rejected by customer and is resold to some other customer. There is no need to pay duty on second removal of same jewellery as it is already duty paid stock. There should be proper documentary evidence of duty payment and such duty paid stock should be segregated from normal stock for identification purpose. Reference of original invoice could be made of through which duty was paid when the jewellery is resold second time. It should be noted that variation in price between first removal and second removal does not affect the duty liability.
7. Jeweller repaired: Jewellery received for repair purpose could either be sold earlier by same jeweller or could belong to some other jeweller. Normally, the process of repair may not amount to manufacture unless it is substantial change in the shape, design and appearance. The duty must have been paid on original removal and in the absence of any manufacturing process being undertaken, there is no duty liability on removal after repairing.
However, if the process amounts to manufacture, the duty needs to be paid on second removal of jewellery. A view could be possible that jewellery is given by customer and the jeweller is merely acting as job worker and hence not liable to duty in terms of Rule 12AA of the CER. The customer is also eligible to claim SSI exemption. In case the view is not accepted and the duty is required to be paid, it should be paid on gross amount including the value of jewellery albeit only labor charges would be recovered from customer. E.g. a diamond neckless of value Rs. 40 lacs is received for repair purpose. The process amounts to manufacture and labour charges recovered is Rs. 1.5 lacs. Duty needs to be paid on 41.5 lacs not on 1.5 lacs.
8. Jewellery sold to brother of wife for resale: This could be possible where related person is engaged in similar line of business. The duty needs to be paid at normal transaction value at which such goods are sold by related person at or about the same time when goods are removed by jeweller. E.g. a jewellerycosting Rs. 5.8 lacs is sold to related party at Rs. 6 lacs on 26.3.2016. At the same time, similar jewellery is sold by such related party to unrelated buyer at his showroom at Rs. 7.5 lacs. Jeweller needs to pay duty on 7.5 lacs rejecting the transaction value of Rs. 6 lacs. If the related person use this jewellery for further use in production of jewellery at his workshop, duty needs to be paid at 110% of cost of production i.e. on Rs. 6.38 lacs (5.8 lacs * 110%).
9. Jewellery sent by job worker to principal: There is no liability on job worker to pay duty on manufactured jewellery sent from job worker’s premise to showroom of principal. The duty needs to be paid by principal at the value arrived at under any of the foregoing options depending upon the purpose for which jewellery has been sent by job worker.
10. Jewellery sent by one registered workshop to another registered workshop: When the goods are not finished there is no requirement of payment of duty since jewellery is not yet completed. However if the finished jewellery is being sent from one workshop to another the valuation as removal from workshop where prevailing sale price at show room needs to be adopted and duty paid.
If the finished jewellery is being removed from one workshop to another, then for remaking, and a manufacturer has taken separate registrationfor each of the workshop separately, duty needs to be paid on 110% value of the cost of production at first workshop. If the assessee has taken centralised registration, intermediate goods may move from one workshop to another based on delivery challan document without payment of duty.
11. Jewellery directly sold from job worker’s premise to end customer: In such cases, the price must have been agreed with the customer. Duty needs to be paid on transaction value/price agreed with customer to whom jewellery is sent from job worker’s premise.
12. First transaction (of the day) of transfer of jewellery from workshop to showroom: As discussed earlier, the duty needs to be paid at the normal transaction value prevalent at the showroom (point of sale) at or about the same time when goods are removed from workshop. It could be possible that at the time of transferring the manufactured jewellery from workshop to showroom, no sale takes place of such goods at showroom. In such case, going by the analogy explained duty needs to be paid on previous day last invoice value since that is the nearest invoice.
13. Jewellery sold on EMI basis where EMI includes interest portion also: The duty needs to be paid on the transaction value prevailing at the time of removal. If the goods are sold from show room the duty would have already been paid. Therefore no question of re-valuation.
However if it is sold directly from place of manufacture, the value needs to be adopted is transaction value. The consideration for jewellery is fixed at principal amount and it does not include interest. Interest is collected for delayed payment of principal amount.
14. Jewellery sold to other jeweller:The duty needs to be paid on transaction value. If duty paid jewellery (paid at the time of removal from workshop to showroom) is sold, there is no need to pay duty again at the time of such sale. A reference on the invoice that “goods covered therein are duty paid vide excise invoice no….” would be sufficient.
15. Jewellery sent to customer through air courier: Where terms of contract provide for delivery of jewellery at buyer’s premise, it may include the value of jewellery + transit insurance + freight upto place of delivery. The duty needs to paid on the value of jewellery including the cost of transit insurance and freight charges if it is being sold directly from workshop.
Conclusion: Foregoing discussion makes it clear that there could be possibilities of taking different value for same jewellery when removed for different purposes. There could be many other possibilities where special provision of valuation may need to be applied. It is very relevant for a jeweler to understand the valuation methodologies for the nature of transactions being done in their business. It is also equally important to have proper documentations of the basis and manner of taking a particular value as there are frequent changes in the value of jewellery and it may not be easy to justify the prices without proper supporting documentation. For any comments, you may write to paper writers at email@example.com or firstname.lastname@example.org
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