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Since most of the excise duty is levied on ad-valorem basis i.e. at a percentage of value of goods, the value of goods must be determined. Section 4 of the Central Excise Act, 1944 provides for the determination of the value of goods for excise purposes. The following are the provisions in this connection:-

  • The value of excisable goods is the normal price of goods. The normal price of goods means the price of goods at which the goods are normally sold in the course of wholesale trade. However recent provisions have been introduced in the Central Excise Act wherein certain specified articles are to be taxed on the basis of the maximum retail price and not the wholesale price. Wholesale trade means sales to dealer, industrial consumers, Governments, Local Authorities and other buyers who purchase their requirements in bulk and not on retail basis.

  • In determining the wholesale price, care should be taken that the buyer is not a related person and the sale is for delivery at the time and place of removal. If the buyer is a related person and this relationship has affected the price for sale, suitable adjustments are to be made in arriving at the fair price. Similarly, if the sale is not for delivery at the time and place of removal of goods, suitable adjustments for other expenses such as freight and insurance of goods while in transit from the place of removal to the place of sale must be made. Related persons means a person who is so associated with the assessee that they have interest, directly or indirectly in the business of each other and includes a holding company, subsidiary company a relative and a distributor of the assessee and any sub-distributor of such distributor.

  • The price is the sole consideration for the sale. If there are other considerations for the sale, suitable adjustments must be done in order to arrive at the assessable value.

  • If goods are sold at different wholesale prices to different classes of buyer (not being related persons), each such wholesale price is deemed to be assessable value. Therefore excisable goods can have more than one assessable value.

  • If goods are sold in the course of wholesale trade at prices fixed by law or at prices being the maximum chargeable under any law, such fixed price is taken as the assessable value.

  • If the assessee arranges that goods are not generally sold by him in the course of wholesale trade except to or through a related person, the price at which the goods are sold by such related person is taken as assessable value.

  • Expenses incurred on primary packing i.e. packing for making the product actually saleable in the market is part of the assessable value. However the packing expense on secondary or special packing or on durable packs which are returnable by the buyer is not to be included in the value of the goods for the purpose of calculation of excise duty.

  • If the normal price of goods is not ascertainable because such goods are not sold or for any other reason, the nearest equivalent price will be determined in the manner provided in the Central Excise Valuation Rules, 1975.

  • If the price at the time of removal of goods from the factory is not known but it is dependent on the time and place of delivery, such price less cost of transportation from the place of removal to the place of delivery will be take to be the assessable value.

  • If excisable goods are consumed within the factory, the value of comparable goods produced by another person or the normal wholesale price of such goods will be treated as assessable value.

  • The assessable value does not include the amount of excise duty, sales tax and other taxes, if any, payable on such goods and subject to rules made in this behalf, the trade discount allowed under normal wholesale business practices at the time of removal.

  • In case a tariff rate has been specified by law, the assessable value must be calculated on the basis of such tariff rate.

  • Excise duty is paid on the basis of normal price even if free samples are given.

  • For example ABC Ltd manufactures toys which are chargeable to excise @ 10 per cent. Cost of production is Rs.10,000 and profit margin is Rs.1,000. Sales tax is five per cent. In this situation, excise duty is Rs.1,100 i.e. 10 per cent of Rs.11,000. Sales tax is included for the purpose of excise duty.

Valuation on retail price basis
The Central Government may notify goods by publication in the OFFICAIL Gazatte on which duty will be payable on the basis of the retail selling price. The following are the provisions in this connection :-

1. The goods should be covered by the provisions of Standard of Weights and Measures Act.

2. The Central Government may permit reasonable deductions from the "retail sale price". The Central Government takes into account excise duty, sales tax and other taxes payable on the goods for allowing such reductions.

3. If more than one "retail sale price" is printed on the same packing, the maximum of such retail price will be considered.

4. The "retail sale price" must be the maximum price at which excisable goods in packaged forms are sold to the ultimate consumer. The retail sale price includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges, etc.

5. The price is the sole consideration for the sale.

e.g. Notification Nos. 18/97-CE(NT) and 19/97-CE(NT) both dt. 19-6-97 state that excise duty on "cosmetics and toilet preparations" will be payable on the basis of Maximum Retail Price printed on retail carton after allowing a deduction of 50%.

The following excisable goods have been covered under this scheme :-

  • Cosmetics and toilet preparations - deduction 50%

  • Paints & Varnishes - deduction 40%

  • Footwear and parts - deduction 40%

  • Aerated waters - deduction 50%

  • Colour television sets - deduction 30%

  • Tooth powder & tooth paste - deduction 30%

  • Detergents, Soaps etc - deduction 35%

  • Chocolates - deduction - 35%

  • Preparation of Malt, Cereals, Flour, Starch or milk - deduction 35%

  • Pan masala in retail packs of 10 gms and more - deduction 50%

  • Chocolates - deduction 35%

  • Perfumes and toilet waters, beauty preparations, shaving preparations - deduction 50%

  • Glazed Tiles - deduction 50%

  • Cooking appliances and plate warmers - deduction 40%

  • Razor and Razor Blades - deduction 40%

  • Primary cells and primary batteries - deduction 40%

  • Electromechanical domestic appliances, shavers, hair clippers with self contained electric motor - deduction 40%

  • Radio and transistors set - deduction 40%

  • Electric filament or discharge lamps - deduction 40%