All provisions regarding Depot Valuation in central excise

[Amit Kumar]

Central Excise-Valuation & Rate of Duty of Goods transferred to Depots-Provisional Assessment - Reg.

Mainly Two Issues are Invloved:-

1. What will be Assesseable value?
2. What will be Rate of Duty & When to Pay Central Excise duty?

ASSESSABLE VALUE:-

1Where a manufacturer sells his goods through Depots/Consignment Agents, the sale of goods for delivery does not happen at factory gate and so the valuation cannot be done under the provisions of Section 4(1)(a). Therefore, resort is to be made to the provisions of Section 4(1)(b) under which, Central Excise Valuation Rules,2000 are notified.

2 When the sales are through the Depot/Consignment Agent, the applicable Rule of Central Excise Valuation Rules, 2000, is Rule 7.  As per Rule 7, The value should be 'normal transaction value' of such goods sold from the depot at the time of removal or at the nearest time of removal from factory. For example, if an assessee transfers a consignment of paper to his depot from Delhi to Agra on 5.7.2011, and that variety and quality of paper is normally being sold at the Agra depot on 5.7.2011 at transaction value of Rs. 15,000 per tonne to unrelated buyers, where price is the sole consideration for sale, the consignment cleared from the factory at Delhi on 5.7.2011 shall be assessed to duty on the basis of Rs. 15,000 per tonne as the assessable value. If assuming that on 5.7.2011 there were no sales of that variety from Agra depot but the sales were effected on 1.7.2011, then the normal transaction value on 1.7.2011 from the Agra depot to unrelated buyers, where price is the sole consideration shall be the basis of assessment.

Under that Rule, the value to be adopted is mentioned as "normal transaction value". The definition for normal transaction value given at Rule 2(b) of the Rules reads as “Normal Transaction Value means the Transaction Value at which the greatest aggregate quantity of goods are sold".  It has since been clarified in Board's Circular No:643/34/2002-CX dated 01.07.2002 (Trade Notice No. 62 /2002 dated 19-7-2002) that, the Transaction Value of the "greatest aggregate quantity"  would refer to the price at which, the largest quantity of identical goods are sold on a particular day irrespective of the number of buyers. In case the “normal transaction value" from the depot is not ascertainable on the day identical goods are being removed from factory, the nearest day when clearances of the goods were effected from the depot should be taken into consideration.

3 The concept of Normal Transaction Value can also be understood by a reference to the Interpretative Notes to Rule 7 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, wherein similar concept prevails. An example for greatest aggregate quantity has been given therein which is reproduced below:-

Sale quantity	Unit price	Number of sales	Total quantity sold at each price
1-10 units	100	10 sales of 5 units, 5 sales of 3 units	65
11-25 units	95	5 sales of 11 units	55
Over 25 units	90	1 sale of 30 units,   1 sales of 50 units	80

Here, 65 units are sold @ Rs. 100, 55 units are sold @ Rs. 95 and 80 units are sold @ Rs. 90; then greatest aggregate quantity is 80 which is sold @ Rs. 90 per unit, which will be the basis for valuation provided, the sales are to persons who are not related. This principle should apply in deciding 'normal transaction value' under rule 2(b) also.

4. Asssuming the above illustration is the transactions of a particular day, namely, 1.9.2002, at the Depot, then for all the clearances from factory to the said Depot on 01.09.2002, excise duty is to be paid at the value of Rs. 90/- per unit. The Normal Transaction Value may vary between Depot to Depot also.

5. A consignment cleared from factory adopting normal transaction value may be sold later, at the Depot, at a higher price or lower price. Such difference in price as regards that consignment is immaterial. In other words, once the correct Normal Transaction Value is adopted for payment of excise duty then, the consignment is not required to be chased to know the ultimate sale price. The valuation ends with adoption of correct normal transaction value.

6.Generally, the price at which the goods are to be sold at depot are also decided by the management of the company and in such a situation there may not be much difficulty in adopting Normal Transaction Value to pay excise duty. However, it is well known that certain commodities like 'Cotton Yarn' etc. are prone to wide fluctuation in price within a day, and so it may not be possible for a manufacturer to ascertain the Normal Transaction Value then and there. In such situations, assessees may request for provisional assessment, if they desire so. Finalisation of provisional assessment on account of non-availability of Normal Transaction Value need not wait for the close of the accounting year and so it is advised that the assessees may in their own interest furnish the finalisation proposals to the jurisdictional officers, once in a month where the number of Depots are less or once in a quarter where the number of Depots are more, depending on the suitability.

7. Certain manufacturers grant 'Quantity Discount' depending on the off-take per consignment and 'Annual Turnover Discount' on the off-take in a year. Such assessees who make sales through depots may not know the Quantity Discount and Annual Discount at the time of removal from the factory. In such situation also, assessee may request for provisional assessment, if they so desire. Here also it is advised, that the finalisation proposals for the Quantity Discount may be furnished to the jurisdictional officers once in a month or a quarter depending on the suitability. As regards to Annual Discount, which are finalised by the assessee at the end of the year, proposals for finalisation are to be provided within a reasonable time from the close of the year.

8. Assessees are requested to explicitly state in clear terms, the grounds on which provisional assessment is sought to the jurisdictional Divisional Officer substantiating their claim. Resort to provisional assessment as a matter of routine or on vague grounds will not be entertained by the Department. Attention of the Trade and Industry is invited to sub-rule (4) of Rule 7 of the Central Excise Rules, 2002, wherein it is stipulated that assessees are liable to pay interest on differential duty payment to Government, consequent to finalisation of provisional assessment, from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.         

RATE OF DUTY:-

9. Rule 4 of Central Excise Rules, 2002 provides that every person who produces or manufactures any excisable goods shall pay the duty leviable on such goods in the manner provided in Rule 8 or under any other law, and no excisable goods, on which duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided.

10. Further, Rule 5 ibid provides that the rate of duty or tariff value applicable to any excisable goods shall be the rate or the rate or value in force on the date when such goods are removed form a factory

CONCLUSION:-

In accordance with aforesaid legal provisions, it can be conlcuded that “Clearance to Depot from factory shall be valued at “Ex-Depot Price” as prevailing at the time of removal from Factory. Duty will be payable at the “Time of removal” from factory.