Valuation – MRP Based Value – Section 4A - Central Excise Practice Manual (OLD) - Central Excise

VALUATION - MRP BASED VALUE - SECTION 4 Under section 4A duty will be payable as a percentage of Retail Sale Price for the specified commodities only. Central govt. issue the notification in official gazette specifying the commodities to which section 4A provisions are applicable and the abatement (deduction) permissible from the retail sale price. The provisions do not apply in cases where manufacturer voluntarily affixes MRP on the product and hence duty is payable on the basis of Assessable value as per section 4. How to calculate Excise Duty (MRP Goods) Where the goods are specified under section 4A subject to excise duty on the basis of MRP, actual sale price shall be ignored for the purpose of calculation of excise duty. For an example: Goods "X" is being sold for Rs. 50 (transaction value) MRP affixed on "X" Rs. 100. Rate of abatement is 40% Rate of Excise Duty is 16.48% (inclusive of cess) Amount of excise duty shall be calculated as: MRP = Rs. 100 Less rebate @ 40% = Rs. 40 Amount on which duty to be charged = Rs. 60 Amount of Duty = Rs. 9.89 (Note: - For the purpose of calculation of Excise duty in the above example the following shall not be considered at all (i.e. MRP shall not be reduced further): Freight Sales Tax / Local Taxes Margin of the dealer / whole seller etc.) The conditions under which this section will apply are as under: - 1. The goods are required to be covered under Standard Weights and Measures Act 1976 or under any other law for the time being in force, imposing declaration of the 'Retail Sale Price' on the package. To declare on the package the retail sale price of such goods. 2. The Central Government has to issue notification specifying such goods in relation to which the MRP can form the basis of arriving at the Assessable value. 3. The valuation has to be done on the basis of retail sale price declared on the package less abatement. Central Government will arrive at abatement after taking into account the amount of duties and taxes payable on the goods. 4. The retail sale price is defined to mean the maximum retail price at which the packaged commodities may be sold to the ultimate consumer inclusive of all the taxes local or otherwise, freight, transport, commission payable to dealers and all charges towards advertisements, delivery, packaging, forwarding etc. 5. In case if more than one retail sale price is declared on the same package, the maximum of such retail price will be considered for this section. Where different retail sale prices are declared on different packages for different areas, each such retail price shall be the retail sale price for the purpose of valuation of goods intended to be sold in the area to which the retail sale price relates. 6. If retail sale price declared on the package at the time of clearance from the factory, is altered to increase the retail sale price, such altered price will be the retail sale price for the purpose of valuation. Goods covered under this section removed without declaring the retail sale price on the packages or where the MRP is tampered, altered or obliterated after their removal, then all such goods will be liable to confiscation. Condition-I: Goods required to be covered under provisions of Weights Measures Act. As per standard of weights measures act the provisions of section 4A applies to 'packaged goods' intended for 'Retail sale'. Thus two aspects come forward from above - 1.Section 4A applies only to 'pre-packed commodities' and not to loose commodities. 2. Such package should be intended for 'retail sale'. 1. 'Pre-packed commodity' means a commodity or article which is placed in a package without purchaser being present, so that quantity of the product contained therein has a pre-determined value and such value cannot be altered without the package or its lead or cap being opened or undergoing a perceptible modification. Following will also be deemed to Pre-packed commodity: - a) Opening a package, if no change is caused to the value, quantity, nature or characteristic of the commodity contained therein. For e.g. in case of refrigerators, air conditioners etc., these are shown to customer, tested and then sold, still they will be termed as packaged commodity. b) Two or more components packed in one or more units for sale as a single commodity. 2. 'Retail sale' means sale, distribution or delivery of commodity through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals or any other customer. Thus the provisions do not apply - If the proposed sale is wholesale sale. Products specially packed for exclusive use in industry as a raw material or for servicing of any industry. Product whose net weight or measure is less than 20gms or less or 20milli-liters or less, if sold by weight or measure. Fast food items packed by restaurants/ hotels or like. Scheduled formulations and non- scheduled formulations covered under Drugs (Price Control) Order, 1995. Agricultural farm produces in packages of above 50Kgs. Exception: Valuation will be on MRP basis even if product is not really intended for retail sale provided goods are not specially packed for exclusive use of any industry or servicing. Some of the cases are as follows - Refrigerators sold in bulk to soft drink manufacturers, duty is payable on MRP affixed on them. Selling of soap to hotels which were used for distribution to customers of hotel [Ishaan Research Lab (2004) 172ELT 484(CESTAT)]. However if the assessee manufactures soap under a special contract for hotel for use of their guests valuation is required to be done u/s 4 i.e. transaction value [CCE v. Trishul Research Lab2002(144) ELT204 (CEGAT)]. Only the goods covered under the provisions of Standard Weights and Measures Act or Rules or through issue of notification are applicable for payment of duty on MRP basis. In other case the goods will be valued as per transaction value i.e. as per section4. Other cases where valuation shall not be done on the basis of MRP provisions are: in case of bulk supplies whether for industrial use or against contract free samples given either to the consumers as a part of marketing strategy. exported goods including export to Nepal where the manufacturer supplies two or more goods in a single pack and if only one of them is covered under MRP provisions, it was held that all the goods will be valued as per section 4 i.e. as per transaction value and not to apply both the sections. Condition-II: Goods covered under Standard of Weights Measures Act must be notified by the Central Government through issue of notification for the purpose of this section. Thus payment of duty on MRP are applicable only in cases where specific notification has been issued and manufacturer is statutorily required to put MRP under Weights Measures Act. Thus the provisions do not apply in cases where manufacturer voluntarily affixes MRP on the product, in such case duty is payable on the basis of transaction value as per section 4. Condition-III: The valuation has to be done on the basis of retail sale price declared on the package less abatement. Condition-IV: Retail Sale Price means the maximum retail price at which the packaged commodities may be sold to the ultimate consumer inclusive of all charges. If any act, rules or other law requires that price declared on a package should be exclusive of any taxes, then 'retail sale price' in such cases, will be exclusive of such taxes. In case of Drugs under DPCO w.e.f 14-5-2003 MRP will be exclusive of taxes local or otherwise