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TMI BlogValuation – Transaction Value – Section 4X X X X Extracts X X X X X X X X Extracts X X X X ..... f duty, c) a depot, place of consignment agent, or any other place from where the excisable goods are to be sold after their clearance from the factory. If the goods are not sold at the time and place of removal assessable value of the excisable goods so removed will be calculated in accordance with the provisions of Valuation Rules [i.e. Rule 4 and Rule 5] discussed below and not in accordance with the transaction value. 1. Valuation when sale is not at the 'time of removal' - a) In such a case valuation will be based on the value of 'such goods' sold by the assessee at any other time nearest to the time of removal, subject to reasonable adjustment (i.e. valuation should be on the basis of value of identical goods cleared at or around the same time of removal of free samples) [Rule 4]. 'Identical goods' means goods of the same class or group, of same size and capacity and of the same manufacturer. This rule applies in the following cases: · Free samples distributed to customers, · Free samples distributed to its employees, · Free parts provided under warranty scheme. b) In case of new or improved products or new variety of products, valuation should be on the basis of cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected undertakings: - inter-connected undertaking means two or more under-takings which are inter-connected with each other in any of a number of ways such as if one owns or controls the other, or where the undertakings are owned by firm, or if such firms have one or more common partners, etc. [25% of total controlling power in both undertakings is enough to establish inter-connection]. In such a case price charged by assessee to buyer will not be accepted as 'transaction value'. However, the provisions in respect of 'inter-connected undertakings' have been made almost ineffective in Valuation Rules. Now the 'inter-connected undertakings' will be treated as related person only: · If they are holding and subsidiary or · If they are related person under any other clause. 2. Relatives: - relative means persons related as per section 6 of the companies act, 1956. The following are relatives: · Members of a HUF; · Husband and wife; · Relations as specified in schedule 1-A as follows: SCHEDULE IA See Section 6 (c) List of Relatives 1. Father 15. Daughter's son 2. Mother (including step-mother) 16. Daughter's son's wife 3. Sons (including step-son) 17. Daughter's daughter 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factory will be calculated in accordance with the provisions of Valuation Rules [i.e. Rule 9 and Rule 10] as discussed below and not in accordance with the transaction value. 1.Valuation of goods sold through related person other than inter-connected undertaking - In such case assessable value will be the 'normal transaction value' of such related person to the unrelated (or ultimate) buyer, prevailing at the time of removal from the factory of assessee and not the price at which such goods are sold later by related person. 2. Valuation of goods sold through inter-connected undertakings - In such case, assessable value is the price (i.e. normal transaction value) charged by buyer to an unrelated person but only if the entire sale is through inter-connected undertaking and the buyer is a holding or subsidiary of assessee. But mere fact that they are holding or subsidiary does not make them related person, their must exist mutuality of interest between them. 3. Valuation of goods sold to related person for captive consumption - Where the related person (i.e. buyer) does not sell the goods received from the assessee (i.e. manufacturer) to other unrelated buyer and use in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncessions offered should be added back in the price charged by the assessee. 2. Price of additional consideration will be the price at which the buyer gets the material and not the market price. Also if cost of material supplied is not charged separately, it means that its cost is included in the selling price of final product. 3. Any cost incurred in respect of raw material such as handling charges, freight, insurance, interest charges etc. shall be includible. But duty paid on such raw material and profit margin of the supplier of raw material shall be excluded. Valuations in other cases are as follows: 1.Valuation in case of job-work - there is no sale when the buyer sends the material free of cost to work upon it and in turn the manufacturer get the work done from job worker. In such case, till 31-3-2007, assessable value was to be calculated as the cost of raw material supplied by the buyer plus job charges. However, with effect from 1-4-2007 the provisions of valuation of goods manufactured by the job worker has been changed and Rule 10A has been inserted to the valuation rules. Accordingly: (i) where the goods are sold by the principal manufacturer for delivery at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transaction value mentioned above as - 1. Goods should be assessed in the stage in which they are removed. 2. Payment for such item is 'in connection with' the sale and the main article cannot work without this bought out part. 3.Value of essential part or component should be added even if it is supplied by the buyer. The reason is that if such part is supplied by buyer, 'price' is not 'sole consideration'. Thus, the additional consideration, i.e. value of parts supplied by buyer should be includible. Cases 1. Bought out items (i.e. items brought from outside) fixed to the goods manufactured by the assessee and form its part at the time of clearance, its value has to be added for valuation purposes. For e.g. value of battery supplied with UPS is includible in assessable value of UPS as UPS cannot work without battery. The reason is that goods are to be assessed in the stage in which they are cleared from the factory of production. 2. Value of essential bought out items is to be added, even if buyer issues separate purchase order and separate invoice is raised. 3. Cost of bought out items, which form integral part of the goods, has to be added. Thus cost of bought out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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