Exam Capsule

Indirect Taxes
Volume 2
Topics Covered
Volume 1 - Case Laws
Volume 2 - Cenvat Credit
Excise Valuation
Custom Valuation
VAT
Amendments (Please rin! "TP#
C$%CEPT& I% CE%VAT C"E'IT
'uties (or w)ic) credit is availale "ule *(1#
Central Excise Customs &ervice Tax
Basic Excise Duty
%ote - Credit is not available
for the duty paid on goods
covered under Notification
No. 1/2011 and at entry No.
! and 12" of notification
No. 12/2012.
#dditional Custo$ duty under section %&1'
of the C(#
%ote )f a vessel is brought to )ndia for
brea*ing than Credit is available only for
"+, of the duty.
-ervice (ax
-pecial Excise Duty -pecial #dditional custo$ Duty under
section %&+' of the C(#
&%ote . )f the assessee is a service provider/
he cannot avail credit for this duty'
-pecial Excise Duty on
0oods of -pecial
)$portance
-pecial Excise Duty on
(extile and (extile #rticles
National Cala$ity
Contingency Duty
#ddl. Excise duty u/s 1+!
of 1inance #ct 2%
#ddl. Excise Duty u/s "+ of
1inance #ct 2+
Education cess %ot allowed Education Cess
-3E- %ot allowed -3E-
Notes-
1. (he assessee can avail cenvat credit only 4hen he is having possession of the goods. &5ule 6'
2. 5ule 2 provides that the assessee can avail cenvat credit only on the basis of specified
docu$ents and docu$ents should be in his possession. (Refer Rule 9 for details)
%. Credit can al4ays be availed for the a$ount sho4n of duty/tax sho4n in the docu$ent on the
basis of 4hich credit is being ta*en irrespective of the fact that pay$ent has not been $ade or
only part pay$ent is $ade or part pay$ent itself is $ade as full and final pay$ent.
6. )f the 7uantity of goods actually received is less than the 7uantity referred in the docu$ents
then credit shall be availed for proportionately less a$ount but 4here 7uantity is $ore than
$entioned in the docu$ents/ credit cannot availed for excess 7uantity.
Example 1
8uantity $entioned 1000 9iters and Duty 5s. 10/000
8uantity received 220 liters
Cenvat Credit shall be ta*en only for 5s. 2200/:
Example 2
8uantity $entioned 1000 9iters and Duty 5s. 10/000;arch 2016
8uantity received 1010 liters
Cenvat Credit shall be ta*en only for 5s. 10/000/:
+. Co$bined reading of 5ule 6 and 2 provides that the credit cannot be availed unless goods and
docu$ents/ both are in possession of the assessee. (herefore/ 4here goods and docu$ents are
received by the assessee on different dates then credit cannot availed earlier than later date.
Example
Date of purchase . 20
th
<anuary 2016
Date of receiving the goods . 2"
th
1ebruary 2016
Docu$ents received on %
rd
;arch 2016
)n this case credit cannot be availed before %
rd
;arch 2016
. (he assessee is re7uired to $aintain a CEN=#( credit register. (his register is not considered
as Boo*s of #ccount and there is no prescribed for$at for this register.
!. >hen assessee $a*es a credit entry in the register/ it is referred as Credit ta*en or availed and
4hen a debit entry is $ade/ it $eans credit is utili?ed or reversed/ as the case $ay be.
+uestion - ,-s. "C imported some inputs and paid /asic Customs 'ut0 "s 1 la2)s3
surc)ar!e on customs dut0 "s. 143444 and CV' "s 1 la2). Calculate t)e amount t)at )e can
claim as CE%VAT credit. 5ould it ma2e an0 di((erence3 i( t)e assessee is not a manu(acture3
ut a service provider6
Answer - ;/s 5C can ta*e credit of 5s. 1/00/000 i.e. of additional duty of custo$s &C=D'. 5ule
%&1' of CC5 allo4s credit of additional duty of custo$s i$posed under section % of C(#. (he
credit of other t4o duties i.e. BCD and surcharge on custo$ duty is not allo4ed.
)t 4ill not $a*e any difference if the assessee is a service provider as credit of additional duty of
custo$s &C=D' can be availed both by $anufacturers and the service providers ali*e but credit of
C=D u/s %&+' 4ill not available to a service provider.
7ow CE%VAT Credit can e used6
"ule *(8#
-ub@ect to these restrictions/ CEN=#( credit can be utilised for .
a. Aay$ent of excise duty and service tax
b. 5eversal of credit on re$oval of capital goods and inputs under 5ule %&+'/ %&+#'/ %&+B' and
%&+C' of the CC5
c. 5eversal of credit under 1 of CE5
Credit can be utilised for discharging liability of central excise duty and service tax but other than
pay$ent of interest and penalty. Custo$ duty cannot be paid through credit.
Credit can be utilised only upto the extent it is actually available at the end of the $onth or 7uarter
for 4hich duty is payable. &Credit availed in the current $onth or 7uarter cannot be utilised for
discharging earlier liability'
Credit for EC and -3E- can be utilised for discharging respective liability and not for any other
purpose. 3o4ever/ EC and -3EC can be paid out of credit of EC and -3EC respectively or out of
other credits excluding credit of NCC5 or in csh.
NCCD can be paid either through credit of NCCD or in cash and credit of NCCD cannot be utilised
for any other purpose.
Credit of -#CD u/s %&+' of C(# cannot be utilised for paying service tax.
Clean Energy Cess cannot be paid out of CEN=#( credit.
Excess credit is allo4ed to be carried for4ard 4ithout any ti$e li$it but is not refundable in cash
except under 5ule +/ +# and +B.
+uestion9 5)et)er service tax credit availed on input service durin! t)e period 41.41.241* to 48.41.1* can e
utili:ed to pa0 service tax on t)e output service (or t)e mont)-;uarter endin! *1
st
'ecemer 2412 w)ic) is due
(or pa0ment on 41.41.241*6
Answer9 Cenvat Credit can be utilised only upto the extent it is actually available at the end of the $onth or 7uarter for
4hich duty is payable. &Credit availed in the current $onth or 7uarter cannot be utilised for discharging earlier
liability'. (herefore/ in the given case/ credit availed on input service during the $onth of <anuary 201% cannot utili?ed
to pay service tax payable on the output services for the $onth or 7uarter ending %1
st
;arch 2012.
+uestion9 In case o( arrears o( dut0 related to a past period3 demanded under section 11A o( t)e Central Excise
Act3 1<883 w)et)er t)e manu(acturer can utili:e cenvat credit (or pa0ment o( suc) arrears3 even i( suc) credit
accrued to )im a(ter t)e related period6
Answer9 #s per Cenvat Credit 5ules/ 2006 Cenvat Credit can be utilised only upto the extent it is actually available at
the end of the $onth or 7uarter for 4hich duty is payable. &Credit availed in the current $onth or 7uarter cannot be
utilised for discharging earlier liability'. (his duty represents a$ount of duty assessed by the assessee hi$self and paid
under 5ule " of the Central Excise 5ules/ 2002. #$ount of duty de$anded under section 11# of the Central Excise
#ct/ 1266 is not the sa$e duty as payable under section 11# of the Central Excise #ct/ 1266. (herefore/ the
$anufacturer can utili?e cenvat credit for pay$ent of such arrears/ even if such credit accrued to hi$ after the related
period. (Circular No. 962/05/2012 CX Dt. 28.0.2012!
CE%VAT credit on capital !oods "ule 8(2# - 8(8#
"ule 2(a#=capital !oods= $eansB:
&#' the follo4ing goods/ na$elyB:
&i' all goods falling under Chapter "2/ Chapter "6/ Chapter "+/ Chapter 20/ heading "0+/
grinding 4heels and the li*e/ and parts thereof falling under heading "06 of the 1irst
-chedule to the Excise (ariff #ctC
&ii' pollution control e7uip$entC
&iii' co$ponents/ spares and accessories of the goods specified at &i' and &ii'C
&iv' $oulds and dies/ @igs and fixturesC
&v' refractories and refractory $aterialsC
&vi' tubes and pipes and fittings thereofC

&vii' storage tan* and
&viii' $otor vehicles other than those falling under tariff headings "!02/ "!0%/ "!06/ "!11 and
their chassis/ but including du$pers and tippers
used:
&1' in the factory of the $anufacturer of the final products/ but does not include any e7uip$ent or
appliance used in an officeC or
&1#' outside the factory of the $anufacturer of the final products for generation of electricity for
captive use 4ithin the factoryC or
&2' for providing output serviceC
&B' $otor vehicle designed for transportation of goods including their chassis registered in the na$e of the
service provider/ 4hen used for:
&i' providing an output service of renting of such $otor vehicleC or
&ii' transportation of inputs and capital goods used for providing an output serviceC or
&iii' providing an output service of courier agency
&C' $otor vehicle designed to carry passengers including their chassis/ registered in the na$e of the provider
of service/ 4hen used for providing output service of:
&i' transportation of passengersC or
&ii' renting of such $otor vehicleC or
&iii' i$parting $otor driving s*ills
&D' co$ponents/ spares and accessories of $otor vehicles 4hich are capital goods for the assesse.
+uestion9 Define the ter$ DCapital 0oodsE 4ithin the $eaning of the CEN=#( Credit 5ules/ 2006.
Availin! t)e Credit "ule 8(2#3 8(*# and 8(8#
# $anufacturer/service provider can avail cenvat credit on capital goods provided the capital
goods are not going to be used exclusivel0 for $anufacture of exe$pted goods or providing exe$pted services. )t
$eans (ull credit is allo4ed even 4here capital goods are used partly for exe$pted goods/-ervices and partly for
taxable services/dutiable goods.
# $anufacturer can avail credit on capital goods only 4hen goods have been received in the
factory.
)f the capital goods relate to generation of electricity then credit is available even if goods are not
received in the factory.
)n case of a service provide/ it is sufficient that the goods are received by hi$ at any place but
the receipt of such goods shall be supported through docu$entary evidence regarding place and ti$e of delivery
of goods.
Credit can be availed only 4hen goods as 4ell as the docu$ents on the basis of 4hich credit can
be availed/ both are available. (herefore/ if these t4o are received on different dates/ then credit can be availed not
before the later date.
During the first financial year in 4hich capital goods are received .
a. an assessee availing --) exe$ption is entitled to avail full credit for all the duties i$$ediately
b. for any other assessee/ credit is restricted to +0,. &0, to +0,'
Balance credit &+0, to 100,' can be availed in any of the subse7uent financial years provided the goods are
in possession of the assessee. 3o4ever/ certain capital goods/ if consu$ed 4ithin the factory or at the place of
the @ob:4or*er are al4ays dee$ed to be in possession for the purpose of CEN=#( credit.
)t is also to be noted that the credit for -pecial #dditional Custo$ Duty chargeable under section %&+' of the
Custo$ (ariff #ct is available to the extent of 100, during first year itself.
%ote )f capital goods are re$oved during the first financial year in 4hich those are received than instead of
+0,/ the assessee is authorised to avail 100, CEN=#( credit during first financial year itself.
Credit on capital goods can be availed even if those are ac7uired on lease or hire:purchase basis
fro$ a finance co$pany. 1or availing credit/ possession is $ore i$portant than o4nership
)n case of service provider/ this 4ill not be applicable for $otor vehicles because/ on $otor vehicles/ a service
provider can avail CEN=#( credit only if the vehicle is registered in the na$e of service provider.
Credit can be availed for that part of duty 4hich has not been capitali?ed i.e.it is not depreciated.
#ssessee can avail cenvat credit even if he has not paid for capital goods or he has paid only
partly or he has $ade part pay$ent as full pay$ent.

+uestion9. )ndia Ce$ents 9i$ited is engaged in the business of $anufacturing ce$ent. 1or this purpose/
li$estone is excavated fro$ a $ine 4hich is situated at a distance of fe4 *ilo$eters fro$ the plant 4here
the ce$ent is $anufactured. (he $ine is connected to the $ain plant through a rope4ay. Explosive are used
for blasting the $ine to excavate li$estone. Can CEN=#( credit be ta*en on such explosivesF
Gr
#BC 9i$ited is a ce$ent $anufacturer. (he co$pany used rope4ay syste$ for bringing crushed li$e stone
fro$ the $ines located 6:+ *ilo$eters a4ay fro$ the factory. # part of the rope4ay syste$ 4as installed in
the factory.
#BC 9i$ited availed cenvat credit on the ground that rope4ay is used for transporting ra4 $aterial fro$
the $ines to the factory and cannot be considered as ;aterial 3andling -yste$ 4ithin the factory pre$ises.
Exa$ine 4ith the help of decided case la4/ 4hether the stand ta*en by the Depart$ent is correct.
Answer9 (he facts in the given case are si$ilar to the case of ;alabar Ce$ents 9i$ited &200"' HIerJ. )n
this case/ the 3igh Court decided that the rope4ay connecting the factory 4ith the $ines is to be considered
as a part of factory. (herefore/ in the given case/ the assessee is entitled to avail cenvat credit on the parts
used in rope4ay syste$.
;/s -olid Ce$ent 9td is engaged in the $anufacture of ce$ent. Explosive are used for blasting the $ines in
order to excavate li$estone/ 4hich is used in the $anufacture of Ce$ent/clin*ers in the factory situated at
so$e distance a4ay fro$ the $ines. Cenvat credit on explosives has been denied by the excise depart$ent
of the ground that the explosives are not used as inputsK 4ithin the factory of productionK. Lou are re7uired
to advise 4ith reference to CEN=#( Credit 5ules 2006 4hether the stand ta*en by the depart$ent is
correct.
+uestion9 (anco Aroducts 9td. 4as using plastic crates as a $aterial handling device 4ithin their factory
pre$ises. -uch plastic crates 4ere used for internal transportation of Mthe ra4 $aterial fro$ stores to the
processing $achine/ se$i:finished goods fro$ one $achine to other $achine and finished goods to their
storage area. (he appellant contended that the plastic crates 4ere eligible capital goods for the purposes of
CEN=#( credit and alternatively as input. Depart$ent re@ected the assesseeMs clai$ of CEN=#( credit in
respect of the duty paid on such plastics crates. Explain 4ith the help of a decided case la4/ if any /
4hether the stand ta*en by the depart$ent is sustainable in la4.
"emoval o( capital !oods on w)ic) credit )as een availed
"emoval as suc) "ule *(1#
>here capital goods/ on 4hich CEN=#( credit has been availed are re$oved Nas suchK than the entire
credit available on such goods shall be reversed i$$ediately. 3o4ever/ if the assessee has not availed full
credit/ he is authorised to avail balance credit before $a*ing reversal.
(his re7uire$ent 4ill not be applicable 4here capital goods are re$oved for providing service outside.
+uestion - 7. Ltd. Purc)ased a /orin!-'rillin! mac)ine at a cum dut0 price o( "s. *231838>?. T)e
Excise dut0 rate c)ar!ed on t)e said mac)ine was @ 1?A. T)e mac)ine was purc)ased on
depreciation @ 21A (ollowin! &trai!)t Line ,et)od. Bsin! t)e said in(ormation answer t)e (ollowin!
;uestion9
(i# 5)at is t)e Excise dut0 paid on t)e mac)ine6
(ii# 5)at is t)e Cenvat credit allowale under Cenvat "ules6
(iii# 5)at is t)e amount o( cenvat credit reversile or dut0 pa0ale at t)e time o( clearance o( t)e said
mac)iner03 I( removed as suc)6
Answer
Computation o( dut03 assessale value and CE%VAT credit
Cu$:duty Arice %2166!
Excise Duty O 1.6", &%2126! P 1.6" / 11.6"' 6+6!2+
#ssessable value 2!+2"1
CEN=#( Credit allo4able during first 1inancial year . +0, 22!%2!
Balance credit allo4able in any subse7uent financial year . +0, 22!%2"
Credit 5eversible . 100, 6+6!2+
5or2in! notes
1. #s per 5ule 6&2' of CC5/ CEN=#( credit is li$ited to the extent of +0, during the financial year in
4hich capital goods are received and balance can be availed in any of the subse7uent financial years / if the
capital goods are in possession.
2. #s per 5ule %&+'/ if capital goods are re$oved as such/ 100, of the credit available shall be reversed
and as per 5ule 6&2'/ in case of such reversal/ the assessee is authorised to avail balance credit also in the
first financial year itself.
"emoval a(ter use - "ule *(1A#
)n case of re$oval of capital goods after partial use/ the assessee is authorised to retain prescribed a$ount of
cenvat credit and balance credit shall be reversed.
1or the purpose of this rule/ capital goods have been divided into t4o categories i.e. co$puter and peripheral
and all other capital goods.
Percenta!e o( Credit t)at can e retained 0 t)e assessee
Co$puter and peripherals Gther capital goods
1
st
year . for every three $onths
or part
10,
1or every % $onths or
part thereof
2.+ , 2
nd
year . for every three $onths
or part
",
%
rd
year . for every three $onths
or part
+,
6
th
and +
th
year : for every three
$onths or part
1,
(he period of three $onths is to be counted fro$ the date on 4hich credit is availed.
%ote9 )f a$ount of duty payable on transaction value is higher than the a$ount of CEN=#( credit
reversible/ as calculated above/ then such higher a$ount of duty shall be payable.
"emoval o( capital !oods as 5aste and &crap "ule *(1A#
)f capital goods are re$oved as 4aste and scrap/ then duty is payable on transaction value.
+uestion 19 A/C Limited purc)ased a pollution control e;uipment (or "s. 113183284 w)ic) is
inclusive o( excise dut0 @ 1?A plus education cess and secondar0 and 7i!)er Education Cess. T)e
e;uipment was purc)ased on 41.4<.2414 and disposed o(( as second )and e;uipment on 14.14.12 at a
price o( "s. 123443444. "ate o( excise dut0 on t)e date o( disposal is 12A C EC C &7EC.
Dou are re;uired to compute t)e amount o( cenvat credit availale durin! t)e (inancial 0ear 2414-11
and durin! 2411-12.
5)at is t)e amount o( dut0 pa0ale or cenvat credit reversile at t)e time o( removal o( t)ose !oods.
Answer9
2010:2011 2011:12
CEN=#( credit availed
on 1.02.10 &+0,'
1/0!/120 Cenvat Credit availed on
01.06.2011
1/0!/120
Date of re$oval 10.10.2012 Date of re$oval 10.10.2012
Aeriod since availing the
credit
2 years 1 $onth and 10
days Q 2 7uarters
Aeriod since availing the
credit
1 year $onths and 10
days Q ! 7uarters
Credit allo4ed to be
retained O 2.+, for
every % $onths or part &2
P 2.+ Q22.+'
22.+, Credit allo4ed to be
retained O 2.+, for
every % $onths or part &!
P 2.+ Q1!.+'
1!.+,
#$ount of Cenvat credit
to be retained
26/102 #$ount of Cenvat credit
to be retained
1"/!6
#$ount of cenvat credit "%/01" #$ount of cenvat credit ""/%!6
to be reversed to be reversed
(otal reversals re7uired as per rates prescribed
&"%/01" R ""/%!6'
1/!1/%22
#$ount of duty on 5s. 12/00/000 O 12.%, 1/6"/%20
-ince a$ount of cenvat credit re7uired to be reversed as per prescribed rates is $ore than the a$ount of duty
co$puted on transaction value O 12,/ higher of the t4o is payable/reversible i.e. 5s. 1/!1/%22
+uestion 29
7 Ltd. purc)ased a /orin!-rillin! mac)ine at a cum-dut0 price o( "s. *231838>?. T)e Excise dut0
rate c)ar!ed on t)e said mac)ine was @ 1?A CECC&7EC. T)e mac)ine was purc)ased on 41.48.2411
and disposed o( on *4.4<.2412 (or a price o( "s. 12 la2)s. T)e compan0 was claimin! depreciation @
21A (ollowin! &trai!)t Line ,et)od. Bsin! t)e said in(ormation3 answer t)e (ollowin! ;uestions9
(i# w)at is t)e Excise dut0 paid on t)e mac)ine6
(ii# 5)at is t)e Cenvat credit allowale under Cenvat "ules6
(iii# 5)at is t)e amount o( Cenvat credit reversile or dut0 pa0ale at t)e time o( clearance o( t)e said
mac)iner0
Answer9
1. #ccording to 5ule 6&6'/ the assessee can either clai$ depreciation on the a$ount of duty or
CEN=#( credit.
2. (he assessee is al4ays authorised to clai$ depreciation for the value of goods excluding
a$ount of duty for 4hich CEN=#( credit is clai$ed. (his depreciation on the value of goods does not
affect right of the assessee to clai$ CEN=#( credit for the a$ount of duty paid on $achine.
%. #ccording to 5ule 6&2'/ CEN=#( credit on capital goods is li$ited to +0, during first
financial year in 4hich goods are received and balance credit can be availed in any of the subse7uent
financial years.
6. #ccording to 5ule %&+#'/ if goods are re$oved after partial use/ the assessee is entitled to
retain 2.+, of the total credit for every three $onths or part thereof and balance credit shall be reversed.
Calculation of Excise duty/ CEN=#( credit and reversal
Cu$ duty price %2/16/6!
#ssessable =alue %2166! x 100/11.6" 2!/+2/"1
Excise duty including EC and -3EC %, of duty 6/+6/!2+
Availailit0 o( Cenvat credit
During first year :+0, of 5s. 6+6!2+ 2/2!/%2"
During subse7uent year . re$aining +0, Gf 5s. 6+6!2+ 2/2!/%2!
Credit of EC available only on pay$ent of EC
Cenvat credit reversile at t)e time o( clearance
Cenvat Credit availed in year 11:12 5s. 2/2!/%2"
9essB 2.+, per 7uarter for 7uarters:1+, %6610 1/2%/2""
Cenvat Credit availed in year 12:1% 2/2!/%2!
9ess B 2.+, per 7uarter for 2 7uarters 11%!1 2/1/02!
(otal a$ount of CEN=#( credit reversible / payable at the ti$e of clearance 6/02/%1+
+uestion9 &olidmec Limited purc)ased 21 computer s0stems3 eli!ile (or capital !oods under t)e
Cenvat Credit "ules3 2448 on 41.4>.2414 0 pa0in! a dut0 o( "s. 2844-- on eac) computer s0stem.
7owever3 since t)ese s0stems ecame outdated3 it sold 24 computer s0stems out o( 21 on *4.4?.2412 at
a residual value o( "s. 2444 eac). 'etermine t)e amount o( cenvat credit re;uired to e reversed
durin! t)e (inancial 0ear 2412-1*.
Answer9 -ince only 20 syste$s are disposed off by the assessee/ the co$putation of cenvat credit 4ill be
only in relation to those 20 syste$s.
2010:2011 2011:12
CEN=#( credit availed
on 1.0!.10 on 20
co$puter syste$s &+0,'
26/000 Cenvat Credit availed on
01.06.2011 on 20
co$puter syste$s &+0,'
26/000
Date of re$oval %0.0.2012 Date of re$oval %0.0.2012
Aeriod since availing the
credit
Aeriod since availing the
credit

Credit allo4ed to be
retained O 2.+, for
every % $onths or part &2
P 2.+ Q22.+'
Credit allo4ed to be
retained O 2.+, for
every % $onths or part &!
P 2.+ Q1!.+'

#$ount of Cenvat credit
to be retained
#$ount of Cenvat credit
to be retained

#$ount of cenvat credit
to be reversed
#$ount of cenvat credit
to be reversed

(otal reversals re7uired as per rates prescribed
#$ount of duty on 5s. 12/00/000 O 12.%,

Prolem (or Practice
1. #n assessee had procured $achinery in #pril 2011 for 5s 10 la*hs by paying duty of 5s 1/0/000. )t 4as
co$$issioned in <une 2011. #ssessee had availed +0, Cenvat credit of 5s "0/000 in 20011:12/ and 5s
"0/000 &balance +0, credit' in 2012:1%. 3e sold the capital goods after use/ on 10
th
#pril 210% as second
hand goods for 5s %/00/000. 3o4 $uch excise duty or Na$ountK is payable 4hile clearing the $achineryF
2. ;achinotech 9td. purchased a lathe $achine at a price of Rs. 1/00/000 on 4hich 1, Excise duty 4as
paid and the co$pany availed of the Cenvat credit on the said capital goods. (he lathe $achine 4as
purchased on 2!:01:2010 and it 4as disposed of on 22:06:2011. 3o4 $uch CEN=#( credit and 4hen it
can be availed by the assessee. )s it necessary to reverse the cenvat credit on disposal of the $achineF )f your
ans4er is yes/ 7uantify the a$ount.

Eoods written o(( in t)e oo2s o( account "ule *(1/#
>here any capital goods are 4ritten off/ partially or fully or a provisions is $ade for the sa$e/ in the boo*s
of account prior to being put to use/ then entire credit availed thereon shall be reversed and if such goods are
utilised again at any ti$e in future/ then credit can be availed once again.
&endin! out (or repairs3 maintenance etc. "ule 8(1#
)f capital goods on 4hich credit has been availed are re7uired to be sent outside for getting those repaired/ it
re7uires prior approval of #C/DC and the approval is given sub@ect to the condition that the goods shall be
received bac* 4ithin 1"0 days other4ise the assessee shall reverse the credit and he can avail the credit once
again on goods being received bac*.
&endin! out (or providin! service
(here is no provision to regulate the ti$e 4ithin 4hich capital goods sent outside for providing service shall
be received bac*.
Credit on Inputs
"ule 2(2# FinputG $eans
&i' all goods used in the factory by the $anufacturer of the final productC or
&ii' any goods including accessories/ cleared along 4ith the final product/ the value of 4hich is
included in the value of the final product and goods used for providing free 4arranty for final
productsC or
&iii' all goods used for generation of electricity or stea$ for captive useC or
&iv' all goods used for providing any output serviceC but excludes:
&#' light diesel oil/ high speed diesel oil or $otor spirit/ co$$only *no4n as petrolC
&B' any goods used for :
&a' construction or execution of 4or*s contract of a building or a civil structure or a part
thereofC or
&b' laying of foundation or $a*ing of structures for support of capital goods/
except for the provision of service portion in the execution of a 4or*s contract or construction service as
listed under clause &b' of section E of the #ctC
&C' capital goods except 4hen used as parts or co$ponents in the $anufacture of a final productC
&D' $otor vehiclesC
&E' any goods/ such as food ite$s/ goods used in a guesthouse/ residential colony/ club or a recreation
facility and clinical establish$ent/ 4hen such goods are used pri$arily for personal use or consu$ption
of any e$ployeeC and
&1' any goods 4hich have no relationship 4hatsoever 4ith the $anufacture of a final product.
Expla"atio". 1or the purpose of this clause/ Dfree 4arrantyE $eans a 4arranty provided by the
$anufacturer/ the value of 4hich is included in the price of the final product and is not charged separately
fro$ the custo$erC
+uestion9 -C 9td is a $anufacturer of caustic soda/ ce$ent etc. )t uses 9-3- &9o4 sulphur heavy stoc*'
as fuel for generating electricity 4hich in turn is captively consu$ed for the $anufacture of final products. )t
has been clai$ed CEN=#( Credit on the reasoning that this is used Nin relation to $anufacture of final
productsK and hence this is input. 3o4ever the depart$ent did not allo4 the credit as 9-3- has been used to
generate electricity 4hich is not excisable and hence cannot be considered as input used as fuel.
-tate 4ith reason 4hether the action ta*en by the depart$ent is covered by the CEN=#( Credit 5ules 2006.
Availin! credit on inputs "ule 8(1#
# $anufacturer can avail (ull cenvat credit on inputs as soon as goods are
received by hi$ in the factory. 3o4ever/ if the inputs are related to
generation of electricity then cenvat credit is available even 4hen such goods
are received by the assessee outside the factory.
"ule H o( CC" Depending on nature of goods or shortage of space in the
factory/ on such ter$s and conditions as the Co$$issioner dee$s fit/ he $ay
authorise storage of inputs outside the factory in a 4arehouse and to avail
credit thereon in the factory. (he place 4here inputs are allo4ed to stored
outside the factory shall be treated as a factory for the purpose of CEN=#(
credit.
# service provider can avail (ull
cenvat credit on inputs as soon as
inputs are received by hi$ at any
place. (he receipt of inputs shall be
supported by docu$entary
evidence regarding ti$e and place
of delivery of goods.
Cenvat credit shall be availed only for the 7uantity actually received.
&a' )f the 7uantity actually received is $ore than the 7uantity referred in the docu$ents on the basis of 4hich
credit is to be availed then the credit is to be availed for the 7uantity referred in the docu$ents.
&b' )f the 7uantity actually received is less than the 7uantity referred in the docu$ents on the basis of 4hich credit
is to be availed then the credit is to be availed for the 7uantity actually received.
&c' )f any 7uantity of input is stolen or pilfered or 4asted before being put to use then cenvat credit availed on
such 7uantity shall be reversed.
# $anufacturer/service provider can avail cenvat credit on inputs provided the inputs are not going to be used
exclusivel0 for $anufacture of exe$pted goods or providing exe$pted output services.
#ssessee can avail cenvat credit even if he has not paid for inputs goods or he has paid only partly or he has $ade part
pay$ent as full pay$ent.
+uestion9 T)e assessee is en!a!ed in t)e manu(acture o( various t0pes o( pac2a!in! mac)ines 2nown as I J &
mac)ines. T)e mac)ines are made to order accordin! to t)e speci(ications o( individual customer and suc)
mac)ines3 e(ore dispatc)3 are to e tested (or customerKs satis(action. $n ein! satis(ied 0 t)e customer3 t)e
ma2es entrLe in t)e "E-1 re!ister ('&A# declarin! t)e mac)ined is manu(actured and read0 (or clearance. Ior
t)e proper testin!3 assessee procures (lexile laminated plastic (ill in roll (orm and pol0 paper (termed as inputs#
w)ic) are excisale3 and were used (or testin!3 turnin! and adMustin! carious parts o( I J & ,ac)ine. Assessee
(iled a declaration and availed t)e ene(it o( Cenvat Credit (or t)e dut0 paid on t)e said inputs. 'epartment
contended t)at t)e said material was used onl0 (or testin! and as suc)3 t)e0 cannot considered as inputs (or
manu(acturin! (inal product. Iurt)er3 t)e 'epartment opined t)at testin! ta2es place onl0 a(ter manu(acturin!
(inal product and an0 !oods used in t)e process a(ter manu(acturin! cannot e treated as inputs under rule 2(2#
o( t)e Cenvat Credit "ules3 2448. AssesseeKs contention is t)at t)e manu(acturin! process would e completed
onl0 a(ter t)e testin! and as suc) inputs are used in or in relation to t)e manu(acturin! and t)at t)e input need
not e present in t)e (inal product and3 t)ere(ore3 t)e0 )ave a ri!)t to claim t)e cenvat credit.
Answer9
Iacts )n the case of 1lex Engg. 9td. =s. CCEx./ 2012 &-C' the #ssessee clai$ed credit for the $aterial used during
testing of $achine $anufactured by it. ;anufacture of $achine is co$plete only after testing.
'ispute Credit cannot be clai$ed for the $aterial used during testing of $achine because it is used after
$anufacture.
'ecision #s per sub$issions by the assessee the court accepted that the $achine is $ar*etable only after it has been
tested and $ade fit as per custo$erKs re7uire$ent. )t $eans $anufacture is not co$plete until testing. (herefore/
$aterial used during testing is eligible for credit.
+uestion9 "o2asa Limited was en!a!ed in t)e manu(acture o( a p)armaceutical product vi:.3 "ovamox
Pediatric 'rops. "o2asa Limited contended t)at t)e plastic droppers cupplied wit) t)e ottle containin! t)e
drops were inputs used in or in relation to manu(acture o( t)e (inal product and so3 claimed cenvat credit o( t)e
dut0 paid on t)e 'roppers. 7owever3 t)e "evenue ar!ued t)at Cenvat credit was not admissile as t)ese
droppers were 2ept separatel0 in t)e cartons alon! wit) t)e sealed ottles o( t)e pediatric drops and were
neit)er used in manu(acture o( t)e pediatric drops nor used in relation to its manu(acture. /rie(l0 discuss
w)et)er t)e stand ta2en 0 t)e 'epartment is correct or not.
Answer9 1acts in the given case are si$ilar to the case of G*asa 9i$ited/ 2002 &Bo$'.
#s per the directions given by the Controller of Drugs/ such droppers are $andatory for the sale of drugs. (herefore/
such droppers 4ill be treated as pac*ing $aterial.
#s per the definition of the NinputsK/ all the goods 4hich are re$oved 4ith the finished goods are to be treated as inputs
provided the value of such goods has been included in the value of finished goods.
Ieeping in $ind/ all the facts given in the 7uestion/ it can be concluded the droppers are eligible to be treated as inputs
and/ thus/ the assessee is entitled to avail cenvat credit.
+uestion9 /ased on t)e (ollowin! in(ormation3 determine t)e CE%VAT Credit availale (or use in t)e current
0ear under t)e CE%VAT Credit "ules3 2448
Amount a(ter eac) item indicates Central Excise dut0 paid at t)e time o( Purc)ase o( !oods. EC and &7EC is in
addition to t)e amount o( dut0
(#s.!
(a# Pollution control e;uipments - "s 213444
(# &pares (or pollution control e;uipments - "s 13444
(c# E;uipments used in o((ice - "s 123444
(d# &tora!e Tan2 - "s 143444
(e# Paints used (or paintin! mac)iner0 used - "s ?3444
((# Pac2in! material - "s 83444
(!# Luricatin! oils - "s H3444
()# 7i!) &peed diesel oil - "s >3444

+uestion9 'iscuss aout t)e eli!iilit0 o( CE%VAT Credit in eac) o( t)e (ollowin! situations
(i# 1444 2!s o( raw materials were purc)ased on w)ic) dut0 o( "s. 1?3444 was paid. 5)ilst in t)e
production 0ard t)ose !oods were destro0ed 0 accidental (ire.
(ii# 1444 2!s o( raw materials on w)ic) dut0 paid was "s. 143444 was used in manu(acture o( a (inal
product (or w)ic) t)e dut0 pa0ale is "s. H444
(iii# T)e ori!inal invoice (or 13444 units o( inputs purc)ased were missin!N )owever Oduplicate (or
transportK cop0 o( invoice is availale3 w)ic) s)ows t)at dut0 o( #s. 143444 )ad een paid on inputs
+uestion9 A/C Co. Limited procured t)e (ollowin! inputs durin! t)e mont) o( Panuar0. 'etermine t)e amount
o( cenvat credit availale wit) necessar0 explanation (or t)e treatment o( t)e various items
Items 'ut0 paid
(a# "aw material 123444
(# ,anu(acturin! mac)ine 13443444
(c# Li!)t diesel oil 843444
(d# Ereases 143444
(e# $((ice E;uipment 243444
((# Paints 13444
%ote9 A/C C$. Limited is not eli!ile to avail exemption under noti(ication %o. H-244*.
Answer9
Item Amount o(
Credit
"eason
5a4 ;aterial +2/000 Being input/ it is eligible for 100, Credit
;anufacturing $achine +0/000 Being capital goods/ Cenvat credit is li$ited to +0,
9ight diesel oil : Excluded fro$ the definition of inputs. (herefore/ no cenvat
credit
0reases 10/000 Being input/ it is eligible for 100, Credit
Gffice E7uip$ent : Not treated as capital 0oods. (herefore/ no cenvat credit
Aaints +/000 #ssu$ed that used in relation to finished goods. (herefore/
treates as inputs
+uestion9 QDR Co. is en!a!ed in manu(acture o( water pipes. Irom t)e (ollowin! details (or t)e mont) o( ,a0
compute t)e availale cenvat credit under t)e Cenvat Credit "ules3 2448. Cenvat paid on t)e purc)ases as
detailed elow
Items 'ut0 amounts
(a# "aw ,aterial "s. 223444
(# 5ater pipe ma2in! mac)ine "s. 1H3444
(c# &pare parts o( t)e aove mac)ine "s. >3144
(d# Erease and oil "s. 23H44
(e# $((ice E;uipment "s. 243444
((# 'iesel "s. 123444
(!# Pollution control E;uipment "s. 223444
Answer9 -ince the 7uestion does not indicate that the assessee is availing --) exe$ption under Notification No.
"/200%/ for the purpose of cenvat credit it is presu$ed that the assessee is not availing this exe$ption.
)te$s #$ount of Cenvat
Credit in 5s.
5eason
5a4 ;aterial 22/000 5a4 $aterial is an input and eligible for 100, cenvat credit
>ater pipe $a*ing
$achine
2/000 Being capital goods/ it is eligible for +0, cenvat credit
-pare parts %/!+0 Being capital goods/ it is eligible for +0, cenvat credit
0rease and Gil 2/"00 Being inputs/ it is eligible for 100, cenvat credit
Gffice E7uip$ent : Gffice e7uip$ents are not regarded as capital goods. (herefore/ no
cenvat credit.
Diesel : Diesel is excluded fro$ the category of inputs. (herefore/ no cenvat
credit.
Aollution Control
e7uip$ents
11/000 Being capital goods/ it is eligible for +0, cenvat credit in the first
financial year
(otal Credit 6"/++0
+uestion9 7ero automoiles is en!a!ed in t)e manu(acture o( motor cars. Compute t)e amount o( cenvat credit
admissile (rom t)e (ollowin! particulars w)ere re;uired
Eoods purc)ased 'ut0 paid at t)e time o( purc)ase o( !oods
"aw &teel 13443444
/atteries 23443444
Cuttin! oil >43444
Electric lamps (or li!)tin! manu(acturin! area H43444
Answer9 #ssu$ing that the assessee is not availing --) exe$ption under Notification No. "/200%/
Article Amount o( cenvat
credit
"eason
5a4 -teel +/00/000 5a4 steel is an input and eligible for 100, cenvat credit
Batteries 2/00/000 Batteries are the inputs for $otor car $anufacturer and it is eligible
for 100, cenvat credit
Cutting oil !0/000
Electric la$ps 60/000 Being capital goods/ it is eligible for +0, cenvat credit in the first
financial year
(otal Credit "/10/000
+uestion9 " J Co. Limited )ave cleared t)eir manu(actured (inal product durin! April and t)e dut0 pa0ale is
"s. 23843444 C EC and &7EC. Eiven elow are t)e details o( t)e excise dut0 paid 0 t)e assessee durin! t)e
mont) at t)e time o( purc)ase o( !oods9
Item 'ut0 amount in "s. (Excludin! EC and &7EC#
(i# $n inputs (",# 13443444 (invoice (or excise dut0 o( "s. 243444 was
received on 8
t)
,a0#
(ii# $n input service 243444
(iii# $n weldin! electrodes used (or repairs o( capital
!oods
13444
(iv# Iuel (Excludin! 7&'-Petrol# ?3444
(v# &tora!e Tan2 H3444
(vi# Tues and Pipes used in (actor0 183444
(vii# Air-conditioner (or o((ice o( t)e (actor0 mana!er 123444
Compute t)e amount o( dut0 pa0ale in cas).
Answer9
'ut0 Pa0ale
Excise Duty Education Cess -3EC (otal
2/60/000 6/"00 2/600 2/6!/200
Amount o( cenvat credit
Item Credit
o( E'
Credit
o( EC
Credit o(
&7EC
Total "eason
&i' Gn inputs &5;' "0/000 1/00 "00 "2/600 100, Cenvat credit is available on inputs
&ii' Gn input service 20/000 600 200 20/00 100, Cenvat credit is available on input
service
&iii' Gn 4elding
electrodes used for
repairs of capital
goods
+/000 100 +0 +/1+0 100, Cenvat credit is available on inputs
&iv' 1uel &Excluding
3-D/Aetrol'
/000 120 0 /1"0 100, Cenvat credit is available on inputs
&v' -torage (an* 6/000 "0 60 6/120 Gn capital goods/ cenvat credit is li$ited to
+0, in the first 1inancial Lear
&vi' (ubes and Aipes
used in factory
!/000 !0 %+ !/10+ Gn capital goods/ cenvat credit is li$ited to
+0, in the first 1inancial Lear
&vii' #ir:conditioner
for office of the
factory $anager
: : : :
-ince used in office/ no cenvat credit is
allo4ed
(otal Credit 1/2+/+++
Duty payable 5s. 2/6!/200
Cenvat credit 5s. 1/2+/+++
Duty payable in cash 5s. 1/21/6+

"emoval o( inputs on w)ic) credit )as een availed
"emoval Fas suc)G "ule *(1# - D#s -uchE $eans unused
>here inputs/ on 4hich cenvat credit has been availed are re$oved Nas suchK than the entire credit available
on such goods shall be reversed i$$ediately.
#ny such reversal is not re7uired 4here inputs are re7uired to be re$oved Nas suchK for providing service
related to guarantee/4arrantee offered along 4ith the goods and the value of 4hich is already included in the
value of finished goods.
Eoods written o(( in t)e oo2s o( account "ule *(1/#
>here any inputs are 4ritten off in the boo*s of account/ partially or fully or even if a provisions if $ade
for the sa$e/ prior to being put to use/ then entire credit availed thereon shall be reversed and if such goods
are utilised again at any ti$e in future/ then credit can be availed once again.
Eoods destro0ed "ule *(1C#
>here any of the finished goods are destroyed before re$oval and re$ission of duty is allo4ed under 5ule
21 of the Central Excise 5ules/ 2002/ the assessee shall reverse the credit ta*en for inputs used in
$anufacture of such goods.
"ule 21 o( Central Excise "ules3 24429 "emission o( dut0
>here finished goods are destroyed or lost or those beco$e non:$ar*etable other4ise/ before re$oval
fro$ the factory due to any reason/ then on an application of the assessee/ the Central Excise officer
$ay allo4 re$ission &4aiver' of duty on such goods/ 4ithin the li$it prescribed.
$%%icer &mou"t o% 'ut( upto )*ic* remissio" ca" +e allo)e' +( *im
-uperintendent 5s. 10/000
#sst./Dy. Co$$issioner Exceeding 5s. 10/000 but not exceeding 5s. 1/00/000
<t. Co$$issioner Exceeding 5s. 1/00/000 but not exceeding 5s. +/00/000
Co$$issioner Exceeding 5s. +/00/000
Inputs sent (or Mo wor2 "ule 8(1# and 8(?#
>here any of the inputs or se$i:finished goods are re7uired to be sent outside for @ob:4or* 4ithout reversal
of credit or 4ithout pay$ent of duty/ as the case $ay be/ the assessee is authori?ed to re$ove the goods
provided those are received bac* 4ithin 1"0 days failing 4hich he shall reverse the credit and if goods are
received bac* subse7uently/ credit can be ta*en again.
Snder 5ule 6&'/ the #C/DC $ay give a special per$ission to the assessee to re$ove the finished goods
fro$ the pre$ises of the <ob:4or*er. #ny such per$ission is valid for the financial year during 4hich it is
given
)f per$ission is obtained under 5ule 6&'/ then condition of bringing bac* the goods 4ithin 1"0 days/ as
given under 5ule 6&+' 4ill not be applicable.
+uestion - /rie(l0 discuss wit) t)e reasons w)et)er in t)e (ollowin! case Cenvat Credit is availale to
an assessee and3 i( 0es to w)at extent6
An assessee purc)ased inputs wei!)in! 13444 S!s. T)e dut0 paid on inputs was "s. 143444 ut durin!
transit3 144S!s inputs were destro0ed.
Answer -ince the assessee has received only +00 Igs inputs in the factory/ he can avail credit only to the
extent of 5s. +000 because as per rule 6&1' of CEN=#( Credit 5ules/ 2006 the CEN=#( credit in respect
of inputs $ay be ta*en i$$ediately on receipt of the inputs in the factory of the $anufacturer or provider of
output service.
5ule 2 of CC5/ 2006 provides that any goods used in the factory 4here finished goods are $anufactured are
eligible as inputs. (herefore/ the goods 4hich are not even received in the factory cannot considered to be
inputs.
"ecover0 o( CE%VAT credit
=ide notification No. %/201%/ an explanation has been inserted after 5ule %&+B' 4hich states that D )f the $anufacturer
of goods or the provider of output service fails to pay the a$ount payable under sub:rules &+'/ &+#'/ and &+B'/ it shall
be recovered/ in the $anner as provided in rule 16/ for recovery of CEN=#( credit 4rongly ta*enE.
1
1
Inserted vide Notification No. 3/2013-Central Excise (N.T.), Dated 1/03 2013.
Input &ervice
"ule 2(l# Finput serviceG $eans any service/ :
&i' used by a provider of output service for providing an output serviceC or
&ii' used by a $anufacturer/ 4hether directly or indirectly/ in or in relation to the $anufacture of
final products and clearance of final products upto the place of re$oval/
and includes services used in relation to $odernisation/ renovation or repairs of a factory/ pre$ises of
provider of output service or an office relating to such factory or pre$ises/ advertise$ent or sales
pro$otion/ $ar*et research/ storage upto the place of re$oval/ procure$ent of inputs/ accounting/ auditing/
financing/ recruit$ent and 7uality control/ coaching and training/ co$puter net4or*ing/ credit rating/ share
registry/ security/ business exhibition/ legal services/ in4ard transportation of inputs or capital goods and
out4ard transportation upto the place of re$ovalC but excludes/:
(A# service portion in the execution of a 4or*s contract and construction services including service
listed under clause &b' of section E of the 1inance #ct &hereinafter referred as specified services' in so
far as they are used for :
&a' construction or execution of 4or*s contract of a thereofC or building or a civil structure or a
part
&b' laying of foundation or $a*ing of structures for support of capital goods/
except for the provision of one or $ore of the specified servicesC or
(/# services provided by 4ay of renting of a $otor vehicle/ in so far as they relate to a $otor vehicle
4hich is not a capital goodsC or
(/A# service of general insurance business/ servicing/ repair and $aintenance / in so far as they
relate to a $otor vehicle 4hich is not a capital goods/ except 4hen used by :
&a' a $anufacturer of a $otor vehicle in respect of a $otor vehicle $anufactured by such person C
or
&b' an insurance co$pany in respect of a $otor vehicle insured or reinsured by such personC or
(C# such as those provided in relation to outdoor catering/ beauty treat$ent/ health services/
cos$etic and plastic surgery/ $e$bership of a club/ health and fitness centre/ life insurance/ health
insurance and travel benefits extended to e$ployees on vacation such as 9eave or 3o$e (ravel
Concession/ 4hen such services are used pri$arily for personal use or consu$ption of any e$ployeeCE

Availin! CE%VAT credit on input services "ule 8(>#
(he CEN=#( credit in respect of input service shall be allo4ed/ on or after the day on 4hich the invoice/
bill or/ as the case $ay be/ challan referred to in rule 2 is receivedB
Provided that in case of an input service 4here the service tax is paid on reverse charge by the recipient of
the service/ the CEN=#( credit in respect of such input service shall be allo4ed on or after the day on
4hich pay$ent is $ade of the value of input service and the service tax paid or payable as indicated in
invoice/ bill or/ as the case $ay be/ challan referred to in rule 2B
Provided (urt)er that in case the pay$ent of the value of input service and the service tax paid or payable
as indicated in the invoice/ bill or/ as the case $ay be/ challan referred to in rule 2/ is not $ade 4ithin three
$onths of the date of the invoice/ bill or/ as the case $ay be/ challan/ the $anufacturer or the service
provider 4ho has ta*en credit on such input service/ shall pay an a$ount e7ual to the CEN=#( credit
availed on such input service and in case the said pay$ent is $ade/ the $anufacturer or output service
provider/ as the case $ay be/ shall be entitled to ta*e the credit of the a$ount e7uivalent to the CEN=#(
credit paid earlier sub@ect to the other provisions of these rulesB
Provided also that if any pay$ent or part thereof/ $ade to4ards an input service is refunded or a credit note
is received by the $anufacturer or the service provider 4ho has ta*en credit on such input service/ he shall
pay an a$ount e7ual to the CEN=#( credit availed in respect of the a$ount so refunded or creditedB
Provided also that CEN=#( credit in respect of an invoice/ bill or/ as the case $ay be/ challan referred to
in rule 2/ issued before the 1
st
day of #pril/ 2011 shall be allo4ed/ on or after the day on 4hich pay$ent is
$ade of the value of input service and the service tax paid or payable as indicated in invoice/ bill or/ as the
case $ay be/ challan referred to in rule 2.
Expla"atio" ,.- (he a$ount $entioned in this sub:rule/ unless specified other4ise/ shall be paid by the
$anufacturer of goods or the provider of output service by debiting the CEN=#( credit or other4ise on or
before the +th day of the follo4ing $onth except for the $onth of ;arch/ 4hen such pay$ent shall be $ade
on or before the %1st day of the $onth of ;arch.
Expla"atio" ,,. - )f the $anufacturer of goods or the provider of output service fails to pay the a$ount
payable under this sub:rule/ it shall be recovered/ in the $anner as provided in rule 16/ for recovery of
CEN=#( credit 4rongly ta*en.
Expla"atio" ,,,.- )n case of a $anufacturer 4ho avails the exe$ption under a notification based on the
value of clearances in a financial year and a service provider 4ho is an individual or proprietary fir$ or
partnership fir$/ the expressions/ Dfollo4ing $onthE and D$onth of ;archE occurring in sub:rule &!' shall
be read respectively as Dfollo4ing 7uarterE and D7uarter ending 4ith the $onth of ;arch.
+uestion9 ;/s G@ha Ce$ents 9i$ited &GC9' 4as engaged in the business of $anufacturing and selling of
ce$ent and had been duly paying the excise duty in respect of ce$ent produced by it. GC9 supplied ce$ent
to its custo$ers T1G5 destinationT and bore the freight up to the door steps of the custo$er i.e. the
destination point. (he assessee &GC9' had ta*en the CEN=#( credit of the service tax paid on the
afore$entioned freight by it. (he Depart$ent contended that the pay$ent of service tax on the freight
incurred by the assessee 4as not input service as per rule 2&l' of the CEN=#( Credit 5ules/ 2006 and
hence the CEN=#( credit 4as not ad$issible on it under the said rules. Explain 4hether the stand ta*en by
Depart$ent is tenable in la4.
+uestion9 #ns4er 4ith reference to the CEN=#( Credit 5ules 2006 4hether a $anufacturer of excisable
goods 4ho has paid -ervice tax on freight can hi$self ta*e credit of -ervice (ax paid / if such
transportation service in relation to the $anufacture and clearance of his final productsF
CE%VAT credit on !oods procured (rom 144A E$B or a unit in &TP-7TP etc. "ule *(>#
(he CEN=#( credit in respect of inputs and capital goods cleared fro$ an export:oriented
underta*ing or by a unit in Electronic 3ard4are (echnology Aar* or in a -oft4are (echnology
Aar*/ as the case $ay be/ on 4hich such underta*ing or unit has paid :
&#' excise duty leviable under section % of the Excise #ct &Excise duty shall be the aggregate of
#dditional Custo$ Duty under section %&1' of the Custo$ (ariff #ct and -pecial #dditional
custo$ Duty under section %&+' of the Custo$ (ariff #ct'
&B' the Education Cess leviable under section 21 read 4ith section 2% of the 1inance &No. 2' #ct/
2006 and
&C' the -econdary and 3igher Education Cess leviable under section 1% read 4ith section 1%" of
the 1inance #ct/ 200!/ on the excise duty referred to in &#'
Explanation.- >here the provisions of any other rule or notification provide for grant of 4hole or
part exe$ption on condition of non:availability of credit of duty paid on any input or capital goods/
or of service tax paid on input service/ the provisions of such other rule or notification shall prevail
over the provisions of these rules.
Note -CD is 50. exempt i" case o% remo/al o% 0oo's +( Noti%icatio" No. 1005 E$1 to D2& 3Noti%icatio" N$.
2/2004
+uestion9 /ased on t)e (ollowin! particulars determine t)e amount (or w)ic) cenvat credit will e availale
w)en !oods are removed 0 144A E$B to 'TA.
Assessale value "s. 24.44 lacs3 "ate o( /asic Custom 'ut0 14A3 Additional custom dut0 @ 11A3 &pl AC' @
8A
Answer9 Computation o( amount o( cenvat credit
Amount Cenvat Credit
Assessale Value 243443444
/C' @ 1A 13443444 %ot availale
AC' @ 1?A *3*?3444 Availale
EC on AC' ?3>24 Availale
&7EC on AC' *3*?4 Availale
Total amount o( cenvat Credit *38?34H4
8uestionB 1ro$ the follo4ing deter$ine the a$ount for 4hich cenvat credit 4ill be available if the goods are
$anufactured in 100, EGSu and brought to D(# for being used in $anufacture of dutiable goods
No. of units 1/000
#ssessable value 5s. !+0/: per unit
5ate of Basic Custo$ Duty 12,
5ate of #CD 1+,
#$ount Cenvat Credit
#ssessable =alue &1000 P !+0' !/+0/000
BCD O , 6+/000 Not available
#CD O 1, 1/2!/200 #vailable
EC on #CD 2/+66 #vailable
-3EC on #CD 1/2!2 #vailable
(otal a$ount of cenvat Credit 1/%1/01
Availailit0 o( CE%VAT credit under various situations
&ituation &olution
a. (he inputs are procured fro$ a registered 1irst
stage dealer under the cover of invoice in 4hich
#s per 5ule 2/ CEN=#( credit can be availed
on the basis of invoice issued by registered
a$ount of duty sho4n is 5s. 1%/200/:. (he
)nvoice 4as $ar*ed NG5)0)N#9 1G5
BSLE5K.
1irst -tage Dealer/ for the a$ount of duty
sho4n therein. )n the given case Cenvat credit
is available for Rs. 1%/200.
b. ;achinery falling under chapter heading "6
received along 4ith invoice $ar*ed
NDSA9)C#(E 1G5 (5#N-AG5(K indicating
the a$ount of duty 5s. !/00. Hassu$e that the
a$ount sho4n includes EC as 4ell as -3ECJ
#ccording to 5ule 2&a' ;achinery falling
under chapter "6 are the Capital 0oods. #s
per 5ule 6&2'/ CC on capital goods can be
availed upto +0, of the a$ount of duty
during the first 1inancial year in 4hich goods
are received and balance can be availed in any
of the subse7uent financial years. (herefore/
in the given case a$ount of credit during the
first financial year cannot exceed Rs. %/"00
&+0,' and balance can be availed in any
subse7uent financial year.
c. -o$e inputs 4ere directly sent on 1st of the
$onth for @ob 4or* to the factory of @ob 4or*er/
fro$ place of the input supplier/ 4ithout
bringing the$ in factory. #s per the invoice of
supplier of inputs/ duty paid on inputs 4as 5s.
+/000. Gut of these inputs/ "0, 4ere received
in the factory on 16th of the $onth/ after
carrying out @ob 4or*.
#ccording to 5ule 6&1'/ CEN=#( credit on
inputs can be received only 4hen inputs are
received in the factory/ for the 7uantity
actually received. )n the given case/ the
assessee can avail the credit for 5s. 6000
&"0,' 4hen inputs are received in the factory
along 4ith docu$ents/ referred under rule 2/
sho4ing a$ount of duty.
d. -o$e spare parts of $achinery falling under
chapter "6 received 4ith invoice indicating
a$ount of duty 5s. 1/00/:. (he )nvoice 4as
$ar*ed NDSA9)C#(E 1G5 (5#N-AG5(.
#ccording to 5ule 2&a'/ spare parts of
;achinery falling under chapter "6 are the
Capital 0oods. #s per 5ule 6&2'/ CC on
capital goods can be availed upto +0, of the
a$ount of duty during the first 1inancial year
in 4hich goods are received and balance can
be availed in any of the subse7uent financial
years. (herefore/ in the given case a$ount of
credit during the first financial year cannot
exceed Rs. "00 &+0,' and balance can be
availed in any subse7uent financial year.
e. -o$e )nputs received under the cover of invoice
indicating a$ount of duty 5s. 6/+00/:. (he
)nvoice 4as $ar*ed NDSA9)C#(E 1G5
(5#N-AG5(K and it did not contain ti$e of
re$oval fro$ the factory.
#ccording to 5ule 2&2' of the CC5/ if there is
any defect in invoice/ Cenvat credit can be
availed only 4ith per$ission of #C/DC.
)n the given case/ failure to $ention ti$e of
re$oval on the invoice is a defect. (herefore/
CC cannot be availed except 4ith the prior
approval of #C/DC.
)f such approval is obtained then CC 4ill be
available for 5s. 6+00/:
f. #ssessee received so$e inputs are the cover of
an invoice. (he invoice is not in the na$e of
assessee.

#ccording to 5ule 2&1'/ CEN=#( credit can
be availed on the basis of certain specified
docu$ents. (he rule does not re7uire that the
invoice should be in the na$e of the assessee.
(herefore/ assessee can avail the CC on the
basis of invoice even though it is not in his
na$e provided goods are in his possession.
g. #n consign$ent of i$ported inputs 4as
received vide Bill of Entry sho4ing pay$ent of
#ccording to 5ule %&1' of CC5/ CC is not
available for BCD but it is available for ::
follo4ing duties . BCD : 5s. 1/000/ C=D : 5s.
1/!0/ -pecial C=D 5s. +1+ and applicable
ECR-3EC.
1. C=D : 5s. 1/!0
2. -pl C=D . 5s. +1+
h. # consign$ent of 1/000 Ig of inputs 4as
received. (he excise duty paid 4as per invoice
4as 5s. 10/000. >hile the inputs 4ere being
unloaded/ +0 Igs 4ere da$aged and it 4as
found that these 4ere not usable.
#ccording to 5ule 2&*'/ )nputs are the goods
4hich are used in the factory. )f the $aterial is
received but it cannot be used/ then it cannot
ter$ed as )nput and CC cannot availed on
unusable $aterial.
)n the given case/ +0 Igs of inputs are not
usable. (herefore/ credit can be availed for
2+0 Igs only i.e. 5s. 2/+00.
i. -o$e inputs 4ere received along 4ith photo
copy of the )nvoice. (he original or duplicate
copy of )nvoice 4as not traceable.
Cenvat credit cannot be ta*en on basis of
photo copy. )f assessee can procure triplicate
copy &available 4ith supplier'/ then he can
avail Cenvat credit.
@. +00 pieces of inputs 4ere received. duty paid on
these goods 4as 5s. 2/+00. (hese 4ere issued to
production. >hile on production line/ a fire
bro*e out and 200 pieces of inputs lying on
shop floor 4ere destroyed.
CEN=#( credit is available for all the inputs
used in the factory even if those are destroyed
during the process of $anufacture. )n the
given case reversal of credit is not re7uired for
inputs destroyed during the process of
$anufacture.
*. 1000 litres of inputs 4ere received on 4hich
duty paid 4as 5s. 10/000. Gut of these/ 2+0
litres of final products 4ere $anufactured. +0
litres of inputs 4ere lost during the process of
$anufacture
-a$e as above
l. -o$e inputs 4ere received on 4hich duty paid
4as 5s. 20/000. #ssessee used 0, of the
inputs but balance 60, could not be used due to
change in design. 3e $ade provision for
Nobsolete goods 4ritten offK in his boo*s of
account. 3o4ever/ the inputs 4ere still in his
store roo$.
#ccording to rule %&+B' if inputs are 4ritten
off in the boo*s of account or a provision is
$ade to 4rite off/ before inputs are put to use/
then the CC availed on the inputs shall be
reversed.
(herefore/ in the given case/ the assessee is
re7uired to reverse 5s. "/000 &60, of the total
credit on inputs'.
(he rule further provides that if such inputs
are used again then assessee can avail CC
again.
$. Cenvat credit of 5s. 10/000 4as ta*en on so$e
inputs. (hese 4ere never used and later sold as
scrap for 5s. 1+/000. Excise duty payable on
scrap is 1.6",.
)n this case/ the assessee 4ill have to reverse
Cenvat credit of 5s. 10/000. H5ule %&+'J
Practical Prolems on CE%VAT Credit

%ote9 )n $any 7uestion education cess has and -3EC has not been $entioned. Lou should assu$e that EC
and -3EC is also paid in addition to the a$ount of duty.
Prolem %o 1
#n assessee 4as availing --) exe$ption fro$ 1:6:2012. 3e crossed turnover 5s. 1+0 la*hs on 1+:11: 2012
and started pay$ent of excise duty. 3e had received $achinery on 10:11:2012 one 4hich excise duty paid
4as 5s. %/20/000. 3e intends to avail Cenvat credit of this duty. Can he do soF
&olution
#ccording to 5ule 6&2'/ an assessee availing --) exe$ption is entitled to availed 100, CEN=#( credit on
capital goods during the financial year in 4hich those goods are received. CEN=#( credit is available on
capital goods irrespective of the fact that the assessee is availing --) exe$ption. (his credit can be used by
the assessee only after his exe$ption li$it is exhausted.
)n the given case/ Capital goods are received during exe$ption period. (herefore/ the assessee can avail
100, CEN=#( credit during the sa$e financial year.
Prolem %o 2
&1' (he assessee received +00 pieces of inputs on 4hich duty of 5s. 2+00/: has been paid. >hile on
production line/ a fire bro*e out and 200 pieces of inputs lying on the shop floor 4ere destroyed.
&2' 1000 litres of oil/ an input/ 4as received on 4hich duty of 5s. 1"/000 has been paid. 0 liters of oil has
been lost during the process of $anufacture.
Discuss availability of CEN=#( credit in both of these cases.
&olution
&1' ;aterial destroyed before being used does not 7ualify to be input. (herefore/ CEN=#( credit availed on
+00 units destroyed due to file shall be reversed/paid bac* by the assessee.
&2' #ll the $aterial used in the factory is said to be input. 0 liters of oil lost during the process of
$anufacture is said to have been used. (herefore/ CEN=#( credit is ad$issible for entire 1000 liters.
Prolem %o. *
Exa$ine the validity of the follo4ing state$entsB
&i' Aurchased a plant for 5s. 1/1/6"0 cu$:duty price. Excise duty rate 1.6", on 12.12.2011 and
received the plant into the factory on +.6.2012. Cenvat allo4ed 4ill be only 5s. "/260 for the
year ended on % 1.%.2012.
&ii' #n assessee purchased inputs 4eighting 600 tons. (he duty paid on inputs 4as 5s. 60/000.
During transit/ 20 tons of the inputs 4ere destroyed. (he destroyed 7uantity of inputs does not
7ualify to be NinputsK 4ithin the $eaning of Cenvat Credit 5ules/ 2006.
Answer
&1' #s per 5ule 6&2'/ CC on capital goods can be availed on being received in the factory and not on the date
of purchase. )n the given case/ the goods are purchased on 12.12.2011 but those are received on 0+.02.2012.
(herefore credit cannot be availed before +.06.2012. )n other 4ords/ no CEN=#( credit is ad$issible
during the financial year 2011:12.
During financial year 2012:1% also CEN=#( credit is li$ited to +0, i.e. Rs. "260 and balance credit can
be availed during any of the subse7uent financial years.
&2' (he state$ent is correct. )t is to be noted that the $aterial destroyed before being put to use in the factory
does not 7ualify to be input and/ thus/ CC is not ad$issible on the 7uantity so lost.
Prolem %o 8
# $anufacturer procures certain inputs for 5s. 1/00/000 and duty 5s. 1/000 RECR-3EC. #s soon as he
receives the inputs/ he availed CEN=#( credit.
-ince he does not re7uire these inputs any $ore/ he sells those for 5s. 1/%0/000 &lu$p su$'. Exa$ine the
a$ount of duty payable by the assessee if
&a' Gn the date of clearance/ duty rate on inputs 4as 20,
&b' Gn the date of clearance/ duty rate on inputs 4as 10,.
&olution9
#ccording to 5ule %&+' of the CEN=#( Credit 4hen inputs are re$oved Nas such/K the assessee is re7uired
to reverse or pay bac* the a$ount of CEN=#( credit ta*en by the assessee. (herefore/ in the given case/ the
assessee need not pay any duty but he shall reverse the CEN=#( credit ta*en by hi$ on inputs.
)t is to be noted that 4hile $a*ing reversal/ change in value as 4ell as in rate of duty beco$es i$$aterial.
)t is also relevant to note that the reversal is re7uired to be $ade i$$ediately on re$oval of goods. )n case
of reversal facility of $a*ing pay$ent of duty on $onthly or 7uarterly basis does not apply.

&imilar sum (or practice
#n assessee had procured so$e inputs in ;ay 2012 for Rs. 20 la*hs and paid duty of Rs. %/20/000 & O
1,' plus education cess of 5s. /600. 3e 4as unable to use the inputs in vie4 of change in $ar*et
conditions. 3e sold the inputs in ;arch 201% for 5s. 1/00/000. 3o4 $uch NdutyK or Na$ountK is payable
4hile clearing the inputsF
Prolem %o. 1
;/s #9; i$ported so$e inputs and paid Basic Custo$s duty #s. + la*hs/ surcharge on custo$s duty 5s.
+0/000 and #CD 5s. 1 la*h. Calculate the a$ount that he can clai$ as Cenvat credit. >ould it $a*e any
difference/ if the assessee is not a $anufacturer/ but a service provider &C& 1inal ;ay 200'
Answer
#s per 5ule %&1' of the Cenvat Credit 5ules/ 2006/ CEN=#( credit is not available for Basic Custo$ Duty
as 4ell as for any -urcharge thereon. )t is available only for #dditional Custo$ duty paid under section %&1'
of the Custo$ (ariff #ct.
# service provider can avail credit only if the i$ported goods are used by hi$ as input for providing output
service.
Prolem %o. ?
Based on the follo4ing infor$ation/ deter$ine the CEN=#( Credit available for use in the current year
under the CEN=#( Credit 5ules/ 2006
H#$ount after each ite$ indicates Central Excise duty paid at the ti$e of Aurchase of goods. EC and -3EC
is in addition to the a$ount of dutyJ
(#s.! .
&a' Aollution control e7uip$ents : 5s 2+/000
&b' -pares for pollution control e7uip$ents : 5s +/000
&c' E7uip$ents used in office : 5s 12/000
&d' -torage (an* : 5s 10/000
&e' Aaints used for painting $achinery used : 5s /000
&f' Aac*ing $aterial : 5s 6/000
&g' 9ubricating oils : 5s "/000
&h' 3igh -peed diesel oil : 5s !/000
Answer9
Aarticulars of
goods
Nature
of
0oods
Duty
paid
Education
Cess
Cenvat
Credit
Eligible in
Current year
5eason 5e$ar*s
Aollution
Control
E7uip$ents
Capital
goods
2+000 !+0 12+00 %!+ CEN=#( credit is li$ited to +0,
-pares for
Aollution
control
E7uip$ent
Capital
goods
+000 1+0 2+00 !+ CEN=#( credit is li$ited to +0,
E7uip$ent
used in office
Not a
Capital
goods
12000 %0 Nil Nil
Credit is not available for the goods
used in office.
-torage (an*
Capital
goods
10000 %00 +000 1+0 CEN=#( credit is li$ited to +0,
Aaints used
for painting
;achinery
)nputs 000 1"0 000 1"0 100, Credit is available on )nputs
Aac*ing
;aterial
)nputs 6000 120 6000 120 100, Credit is available on )nputs
9ubricating
Gils
)nputs "000 260 "000 260 100, Credit is available on )nputs
3igh speed
diesel
Not a
)nput
!000 210 nil No CEN=#( Credit.
(otal Credit available in Current year %"000 1160
Prolem %o. >
Discuss about the eligibility of CEN=#( Credit in each of the follo4ing situations .
&ii' 1000 *gs of ra4 $aterials 4ere purchased on 4hich duty of 5s. 1/000 4as paid. >hilst in the
production yard those goods 4ere destroyed by accidental fire.
&iii' 1000 *gs of ra4 $aterials on 4hich duty paid 4as 5s. 10/000 4as used in $anufacture of a final
product for 4hich the duty payable is 5s. "000
&iv' (he original invoice for 1/000 units of inputs purchased 4ere $issingC ho4ever Nduplicate for
transportK copy of invoice is available/ 4hich sho4s that duty of #s. 10/000 had been paid on inputs
Answer
&i' Credit is available on inputs only 4hen used in $anufacture. )f inputs are destroyed before being
used in the process of $anufacture/ CEN=#( credit already availed shall be reversed or paid bac*.
)n other 4ords/ in the given case/ CEN=#( credit is not available.
&ii' )f finished goods are dutiable then full CEN=#( credit is available on inputs. )t is i$$aterial that
the a$ount of duty paid on input is higher than the duty payable on the finished goods. (herefore/
in the given case/ credit is available for 5s. 10/000 out of 4hich 5s. "/000 shall be utili?ed to pay
duty on finished goods and balance 5s. 2/000 shall be carried for4ard.
&iii' #s per rule 2 of the CC5/ CEN=#( credit can be availed on the basis of certain specified
docu$ents only. 5ule 2 does not re7uire only original copy for availing the credit. #s long as all
the particulars are available on the transporters copy/ credit can be availed.
Prolem %o. <
3 9td. purchased a Boring:brilling $achine at a cu$:duty price of 5s. %2/16/6!. (he Excise duty rate
charged on the said $achine 4as O 1, RECR-3EC. (he $achine 4as purchased on 01.06.2011 and
disposed of on %0.02.2012 for a price of 5s. 12 la*hs. (he co$pany 4as clai$ing depreciation O 2+,
follo4ing -traight 9ine ;ethod. Ssing the said infor$ation/ ans4er the follo4ing 7uestionsB
&i' 4hat is the Excise duty paid on the $achineF
&ii' >hat is the Cenvat credit allo4able under Cenvat 5ulesF
&iii' >hat is the a$ount of Cenvat credit reversible or duty payable at the ti$e of clearance of the said
$achinery
&olution
1. #ccording to 5ule 6&6'/ the assessee can either clai$ depreciation on the a$ount of duty or
CEN=#( credit.
2. (he assessee is al4ays authorised to clai$ depreciation for the value of goods excluding
a$ount of duty for 4hich CEN=#( credit is clai$ed. (his depreciation on the value of goods does not
affect right of the assessee to clai$ CEN=#( credit for the a$ount of duty paid on $achine.
%. #ccording to 5ule 6&2'/ CEN=#( credit on capital goods is li$ited to +0, during first
financial year in 4hich goods are received and balance credit can be availed in any of the subse7uent
financial years.
6. #ccording to 5ule %&+#'/ if goods are re$oved after partial use/ the assessee is entitled to
retain 2.+, of the total credit for every three $onths or part thereof and balance credit shall be reversed.
Calculation of Excise duty/ CEN=#( credit and reversal
Cu$ duty price %2/16/6!
#ssessable =alue %2166! x 100/11.6" 2!/+2/"1
Excise duty including EC and -3EC %, of duty 6/+6/!2+
Availailit0 o( Cenvat credit
During first year :+0, of 5s. 6+6!2+ 2/2!/%2"
During subse7uent year . re$aining +0, Gf 5s. 6+6!2+ 2/2!/%2!
Credit of EC available only on pay$ent of EC
Cenvat credit reversile at t)e time o( clearance
Cenvat Credit availed in year 11:12 5s. 2/2!/%2"
9essB 2.+, per 7uarter for 7uarters:1+, %6610 1/2%/2""
Cenvat Credit availed in year 12:1% 2/2!/%2!
9ess B 2.+, per 7uarter for 2 7uarters 11%!1 2/1/02!
(otal a$ount of CEN=#( credit reversible / payable at the ti$e of clearance 6/02/%1+
Prolem (or Practice
1. #n assessee had procured $achinery in #pril 2011 for 5s 10 la*hs by paying duty of 5s 1/0/000. )t 4as
co$$issioned in <une 2011. #ssessee had availed +0, Cenvat credit of 5s "0/000 in 20011:12/ and 5s
"0/000 &balance +0, credit' in 2012:1%. 3e sold the capital goods after use/ on 10
th
#pril 210% as second
hand goods for 5s %/00/000. 3o4 $uch excise duty or Na$ountK is payable 4hile clearing the $achineryF
2. ;achinotech 9td. purchased a lathe $achine at a price of Rs. 1/00/000 on 4hich 1, Excise duty 4as
paid and the co$pany availed of the Cenvat credit on the said capital goods. (he lathe $achine 4as
purchased on 2!:01:2010 and it 4as disposed of on 22:06:2011. 3o4 $uch CEN=#( credit and 4hen it
can be availed by the assessee. )s it necessary to reverse the cenvat credit on disposal of the $achineF )f your
ans4er is yes/ 7uantify the a$ount.
Prolem %o. 14
S(= 9i$ited $anufactures 10/000 units of Aroduct N#K having assessable value of 5s. 600/: per unit
attracting duty of 5s. 1/: per unit &all inclusive'. S(= 9i$ited has paid duty of 5s. %/00/000 on inputs.
Gut of 10/000 units $anufactured by S(= 9i$ited/ 2/000 units are sold in )ndia and re$aining "/000 are
exported. Based on these fact/ ans4er the follo4ing 7uestions .
&i' >hat is CEN=#( credit availableF
&ii' >hat is the duty payable through personal ledger account &A9#'F
&iii' Can S(= 9td. get any refund of CEN=#( creditF
Answer9
&i' CEN=#( credit is available for the inputs used in $anufacture of dutiable goods. Export goods
are also dutiable if sold in )ndia but particular transaction of export is exe$pt. Export goods cannot
be referred as exe$pted goods. (herefore/ credit is available even for the inputs used in $anufacture
of export goods.
)n the given credit the assessee is entitled to get credit of 5s. %/00/000 i.e. duty paid on inputs.
&ii' Duty is payable only on the goods re$oved 4ithin )ndia. (he assessee is re7uired to pay duty on
2000 units O 5s. 1/: per unit i.e. 5s. %2/000. (he assessee is having sufficient credit balance/
therefore nothing is payable through A9# &cash'.
&iii' Les/ the assessee is entitled for refund. #ccording to 5ule + of CC5/ the assessee is entitled to
get refund of CEN=#( credit availed on inputs used in $anufacture of export goods in accordance
4ith the prescribed for$ula.

#pply your understanding
# $anufacturer $anufactures 1/000 units of product NAK having a/ #ssessable =alue of 4hich is Rs. 2/000
per piece. Duty payable is 20,.
Duty paid on ra4 $aterials is 5s. 2/00/000RECR-3EC. (he $anufacturer sells !00 pieces in )ndia and %00
pieces are exported. >hat is CEN=#( available and 4hat is the duty payable through A9#F
Prolem %o. 11
;)s (ips and (oes 9d./ $anufactures four types of DNail AolishesE/ na$ely -4eety/ Aretty/ Beauty/ (4eety.
(he co$pany has availed CEN=#( credit of 5s. 6/00/000 on the co$$on inputs used in the $anufacture of
NNail AolishesK during the financial year 2011:12 the co$pany $anufactured 1000 litres of each type of Nail
AolishesE. (he CEN=#( availed input 4as used in e7ual proportion in all the four types of the products.
Exa$ine the availability of Cenvat Credit and duty payable
Aroduct Nature of -ale
-ale Arice excluding -ales (ax U
other local taxes
-4eety -ale to 3o$e Consu$ption 5s. %0 per 20 $l bottle
Aretty -old to a 144A EGS 5s. 60 per 20 $l bottle
Beauty 1ully exported 5s. +0 per 20 $l bottle
(4eety -upplied to defence Canteen under exe$ption 5s. 0 per 20 $l bottle
&olution
(he assessee is authorised to avail full CEN=#( credit for the inputs used in $anufacture of the goods
4hich are re$oved for
1. 3o$e consu$ption
2. Export
%. -upplied to 100, EGS
)n respect of goods supplied to defence canteen/ the assessee is having follo4ing options .
1. )f assessee is $aintaining separate record for use of inputs used in $anufacture of various articles/ then
CEN=#( credit cannot be availed on the inputs used in $anufacture of goods supplied to defence canteen
or
2. Gn re$oval of goods to defence canteen duty can be paid O , or
*. CEN=#( credit availed on inputs used in $anufacture of goods supplied to defence can be reversed in
accordance 4ith the for$ula prescribed under rule &%#'.

Prolem %o 12
#n assessee cleared his $anufactured final Aroduct during the $onth of <anuary 201%. (he duty payable on
the final product for the $onth is .
Basic excise duty 5s. 6"/000/
NCCD 5s.2000 and applicable education cess.
During the $onth he has received various inputs total duty paid on the inputs 4as as follo4s.
Basic Excise duty 5s. 60000/
-pecial excise duty 6000/
-ervice tax paid on input services 5s. "000.
#pplicable education cess and -3EC 4as also paid. 3o4 $uch duty is payable through account current
&olution
/E' &E' %CC' &ervice
Tax
EC and
&7EC
Total
Credit
availale
60/000 6/000 "000 1/00 +%/00
'ut0 pa0ale 6"/000 2000 1+00 +1+00
BED can be paid out
of credit of BED/
-ED as 4ell as -(.
(here is surplus
credit of 5s. 6/000.
%CC' is
pa0ale onl0 in
cas) or out o(
%CC' credit.
&ince t)ere is no
credit (or
%CC'3 t)en it is
pa0ale in cas)
onl0
(his credit
can be used
to pay
BED/ -ED/
EC/ -3EC
Credit
exceeds the
liability.
(herefore/
excess credit
can be
carried
for4ard
Prolem (or Practice
#n assessee cleared his $anufactured final Aroduct during the $onth of ;arch 201%. (he duty payable on
the final product for the $onth is .
Basic excise duty 5s. 200000/
-pecial excise duty 5s. 1/00/000 and applicable education cess.
During the $onth he has received various inputs total duty paid on the inputs 4as as follo4s ::
Basic Excise duty 5s. +0000/
-pecial Excise duty is 5s. +000.
Excise duty paid on capital goods received during the $onth 4as 5s. 12000
-ervice tax paid on inputs 5s. 1000/
#pplicable EC and -3EC 4as also paid. 3o4 $uch duty is payable through account current

Prolem %o 1*
P availed Cenvat credit of 5s. 62/000 for $anufacture of an ite$ chargeable to duty. (hese goods 4ere
lying in his factory till 22:02:201%. 1ro$ 1.%.201% the final product 4as $ade exe$pt fro$ duty. >hat is
the responsibility of assessee in respect of CEN=#( credit.
&olution
#ccording to 5ule 11 of CC5/ if finished goods beco$e exe$pt/ the assessee shall reverse CC for all the
inputs lying in stoc* as 4ell as inputs contained in the finished goods in stoc*.
)n the given case/ all the finished goods are in stoc* 4hen dutiable goods beco$e exe$pt. (herefore/ the
assessee is re7uired to $a*e reversal of CEN=#( credit of 5s. 62/000.

Prolem %o 18
A $anufacturer received certain inputs. (he cost of inputs 4as 5s. 2/00/000 and duty paid O 1, 4as Rs.
%2/000. #fter receipt of the inputs/ the cenvat credit 4as availed of by the $anufacturer. 3e further carried
out so$e processes on the inputs. (he cost of processing was 5s. +0/000. (he se$i:processed $aterial 4as
sent to a s$all:scale unit for a @ob 4or*. :)s there any duty payable at the ti$e of re$oval of inputs for the
@ob 4or*F (he $aterial sent 4as not returned by the s$all: scale unit after the @ob 4or* 4ithin 1"0 days.
>hat 4ill be the duty payable on such goods not returned after being sent out for the @ob 4or*F
&olution
#ccording to 5ule 6&' of the CC5/ if inputs or se$i:finished goods are sent for @ob 4or* 4ithout paying
duty and if those are not returned 4ithin 1"0 days/ the assessee is re7uired to $a*e reversal of the CEN=#(
credit on the inputs/inputs used in se$i finished goods for the @ob:4or*.
)n the given case/ if goods are not returned 4ithin 1"0 days since re$oval for @ob:4or*/ the assessee is
re7uired to $a*e reversal of the credit availed. 3o4ever/ special per$ission can also be obtained for
re$oval of finished goods fro$ the pre$ises of @ob:4or*er and in that case/ duty 4ill be payable on
assessable value of finished goods.

Prolem %o 11
A -$all -cale )ndustrial unit &--)' is re7uired to pay the follo4ing central excise duties by <anuary 10/ 201%
for clearances effected fro$ its factory in respect of final products $anufactured during the $onth of
Dece$ber/ 2012B
Basic Excise Duty &B.E.D.'B 5s.%/000
-pecial Excise Duty &-.E.D.'B 5s.1"/000
National Cala$ity Contingency Duty &N.C.C.D.'B 5s.1/000
EC and -3EC as applicable
Balances available as credit at the beginning of the $onth i.e. Dece$ber/ 2012 4ere as follo4sB
BED 5s. 26/000
N.C.C.D. 5s. 2/000
E.C. 5s. !"0
No inputs 4ere received during the $onth. 3o4ever/ certain inputs 4ere received on <anuary 1/ 201% on
4hich total duty paid by the suppliers of inputs 4as as follo4sB
B.E.D 5s.1000/
E.C. and S.H.E.C 5s.6"0
Excise duty paid on capital goods received during the $onth 4as as follo4sB
B.E.D. 5s.60/000/
E.C. and -3EC 5s.1200
1or the $onth of Dece$ber/ 2012 you are re7uired to deter$ineB
&i' the credit available for utili?ationC
&ii' the per$issible extent to 4hich such available credit $ay be utilised against pay$ent of
B.E.D./-.E.D./ N.C.C.D./ and E.C.C and
&iii' (he B.E.D./ -.E.D./ and E.C. payable through account current &A.9.#.'.
&olution
CE%VAT credit availale (or utili:ation
Excise &E' %CC' EC &7EC Total
$penin!
alance
26/000 : 2/000 +20 20 2/!"0
Inputs received
in 'ecemer
214*
: : : : : :
Capital Eoods
received in
'ecemer 2412
20/000 600 200 20/00
Total 66/000 : 2/000 220 60 6!/%"0
Excise &E' %CC' EC &7EC Total
'ut0 pa0ale %/000 1"/000 1/000 1100 ++0 +/+0
Credit
availale
66/000 2/000 220 60
T)rou!) CC %/000 "/000 1/000 220
/0 cas) : 10/000 : 1"0 20 10/2!0
&urplus carried
(orward
: : 1/000 : : 1/000
Prolem %o 1?
#n assessee cleared various $anufactured final products during <anuary 201%. (he duty payable for <anuary
201% on his final products 4as as follo4s : Basic : 5s. 2/00/000 EC and -3EC : as applicable.
During the $onth/ he received various inputs on 4hich total duty paid by suppliers of inputs 4as as follo4s
.
Basic duty : 5s. +0/000/
Education Cess : 5s. 1/000/
-3EC : 5s. +00.
Excise duty paid on capital goods received during the $onth 4as as follo4s .
Basic duty : 5s. 12/000.
Education Cess : Rs. 260.
-3EC : Rs. 120.
-ervice tax paid on input services 4as as follo4s : -ervice (ax : 5s. 10/000. Education cess : 5s. 200 -#3
Education Cess : 5s. 100.
3o4 $uch duty the assessee 4ill be re7uired to pay by 5&#-6 challan for the $onth of <anuary 201%/ if
assessee had no opening balance in his A9# account2 >hat is last date for pay$entF
Answer
CEN=#( credit available for <anuary 201%
Excise Duty/-( EC -3EC (otal
)nputs +0/000 1/000 +00 +1/+00
Capital 0oods /000 120 0 /1"0
)nput -ervice 10/000 200 100 10/%00
(otal /000 1/%20 0 !/2"0
Aay$ent of duty through CC and through 0#5 !
Duty #$ount Aay$ent through CC Aay$ent through 0#5 !
Excise 2/00/000 /000 1/%6/000
EC 6/000 1/%20 2/"0
-3EC 2/000 0 1/%60
#ccording to 5ule " of CE5/ the duty shall be paid 4ithin + days after the end of the $onth but 4here e:
pay$ent is $ade/ instead of + days/ days are allo4ed. )t is also to be noted that e:pay$ent is co$pulsory
for the assessee 4ho has paid duty of 5s. 10.00 lacs or $ore during the preceding financial year.


In the case of specific rate of
duty, the basis of levy is a specific
quantity of goods such as weight,
length, volume, number of units
produced etc. Thus specific rate of
duty has no relevance to the
selling price or value of the
excisable goods and is, in fact,
independent of it e.g. Rs. 50! per
"# or Rs. 5000! per "$
In the case of ad-valorem rate of duty, the
basis of levy is the value of the goods. It is,
therefore, necessary to determine the %value&
of the excisable goods and then apply the
ad!valorem rate of duty which is a fixed
percentage of the value, say, '5( ad!
valorem, )0( ad!valorem etc. Thus, ad!
valorem rate of duty is entirely related to and
is dependant on the value of excisable goods
e.g. )0( or *(.

Valuation o( Excisale Eoods
Snder Central Excise #ct/ excise duty $ay be specific or ad:valore$. -pecific duty is 7uantity based 4hile
ad:valore$ duty is value based. (his chapter is relevant only 4here duty is ad:valore$.
T0pes o( 'uties under t)e Central Excise
(his chapter deals 4ith deter$ination of assessable value on the basis of 4hich duty $ay be charged. )t is to
be noted that NpriceK and NvalueK are not synony$ous ter$s for the purpose of excise. (he assessable value
for the purpose of duty $ay be :
&a' (ariff =alue fixed by Central 0overn$ent under -ection %&2' of Central Excise #ct/ 1266C or
&b' Gn the basis of valuation under -ection 6 of Central Excise #ct/ 1266B
&i' (ransaction =alue
&ii' =aluation as per Central Excise =aluation &Deter$ination of Arice of Excisable 0oods'
5ules/ 2000/ or
&c' Gn the basis of 5etail -ale Arice . =aluation under -ection 6# of Central Excise #ct/ 1266.
Valuation under &ection *(2# o( Central Excise Act3 1<88 i.e.3 Tari(( Value
(he Central 0overn$ent $ay/ by notification in the Gfficial 0a?ette/ fix/ for the purpose of levying
CEN=#( or -pecial Excise Duty on any articles chargeable 4ith duty ad valorem, the Central Government
may, by notification in the Gfficial 0a?ette /
1ix the tariff value of any article enu$erated in 1irst/-econd -chedule
#lter any tariff values for the ti$e being in force.
Snder -ection %&%'/ the Central 0overn$ent $ay fix different tariff values for V
&a' Different classes or descriptions of the sa$e excisable goodsC or
&b' Excisable goods of the sa$e class or descriptionV
(i) rodu!ed or manufa!tured "y different !lasses of #rodu!ers or manufa!turers$ or
(ii) sold to different !lasses of "uyers%
Arovided that in fixing different tariff values/ regard shall be had to the sale prices charged by the different
classes of producers or $anufacturers/ or the nor$al practice of the 4holesale trade in such goods.
Century &anufa!turin' Com#any (imited ). *+, - -ection 6 is sub@ect to section %&2' i.e. 4hen tariff value
is fixed/ provision of section 6 4ill not be applicable. -ection %&2' over rides section 6. -ection %&2' and
section 6# are $utually exclusive.
Valuation under &ection 8A or "&P ased Valuation
(.) /he Central Government may, "y notifi!ation in the +ffi!ial Ga0ette, s#e!ify any 'oods, in relation to
whi!h it is re1uired, under the #rovisions of the (e'al &etrolo'y A!t, 2332 or the rules made thereunder or
under any other law for the time "ein' in for!e, to de!lare on the #a!4a'e thereof the retail sale #ri!e of
su!h 'oods, to whi!h the #rovisions of su"-se!tion (2) shall a##ly.
(2) 5here the 'oods s#e!ified under su"-se!tion (.) are e6!isa"le 'oods and are !har'ea"le to duty of
e6!ise with referen!e to value, then, notwithstandin' anythin' !ontained in se!tion 7, su!h value shall "e
deemed to "e the retail sale #ri!e de!lared on su!h 'oods less su!h amount of a"atement, if any, from su!h
retail sale #ri!e as the Central Government may allow "y notifi!ation in the +ffi!ial Ga0ette.
(8) /he Central Government may, for the #ur#ose of allowin' any a"atement, ta4e into a!!ount the amount
of duty of e6!ise, sales ta6 and other ta6es, if any, #aya"le on su!h 'oods.
(7) 5here any 'oods s#e!ified under su"-se!tion (.) are e6!isa"le 'oods and the manufa!turer-
(a) removes su!h 'oods form the #la!e of manufa!ture without de!larin' the retail sale #ri!e of su!h 'oods
on the #a!4a'es or de!lares a retail sale #ri!e whi!h is not the retail sale #ri!e as re1uired to "e de!lared
under the #rovisions of the A!t, Rules or other law as referred to in su"-se!tion (.) $ or
(") tam#ers with, o"literates or alters the retail sale #ri!e de!lared on the #a!4a'es of su!h 'oods after
their removal from #la!e of manufa!ture,
then, su!h 'oods shall "e lia"le to !onfis!ation and the Central Government shall as!ertain in the
#res!ri"ed manner the retail sale #ri!e of su!h 'oods and the retail sale #ri!e so as!ertained shall "e
deemed to "e the retail sale #ri!e for the #ur#oses of this se!tion.
E6#lanation .% 7#etail sale price7 means the ma6imum #ri!e at whi!h the e6!isa"le 'oods in #a!4a'ed
form may "e sold to the ultimate !onsumer and i"clu'es all ta6es lo!al or otherwise, frei'ht, trans#ort
!har'es, !ommission #aya"le to dealers, and all !har'es towards advertisement, delivery, #a!4in',
forwardin' and the li4e, as the !ase may "e, and the #ri!e is the sole !onsideration for su!h sale.
rovided that in !ase the #rovisions of the A!t, Rules or other law as referred to in su"-se!tion (.) re1uired
to de!lare on the #a!4a'e, the retail sale #ri!e e6!ludin' any ta6es, lo!al or otherwise, the retail sale #ri!e
shall "e !onstrued a!!ordin'ly. 9:ov. 3;<
E6#lanation 2%
(a) 5here on the #a!4a'es of any e6!isa"le 'oods more than one retail sale #ri!e is de!lared, the ma6imum
of su!h retail sale #ri!e shall "e deemed to "e the retail sale #ri!e$
(") 5here the retail #ri!e de!lared on the #a!4a'e of any e6!isa"le 'oods at the time of its !learan!e from
the #la!e of manufa!ture, is altered to in!rease the retail sale #ri!e, su!h altered retail sale #ri!e shall
"e deemed to "e the retail sale #ri!e.
(!) 5here different retail sale #ri!es de!lared on different #a!4a'es for the sale of any e6!isa"le 'oods in
#a!4a'ed form in different areas, ea!h su!h retail #ri!e shall "e the retail sale #ri!e for the #ur#oses of
valuation of the e6!isa"le 'oods intended to "e sold in the area to whi!h the retail sale #ri!e relates.
Applicailit0
Arovisions of section 6# are applicable if all the follo4ing re7uire$ents are satisfied .
a' (he goods are satisfied goods
b' (he goods are already covered under the 9egal ;etrology #ct/ 2002/ and
c' (he goods have been notified by the central govern$ent under sub:section &1' of this section.
3o4ever/ in follo4ing cases/ provision of section 6# 4ill not be applicable even if all the aforesaid
re7uire$ents are satisfied ::
a' (he 4eight is less than 10 gra$s
b' 9i7uid contents are less than 10 ;9
c' (he goods covered under section 6# are not being re$oved in consu$er pac*
d' (he goods covered under section 6# are being offered as free along 4ith the goods covered under
section 6.
Assessale value
(he assessable value of the goods covered under section 6# shall be the 5-A declared on the goods reduced
by the rate of abate$ent prescribed by the Central 0overn$ent i.e.
#= Q 5-A declared &:' Arescribed rate of abate$ent
"ate o( aatement
(he rate of abate$ent is fixed the Central 0overn$ent after ta*ing into account all the expenses incurred by
the assessee/ any bro*erage or co$$ission/ his prodit $argin as 4ell as all applicable taxes. )t $eans except
the prescribed rate of abate$ent no other deduction shall be ad$issible.
Iew examples o( rate o( aatement prescried 0 Central Eovernment9 (list illustrative and not
e6haustive)% 0overn$ent has notified 22 categories of goods under section 6#. 1e4 of the$ are as under
'escription Aatement as a A o( "&P
Condensed ;il* %+,
Chocolates %+,
(oothpaste %+,
1oot4ear 60,
Electric 1ans 60,
#erated >aters 6+,
)ce Crea$ 6+,
(he procedure of valuation of calculation of central excise duty $ay be understood 4ith the follo4ing
exa$pleB
;5A is affixed on product DPE/ including sales tax O %,/ is 5s. 100/:. 5ate of 5ebate is 60, in ter$s of
notification no. 2/200. 5ate of Excise Duty is 1, and Cess %, &2, R 1,'. >holesale price of the
product is 5s. 6+ 4ith duties of excise and local taxes.
No4 for the purpose of Excise duty the follo4ing steps should be ta*enB
1 ;5A 5s. 100
2 9ess 5ebate O 60, 5s. 60
% =alue on 4hich excise duty is to be paid 5s. 0
6 #$ount of duties 5s. 2."""
a. Basic Excise Duty O 1, Q 5s. 2.
b. Education Cess O 2, Q 5s. 0.122
c. -3 Education Cess O 1, Q 5s. 0.02
+ 1or the purpose of calculation of excise duty actual sale price shall be
ignored.
9ocal taxes li*e sales tax shall be ignored
! #ny discount 4hether 7uantity discount / volu$e discount or
perfor$ance discount shall be ignored
" #ll other ad@ust$ents prescribed under section 6 shall be ignored.
2. Arovisions of Central Excise =aluation &Deter$ination of Arice of
Excisable 0oods' 5ules/ 2000 shall be ignored.
Contravention
1ollo4ing contraventions can ta*e place under this section .
a' 5-A is re7uired to be declared on the goods but it is not decalredC
b' (he value declared on the goods is not the 5-AC or
c' 5-A declared on the goods has been obliterated
)n any such case/ the goods are liable to be confiscated and the 5-A shall be ddeter$ined in accordance 4ith
the prescribed 5ules.
Central Excise ('etermination o( "etail &ale Price o( Excisale Eoods# "ules3 244H
1.&1' (hese rules $ay be called the Central Excise &Deter$ination of 5etail -ale Arice of Excisable 0oods'
5ules/ 200".
&2' (hey shall co$e into force on the date of their publication in the Gfficial 0a?ette.
2. )n these rules/ unless the context other4ise re7uires/:
&a' M#ctM $eans the Central Excise #ct/ 1266 &1 of 1266'C
&b' Mretail sale priceM $eans the retail sale price as defined in section 6# of the #ctC and
&c' 4ords and expressions used in these rules and not defined but defined in the #ct or any other rules
$ade under the #ct shall have the $eaning as assigned therein.
*. (he retail sale price of any excisable goods under sub:section &6' of section 6# of the #ct/ shall be
deter$ined in accordance 4ith these rules.
8. >here a $anufacturer re$oves the excisable goods specified under sub:section &1' of section 6# of
the #ct/:
&a' 4ithout declaring the retail sale price on the pac*ages of such goodsC or
&b' by declaring the retail sale price/ 4hich is not the retail sale price as re7uired to be declared under
the provisions of the -tandards of >eights and ;easures #ct/ 12! &0 of 12!' or rules $ade
thereunder or any other la4 for the ti$e being in force C or
&c' by declaring the retail sale price but obliterates the sa$e after their re$oval fro$ the place of
$anufacture/ then/ the retail sale price of such goods shall be ascertained in the follo4ing $anner/
na$elyB:
&i' if the $anufacturer has $anufactured and re$oved identical goods/ 4ithin a period of one
$onth/ before or after re$oval of such goods/ by declaring the retail sale price/ then/ the said
declared retail sale price shall be ta*en as the retail sale price of such goodsB
&ii' if the retail sale price cannot be ascertained in ter$s of clause &i'/ the retail sale price of such
goods shall be ascertained by conducting the en7uiries in the retail $ar*et 4here such goods have
nor$ally been sold at or about the sa$e ti$e of the re$oval of such goods fro$ the place of
$anufactureB
Arovided that if $ore than one retail sale price is ascertained under clause &i' or clause &ii'/ then/ the )i!)est
o( t)e retail sale price/ so ascertained/ shall be ta*en as the retail sale price of all such goods.
Explanation.: 1or the purposes of this rule/ 4hen retail sale price is re7uired to be ascertained based on
$ar*et in7uiries/ the said in7uiries shall be carried out on sa$ple basis.
1. >here a $anufacturer alters or ta$pers the retail sale price declared on the pac*age of goods
after their re$oval fro$ the place of $anufacture/ resulting into increase in the retail sale price/
then such increased retail sale price shall be ta*en as the retail sale price of all goods re$oved
during a period of one $onth before and after the date of re$oval of such goods.
,ultiple "&Ps
;ultiple 5-As declared on the
goods but there is only one
valid 5-A and re$aining have
been cancelled by assessee
;ultiple valid 5-As are
declared on the goods &for any
reason'
Different 5-As have been
declared on different units of
the sa$e goods
#ssess$ent shall be based on
declared valid 5-A only
#ssess$ent shall be based on
highest declared 5-A
Each unit shall be assessed
according to 5-A declared on
it.
,ulti-pac2
>hen $ore than one assessable units of the goods are contained in the sa$e pac*/ it is referred as
$ultipac*. #ssessable value of the $ultipac* shall be deter$ined in accordance 4ith BoardKs Circular dated
2"
th
1ebruary 2002 has clarified as under .
&a' )f individual ite$ co$prises the $ulti:pac* &t4o or $ore ite$s 4ith ;5A printed' have clear
$ar*ing that they should not be sold separately or they are pac*ed in such a 4ay that they cannot be
sold separately then ;5A indicated on the $ulti:pac* 4ould be the basis for section 6#.
&b' >here individual ite$ do not contain such an inscription and they are capable of being sold
separately at the ;5A printed on the individual pieces/ then aggregate of ;5As of the prices
co$prising the $ulti:pac* 4ould be considered for pay$ent of duty under section 6#.
&c' >here the individual ite$s have ;5As printed on the$ but are scored out/ then only valid ;5A on
the $ulti:pac* 4ould be adopted.
&d' )f an individual ite$ is supplied free in the $ulti:pac* and has no ;5A printed on it/ the ;5A
printed on the $ulti:pac* 4ould be for the purpose of section 6#.
#e%u"'a+le securit( 'eposit . (he issue has been clarified by the Depart$ent vide Circualr No.
6%/%6/2002. #ccording to it/ if cost of reusable containers &glass bottles/ crates etc.' is a$ortised and
included in the cost of the product itself/ the 7uestion of adding any further a$ount does not arise except
4here audit of accounts reveals that such cost has not been a$ortised and included in the value of the
product.
#. CCE6 ). e#si =oods (imited . >hen the goods falling under section 6# are supplied free of cost
4ith other products and the pac*et of such goods does not bear any ;5A/ the such goods 4ill be
assessed under section 6 and not under section 6#.
B. &ount Everest &ineral 5ater (imited ). CCE6 - (he assessee had different sale prices on its
$ineral 4ater bottles for sale in different regions. )t contended that each of those prices should be
ta*en for assess$ent depending upon to 4hich region this is cleared.
3eld that the assessee did not satisfy the re7uire$ent under explanation 2&c' to section 6# that
$ar*ing of different prices $ust be on different pac*ages. (hus/ as per explanation 2&a' the highest
price declared on the pac*age is to be ta*en into account for valuation.
C. ,ndi!a (a"oratories vt. (td. )s. CCE6., Ahmeda"ad - )n case of ;5A based assess$ent/ no
deduction is ad$issible for 7uantity discount and actual transaction value is also irrelevant.
D. Rallis ,ndia (imited )s. CCE6., :a'#ur 9233><9/ri-&um< . )f goods covered under section 6# are
not offered for sale in retail but those are supplied free of cost then valuation of such goods has to
be done under section 6 and not under section 6#.
E. ?wality @is!uits vt. (td. )s. CCE6.(A#) 9233><9/ri-@an'< - 0oods covered under section 6# are
to be valued under these provisions only even if goods are sold in bul*.
1. Arovisions of -tandards of >eight U ;easures &Aac*aged Co$$odities' 5ules/ 12!! shall apply in
case of bul* sale of ice crea$ in pac*ages to hotel/catering industry etc. and accordingly/ the
assesee is re7uired to declare the retail sale price on such pac*ages. HCir!ular :o. A78B.B233>-CC
dated .>.3..233>J
0. >here different ;5As are $entioned on different pac*eages of the sa$e co$$odity/ the area in
4hich such pac*ages have to be sold need not $entioned on it and the ;5A declared on each of
the$ is re7uired to accepted for assess$ent. G*DARA/ G+(EC+,: CERA&,CS (/E. )s.
C+&&,SS,+:ER += C. EC., RAD?+/ - 233A (228) E.(./. ;;F (/ri. - Ahmd.)
8uestio"9 : ;imite' ma"u%actures t)o pro'ucts "amel( <&= a"' <-=.& is a speci%ie' pro'uct u"'er
sectio" >& o% t*e Ce"tral Excise &ct? 19>>.2*e sale prices o% +ot* t*e pro'ucts are #s. 50/- per u"it a"'
#s. 0/- per u"it respecti/el(. 2*e sale price o% +ot* t*e pro'ucts i"clu'e' 1>. +asic excise 'ut( plus 2.
e'ucatio" cess a"' 1. seco"'ar( a"' *i*er e'ucatio" cess.Ce"tral @ales 2ax A . is also i"clu'e' i"
+ot* t*e selli"0 prices.
1?00?000 u"its o% eac* o% t*e t)o pro'ucts )ere remo/e' %rom t*e %actor( %or sale. Calculate t*e total
excise 'ut( lia+ilit( o% : ;imite' o" +ot* t*e pro'ucts assumi"0 t*at >0. a+ateme"t is permissi+le u"'er
sectio" >& o" pro'uct &. (5 marBs!
8uestio"9 C*at are t*e co"'itio"s u"'er )*ic* D#: +ase' /aluatio" s*all appl( u"'er Ce"tral ExciseE
> DarBs!
Answer9 (he provisions relating to valuation of excisable goods based on ;5A are dealt 4ith in section 6#
of the Central Excise #ct/ 1266. (he conditions under 4hich the ;5A based valuation shall apply are as
follo4sB
&a' the excisable goods to be valued are covered under -tandards of >eights and ;easures #ct/ 12! or
related rules or under any other la4 and such la4 re7uires to declare on the pac*age the retail sale price
thereofC and
&b' the Central 0overn$ent has notified the said goods as goods in relation to 4hich the pay$ent of excise
duty shall be on the basis of the ;5A less such deductions/abate$ents as it $ay allo4 in the notification.
3o4ever/ it $ust be noted that if the goods have been so notified/ -tandards of >eights and ;easures #ct
or the rules $ade thereunder $ust re7uire a declaration of the retail sale price on the pac*age of such goods.
8uestio"9 C*at le0al/pe"al actio"s ca" +e taBe" i" case t*e retail sale price is "ot me"tio"e' or is u"'ul(
tampere' a%ter t*e remo/alE (> DarBs!
&"s)er9 )f the retail sale price is not $entioned on the excisable goods or is unduly ta$pered after the
re$oval/ then
&i' such goods shall be liable to confiscation and
&ii' the retail sale price of such goods shall be ascertained in the $anner prescribed by the Central
0overn$ent and such price shall be dee$ed to be the retail sale price.
Valuation under &ection 8 o( Central Excise Act3 1<88
Arovisions of -ection 6 beco$e applicable only 4here the Central 0overn$ent has not fixed any tariff value
for the goods under section %&2' and such goods are also not specified under section 6#.
@ectio" >9 Faluatio" o% excisa+le 0oo's %or purposes o% c*ar0i"0 o% 'ut( o% excise
(.) 5here under this A!t, the duty of e6!ise is !har'ea"le on any e6!isa"le 'oods with referen!e to their
value, then, on ea!h removal of the 'oods, su!h value shallG
(a) in a !ase where the 'oods are sold "y the assessee, for delivery at the time and #la!e of the
removal, the assessee and the "uyer of the 'oods are not related and the #ri!e is the sole
!onsideration for the sale, "e the transa!tion value$
(") in any other !ase, in!ludin' the !ase where the 'oods are not sold, "e the value determined in su!h
manner as may "e #res!ri"ed.
Expla"atio".G=or the removal of dou"ts, it is here"y de!lared that the #ri!e-!um-duty of the e6!isa"le
'oods sold "y the assessee shall "e the #ri!e a!tually #aid to him for the 'oods sold and the money value of
the additional !onsideration, if any, flowin' dire!tly or indire!tly from the "uyer to the assessee in
!onne!tion with the sale of su!h 'oods, and su!h #ri!e-!um-duty, e6!ludin' sales ta6 and other ta6es, if any,
a!tually #aid, shall "e deemed to in!lude the duty #aya"le on su!h 'oods.
(2) /he #rovisions of this se!tion shall not a##ly in res#e!t of any e6!isa"le 'oods for whi!h a tariff
value has "een fi6ed under su"-se!tion (2) of se!tion 8.
(8) =or the #ur#ose of this se!tion,G
(a) HassesseeH means the #erson who is lia"le to #ay the duty of e6!ise under this A!t and in!ludes his
a'ent$
(") #ersons shall "e deemed to "e Hrelate'H ifG
(i) they are inter-!onne!ted underta4in's$
(ii) they are relatives$
(iii) amon'st them the "uyer is a relative and a distri"utor of the assessee, or a su"-distri"utor of
su!h distri"utor$ or
(iv) they are so asso!iated that they have interest, dire!tly or indire!tly, in the "usiness of ea!h
other.
E6#lanation.G,n this !lauseG
(i) Hi"ter-co""ecte' u"'ertaBi"0sH (this definition has "een 'iven in detail in the first !ha#ter)
(ii) Hrelati/eH shall have the meanin' assi'ned to it in !lause (7.) of se!tion 2 of the Com#anies
A!t, .9;F (. of .9;F)$
(!) 7place o% remo/al7 meansG
(i) a fa!tory or any other #la!e or #remises of #rodu!tion or manufa!ture of the e6!isa"le 'oods$
(ii) a warehouse or any other #la!e of #remises wherein the e6!isa"le 'oods have "een #ermitted to
"e de#osited without #ayment of duty 9$<
(iii) a de#ot, #remises of a !onsi'nment a'ent or any other #la!e or #remises from where the
e6!isa"le 'oods are to "e sold after their !learan!e from the fa!tory$
from where su!h 'oods are removed.
(!!) 7time o% remo/al7? in res#e!t of the e6!isa"le 'oods removed from the #la!e of removal referred to
in su"-!lause (iii) of !lause (!), shall "e deemed to "e the time at whi!h su!h 'oods are !leared
from the fa!tory$
(d) 7tra"sactio" /alue7 means the #ri!e a!tually #aid or #aya"le for the 'oods, when sold, and
in!ludes in addition to the amount !har'ed as #ri!e, any amount that the "uyer is lia"le to #ay to,
or on "ehalf of, the assessee, "y reason of, or in !onne!tion with the sale, whether #aya"le at the
time of the sale or at any other time, in!ludin', "ut not limited to, any amount !har'ed for, or to
ma4e #rovision for, advertisin' or #u"li!ity, mar4etin' and sellin' or'ani0ation e6#enses, stora'e,
outward handlin', servi!in', warranty, !ommission or any other matter$ "ut does not in!lude the
amount of duty of e6!ise, sales ta6 and other ta6es, if any, a!tually #aid or a!tually #aya"le on su!h
'oods.
Explanation to &ection 8(1#9
/he #ri!e-!um-duty of the e6!isa"le 'oods sold "y the assessee shall "e the #ri!e a!tually #aid to him for
the 'oods sold and the money value of the additional !onsideration, if any, flowin' dire!tly or indire!tly
from the "uyer to the assessee in !onne!tion with the sale of su!h 'oods, and su!h #ri!e-!um-duty,
e6!ludin' sales ta6 and other ta6es, if any, a!tually #aid, shall "e deemed to in!lude the duty #aya"le on
su!h 'oods.
Example9 Certain Excisable goods are sold by ; for 5s.160 and 20, is the rate of duty. (hen/ transaction
value for charging excise duty is co$puted as sho4n belo4B
=alueQ &Arice Cu$ Duty'/ H1R&5ate of Duty/100'J
Q &160'/H1R&20/100'J Q 5s.11.! &approx'.
-ubse7uently/ if it is found that the cu$ duty price of goods 4as 5s.1"0 and not 5s.160/ as the assessee had
collected 5s.60 separately/ then such additional consideration shall be dee$ed to include the excise duty
payable on such goods. )n this case/ the revised transaction value of goods shall be as sho4n belo4B
=alueQ &Arice Cu$ Duty'/ H1R&5ate of Duty/100'J
Q &160R60'/H1R&20/100'J Q 5s.1+0 &approx'.
/hus, @ectio" >(1!(a! #rovides for !al!ulation of assessa"le value as #er 2ra"sactio" Falue and @ectio"
>(1!(+! #rovides for !al!ulation of assessa"le value as #er Faluatio" #ules.
Duty is chargeable at the rate and on the price prevailing on the date of actual re$oval of goods fro$ the
factory gate and subse7uent reduction in the price even at the behest of the govern$ent does not create a
right in favour of assessee for refund of duty on reduction in the price. D#G ;t'. F. CCEx.
Transaction value as assessale value under section 8(1#(a#
#ccording to -ection 6&1'&a' D5here under this A!t, the duty of e6!ise is !har'ea"le on any e6!isa"le 'oods
with referen!e to their value, then, on ea!h removal of the 'oods, su!h value shall G in a !ase where the
'oods are sold "y the assessee, for delivery at the time and #la!e of the removal, the assessee and the "uyer
of the 'oods are not related and the #ri!e is the sole !onsideration for the sale, "e the transa!tion valueI.
(herefore/ the transaction value 4ill be accepted as assessable value only ifB :
&a' 0oods are sold
&b' (he sale is by assessee
&c' Delivery is at the ti$e and place of re$oval
&d' (he assessee and buyer are not related persons
&e' Arice is the sole consideration for sale
)f these conditions are satisfied/ -ection 6&1'&a' accepts different transaction value 4hich $ay be charged by
the assessee to different buyers/ for assess$ent purpose. >hen there is nothing to sho4 that either the buyer
4as a related person or that the price 4as not the sole consideration or there 4ere other vitiating
circu$stances to doubt the nor$al price/ the price under -ection 6&1'&a' shall be considered for valuation.
1$, F. Hi"'alco ,"'ustries.
)t is to be noted that the though the excisable event under the #ct is $anufacture or production of goods but
pay$ent of duty is postponed till re$oval of goods fro$ the place of re$oval. (he re$oval of goods $ay
be because of sale or for so$e other reason. >here the goods are not sold but those are consu$ed captively
or those are transferred to depot/ in absence of transaction value/ the valuation of goods has to be in
accordance 4ith 5ule " of =aluation 5ules or 5ule ! of valuation rules/ respectively.
(he value to be adopted is the price at 4hich Dsuch goods are ordinarily sold by the assessee to a buyer in
the course of trade for delivery at the time and #la!e of removal.I (herefore/ chargeability of excise is
based on the value of goods on each re$oval at the ti$e and place of re$oval.
Elements o( Cost w)ic) are !enerall0 included in t)e assessale value
(he ter$ Ntransaction valueK as per -ection 6 $eans the #ri!e a!tually #aid or #aya"le for the 'oods, when
sold, and in!ludes in addition to the amount !har'ed as #ri!e, any amount that the "uyer is lia"le to #ay to,
or on "ehalf of, the assessee, "y reason of, or in !onne!tion with the sale, whether #aya"le at the time of the
sale or at any other time, i"clu'i"0? +ut "ot limite' to, any amount !har'ed for, or to ma4e #rovision for,
advertisin' or #u"li!ity, mar4etin' and sellin' or'ani0ation e6#enses, stora'e, outward handlin', servi!in',
warranty, !ommission or any other matter "ut does not in!lude the amount of duty of e6!ise, sales ta6 and
other ta6es, if any, a!tually #aid or a!tually #aya"le on su!h 'oods.
(he 4ords Nin!ludin' "ut not limited toJ used in the definition of transaction value indicate that the ite$s
included are only illustrative and $any other ite$s $ay be includible. Example9 >here the assessee
recovers advertising charges fro$ the buyer either at the ti$e of sale or subse7uently/ the assessee cannot
clai$ that such charges are not includible in the transaction value.
)t is to be noted that an ite$ is includible only if the buyer is liable to pay for or on behalf of the assessee.
But any a$ount of taxes/ 4hich are paid or payable by the assessee and recovered fro$ the buyer/ are not
includible in assessable value.
,eanin! o( transaction value
(he price actually paid or payable for the goods
Differential pricing is acceptable
(he a$ount 4hich the buyer is liable to pay $ay have to pay it to the assessee or to so$e other
person on behalf of the assessee.
(he a$ount $ay be payable at the ti$e of sale or at any ti$e later on.
(he a$ount payable should be by reason of or in connection 4ith the sale of goods.
Amount re(erred aove includes t)e (ollowin! ut not limited to
#dvertising and publicity
'oes not include an0 tax alread0
paid or actuall0 pa0ale e.!.
;ar*eting selling and organi?ation expenses
-torage and 4arehousing
-ervicing and 4arranty
Co$$ission
Excise duty
-ales (ax
Gther taxes
)n nut shell/ any a$ount already *no4n at the ti$e of delivery of goods is includible in the assessable value
provided such pay$ent is in relation to goods e.g. extra test or pac*ing but interest a$ount/ being finance
charges/ is not includible.
#ny pay$ent received by the assessee in relation to goods/ not *no4n at the ti$e of delivery is not
includible in the assessable value e.g. extended 4arranty or service charges
+uestion9 5)at are t)e situations w)ere transaction value under &ection 8 o( t)e Central Excise
Act does not appl06 (8 mar2s#
Answer9 #s per section 6&1' of the Central Excise #ct/ the transaction value shall be the assessable if
the follo4ing conditions are fulfilled .
(i) )f the goods are sold
(ii) By the assessee
(iii) 1or delivery at the ti$e and place of re$oval
(iv) >here assessee and buyer are not related personsC and
(v) Arice is the sole consideration for sale.
)f any one or $ore of the above conditions are not satisfied/ the transaction value 4ill not be ta*en as
the assessable value. (he value in such a case shall be deter$ined on the basis of the Central Excise
&Deter$ination of Arice of Excisable 0oods' 5ules/ 2000 notified under section 6&1'&b' of the Central
Excise #ct.
1urther/ (ransaction value also does not apply 4here tariff value has been fixed by the Central
govern$ent under section %&2' and in cases 4here provisions of section 6# are applicable.

Valuation under section 8(1#(# as per Central Excise Valuation "ules3 2444
#ccording to section 6&1' D5here under this A!t, the duty of e6!ise is !har'ea"le on any e6!isa"le 'oods
with referen!e to their value, then, on ea!h removal of the 'oods, su!h value shall -
a. in a !ase where the 'oods are sold "y the assessee, for delivery at the time and #la!e of the removal,
the assessee and the "uyer of the 'oods are not related and the #ri!e is the sole !onsideration for the
sale, "e the transa!tion value$
". in any other !ase, in!ludin' the !ase where the 'oods are not sold, "e the value determined in su!h
manner as may "e #res!ri"ed.I
By virtue of po4ers vested under section %!/ the Central 0overn$ent has $ade Central Excise =aluation
&Deter$ination of Arice of Excisable 0oods' 5ules/ 2000 that ca$e into effect fro$ 1
st
<uly 2000. (hese
5ules are reproduced/ 4ith co$$ents/ hereunder for ready reference.
Central Excise Valuation
('etermination o( Price o( Excisale Eoods# "ules3 2444
CHA/ER ,
:#E;,D,N&#I
"ule 29 ,n these rules, unless the !onte6t otherwise re1uires% -
(a) HA!tH means the Central E6!ise A!t, .977 (. of .977)$
(") 7"ormal tra"sactio" /alue7 means the transa!tion value at whi!h the 'reatest a''re'ate 1uantity
of 'oods are sold$3No/. 084
(!) HvalueH means the value referred to in Se!tion 7 of the A!t$
(d) words and e6#ressions used in these rules and not defined "ut defined in the A!t shall have the
meanin's res#e!tively assi'ned to them in the A!t.
"ule *9 (he value of any excisable goods shall/ for the purposes of -ection 6&1'&b' of the #ct/ be
deter$ined in accordance 4ith these rules.
"ule 89 5)ere price o( t)e !oods is not 2nown at t)e time and place o( removal
(he value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery
at any other ti$e nearest to the ti$e of the re$oval of goods under assess$ent/ sub@ect/ if necessary/ to such
ad@ust$ent on account of the difference in the dates of delivery of such goods and of the excisable goods
under assess$ent/ as $ay appear reasonable to the proper officer.
-uch a situation arises 4hen the goods are not sold at the ti$e of re$oval.
+uestion9 /rie(l0 examine t)e correctness or ot)erwise o( t)e statement wit) re(erence to t)e Central
Excise Act3 1<88 !ivin! reasons to support 0our answer9 In case o( samples distriuted (ree3 valuation
s)ould e adopted on t)e asis o( "ule H o( t)e Central Excise Valuation ('etermination o( Price o(
Excisale Eoods# "ules3 2444 i.e. cost o( production plus 14A
&"s)er9 ,n!orre!t. CBEC vide Cir!ular :o.A.8B.3B233;-CC dated 2;.7.233; has clarified that in case of
sa$ples distributed free/ valuation should be done on basis of rule 6/ i.e. valuation should be done on the
basis of value of identical goods cleared at or around the sa$e ti$e. )n ,/C (imited !ase, 9233F<, the
-upre$e Court has decided sa$ples have to be valued under 5ule 6.
"ule 19 &ale o( !oods (or deliver0 a place ot)er t)an t)e place o( removal
>here any excisable goods are sold in the circu$stances specified in -ection 6&1'&a' of the #ct except the
circu$stances in 4hich the excisable goods are sold for delivery at a place other than the place of re$oval/
then the value of such excisable goods shall be dee$ed to be the transaction value/ excluding the cost of
transportation fro$ the place of re$oval upto the place of delivery of such excisable goods.
Explanation 19DCost of transportationE includes .
&i' the actual cost of transportationC and
&ii' in case 4here freight is averaged/ the cost of transportation calculated in accordance 4ith generally
accepted principles of costing.
Explanation 29 (he cost of transportation fro$ the factory to the place of re$oval/ 4here the factory is not
the place of re$oval/ shall not be excluded for the purposes of deter$ining the value of the excisable goods.
Illustration 9 NPK &assessee' clears goods fro$ a factory at Aune to the custo$erKs factory located in
;u$bai. (he goods are loaded in a lorry at Aune and delivered at ;u$bai and NPK recovers freight fro$
the buyer. )n this case/ all the conditions of -ection 6&1'&a' are satisfied except that the goods are not
delivered at the ti$e and place of re$oval &delivery 4hich happens at ;u$bai'. By virtue of 5ule +/
#ssessable =alue in such a case 4ould be (ransaction =alue $inus the freight incurred in delivering the
goods at ;u$bai.
>here the goods are sold at ex:factory price/ the transit ris* and insurance is to be borne by the buyer and
the place of re$oval in such a case shall be the factory pre$ises since sale of goods/ pay$ent of price and
delivery to the buyer or his representative all occurs at the factory pre$ises. )n such a case/ freight and
insurance are not includible in the assessable value. DC@ Es!orts (td )s CCE
"ule ?9 5)en price is not t)e sole consideration (or sale
>here the excisable goods are sold in the circu$stances specified in -ection 6&1'&a' of the #ct except the
circu$stances 4here the price is not the sole consideration for sale/ the value of such goods shall be dee$ed
to be the aggregate of such transaction value and the a$ount of $oney value of any additional consideration
flo4ing directly or indirectly fro$ the buyer to the assessee.
Explanation 19 (he value/ apportioned as appropriate/ of the follo4ing goods and services/ 4hether
supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection 4ith the
production and sale of such goods/ to the extent that such value has not been included in the price actually
paid or payable/ shall be treated to be the a$ount of $oney value of additional consideration
flo4ing directly or indirectly fro$ the buyer to the assessee in relation to sale of the goods being valued and
aggregated accordingly/ na$elyB:
&i' value of $aterials/ co$ponents/ parts and si$ilar ite$s relatable to such goodsC
&ii' value of tools/ dies/ $oulds/ dra4ings/ blue prints/ technical $aps and charts and si$ilar ite$s
used in the production of such goodsC
&iii' value of $aterial consu$ed/ including pac*aging $aterials/ in the production of such goods/ and
&iv' value or engineering/ develop$ent/ art 4or*/ design 4or* and plans and s*etches underta*en
else4here than in the factory of production and necessary for the production of such goods.
Explanation 29 >here an assessee receives any advance pay$ent fro$ the buyer against delivery of any
excisable goods/ no notional interest on such advance shall be added to the value unless the Central Excise
Gfficer has evidence to the effect that the advance received has influenced the fixation of the price of the
goods by 4ay of charging a lesser price fro$ or by offering a special discount to the buyer 4ho has $ade
the advance deposit.
Illustration 19 P/ an assessee/ sells his goods to L against full advance pay$ent at 5s.100 per piece.
3o4ever/ P also sells such goods to W 4ithout any advance pay$ent at the sa$e price of 5s.100 per piece.
No notional interest on the advance received by P is includible in the transaction value.
Illustration 29 #/ an assessee/ $anufactures and supplies certain goods as per design and specification
furnished by B at a price of 5s.10 la*hs. # ta*es +0, of the price as advance against these goods and there
is no sale of such goods to any other buyer. (here is no evidence available 4ith the Central Excise Gfficer
that the notional interest on such advance has resulted in lo4ering of the prices. (hus/ no notional interest
on the advance received shall be added to the transaction value.
)n *+, )s (a4shmi 5or4s (td, it 4as held that in case interest accrued on advances received by the
$anufacturer is to be added to the assessable value/ then the burden is on the Depart$ent to sho4 the extent
of benefit obtained by the assessee on interest free loan. ;oreover/ the price has to be loaded only to the
extent the Depart$ent is able to sho4 the extent of benefit obtained by the assessee on interest free loan.
(,a0 <H3 ,a0 42#
Important points
>here price is not the sole consideration for the sale/ but the other re7uire$ents of -ection 6&1'&a'
of the Central Excise #ct are satisfied/ the value shall be deter$ined in accordance 4ith the provisions
of 5ule of the =aluation 5ules.
(his rule provides for adding to the transaction value the $oney value of any additional
consideration flo4ing directly or indirectly fro$ the buyer to the assessee.
-uch additional consideration 4ould include the $oney value of goods and services provided free
or at reduced cost by or on behalf of the buyer to the assessee.
3o4ever/ 4here the sa$e price is charged fro$ the buyers 4ho have given the deposit and 4ho
have not given the deposit and/or 4here the advance is purely a security deposit and the interest earned
thereon is credited to the buyerC then/ in such cases/ the notional interest cannot be added to the price .
)S/ ,ndustries (td )s CCE (,a0 <H3 ,a0 42#
CCEx F. ,G5; #e%ractories (@C! . Benefits received under the licence received by the assessee as a result
of surrender of licence by the buyer/ is additional consideration and its value is the difference bet4een
original offer price and actual sale price.
CCEx F. DaJ0ao" DocB ;imite' (@C! . -ubsidy received fro$ the govern$ent is not an additional
consideration 4hile subsidy received fro$ the buyer of the goods is an additional consideration even if the
sa$e is received under a policy of the govern$ent.
+uestion9 /rie(l0 answer wit) re(erence to t)e provisions o( t)e Central Excise Valuation
('etermination o( Price o( Excisale Eoods# "ules3 2444 w)et)er in t)e (ollowin! cases an0 notional
interest on t)e advance received is includile in t)e value (or purpose o( assessment9
(i# An assessee sells )is !oods a!ainst (ull advance pa0ment to Q. 7e also sell suc) !oods to D
wit)out an0 advance pa0ment at t)e same price per unit.
(ii# A3 t)e assessee manu(actures and supplies certain !oods as per desi!n and speci(ication o(
/. A ta2es 14A o( t)e price as advance a!ainst t)ese !oods and t)ere is no sale o( suc) !oods to
an0 ot)er u0er. (2 x 2 T 8 ,ar2s#
Answer9 Explanation 2 to rule of the Central Excise =aluation &Deter$ination of Arice of Excisable
0oods' 5ules/ 2000 provides that 4here any advance pay$ent fro$ the buyer is received against delivery of
excisable goods/ no notional interest on such advance shall be added to the value unless the central excise
officer has evidence to the effect that the advance received has influenced the fixation of price of the goods
by 4ay of charging a lesser price or by offering of a special discount to the buyer 4ho has $ade the advance
deposit.
&i' No notional interest on the advance received by the assessee is includible in the transaction value in the
present case as sa$e price is also charged fro$ L &another buyer' 4ho has not given the advance deposit.
&ii' Notional interest 4ould be includible only if there is evidence available 4ith the central excise officer
that advance has resulted in lo4ering of prices. )n the absence of any such evidence/ no notional interest on
the advance received shall be added to the transaction value.
"ule >9 5)en !oods are removed to depot etc.
>here the excisable goods are not sold by the assessee at the ti$e and place of re$oval but are transferred
to a depot/ pre$ises of a consign$ent agent or any other place or pre$ises &hereinafter to as Tsuch other
placeT' fro$ 4here the excisable goods are to be sold after their clearance fro$ the place of re$oval and
4here the assessee and the buyer of the said goods are not related and the price is the sole consideration for
the sale/ the value shall be the nor$al transaction value of such goods sold fro$ such other place at or about
the sa$e ti$e and/ 4here such goods are not sold at or about the sa$e ti$e/ at the ti$e nearest to the ti$e
of re$oval of goods under assess$ent.
)f the goods are not sold at the factory gate or at the 4arehouse but they are transferred by the assessee to his
depots or consign$ent agents or any other place for sale/ the assessable value in such case for the goods
cleared fro$ factory/4arehouse shall be the nor$al transaction value of such goods at the depot/ etc. at or
about the sa$e ti$e on 4hich the goods as being valued are re$oved fro$ the factory or 4arehouse.
%ormal Transaction value $eans the transaction value at 4hich the greatest aggregate 7uantity of goods
are sold. )t has been clarified by the 0overn$ent that 4hile adopting the nor$al transaction value/ the
largest 7uantity sold on a particular date is relevant and not the nu$ber of buyers e.g. #BC 9td. transfers
200*gs of Aroduct W to its depot on 1:1:200!. Gn that date/ there has been no sale fro$ the depot. 3o4ever/
Aroduct W has been sold fro$ the depot at the nearest point of ti$e i.e./ 2+:12:200.
(he sales details on that date 4ere as follo4sB
i. "00 *gs at 5s.2+ per *g
ii. "0 *gs at 5s.%2 per *g
iii. 100 *gs at 5s.2! per *g
iv. !00 *gs at 5s.%2 per *g
Nor$al transaction value/ for the purpose of valuation of 200 *gs of Aroduct W transferred to the depot on 1:
1:200!/ 4ill be ta*en as 5s.2+.
ra"aht Karda =a!tory (imited ). CCE (SCB CCE6 ). @ra4es ,ndia (imiuted (SC) . )n case of inter:depot
transfer the price prevalent at the later depot i.e. the last depot fro$ 4here the goods are actually sold 4ill
be ta*en as the assessable value of the goods.
"ule H9 5)en !oods are captivel0 consumed
>here the excisable goods are not sold by the assessee but are used for consu$ption by hi$ or on his behalf
in the production or $anufacture of other articles/ the value shall be o"e *u"'re' a"' te" per ce"t of the
cost of production or $anufacture of such goods.
(hus/ the assessable value of captively consu$ed goods 4ill be ta*en at 110, of the cost of $anufacture of
goods even if identical or co$parable goods are $anufacture and sold by the sa$e assessee. )f the cost of
production based upon general principles of costing of a co$$odity is 5s.10/000 per unit/ the assessable
value of the goods shall be 5s.11/000 per unit.
Important Points
(he )C>#) has introduced Cost #ccounting -tandard : 6 &C#-: 6' for deter$ining cost of
production for the purpose of Excise valuation. (he CBEC has clarified that cost of production of
captively consu$ed goods has to be strictly done in accordance 4ith C#-:6 issued by )C>#).
#s per C#-:6/ the Cost of Aroduction shall consist of $aterial consu$ed/ direct 4ages/ salaries/
direct expenses/ 4or* overheads/ ad$inistrative overheads relating to production/ 7uality control
cost/ research and develop$ent cost and pac*ing cost. 1urther/ ad@ust$ent for stoc* of 4or*:in:
progress/ finished goods/ recoveries for sales of scrap. >astage etc shall be $ade for arriving at the
cost of production of goods 4hich are used for captive consu$ption.
(he cost of $aterial should be net of excise duty if CEN=#( credit has been availed for such
inputs. )n case no CEN=#( credit has been availed on such inputs/ the $aterial cost should be
inclusive of the excise duty.
#s per this standard/ follo4ing shall not for$ part of Dcost of productionE .
! -elling and distribution expenses
! )nterest and financial charges
! #d$inistrative overheads 4hich are not related to factory
! #bnor$al and non:recurring cost
%ote9 )n a recent case of ITC Limited3 the -upre$e Court has held that the interest for borro4ing
for purchase of capital goods is not includible in assessable value.
@teel Complex ;imite' F. CCEx )f a part of goods/ instead of being sold/ are transferred to @ob:4or*ers
and the assessee is incurring huge losses/ the goods so transferred are to be valued at sale price to
unconnected buyers and not as per rule " at 110, of cost of production.
"ule <9 5)en sale is made onl0 to or t)rou!) Orelated personsK not ein! inter- connected
underta2in!s (ICBs#
>hen the assessee so arranges that the excisable goods are not sold by an assessee except to or through a
person 4ho is related in the $anner specified in either of sub:clauses &ii'/ &iii' or &iv' of clause &b' of sub:
section &%' of -ection 6 of the #ct/ the value of the goods shall be the nor$al transaction value at 4hich
these are sold by the related person at the ti$e of re$oval/ to buyers &not being related person'C or 4here
such goods are not sold to such buyers/ to buyers &being related person'/ 4ho sells such goods in retailC
Arovided that in a case 4here the related person does not sell the goods but uses or consu$es such goods in
the production or $anufacture or articles/ the value shall be deter$ined in the $anner specified in 5ule ".
#ccording to -ection 6&%'&b' of the Central Excise #ct/ 1266/ the assessee and the buyer shall be dee$ed to
be related persons/ ifB :
i. they are inter connected underta*ings &as per ;5(A #ct' or
ii. they are relatives &as per Co$panyKs #ct' or
iii. a$ongst the$ the buyer is a relative and a distributor of the assessee/ or a sub:distributor of such
distributor or
iv. they are so associated that they have interest/ directly or indirectly/ in the business of each other.
2*us? #ule 9 pro/i'es t*at )*ere t*e assessee arra"0es to sell 0oo's o"l( to or t*rou0*9
a. his relative
b. relative and distributor or sub:distributor of such distributor.
c. persons 4ho are $utually interested in the business of each other
then/ the nor$al transaction value at 4hich the goods are sold by such persons at the ti$e of re$oval can be
ta*en as value/ provided the other buyer is not related.
>hen goods are sold to related persons 4ho are also retailers/ then the price at 4hich goods are sold to the
related retailer shall be adopted.
Examples9
1. N#K sells to NBK &# U B are related' a product P O 5s.2!+. Nor$al (ransaction =alue at 4hich NBK sells
the goods to a buyer &4ho is unrelated' is 5s.%00. #pplying 5ule 2/ the value of Aroduct P in hands of
N#K is 5s.%00.
2. N#K sells to NBK &# U B are related' a product P O 5s.2!+. NBK sells to NCK &B U C are related' the sa$e
product P O 5s.%00. Nor$al (ransaction =alue at 4hich NCK sells the goods to a buyer &4ho is
unrelated' is 5s.%+. #pplying 5ule 2/ the value of Aroduct P in hands of N#K is 5s.%+.
%. N#K sells to NBK &# U B are related' a product P O 5s.2!+. NBK sells to NCK &B U C are related' the sa$e
product P O 5s.%00. NCK sells to NDK the sa$e product P O 5s.%%+ &C U D are related and D sells the
product in retail'. Nor$al (ransaction =alue for N#K shall be the price at 4hich the goods are sold to the
retailer i.e./ NDK in this case. 3ence the value of Aroduct P to be ta*en for N#K for valuation purpose shall
be 5s.%%+.
To sum up9
)f the assessee sells to 5elated Aerson &4ho is a >hole -ale (rader/ then the sale price of 5elated
Aerson on >hole -ale (rade to Sn:5elated Aerson should be adopted.
)f assessee sells to 5elated Aerson &in >hole -ale (rade'/ 4ho in turn sells to another 5elated Aerson &in
>hole -ale (rade'/ and if the latter sells in retail/ then adopt the last >hole -ale (rade price as
assessable value for the assessee.
)n both these cases/ -ale Arice $eans the Nor$al (ransaction =alue.
"ule 149 5)en t)e sale is made onl0 to or t)rou!) persons ein! interconnected underta2in!s (ICB#
>hen the assessee so arranges that the excisable goods are not sold by hi$ except to or through an inter:
connected underta*ing/ the value of goods shall be deter$ined in the follo4ing $anner/ na$elyB :
&a' )f the underta*ings are so connected that they are also related in ter$s of sub:clause &ii' or &iii' or
&iv' of clause &b' of sub:section &%' of -ection 6 of the #ct or the buyer is a holding co$pany or
subsidiary co$pany of the assessee/ then the value shall be deter$ined in the $anner prescribed in
5ule 2.
Explanation- )n this clause Tholding co$panyT and Tsubsidiary co$panyT shall have the sa$e
$eanings as in the Co$panies act/ 12+ &1 of 12+'.
&b' in any other case/ the value shall be deter$ined as if they are not related persons for the purpose of
sub:section &1' of section 6.
/hus, Rule .3 #rovides that even if the assessee and the "uyer are Linter-!onne!ted underta4in'sJ, the
transa!tion value will "e reMe!ted only when they are LrelatedJ in any of the followin' manner%
.) /hey are relatives
2) /he "uyer is a relative and a distri"utor of the assessee or su"-distri"utor of su!h distri"utor
8) /hey have a dire!t or indire!t interest in the "usiness of ea!h other.
,n other !ases, they will not "e !onsidered related.
Examples9
1. ;/s #nil 9td U ;/s ;u*esh 9td hold 2+, of the e7uity in ;/s Dhiru 9td. ;/s #nil 9td U ;/s
;u*esh 9td are interconnected as per ;5(A #ct. 3o4ever/ only if $utuality of business interest is
established bet4een ;/s #nil 9td U ;/s ;u*esh 9td/ 5ule 2 can be applied 4hen excisable goods are
sold by the for$er to the latter. )n case the $utuality of business interest cannot be established/ then ;/s
#nil 9td U ;/s ;u*esh 9td 4ould be treated as unrelated and the value shall be deter$ined as per
-ection 6&1' i.e./ transaction value shall for$ the basis for valuation.
2. ;/s <ohn 9td sold goods to ;/s Sday 9td/ 4hich is its subsidiary co$pany. Both the co$panies are
interconnected as per ;5(A #ct. 3o4ever/ since there is a holding: subsidiary relationship/
value has to be deter$ined as per 5ule 2. (hus/ the price at 4hich ;/s Sday 9td sells the goods to an
unrelated buyer 4ill for$ the basis for valuation.
Important points
/he term inter-!onne!ted underta4in's !over lar'e !ate'ories of le'al
entitiesBunderta4in's, to whom 'oods are sold "y the assessee, whi!h may "e held as Hrelated #ersonH.
However, where the assessee and the "uyer are inter-!onne!ted underta4in's, the
transa!tion value will "e HreMe!tedH only when they are HrelatedH in the sense of any of !lauses (ii), (iii)
or (iv) of Se!tion 7(8)(") or the "uyer is a holdin' !om#any or a su"sidiary !om#any of the assessee.
/hus, while dealin' with transa!tions "etween inter-!onne!ted underta4in's, if the
relationshi# as des!ri"ed in !lauses (ii), (iii) or (iv) does not e6ist and the "uyer is also not a holdin'
!om#any or a su"sidiary !om#any, then for assessment #ur#oses, they will not "e !onsidered related.
H/ransa!tion valueH !ould then form the "asis of valuation #rovided other two !onditions,
namely, #ri!e is for delivery at the time and #la!e of removal and the #ri!e is the sole !onsideration for
sale are satisfied.
"ule 14A Valuation in case o( !oods manu(actured 0 Mo-wor2er
>here the excisable goods are produced or $anufactured by a @ob:4or*er/ on behalf of a person &hereinafter
referred to as principal $anufacturer'/ then/:
&i' in a case )*ere t*e 0oo's are sol' +( t*e pri"cipal ma"u%acturer for delivery at the ti$e of re$oval of
goods fro$ the factory of @ob:4or*er/ 4here the principal $anufacturer and the buyer of the goods are not
related and the price is the sole consideration for the sale/ the value of the excisable goods shall be the
tra"sactio" /alue of the said goods sold by the principal $anufacturerC
&ii' in a case )*ere t*e 0oo's are "ot sol' +( t*e pri"cipal ma"u%acturer at the ti$e of re$oval of goods
fro$ the factory of the @ob:4or*er/ but are transferred to so$e other place fro$ 4here the said goods are to
be sold after their clearance fro$ the factory of @ob:4or*er and 4here the principal $anufacturer and buyer
of the goods are not related and the price is the sole consideration for the sale/ the value of the excisable
goods shall be the "ormal tra"sactio" /alue of such goods sold fro$ such other place at or about the sa$e
ti$e and/ 4here such goods are not sold at or about the sa$e ti$e/ at the ti$e nearest to the ti$e of re$oval
of said goods fro$ the factory of @ob:4or*erC
&iii' in a case not covered under clause &i' or &ii'/ the provisions of foregoing rules/ 4herever applicable/
shall mutatis mutandis apply for deter$ination of the value of the excisable goodsB
Arovided that the cost of transportation/ if any/ fro$ the pre$ises/ 4herefro$ the goods are sold/ to the place
of delivery shall not be included in the value of excisable goods.
Expla"atio" : 1or the purposes of this rule/ @ob:4or*er $eans a person engaged in the $anufacture or
production of goods on behalf of a principal $anufacturer/ fro$ any inputs or goods supplied by the said
principal $anufacturer or by any other person authorised by hi$.
"ule 119 "esiduar0 "ule /est Pud!ement ,et)od
)f the value of any excisable goods cannot be deter$ined under the foregoing rules/ the value shall be
deter$ined using reasonable $eans consistent 4ith the principles and general provisions of these rules and
sub:section &1' of section 6 of the Central Excise #ct/ 1266.
+uestion answers
+uestion 19 FT)e value o( price support incentives received (rom t)e raw materials supplier s)ould e
included in t)e assessale value o( t)e (inal productsG. 'o 0ou a!ree6 Explain. (* ,ar2s#U,a0 4>V
Answer9 )n the case of CCEx. v. Bisleri )nternational Arivate 9i$ited 200+ &1"' E9( 2+! &-C'/ the
value of the price support incentives 4as held as not includible in the assessable value of the final product as
a. there 4as no flo4 bac* of any additional consideration fro$ the buyersC
b. the price unifor$ity 4as $aintainedC
c. there 4as no evidence of any concession to any of the buyers or existence of any favoured
buyers.
)t is possible to ta*e a vie4 that if the conditions pointed out by the #pex Court are not satisfied/ the value of
the price support incentives 4ould be includible in the assessable value of the final product.
+uestion 29 ,-s &uper Pipes Ltd. is en!a!ed in t)e manu(acture o( m.s. !alvani:ed pipes. T)e excise
department )as re;uired t)e assessee to include t)e cost o( !alvani:ation in t)e assessale value o( t)e
m.s. !alvani:ed pipes (or t)e purposes o( determination o( excise dut0. T)e assessee claims t)at as t)e
process o( !alvani:ation does not amount to manu(acture3 t)e cost o( !alvani:ation is not includile in
t)e assessale value o( t)e said pipes made (rom 7.". coils.
/rie(l0 discuss w)et)er t)e stand ta2en 0 t)e assessee is correct wit) re(erence to t)e provisions o(
t)e Central Excise3 Act3 1<88. 1 ,ar2s#U%ov. 4?V
&"s)er9 (he facts of the case are si$ilar to the case of Siddhartha /u"es (td. v. CCE, ,ndore - 233F (.98)
E(/ F &-C' 4herein the #pex Court has held that galvani?ation cost is includible in the assessable value of
$.s. galvani?ed pipes even though Ngalvani?ationK does not a$ount to $anufacture. (he #pex Court
explained that the concepts of N$anufactureK and NvaluationK are t4o different and distinct concepts and the
present case relates to valuation. (he -upre$e Court stated that $.s. galvani?ed pipes 4ere $anufactured
out of 3.5. coils after passing through various processes &including galvani?ation'. -uch a process added to
the 7uality of the product and increased the value of pipes. Arocess of galvani?ation 4as incidental to the
$anufacture of pipes and/ therefore/ cost of that process 4as rightly included in the assessable value.
(herefore/ the stand ta*en by ;/s. -uper Aipes 9td. is not correct in la4.
+uestion *9 (i# P+" Ltd. w)o are in t)e manu(acture o( excisale !oods )ad t)e practice o( providin!
(ull reimursement to all its dealers towards t)e value o( dama!ed !oods. T)e compan0 used to c)ar!e
a certain sum towards t)e cost o( (rei!)t in t)e return o( t)e dama!ed !oods to it. %o ot)er
consideration was received 0 t)e compan0. T)e Central Excise 'epartment )as issued a s)ow cause
notice t)at t)e return (rei!)t in respect o( dama!ed !oods )as to e included in t)e assessale value
(or purposes o( dut0. Examine rie(l0 t)e correctness in law o( t)e s)ow cause notice. (2
mar2s# U%ovemer 48V
(ii# &tate rie(l0 w)et)er =dama!e discount= is permissile as a deduction (or purpose o( arrivin! at
t)e assessale value under &ection 8 o( t)e Central Excise Act3 1<88. (2 mar2s# U%ovemer 48V
Answer9 (i# (he facts in this case are si$ilar to the facts in :eel4amal lasti!s (td., v. CCE, :oida (2337)
(/ri"unal-Eelhi). )n this case the (ribunal had held that the a$ount collected by the co$pany 4as related to
the cost of return freight on the da$aged goods and hence did not in any 4ay represent the value of the
goods. (he assessee co$pany did not receive any additional consideration for the sale nor 4ere any
clearances effected to4ards replace$ent 4ithout pay$ent of duty. (herefore/ the return freight 4as not
liable to be added to the assessable value.
&ii' )n the case of CCE v )i4ram Eeter'ent (td. 233. (SC) the #pex Court held that Dda$age discountE is
in the nature of a refund or benefit to the buyer by 4ay of co$pensation for da$age/ brea*age or losses
suffered by the goods after re$oval fro$ the factory and is not eligible for deduction. (his is the case 4here
goods suffer da$age after re$oval. 3o4ever/ if goods are already da$aged prior to re$oval then any type
of discount allo4ed in the ordinary course of business and prior to re$oval is deductible for arriving at the
assessable value i.e. duty 4ill be chargeable on actual transaction value.
+uestion 89 ,-s $TV Limited manu(acture TV sets. T)e0 )ad sent TV sets (rom t)eir plant to t)eir
depot at Pammu. T)e 'epot sold t)e same at "s. 123444 on 1.H.2442 and at "s. 123144 per set on
14.H.42. Please mention w)at would e t)e value o( t)e TV sets removed (rom t)e (actor0 on *.H.42
and 14.H.42. U%ov. 42V
Answer9 )n the given case the goods are sold at the ti$e and place of re$oval but those are being
transferred fro$ the $anufacturing plant to the Depot at <a$$u. (hus/ valuation of the goods 4ill be in
accordance 4ith 5ule ! of the Central Excise =aluation 5ules/ 2000.
)n accordance 4ith the provisions of 5ule ! .
! the sets re$oved on %.".02 4ill be valued at 5s. 12/000/ being the nearest to the ti$e of
re$oval of goods i.e. as on 1.".02 / and
! the sets re$oved on 10.".02 4ill be valued at 5s. 12/+00 being the value of the goods at
4hich those are being sold at the depot as on the date of re$oval fro$ the factory.
+uestion 19 A manu(acturer manu(actures a product FCG w)ic) is c)ar!eale to excise dut0. 7e
avails CE%VAT credit o( t)e dut0 paid on inputs3 w)ic) are used in or in relation to t)e manu(acture
o( product FCG. T)e product is intermediate product and is consumed captivel0 in t)e manu(acture
o( (inal product. T)e (inal product is w)oll0 exempt (rom t)e pa0ment o( dut0 under t)e Central
Excise Act3 1<88. 5)ile determinin! t)e assessale value under "ule %o. H o( t)e Central Excise
(Valuation# "ules3 24443 t)e manu(acture does not include t)e element o( dut0 paid on inputs. T)e
reasonin! advanced 0 t)e manu(acturer is t)at since credit )as een ta2en o( t)e dut0 paid on t)e
said inputs3 t)e cost o( manu(acture automaticall0 stands reduced to t)at extent. Explain rie(l0 wit)
re(erence to t)e decided case law3 i( an03 w)et)er t)e stand ta2en 0 t)e manu(acturer in not
includin! t)e amount dut0 paid on inputs (or purpose o( valuation is correct. U%ov. 2444V
Answer9
1. 1acts of the given case are si$ilar to the facts of Dai )chi Iar*aria 9i$ited =. CCE. )n this case the
issue before the -upre$e Court 4as 4hether excise duty paid on the ra4 $aterial should be included in
the value 4hile calculating value of the goods captively consu$ed.
2. (he -upre$e Court held that the $anufacturer gets credit on excise duty paid on ra4 $aterial to be
used in the $anufacture of finished goods. (he $anufacturer is entitled to use the credit anyti$e
thereafter for pay$ent of excise duty.
%. (here is no provision 4hich provides for reversal of credit except 4here it 4as illegally or
i$properly ta*en. Credit/ therefore/ is indefeasible.
6. >hen duty is paid on the ra4 $aterial/ it should be added to the cost 4hile arriving at the value
since it represents an ite$ 4hich gets excluded fro$ co$putation in hands of supplier as value does not
include excise duty.
+. )f a product is purchased at a price of 5s. 100 and duty is 5s. 20 only/ then cost of $aterialis ta*en
as 5s. 100/: and credit is ta*en for 5s. 20/:.
. (herefore/ duty paid on inputs does not for$ part of the value of finished goods.
!. )n vie4 of the above/ the $ethodology adopted by the $anufacturer is correct.
+uestion >9 'etermine t)e cost o( production on manu(acture o( t)e undermentioned product (or
purpose o( captive consumption in terms o( "ule H o( t)e Central Excise Valuation "ules3 2444
"s.
'irect ,aterial 113?44
'irect wa!es and salaries H3844
5or2s over)eads ?3244
+ualit0 control costs *3244
"esearc) and 'evelopment Cost 23844
Administrative $ver)eads 83144
&ellin! and 'istriution costs 13?44
"eali:ale value o( scrap 13244
Administrative over)eads are in relation to production activities. ,aterial cost includes excise dut0
"s. 13?44. U,a0 48V
Answer9 )n accordance 4ith the provisions of 5ule " of the Central Excise =aluation 5ules/ 2000/ the
value of goods captively consu$ed shall be as under -
5s. 5s.
Direct ;aterial cost 11/00
(ess% Excise Duty 1/00 10/000
Direct 4ages and salaries "/600
>or*s overheads /200
8uality control costs %/200
5esearch and Develop$ent Cost 2/600
#d$inistrative Gverheads 6/100
(otal %6/%00
9essB 5eali?able value of scrap 1/200
Cost of production %%/100
#ddB 10, of the Cost of production %/%10
(otal value of goods as per 5ule " %/610
%otes9
&a' Cost of production has been calculated in accordance 4ith C#- 6 issued by )C>#) and
circulated by the Central Board.
&b' =aluation shall be at 110, of the cost of production : Notification No. 0/200% CE &N('
dated +.".200%
&c' -elling and distribution expenses have not been ta*en into account because of captive
consu$tion.
+uestion H9 Examine !ivin! ade;uate reasons as to w)et)er t)e manu(acturin! compan0 Q and its
customer compan0 D are Orelated personsK (or t)e purpose o( valuation o( excisale !oods under t)e
(ollowin! circumstances
(a# &ome directors o( Q are also t)e directors o( D.
(# Q sells maMorit0 o( its production to D and )as (inancial investment3 apart (rom not c)ar!in!
rent (or use o( its ve)icles 0 D and t)at t)e advertisement expenses o( Q were incurred 0 D.
(c# D is a distriutor o( Q ut not a OrelativeK.
Dour answer s)ould e distinct and separate (or eac) !iven situation. U,a0 <>V
Answer9 )n accordance 4ith section 6 persons are said to be related persons if they are inter:connected
underta*ings 4ithin the $eaning of the ;5(A #ct or they are relatives 4ithin the $eaning of the
Co$panies #ct/ or a$ongst the$ the buyer is a relative and a distributor of the assessee/ or a sub:distributor
of such distributor or they are so associated that they have interest/ directly or indirectly/ in the business of
each other.
)n *+, ). Ati! ,ndustries, the -upre$e court has stated that the $utuality of business interest/ 4hich this
definition conte$plates/ cannot be established by $erely sho4ing that the persons have business dealings
bet4een the$. )t $ust also be sho4n that one has special business interest in the pro$otion or develop$ent
of the business of each other.
)n vie4 of this/ three situations are as under .
&a' # fact that certain directors of P are also the directors of L is not sufficient to establish that these
are related persons. @ra4es ,ndia (td. ). ACCE.
&b' )n the given situation/ existence of $utual business interest can be established as P sells $a@ority of
its goods to L/ it is not charging any a$ount for its vehicles being used by L and on the other hand
L incurs all the advertise$ent expenses of P. #ll the facts put together clearly indicate existence of
$utual business interest bet4een P and L. ioli! harma ). CCE.
&c' Definition of the ter$ Nrelated personK includes Nrelative and a distributorK. (he 4ord NrelativeK and
a distributor of the assessee do not refer to any distributor but the distributor 4ho is relative of the
assessee 4ithin the $eaning of the Co$panies #ct/ 12+ )n *nion of ,ndia ). @om"ay /yre
,nternational (td., the -upre$e Court opined that every distributor cannot be treated as a relative
but the definition indicates to4ards a distributor 4ho is also a relative.
)n vie4 of aforesaid and *eeping in $ind that P and L/ both are bodies corporate/ they cannot be relative
4ithin the $eaning of section of the Co$panies #ct/ 12+. (herefore/ in this situation/ both cannot be
treated as related persons.
+uestion <9 ,-s SL, !ets t)eir !re0 clot) processed 0 ,-s A/C. ,-s A/C carried out t)e process
o( leac)in!3 d0ein!3 si:in!3 (inis)in! etc.3 on !re0 clot) and returns t)e same to ,-s SL,. T)e clot)
is supplied 0 ,-s SL, and t)e owners)ip o( t)e !oods vests wit) ,-s SL, all t)e time. ,-s SL,
sells t)e processed clot) at t)e rate o( "s. 144 per meter. Cost o( !re0 clot) in t)e )ands o( ,-s SL,
is "s. 14 per meter and ,-s A/C c)ar!es "s. 24 per meter as t)e Mo c)ar!es (w)ic) includes ,-s
A/CKc pro(it# and t)e Mo c)ar!es are recovered (rom ,-s SL,.
Bpon t)e aove (acts3 discuss rie(l0 wit) re(erence to t)e relevant provisions o( t)e Central Excise
Act3 1<88 and t)e "ules made t)ereunder t)e (ollowin! ;uestions
1. 'oes t)e process o( leac)in!3 d0ein!3 si:in!3 (inis)in! etc. is t)e aove context amounts to
manu(acture wit)in t)e meanin! o( section 2((# o( t)e Central Excise Act3 1<886
2. In t)e (acts and circumstances o( t)e aove case3 w)o will e re!arded as manu(acturer (or
t)e purpose o( t)e Central Excise Act i.e. ,-s SL, or ,-s A/C.
*. 7ow will t)e assessale value o( t)e processed clot) (or t)e purpose o( section 8 o( t)e Central
Excise Act3 1<88 and t)e "ules made t)ereunder e arrived6 U%ov. 2444V
7int (or answer9 #s per 5ule 10#/ the value shall be 5s. 100/:
+uestion 149 A trader supplies (arics to t)e independent processor. Cost o( (arics is "s. 11H4. T)e
processor c)ar!es "s. 814 w)ic) includes "s. *14 as processin! c)ar!es and "s.144 as )is pro(it. A(ter
processin! !oods are sent ac2 to t)e trader w)o sells t)em at "s. 1H44. Transport c)ar!es (or
receivin! t)e !oods at t)e premises o( t)e processor is "s. 114 and transport c)ar!es (or sendin!
!oods a(ter processin! is "s. ?4. Please determine t)e assessale value o( t)e !oods under section 8 o(
t)e Central Excise Act. U,a0 41V
&olution9 #s per rule 10#/ the assessable value shall be the value at 4hich the goods are sold by the
supplier of inputs to his custo$ers. )n the given case/ the supplier of inputs is selling the goods to his
custo$ers at 5s. 1"00. (herefore/ the assessable value shall be 5s. 1"00.
Explanation to section 8(1#
+uestion 119 'eal wit) t)e )elp o( case laws3 i( an0
,-s ABL avails o( CE%VAT credit o( t)e dut0 paid on t)e inputs namel03 steel s)eets. T)e scrap
!enerated durin! t)e manu(acture o( t)eir (inal product was cleared 0 t)em wit)out pa0ment dut0.
&use;uentl0 t)e 'epartment raised a demand o( excise dut0 on waste and scrape. ,-s ABL accepted
t)e dut0 liailit0 ut contended t)at t)e price at w)ic) waste and scrap )ad een sold s)ould e
considered to e cum-dut0 price and assessale value s)all e determined a(ter deductin! t)e element
o( excise dut0. T)e contention o( t)e 'epartment is t)at as no central excise dut0 )as een paid w)ile
clearin! t)e scrap3 no deduction on account o( excise dut0 is availale to ,-s ABL. U%ov. 2442V
Answer9 #ccording to Explanation to section 6&1' of the Central Excise #ct/ N(he price:cu$:duty of the
excisable goods sold by the assessee shall be the price actually paid to hi$ for the goods sold and the $oney
value of the additional consideration/ if any/ flo4ing directly or indirectly fro$ the buyer to the assessee in
connection 4ith the sale of such goods/ and such price:cu$:duty/ excluding sales tax and other taxes/ if any/
actually paid/ shall be dee$ed to include the duty payable on such goods.K
)n CCE =. ;aruti Sdyog 9i$ited/ it has been held that the price should be ta*en as cu$:duty price and duty
shall be calculated by 4or*ing bac*.
#ccordingly in the presents case/ as the Depart$ent has raised the de$and on 4aste and scrap/ the price
collected by ;/s #S9 4ill be considered as cu$:duty price. )t $eans/ the a$ount of duty is considered to
be already included in the price at 4hich such 4aste and scrap has been sold by #S9. (hus/ the contention
ta*en by the assessee is correct and the stand ta*en by the Depart$ent is not proper.
(hus/ the transaction value for charging excise duty is co$puted as follo4s .
=alue Q &Arice:cu$:duty . Aer$issible Deductions'/H1R&5ate of Duty/100'J
Irei!)t on return o( dama!ed !oods
+uestion 129 P+" Limited w)o are in t)e manu(acture o( excisale !oods )ad t)e practice o(
providin! (ull reimursement to all t)e dealers towards t)e value o( dama!ed !oods. T)e compan0
used to c)ar!e a certain sum towards t)e cost o( (rei!)t in t)e return o( dama!ed !oods to it. %o ot)er
consideration received 0 t)e compan0. T)e Central Excise 'epartment )as issued a s)ow cause
notice t)at t)e return (rei!)t in respect o( dama!ed !oods )as to e included in t)e assessale value
(or t)e purpose o( dut0. Examine rie(l03 t)e correctness in law o( t)e s)ow cause notice. U%ov. 48V
Answer9 (he facts in the given case are si$ilar to the case of Neel Ia$al Alastics 9i$ited =. CCE. )n this
case the CE-(#( has held that the a$ount collected by the co$pany 4as related to the cost of return
freight on the da$aged goods and hence did not in any 4ay represent the value of the goods. (he assessee
co$pany did not receive any additional consideration for the sale nor 4ere any clearances effected to4ards
replace$ent 4ithout pay$ent of duty. (herefore/ the return freight 4as not liable to be added to the
assessable value.
5arrant0 C)ar!es U,a0 <<V
+uestion 1*9 A Ltd.3 a manu(acturer o( t0re was extendin! a warrant0 discount on an0 t0res t)at were
de(ective. T)e sc)eme o( warrant0 discount operated t)us9 t)e customers lod!ed t)eir claim wit) re!ard
to an0 de(ects in t)e t0re. &uc) claims were t)en scrutini:ed 0 a Tec)nical Committee o( A Ltd.3 w)ic)
would decide t)e amount o( re(und due to t)e customer on t)e asis o( reduction in t)e normal li(e o(
t0re attriutale to t)e e((ect. T)is re(und was to e !iven 0 t)e Tec)nical Committee. T)e practice
was ein! (ollowed 0 A Ltd. (or last 11 0ears. A Ltd. claimed t)e warrant0 discount as a Trade
discount w)ic) is deductile in computin! t)e assessale value o( t)e t0res. Is t)is correct6 'iscuss in
li!)t o( t)e provisions under section 8 o( t)e Central Excise Act3 1<88 wit) respect to trade discount.
U,a0 <<V
Answer9 (he defective tyres brought bac* by the custo$ers are scrutini?ed by the (echnical Co$$ittee so
as to exa$ine the defects 4hich 4ere not apparent at the ti$e of sale.
(he assessee clai$s that the 4arranty discount is a established trade practice and fact of such discount is
already *no4n prior to re$oval of goods.
3o4ever/ the (echnical Co$$ittee assesses the defects and deter$ines the refund after the re$oval of
goods. #ny increase or reduction in value after the re$oval of goods does not affect the a$ount of duty
already paid. (he -upre$e Court also stated the sa$e in D#G Case.
>arranty discount is in the nature of a benefit given to the custo$ers by 4ay of co$pensation for loss
suffered by the$ and not in the nature of discount. (hus 4arranty discount cannot be allo4ed as a trade
discount.
'ama!e discount
+uestion 189 &tate rie(l0 w)et)er Odama!e discountK is permissile as a deduction (or purpose o(
arrivin! at t)e assessale value under section 8 o( t)e Central Excise Act3 1<88. U%ov. 48V
Answer9 #s per section 6&%'&d' the ter$ Ntransaction valueK $eans the Nactual price paid or payable XK. )t
$eans/ all discounts actually offered to the custo$er at the ti$e of re$oval of goods are acceptable for
deduction. (hus/ 4here da$aged goods are being sold by the assessee at a discounted price/ the Nda$age
discountK is ad$issible as deduction.
But/ 4here discount is offered after re$oval of goods/ then such discount is not an ad$issible deduction. )t
has been decided by the -upre$e Court in CCE =. =e*ra$ Detergents 9i$ited that da$age discount is in
the nature of a refund or benefit to the buyer by 4ay of co$pensation for da$age/ brea*age or loss suffered
by the goods after re$oval fro$ the factory and is not eligible for deduction.
Computation o( assessale value
+uestion 119 7avin! re!ard to t)e provisions o( section 8 o( t)e Central Excise Act3 1<88
compute-derive t)e assessale value o( t)e excisale !oods (or lev0 o( excise dut0 o( excise3 !iven t)e
(ollowin! in(ormation
Particulars
Cum-dut0 w)ole sale price includin! sales tax o( "s. 2444 "s. 113444
%ormal secondar0 pac2in! cost "s. 13444
Cost o( special secondar0 pac2in! "s. 13144
Cost o( durale and returnale pac2in! "s. 13144
Irei!)t "s. >14
Insurance on (rei!)t "s. 244
Trade discount (normal practice# "s. 1444
"ate o( Central Excise 1?A Ad Valorem
&tate in t)e (ootnote to 0our answer3 reasons (or admissiilit0 or ot)erwise o( t)e deductions. U%ov.
<?3 adoptedV
Answer9
Computation o( assessale value
Particulars "s.
Cu$:duty 4hole sale price including sales tax of 5s. 2000
9essB #$ount of sales tax
Cost of returnable and durable pac*ing
(rade Discount &Nor$al Aractice'
1reight
)nsurance on freight
1+/000
2/000
1/+00
1/000
!+0
200
#ssessable value including excise duty 2/+00
'ut0 includin! education cess and &7E& @ 1?.8HA
(<114Q1?.8H-11?.8H#
13*11
Assessale value H31<<
5or2in! %otes
1. Nor$al secondary pac*ing cost of 5s. 1000 and cost of secondary pac*ing of 5s. 1+00 has not been
deducted.
2. (he value does not include excise duty/ sales tax/ trade discount/ freight and insurance.
%. 1reight and insurance on freight 4ill be allo4ed as deduction as per 5ule + of the Central Excise
=aluation 5ules.
+uestion 1?9 A!ricultural Implements Limited sold (arm e;uipments to t)e a!riculturists on ex-
(actor0 asis upon pa0ments made e(ore dispatc) o( t)e !oods. A!ricultural Implements Limited3 at
t)e re;uest o( t)eir customers3 arran!e (or pa0ment o( (rei!)t and transit insurance and (or t)e
dispatc) o( t)e !oods to t)e destination. T)e 'epartmentKs view is t)at since t)e0 )ave also arran!ed
(or transport o( !oods3 t)ere is no ex-(actor0 deliver0 o( !oods and t)e cost o( insurance and (rei!)t is
to e included to t)e price (or determination o( value and excise dut0 s)ould e pa0ale on suc) asis.
/rie(l0 examine w)et)er contention o( t)e 'epartment is correct in law. U,a0 4*V
Answer9 #ccording to section 6&1'&a' of the Central Excise #ct/ 1266/ in a case 4here the goods are sold
by the assessee/ for delivery at the ti$e and place of re$oval/ the assessee and buyer of the goods are not
related persons and the price is the sole consideration for sale/ the assessable value shall be the transaction
value. )n the given case/ the place of re$oval is factory.
(he contention of the assessee is that the transaction ends at the factory and nothing re$ains to be done
after4ards. (he delivery of the goods at the custo$erKs destination and pay$ent of freight anf transit
insurance are only $ade by the co$pany on the re7uest of the custo$er. 3ence the insurance and freight
have no relevance in the $atter.
#ccordingly/ the co$pany is not liable to pay excise duty on the basis of price inclusive of freight and
insurance. (he vie4 has been upheld in Escorts <CB 9i$ited =. CCE. 3ence/ contention of the Depart$ent
is not goods in la4.
+uestion 1>9 A &&I unit clears !oods wit) lael carr0in! ,"P o( "s. ?>-- per unit in t)e ordinar0
course o( usiness. T)e same !oods are supplied at "s. 12-- per unit pac2 mar2ed as ,"P "s. 12 per
unit to Canteen &tores 'epartment (C&'#3 w)ic) in turn sales t)e same 3 at t)e same price to t)e
'e(ence Personnel at di((erent places. T)e !oods sold to C&' carr0 t)e inscription O(or C&' onl0K.
T)e Excise 'epartment insists t)at t)e &&I unit s)ould pa0 dut0 wit) re(erence to t)e ,"P "s. ?>--
even in respect o( sale to C&'. 5it) re(erence to t)e provisions o( &ection 8A o( t)e Central Excise
Act3 1<883 rie(l0 discuss w)et)er t)e stand ta2en 0 t)e 'epartment is correct. (,a0 41#
Answer9 -ection 6# of the Central Excise #ct/ 1266 e$po4ers the Central 0overn$ent to levy Central
Excise on the basis of ;5A specified on the pac*age of the goods.
Explanation 2&c' to section 6# to the said section states that 4here different retail sale prices are declared on
different pac*ages each such retail sale price shall be the retail sale price for the purposes of valuation of
the excisable goods. (herefore/ in the given case/ stand ta*en by the Depart$ent is not correct.
+uestion 1H9 As)a Limited supplies raw material to t)e Mo-wor2er Sareena Limited. A(ter
completin! t)e Mo-wor23 1444 pac2ets o( (inis)ed !oods are returned to As)a Limited puttin! t)e
retail sale price o( "s. 24-- on eac) pac2et. T)e product in t)e pac2et is covered under t)e ,"P
provisions and 84A aatement is availale on it. 'etermine t)e assessale value under t)e Central
Excise provisions (rom t)e (ollowin! details
Cost o( raw material supplied "s. *43444
Po wor2erKs c)ar!es includin! )is pro(it "s. 143444
Transportation c)ar!es (or sendin! t)e !oods to t)e Mo wor2er "s. *3444
Transportation c)ar!es (or returnin! t)e !oods to As)a Limited "s. *3444
U%ov. 41V
Answer9 )n case of goods covered under section 6# of the Central Excise #ct/ 1266/ the assessable value is
to be arrived at after allo4ing per$itted abate$ent fro$ ;5A. )n the given case/ ;5A is 5s. 20/: and
abate$ent allo4ed is 60,. (herefore/ assessable value 4ill be 5s. 12/: per unit and aggregate value for all
+000 units 4ill be 5s. 0/000.
+uestion 1<9 An assessee sold certain !oods (or "s.83*13444 and did not c)ar!e an0 excise dut0 in )is
invoice on t)e understandin! t)at t)e product was exempt (rom excise dut0. &use;uentl03 it was
(ound t)at suc) !oods were not exempt3 ut were liale to dut0 @ 1?A. Calculate t)e amount o( dut0
pa0ale t)ereon3 statin! t)e reasons (or 0our calculation. (C& Iinal %ew &0llaus 'ec 4*#
Answer9
)n such cases/ it has been held in CCE F. Daruti 1'(o0 that the invoice price should be considered as
cu$:duty price and excise duty shall be calculated by $a*ing bac*4ard calculations.
(hus/ assessable value in the given case 4ill be 5s.6/%+/000 P100/11.6" Q 5s.%/!%/6++.
)t has been held that the 4hole sale price includes the ele$ent of duty payable on any goods because
such duty for$s part of any goods and is a part of the consideration for sale of the goods.
)f any further de$and of duty is created against an assessee/ he cannot pass on such de$and on to his
custo$er.
(herefore/ the original consideration received by an assessee has to be ta*en as cu$:duty price for the
purpose of de$and of higher duty subse7uently.
(otal duty proposed to be de$anded still has to be abated fro$ the cu$ duty price. 3o4ever/ the final
duty payable is sub@ect to CEN=#( credit on inputs consu$ed.
&ome more solved Practical Prolems
Computation o( Assessale Value J Excise 'ut09
1. (he selling price of a product inclusive of excise duty and sales tax is 5s.%/+00 per do?en. -ales tax is
6,. (he excise duty payable is 1,. >or* out the assessable value and total duty payable per do?en.
(C5A Inter Pune 2444#
&olution9 Computation o( Assessale Value J 'ut0 Pa0ale per piece
-elling price inclusive of sales tax O 6, %+00
9ess : -ales (ax &%+00 P 6/106' 1%6.1
Cu$:duty price %%+.%2
9essB Excise Duty including education cess O
1.6", Q %%+.%2 P 1.6"/11.6" 6!.16
#ssessable value 2""2.2+
YYYYYYY
Computation o( Assessale Value J Excise 'ut09
2. )f a product 4as sold at 5s.+00 per piece inclusive of sales tax O 10, and excise duty as per an
exe$ption notification O ", &though the tariff rate of excise duty is 1,'/ 4hat 4ould beB
&i' the assessable value per pieceC and
&ii' the duty payable per pieceF (C& Iinal 'ec 48#.
&olution9 Computation o( Assessale Value J 'ut0 Pa0ale per piece
-elling price inclusive of sales tax O 6, +00
9ess : -ales (ax &+00 P 10/110' 6+.6+
Cu$:duty price 6+6.++
9essB Excise Duty including education cess O
".26, Q 6+6.++ P ".26/10".26 %6.0
#ssessable value 612.2+
WWWWWWW
Computation o( Transaction Value J Excise 'ut09
%. 3o4 4ould you arrive at the (.=. for the purpose of levying excise duty fro$ the follo4ing dataF
(C5A Inter %ew &0llaus Pun 4*#
Cu$:duty selling price &exclusive of -ales (ax' 5s.10/000
5ate of Excise Duty 1,
(rade discount allo4ed 5s.1/200
1reight 5s.!+0
&olution9
#' Cu$:duty selling price &exclusive of -ales (ax' 5s.10/000
B' 9essB Aer$issible Deductions
(rade discount allo4ed 5s.1/200
1reight 5s.!+0 5s.1/2+0
C' Net price excluding taxes on final product &but inclusive of
excise duty'
5s."/0+0
D'Excise duty thereon O1.6", &5s."/0+0 P 1.6"/11.6"' 5s.1/1%2
E' #ssessable =alue &C:D' 5s./211
5or2in! %otes9
Excise Duty is to be charged on the net price. 3ence/ (rade Discount is allo4ed as deduction.
1reight 4ill be allo4ed as deduction &5efer 5ule + of C.E.=aluation 5ules/ 2000'
(hus/ trade discount of 5s.1/200 and freight of 5s.!+0 are allo4ed as deductions.
YYYYYYY
Computation o( Transaction Value J Excise 'ut09
6. 3o4 4ould you arrive at the assessable value for the purpose of levy of excise duty fro$ the follo4ing
particularsB
Cu$:duty selling price exclusive of sales tax 5s.20/000
5ate of excise duty applicable to the product 1+,
(rade discount allo4ed 5s.2/600
1reight 5s.1/+00. (C& Iinal 'ec <H#
&olution9
#' Cu$:duty selling price &exclusive of -ales (ax' 5s.20/000
B' 9essB Aer$issible Deductions
(rade discount allo4ed 5s.2/600
1reight 5s.1/+00 5s.%/200
C' #ssessable =alue including excise duty O 1+.6+, 5s.1/100
D'Excise duty thereon O1+.6+, &5s.1/100P1+.6+/11+.6+' 5s.2/1++
E' #ssessable =alue &C:D' 5s.1%/26+
5or2in! %otes9
Excise Duty is to be charged on the net price. 3ence/ (rade Discount is allo4ed as deduction.
1reight 4ill be allo4ed as deduction &5efer 5ule + of C.E.=aluation 5ules/ 2000'
(hus/ trade discount of 5s.1/200 and freight of 5s.!+0 are allo4ed as deductions.
WWWWWWW
Computation o( Assessale Value J Excise 'ut09
+. 1ind #ssessable =alue and duty payable fro$ the follo4ing particularsB
a' ;axi$u$ 5etail (rade AriceB 5s.1/100/: per unit.
b' -ales:(ax/ -urcharge/ Gctroi and other 9ocal (axesB 10,
c' Cash DiscountB 2,
d' (rade DiscountB ",
e' Ari$ary and -econdary pac*ing cost included in the above ;5AB 5s.100
f' Excise duty rateB ", ad valore$. (C5A Inter 'ec <>#
&olution9
Computation o( Assessale Value J Excise 'ut0
;5A 1100
-ales:(ax/ -urcharge/ Gctroi and other 9ocal (axes 100
Cash Discount R (rade Discount &2 R " Q 10,' 100
=alue of goods inclusive of duty 200
Duty O ".26, &200 P ".26/10".26' ".+1
#ssessable value "%1.62
5or2in! %otes9
a' Cash discount U (rade discount shall be allo4ed as a deduction for the purpose of deter$ining the
assessable value. (herefore :
2, of 5s.1/100 Q 5s.22 shall be allo4ed as a deduction to4ards Cash discount.
", of 5s.1/100 Q 5s."" shall be allo4ed as a deduction to4ards (rade discount.
b' Aac*ing cost is not allo4able as deduction. #ny charges recovered for pac*ing are to be included
because these are essentially in relation to the goods under assess$ent and 4ill for$ part of the
transaction value.
WWWWWW
Computation o( Assessale Value J Excise 'ut09
. # $anufacturer has agreed to supply a $achine on follo4ing ter$sB :
&i' Arice of the $achine at 5s.6/+0/000 &Exclusive of taxes and duties'
&ii' Aac*ing for transportation of the $achine 5s.1+/000
&iii' (ransport charges of $achinery 5s.2+/000
&iv' Develop$ent and tooling charges 5s.60/000 &exclusive of taxes and duties'
&v' C.-.(. O 6,
&vi' Gctroi paid on $achine supplied 5s.2/000 &not recovered fro$ party separately'
&vii' Excise duty O 1,
&viii' )nterest 4ill be charged O 1, on delayed pay$ent beyond %0 days
&ix' -pecial discount of 5s.+/000 if advance of 5s.2/00/000 is paid 4ith order.
>or* out the excise duty liability based on follo4ing additional infor$ationB
&i' #ctual transportation cost is 5s.2/000
&ii' )nterest of 5s.+/000 4as charged as party has failed to $a*e pay$ent 4ithin %0 days
&iii' (he buyer paid advance 4ith the order. (C5A Inter Pune <>#
&olution9
Computation o( Assessale Value J Excide 'ut0 liailit09
Particulars
Amount ("s.#
"eason (or inclusion-exclusion (rom Assessale Value
#' Arice of the $achine
&exclusive of taxes'
6/+0/000 Cost of $achine
B' Aac*ing Charges for
(ransportation
1+/000 Aac*ing Charges are includible in #ssessable =alue.
(hese charges are essentially in relation to the goods
under assess$ent and 4ill for$ part of the transaction
value.
C' (ransport charges of
$achinery
&:' 1000 #ctual expenditure incurred on transpHortation is re7uired
to be dedcuted. (he fact is that transport charges charged
4ere 5s.2+/000 against actual charges incurred of
5s.2/000. 9oss of 5s.1/000 shall be allo4ed as deduction.
D' Develop$ent and tooling
charges
60/000 -uch charges are incurred by reason of or in connection
4ith sale. 3ence includible in the #ssessable =alue.
E' C.-.(. O 6, N)9 C-( is not includible in the price of the $achinery.
1' Gctroi paid on $achine
supplied
N)9 Gctroi is not includible in the price of the $achinery.
0' )nterest O 1, on delayed
pay$ent
N)9 )f )nterest on delayed is allo4ed as deduction/ then MpriceM
4ill not be the sole considerationM. 3ence/ not allo4able.
3' -pecial discount if advance of
5s.2/00/000 is paid 4ith order.
N)9 )f special discount is allo4ed as deduction/ then MpriceM 4ill
not be the sole considerationM. 3ence/ not allo4able.
)' #ssessable =alue 5s.+/06/000 &#'R&B'R&D'
<'Excise duty thereon O 1.6" , 5s."%/ 0+2 O1.6",&5s.+/06/000P1.6"/100'
WWWWWW
Computation o( Assessale Value J Excise 'ut09
!. 3aving regard to provisions of section 6 of the Central Excise #ct/ 1266/ co$pute the assessable value
of excisable goods and the duty a$ount/ given the follo4ing infor$ationB
&i' Cu$:duty 4holesale price &inclusive of sales tax 5s.%/000' : 5s.1/000
&ii' Nor$al secondary pac*ing cost : 5s.1/000
&iii' Cost of special secondary pac*ing : 5s.2/000
&iv' Cost of durable and returnable pac*age : 5s.1/000
&v' 1reight &out4ard' : 5s.!+0
&vi' )nsurance on freight : 5s.%00
&vii' (rade discount &as per nor$al practice' : 5s.200.
&viii' (he rate of central excise duty as per the central excise tariff is 1+,. (C5A Iinal Pune <H#
&olution9 #ssessable =alue Q &Cu$:duty Arice . Aer$issible Deductions'/&1R 5ate of Excise Duty'
Computation o( Assessale value J 'ut0 liailit09
Particulars Amount
("s.#
"easons (or inclusion-exclusion
Cu$ Duty price 1/000
Permissile 'eductions9
-ales (ax %/000 -ales tax of 5s.%/000 is allo4able as deduction.
Nor$al secondary pac*ing cost N)9 -econdary Aac*ing cost of 5s.1/000 is includible.
Cost of special secondary pac*ing N)9 Cost of special secondary 5s.2/000 is includible if it is in
connection 4ith sales. )n absence of infor$ation/ assu$ed
that it is essential for sale and hence included in
assessable value.
Cost of durable and returnable
pac*age
1/000 Cost of durable and returnable pac*ing is not includible in
assessable value.
1reight &out4ard' !+0 (ransport charges are not includible in #=.
)nsurance on freight %00 )nsurance charges on freight are not includible in #=.
(rade discount &as per nor$al
practice'
200 (rade discount is allo4able as deduction.
Total 143414 5s.1/000:%/000:1/000:!+0:%00:200
Duty liability O 1+.6+, 1/++% 5s.100+0 P 1+.6+/11+.6+
Assessale Value H38<>
WWWWWWW
Explanation to &ec 8(1#9
". #n assessee 4as under i$pression that his product is exe$pt fro$ excise duty and hence sold the goods
O 5s.100 per piece 4ithout charging excise duty. 9ater/ it 4as found that actually/ the product 4as
dutiable O 1,. Depart$ent clai$ed that since goods 4ere re$oved 4ithout duty/ assessable value
should be 5s.100 and duty is payable accordingly. #ssessee contended that price of 5s.100 should be
ta*en as cu$:duty price and actual duty payable should be calculated by bac* calculations. Deter$ine
the correct duty payable per piece. (C5A Iinal %ew &0llaus 'ec 4*#
&olution
Expla"atio" to @ectio" >(1! pro/i'es9
(he price:cu$:duty of the excisable goods sold by the assessee shall be the price actually paid to hi$ for
the goods sold and the $oney value of the additional consideration/ if any/ flo4ing directly or indirectly
fro$ the buyer to the assessee in connection 4ith the sale of such goods/ and such price:cu$:duty/
excluding sales tax and other taxes/ if any/ actually paid/ shall be dee$ed to include the duty payable on
such goods.
#lso/ in CCE /. Daruti 1'(o0 ;t'. (2002! 1>1 E;2 (@C! it has been held that the price should be ta*en
as cu$:duty price and duty payable should be calculated by 4or*ing bac*.
(hus/ the transaction value for charging excide duty is co$puted as sho4n belo4B
=alue Q &Arice Cu$ Duty'/ H1R&5ate of Duty/100'J
Q &100'/H1R&1.6"/100'J Q 5s.1".21 &approx'.
Duty payable is Q 5s.16.16 i.e Z&100'/H1R&1.6"/100'J [
WWWWWW

Computation o( Assessale Value J Excise 'ut09
2. Deter$ine the transaction value and the Excise duty payable fro$ the follo4ing infor$ationB
(otal )nvoice Arice 5s.1"/000
(he )nvoice Arice includes the follo4ingB (C5A Inter Pune 41#
a'-ales:tax 5s. 1000
b'-urcharge on -( 5s. 100
c'Gctroi 5s. 100
d')nsurance fro$ 1actory to depot 5s. 100
e'1reight fro$ factory to depot 5s. !00
f'5ate of Basic Excise duty 1, ad valore$
g'5ate of -pecial Excise duty 26, ad valore$
&olution9
Computation o( Assessale Value J 'ut0 liailit09
#' Cu$:duty -elling Arice 5s.1"/000
B' 9essB Aer$issible Deductions
-ales (ax 5s.1/000
-urcharge on -ales (ax 5s.100
Gctroi 5s.100
C' Net price excluding taxes on final product &but inclusive of excise duty' 5s.1/"00
D'Excise duty thereon O61.20, &, Basic Excise Duty R 26, -pecial Excise
DutyR Education cess' H5s.1/"00 P 61.20/161.20J
5s.6/202
E' #ssessable =alue &C:D' 5s.11/"2"
5or2in! %otes9
#ssu$ed that the )nvoice Arice of 5s.1"/000 is the price prevailing at the depot. 3ence/ insurance
and transport charges fro$ factory to depot 4ill not be allo4ed as a deduction.
#lternative treat$ent possible.
WWWWWW
Computation o( Assessale Value J Excise 'ut0 C "ule ?
10. -ig$a 9td. as*ed for a 7uotation fro$ G$ega 9td. for the supply of 100 co$plete co$puter syste$s.
G$ega ltd. furnished the follo4ing 7uotation B
&#' Co$ponents
CAS 5s.20/000
;onitor 5s.10/000
Ieyboard 5s.+/000
@u+-2otal #s.5?000
&B' 9abour U Gverheads 5s.10/000
&C' Arofit 5s.+/000
Total price per unit (AC/CC# "s.143444
#dvance of 5s.20/000 4as payable along 4ith order. Delivery period 4as one $onth fro$ date of receipt of
fir$ order and advance.
-ig$a 9td. accepts the 7uotation sub@ect to the follo4ing alterations 4hich are agreed to by G$ega 9td.B
i' Ieyboard 4ould be supplied free of cost by -ig$a 9td. to G$ega 9td. since -ig$a 9td. is able to
purchase the *eyboard for 5s.%/000 per unit.
ii' Arofit charged by G$ega 9td. is to be reduced to 5s.6000 since -ig$a 9td. 4ould $a*e an advance of
5s.20/000. 3o4ever/ no interest is payable on the advance.
Deter$ine the assessable value under section 6 of the Central Excise #ct/ 1266/ and the Excise Duty
liability O 1+, ad valore$. (C5A Inter 'ec <<#
&olution9
Computation o( Assessale Value J Excise dut0 liailit09
Particulars Amount in
"s.
"easons (or inclusion-exclusion
#' Co$ponentsB
CAS 20/000
;onitor 10/000
Ieyboard %/000 -ince the *eyboard is supplied free of cost by -ig$a 9td/ it cannot
be said that price is the sole consideration for sale. 5ule of CE
=aluation 5ules/ 2000 provides that in such cases the cost of
$aterials supplied by the buyer shall be added to deter$ine the
assessable value.
Total ,aterial Cost **3444
B' #ddB 9abour U
Gverheads
10/000
Cost o( Production 8*3444
C' #ddB Arofit ele$ent +/000 (he profit $argin shall not be reduced by the ele$ent of interest
earned.
5here the same #ri!e is !har'ed from the "uyers who have 'iven
the de#osit and who have not 'iven the de#osit andBor where the
advan!e is #urely a se!urity de#osit and the interest earned
thereon is !redited to the "uyer$ then, in su!h !ases, the notional
interest !annot "e added to the #ri!e.(F@2 ,"'ustries ;t' Fs
CCE!
Assessale Value 8H3444 AC/CC
Excise Duty payable O
1+.6+,
!/61 6"/000 P 1+.6+,
WWWWWW
"ule > o( CE Valuation "ules324449
11. -hiva and Co./ an assessee/ transferred a consign$ent of 10 tons paper to the depot fro$ Delhi to
Chandigarh on 10
th
<uly/ 200% for value of 5s.12/+00 per ton. (he transport cost 4as 5s.+00 per ton.
(he sa$e variety and 7uality of paper nor$ally being sold at Chandigarh depot on 10
th
<uly/ 200% 4as
at a transaction value of 5s.1+/000 per ton to unrelated buyers.
a' >hich transaction value should be considered for assess$ent to excise dutyF
b' )n case there 4ere no sales of that variety and 7uality of paper on 10
th
<uly/ 200%/ but sales 4ere
effected on 1
st
<uly/ 200% previously for 5s.16/000 per ton/ 4hat 4ould be the positionF (C& Inter
%ew &0llaus 'ec 48#
&olution9 #s per the provisions of 5ule ! of Central Excise valuation 5ules/ 2000B
D>here the excisable goods are not sold by the assessee at the ti$e and place of re$oval but are transferred
to a depot/ pre$ises of a consign$ent agent or any other place or pre$ises fro$ 4here the excisable goods
are to be sold after their clearance fro$ the place of re$oval and 4here the assessee and the buyer of the
said goods are not related and the price is the sole consideration for the sale/ the value shall be the nor$al
transaction value of such goods sold fro$ such other place at or about the sa$e ti$e and/ 4here such goods
are not sold at or about the sa$e ti$e/ at the ti$e nearest to the ti$e of re$oval of goods under
assess$ent.E
-ituation &a'B (he goods re$oved fro$ the factory on 10.0!.200% shall be assessed to duty by adopting
5s.1+/000 per ton as value &this is the nor$al transaction value of goods sold fro$ depot at the sa$e ti$e as
to the ti$e of re$oval of goods fro$ the factory.'
-ituation &b'B Nor$al (ransaction =alue on 1.!.200% fro$ Chandigarh depot to unrelated buyers shall be
the valuation of the goods re$oved fro$ factory on 10.!.200% provided price is the sole consideration.
(hus/ the transaction value to be considered for assess$ent to excise duty shall be the price at the depot
nearest to the ti$e of re$oval of goods fro$ the factory i.e/ on 1.!.200% at 5s.16/000.
WWWWWW
"ule H o( CE Valuation "ules324449
12. (hunder (= 9td. is engaged in the $anufacture of colour television sets having its factories at
Bangalore and Aune. #t Bangalore the co$pany $anufactures picture tubes 4hich are stoc* transferred
to Aune factory 4here it is consu$ed to produce television sets. Deter$ine the Excise duty liability of
captively consu$ed picture tubes fro$ the follo4ing infor$ationB :
Direct $aterial cost &per unit' 5s.00
)ndirect ;aterials 5s.+0
Direct 9abour 5s.100
)ndirect 9abour 5s.+0
Direct Expenses 5s.100
)ndirect Expenses 5s.+0
#d$inistrative Gverheads 5s.+0
-elling and Distribution Gverheads 5s.100.
#dditional )nfor$ationB :
&1' Arofit ;argin as per the #nnual 5eport of the co$pany for 1222:2000 4as 1+, before )nco$e (ax.
&2' ;aterial Cost includes Excise Duty paid 5s.100
&%' Excise Duty 5ate applicable is 1,. (C5A Inter 'ec 2444#
&olution9 5ule " of CE =aluation 5ules/ 2000 provides :
D>here the excisable goods are not sold by the assessee but are used for consu$ption by hi$ or on his
behalf in the production or $anufacture of other articles/ the value shall be 110, of the cost of production
or $anufacture of such goods.E
(he )C>#) has introduced Cost #ccounting -tandard : 6 &C#-: 6' for deter$ining cost of
production for the purpose of Excise valuation. (he CBEC has clarified that cost of production of
captively consu$ed goods has to be strictly done in accordance 4ith C#-:6 issued by )C>#).
#s per C#-:6/ the Cost of Aroduction shall consist of $aterial consu$ed/ direct 4ages/ salaries/
direct expenses/ 4or* overheads/ ad$inistrative overheads relating to production/ 7uality control
cost/ research and develop$ent cost and pac*ing cost. 1urther/ ad@ust$ent for stoc* of 4or*:in:
progress/ finished goods/ recoveries for sales of scrap. >astage etc shall be $ade for arriving at the
cost of production of goods 4hich are used for captive consu$ption.
(he cost of $aterial should be net of excise duty if CEN=#( credit has been availed for such
inputs. )n case no CEN=#( credit has been availed on such inputs/ the $aterial cost should be
inclusive of the excise duty.
Computation o( Assessale Value9
Particulars Amount in "s. Amount in "s.
Direct ;aterial Cost 00
9essB Excise Duty &assu$ing CEN=#( has been
clai$ed'
100 +00
)ndirect ;aterials +0
Direct 9abour 100
)ndirect 9abour +0
Direct Expenses 100
)ndirect Expenses +0
#d$inistrative Gverheads +0
-elling U Distribution Gverheads N)9
(otal Cost of Aroduction as per C#-:6 200
#ssessable =alue &(otal Cost of Aroduction P 110,' 220
Excise Duty payable O 1.6", on 5s.220 1%.1+
YYYYYY
"ule < J 14 o( CE Valuation "ules3 24449
1%. Deter$ine the value on 4hich Excise duty is payable in the follo4ing instances. 8uote the relevant
section / rules of Central Excise 9a4.
i' #. 9td. sold goods to B 9td./ at a value of 5s.100 per unit. )n turn/ B 9td. sold the sa$e to C 9td. at a
value of 5s.110 per unit. # 9td. and B 9td. are related/ 4hereas B 9td. and C 9td. are unrelated.
ii' # 9td. and B. 9td. are inter:connected underta*ings under section 2&g' of ;5(A #ct. # 9td. sells
goods to B 9td. at a value of 5s.100 per unit and to C 9td. at 5s.110 per unit/ 4ho is an independent
buyer.
iii' # 9td. sells goods to B 9td. at a value of 5s.100 per unit. (he said goods are captively consu$ed by
B 9td. in its factory. # 9td. and B 9td. are unrelated. (he cost of production of the goods to # 9td. is
5s.120 per unit.
iv' # 9td. sells $otor spirit to B 9td. at a value of 5s.%1 per litre. But $otor spirit has ad$inistered
price of 5s.%0 per litre/ fixed by the Central 0overn$ent.
v' # 9td. sells to B 9td. at a value of 5s.100 per unit. B 9td. sells the goods in retail $ar*et at a value of
5s.120 per unit. (he sale price of 5s.100 per unit is 4holesale price of # 9td. #lso/ # 9td. and B 9td.
are related.
vi' Depot price of a co$pany are .
Alace of
re$oval
Arice at depot
on 1.1.2001
Arice at depot on
%1.1.2001
#ctual sale price at depot on
1.2.2001
#$ritsar Depot 5s.100 per unit 5s.10+ per unit 5s.11+ per unit
Bhopal Depot 5s.120 per unit 5s.11+ per unit 5s.12+ per unit
Cuttac* depot 5s.1%0 per unit 5s.12+ per unit 5s.1%+ per unit
#dditional infor$ationB
i' 8uantity cleared to #$ritsar Depot : 100 units
ii' 8uantity cleared to Bhopal Depot : 200 units
iii' 8uantity cleared to Cuttac* Depot : 200 units
iv' (he goods 4ere cleared to respective depots on 01/01/2001 and actually sold at the depots on
01/02/2001. (C5A 'ec 41#
&olution9
&i' 5s.110 per unit shall be the (ransaction value. &5efer 5ule 2 N-ale only to or through Nrelated personsK
not being inter: connected underta*ings &)CSs'Kof Central Excise =aluation 5ules/ 2000'.
&ii' (ransaction value shall be 5s.100 per unit for sale to B and 5s.110 for sale to C &5efer 5ule 10 N -ale
only to or through persons being interconnected underta*ings &)CS'K of Central Excise =aluation 5ules/
2000'
&iii' >here the sale is $ade to an unrelated person/ the 7uestion of cost of production does not arise. (hus/
transaction value 4ill be 5s.100 as per -ection 6&1' of CE#/ 1266.
&iv' (he price at 4hich the goods are actually sold shall be considered for the purpose of deter$ining the
transaction value and not the ad$inistered price. (hus/ the transaction value 4ill be 5s.%1 as per -ection 6
of CE#/ 1266.
&v' 5ule 2 of Central Excise =aluation 5ules provides that 4hen the assessee sells goods to a related person
4ho in turn sells it to an unrelated dealer &4hether a 4holesaler or retailer'/ the value of the goods shall be
the nor$al transaction value at 4hich these goods are sold by the related person to such unrelated person at
the to$e of re$oval of goods fro$ the place of re$oval. (hus/ in the given case/ the transaction value shall
be 5s.120 per unit.
&vi' 5ule ! of the Central Excise =aluation 5ules/ 2000 provide that the price prevailing at the Depot on the
date of clearance fro$ the factory 4ill be the relevant value to pay Excise duty. (hus/ in the given proble$B
Clearance to #$ritsar depot 4ill attract duty based on the price as on 01/01/2001. (ransaction value
is 5s.100 P 100 units Q 5s.10/000/:
Clearance to Bhopal depot 4ill attract duty based on the price as on 01/01/2001. (ransaction value
is 5s.120 P 200 units Q 26/000/:
Clearance to Cuttac* Depot 4ill attract duty based on the price as on 01/01/2001. (ransaction value
is 5s.1%0 P 200 units Q 5s. 2/000/:
NoteB (he relevant date is 01/01/2001/ since the goods 4ere cleared to the depots on that date. No additional
duty is payable even if goods are later sold fro$ depot at a higher price.
YYYYYY
"ule < J 14 o( CE Valuation "ules3 24449
16. P 9td. $anufactures three health drin*s vi?. -li$/ (ri$/ Ari$.
-li$ 4as sold only to L 9td./ a subsidiary co$pany of P 9td.
(ri$ 4as sold to W 9td./ 4here the ;anaging Director of P 9td. is a ;anager.
Ari$ is sold to A 9td. 4ho are sole distributor of P 9td./ and 4as co$ing under the sa$e $anage$ent
of P 9td.
Deter$ine the assessable value/transaction value of the three products in the hands of P 9td. on the basis of
the follo4ing infor$ationB (C5A Inter 'ec 42#
a' Arice of P 9td. to L 9td. 5s. 100
b' Arice of P 9td. to W 9td. 5s. +0
c' Arice of P 9td. to A 9td. 5s. 20
d' Arice of L 9td. to consu$er 5s. 120
e' Arice of W 9td. to consu$er 5s. 0
f' Arice of A 9td. to consu$er 5s. %0
&olution9
5ule 2 of C.E =aluation 5ules/ 2000 provides that 4here the assessee arranges to sell goods only to or
throughB
1. his relative
2. relative and distributor or sub:distributor of such distributor.
%. persons 4ho are $utually interested in the business of each other
then/ the nor$al transaction value at 4hich the goods are sold by such persons at the ti$e of re$oval can be
ta*en as value/ provided the other buyer is not related.
>hen goods are sold to related persons 4ho are also retailers/ then the price at 4hich goods are sold to the
related retailer shall be adopted.
5ule 10 of C.E =aluation 5ules/ 2000 provides that 4hen the assessee so arranges that the excisable goods
are not sold by hi$ except to or through an inter:connected underta*ing/ the value of goods shall be
deter$ined in the follo4ing $anner/ na$elyB
1. )f the underta*ings are so connected that they are also related in ter$s of sub:clause &ii' or &iii' or &iv' of
clause &b' of sub:section &%' of -ection 6 of the #ct or the buyer is a holding co$pany or subsidiary
co$pany of the assessee/ then the value shall be deter$ined in the $anner prescribed in 5ule 2.
2. in any other case/ the value shall be deter$ined as if they are not related persons for the purpose of sub:
section &1' of section 6.
Cases !iven in t)e prolem9
1. Aroduct N-li$K 4as sold exclusively to NLK 4hich is a subsidiary co$pany of NPK. -ince Co$pany NLK
falls under the definition of NrelativeK under -ection 6&%'&b' of Central Excise #ct/ 1266/ transaction
value in such a case 4ill be the price at 4hich L sells the product to ulti$ate consu$er i.e./ 5s.120.
2. Aroduct N(ri$K is sold to NWK 4here ;D of the $anufacturer is ;anager. 3ence/ as per the definition/
Co$pany NPK and Co$pany NWK are Ninter connected underta*ingsK. 5ule 10 of C.E. =aluation 5ules
provides that inter connected underta*ings are considered as NrelatedK only if there is Nholding:
subsidiaryK relationship.
-ince in the given case there is no such holding:subsidiary relationship/ the transaction value 4ill be the
price at 4hich P sales to W i.e./ 5s.+0.
%. Aroduct NAri$K 4as sold to A and it has been given that P and A are under sa$e $anage$ent. 3ence/ as
per the definition/ Co$pany NPK and Co$pany NAK are Ninter connected underta*ingsK. 5ule 10 of C.E.
=aluation 5ules provides that inter connected underta*ings are considered as NrelatedK only if there is
Nholding:subsidiaryK relationship
-ince in the given case there is no such holding:subsidiary relationship/ the transaction value 4ill be the
price at 4hich P sales to A i.e./ 5s.20.
YYYYYY
"ule 14A
1. ;/s Bharat &(rader' supplies ra4 $aterial costing 5s.6/+00 to processor. Arocessor processes the ra4
$aterial and supplies finished product to the trader.
(he processor charged 5s.1/0+0 as processing charges 4hich includes 5s."00 as processing charges
and 5s.2+0 as his profit $argin.
(he cost of transportation of ra4 $aterial to the pre$ises of the processor is 5s.600 and for
returning of the finished product to the trader is 5s.6+0.
(he finished product is sold by the trader for 5s./!00.
(he rate of excise duty is 1,.
>hat is the assessable value and 4hat is the total duty payable. (C5A Inter 'ec 2444#
&olution9 #s per 5ule 10#/ the assessable value in the aforesaid case shall be the value at 4hich goods are
sold by ;/s Bharat &(rader' i.e. 5s. !00/:. (he duty inclusive of education cess O 1.6", shall be 5s.
1106.1.
WWWWWW
"ule 14A
+uestion9 A trader supplies (arics to independent processor. Cost o( (arics is "s.13114. T)e
processor c)ar!es "s.814 w)ic) includes "s.*14 as processin! c)ar!es and "s.144 as )is pro(it.
A(ter processin!3 !oods are sent ac2 to t)e trader w)o sells t)em at "s.13H44. Transport c)ar!es
(or receivin! !oods at t)e premises o( t)e processor is "s.14 and t)e transport c)ar!es (or sendin!
!oods a(ter processin! is "s.?4.
Please determine t)e assessale value o( t)e !oods under &ection 8 o( t)e Central Excise Act. (?
mar2s#U,a0 41V
&"s)er9 #s per 5ule 10# of the Central Excise &Deter$ination of Arice of Excisable 0oods' 5ules/
2000 4here goods are $anufactured on @ob:4or* basis/ the assessable value shall be the price at 4hich
the finished goods are sold by the principal $anufacturer 4ho gets the goods $anufactured on @ob:4or*
basis/ to his custo$ers 4here custo$er is not a related person.
(herefore/ applying the above rule the assessable value shall be 5s.1"00 at 4hich the trader
sells the goods.
WWWWWW
&ec 8 J 8A applicailit09
1!. B 9td. $anufactures t4o products na$ely/ Eye Gint$ent and -*in Gint$ent. -*in Gint$ent is a
specified product u/sec. 6# of Central Excise #ct/ 1266. (he sales prices of both the products are at
5s.6%/unit and 5s.%%/unit respectively. (he sales price of both products included 1, excise duty as
BED and ", excise duty as -ED. )t also includes C-( of 6,. #dditional infor$ation is as follo4sB
Snits cleared
Eye Gint$ent B 1/00/000 units 5s. 6%/: per unit
-*in Gint$ent B 1/+0/000 units 5s. %%/: per unit
Deduction per$issible u/sec 6#B 60,.
Calculate the total excise duty liability of B 9td. on both the products.&C># <une 02'
&olution9 Duty on eye oint$ent and s*in oint$ent is re7uired to be calculated separately.
&! Dut( lia+ilit( i" case o% E(e oi"tme"t9
9et the #ssessable =alue of Eye Gint$ent be P per unit.
5upees
-elling price including sales tax 6%
9ess : -ales (ax O 6, H6% P 6/106J 1.+
Arice including duty 61.%+
Duty O 26.!2O HBED 1, R -ED , R EC %,J ".20
#ssessable =alue %%.1+
-ince the excise duty payable per unit of Eye oint$ent is 5s.".20 and the total 7uantity cleared is 1/00/000C
the total excise duty on eye oint$ent shall be 5s."/20/000.
-! Dut( lia+ilit( i" case o% @Bi" oi"tme"t9
-ince the product is specified under -ection 6#/ #ssessable =alue shall be co$puted by deducting the
abate$ent of 60, fro$ the ;5A.
;axi$u$ 5etail price &;5A' Q 5s.%%.00
9essB #bate$ent O 60, Q 5s.1%.20
Assessale Value per unit o( &2in ointment T "s.1<.H4
Excise duty payable per unit O 26.!2, Q 5s.6."2
(otal Excise Duty payable on 1/+0/000 units of -*in oint$ent shall be
&5s.6."6! x 1/+0/000 units'
Q 5s.!/%6/1"6
WWWWWW
&ec 8A o( CEA3 1<889
1". # product 4hich is covered under section 6# provisions has ;5A of 5s.2+ printed on the carton. )t is
cancelled by dra4ing t4o lines across the price/ but the price is easily readable. Belo4 that price/ ;5A
price of 5s.21 is sho4n to indicate the saving 4hich 4ill be $ade by buyer. (he abate$ent available is
60, on ;5A. Excise duty rate is 1,. Calculate the excise duty payable. (C5A Iinal %ew &0llaus
Pun 48#
&olution9
CBEC vide its circular No.!%/6/2002:CP dt.2".10.2002 has notified that once an ;5A is scored out and
even then it re$ains visible and another ;5A is printed on the pac*age/ then it cannot be said that t4o
;5AKs are printed on the pac*age. (he scored out ;5A cannot be considered as an ;5A either by the seller
or by the buyer and hence such ;5A shall be ignored.
1or the purpose of valuation for deter$ination of duty liability/ the ne4 ;5A shall be considered.
(hus/ in the given proble$/ the ;5A shall be ta*en as 5s.21.
Computation (or determinin! t)e 'ut0 liailit09
;axi$u$ 5etail price &;5A' Q 5s.21
9essB #bate$ent O 60, Q 5s.".6
Assessale Value T "s.12.?
Excise duty payable per unit O 1.6", Q 5s.2.0!
WWWWWW
&ec 8A o( CEA3 1<889
12. 5efrigerators under heading No. "61".10 carry Nabate$ent rateK of 60, and they are specified only in
the 1irst -chedule to the Central Excise (ariff #ct 12"+. 1ind out the a$ount of duty/ if the $axi$u$
retail price &;5A' of a refrigerator is 5s.20/000 only and the rate of excise duty is 1,. (C& Iinal Pune
48#
&olution9 Computatio" o% Dut( lia+ilit(
-ince the product is specified under -ection 6#/ #ssessable =alue shall be co$puted by deducting the
abate$ent of 60, fro$ the ;5A.
;axi$u$ 5etail price &;5A' Q 5s.20/000
9essB #bate$ent O 60, Q 5s."/000
Assessale Value T "s.123444
Excise duty payable per unit O 1.6", Q 5s.1/2!!.0
WWWWWW
Valuation U&ection 18 and Valuation "ulesV
CB&T$,& VALBATI$% ('ETE",I%ATI$% $I VALBE $I I,P$"TE' E$$'&# "BLE&3
244>
:otifi!ation :o. 97B233>-Cus. (:./.), dated .8-9-233>

)n exercise of the po4ers conferred by section 1+ read 4ith section 16 of the Custo$s #ct/ 122 &+2 of
122'/ and in supersession of the Custo$s =aluation &Deter$ination of Arice of )$ported goods' 5ules/
12"" except as respects things done or o$itted to be done before such supersession/ the Central 0overn$ent
hereby $a*es the follo4ing rules/ na$ely B:
1. &)ort title3 commencement and application. V &1' (hese rules $ay be called the Custo$s =aluation
&Deter$ination of =alue of )$ported 0oods' 5ules/ 200!.
&2' (hey shall co$e into force on the 10th day of Gctober/ 200!.
&%' (hey shall apply to i$ported goods.
2. 'e(initions. V &1' )n these rules/ unless the context other4ise re7uires/ :
&a' Dco$puted valueE $eans the value of i$ported goods deter$ined in accordance 4ith rule ".
&b' Ddeductive valueE $eans the value deter$ined in accordance 4ith rule !.
&c' Dgoods of the sa$e class or *indE/ $eans i$ported goods that are 4ithin a group or range of
i$ported goods produced by a particular industry or industrial sector and includes identical
goods or si$ilar goodsC
&d' Didentical goodsE $eans i$ported goods :
&i' 4hich are sa$e in all respects/ including physical characteristics/ 7uality and reputation as
the goods being valued except for $inor differences in appearance that do not affect the
value of the goods/
&ii' produced in the country in 4hich the goods being valued 4ere produced/ and
&iii' produced by the sa$e person 4ho produced the goods/ or 4here no such goods are
available/ goods produced by a different person/
but shall not include i$ported goods 4here engineering/ develop$ent 4or*/ art 4or*/ design
4or*/ plan or s*etch underta*en in )ndia 4ere co$pleted directly or indirectly by the buyer on
these i$ported goods free of charge or at a reduced cost for use in connection 4ith the
production and sale for export of these i$ported goodsC
&e' DproducedE includes gro4n/ $anufactured and $inedC
&f' Dsi$ilar goodsE $eans i$ported goods :
&i' 4hich although not ali*e in all respects/ have li*e characteristics and li*e co$ponent
$aterials 4hich enable the$ to perfor$ the sa$e functions and to be co$$ercially
interchangeable 4ith the goods being valued having regard to the 7uality/ reputation and
the existence of trade $ar*C
&ii' produced in the country in 4hich the goods being valued 4ere producedC and
&iii' produced by the sa$e person 4ho produced the goods being valued/ or 4here no such
goods are available/ goods produced by a different person/
but shall not include i$ported goods 4here engineering/ develop$ent 4or*/ art 4or*/ design
4or*/ plan or s*etch underta*en in )ndia 4ere co$pleted directly or indirectly by the buyer on
these i$ported goods free of charge or at a reduced cost for use in connection 4ith the
production and sale for export of these i$ported goodsC
&g' Dtransaction valueE $eans the value referred to in sub:section &1' of section 16 of the Custo$s
#ct/ 122C
&2' 1or the purpose of these rules/ persons shall be dee$ed to be DrelatedE only if :
&i' they are officers or directors of one anotherKs businessesC
&ii' they are legally recognised partners in businessC
&iii' they are e$ployer and e$ployeeC
&iv' any person directly or indirectly o4ns/ controls or holds five per cent or $ore of the outstanding
voting stoc* or shares of both of the$C
&v' one of the$ directly or indirectly controls the otherC
&vi' both of the$ are directly or indirectly controlled by a third personC
&vii' together they directly or indirectly control a third personC or
&viii' they are $e$bers of the sa$e fa$ily.
E6#lanation ,. : (he ter$ DpersonE also includes legal persons.
E6#lanation ,,. : Aersons 4ho are associated in the business of one another in that one is the sole
agent or sole distributor or sole concessionaire/ ho4soever described/ of the other shall be dee$ed to be
related for the purpose of these rules/ if they fall 4ithin the criteria of this sub:rule.
*. 'etermination o( t)e met)od o( valuation. V &1' -ub@ect to rule 12/ the value of i$ported goods shall
be the transaction value ad@usted in accordance 4ith provisions of rule 10C
&2' =alue of i$ported goods under sub:rule &1' shall be accepted B
Arovided that :
&a' there are no restrictions as to the disposition or use of the goods by the buyer other than
restrictions 4hich :
&i' are i$posed or re7uired by la4 or by the public authorities in )ndiaC or
&ii' li$it the geographical area in 4hich the goods $ay be resoldC or
&iii' do not substantially affect the value of the goodsC
&b' the sale or price is not sub@ect to so$e condition or consideration for 4hich a value cannot be
deter$ined in respect of the goods being valuedC
&c' no part of the proceeds of any subse7uent resale/ disposal or use of the goods by the buyer 4ill
accrue directly or indirectly to the seller/ unless an appropriate ad@ust$ent can be $ade in
accordance 4ith the provisions of rule 10 of these rulesC and
&d' the buyer and seller are not related/ or 4here the buyer and seller are related/ that transaction
value is acceptable for custo$s purposes under the provisions of sub:rule &%' belo4.
&%' &a' >here the buyer and seller are related/ the transaction value shall be accepted provided that the
exa$ination of the circu$stances of the sale of the i$ported goods indicate that the relationship did not
influence the price.
&b' )n a sale bet4een related persons/ the transaction value shall be accepted/ 4henever the
i$porter de$onstrates that the declared value of the goods being valued/ closely approxi$ates to one of the
follo4ing values ascertained at or about the sa$e ti$e.
&i' the transaction value of identical goods/ or of si$ilar goods/ in sales to unrelated buyers in )ndiaC
&ii' the deductive value for identical goods or si$ilar goodsC
&iii' the co$puted value for identical goods or si$ilar goods B
Arovided that in applying the values used for co$parison/ due account shall be ta*en of
de$onstrated difference in co$$ercial levels/ 7uantity levels/ ad@ust$ents in accordance 4ith
the provisions of rule 10 and cost incurred by the seller in sales in 4hich he and the buyer are
not relatedC
&c' substitute values shall not be established under the provisions of clause &b' of this sub:rule.
&6' )f the value cannot be deter$ined under the provisions of sub:rule &1'/ the value shall be deter$ined by
proceeding se7uentially through rule 6 to 2.
8. Transaction value o( identical !oods. V
&1'&a' -ub@ect to the provisions of rule %/ the value of i$ported goods shall be the transaction value of
identical goods sold for export to )ndia and i$ported at or about the sa$e ti$e as the goods
being valued B
Arovided that such transaction value shall not be the value of the goods provisionally assessed
under section 1" of the Custo$s #ct/ 122.
&b' )n applying this rule/ the transaction value of identical goods in a sale at the sa$e co$$ercial
level and in substantially the sa$e 7uantity as the goods being valued shall be used to deter$ine
the value of i$ported goods.
&c' >here no sale referred to in clause &b' of sub:rule &1'/ is found/ the transaction value of identical
goods sold at a different co$$ercial level or in different 7uantities or both/ ad@usted to ta*e
account of the difference attributable to co$$ercial level or to the 7uantity or both/ shall be
used/ provided that such ad@ust$ents shall be $ade on the basis of de$onstrated evidence 4hich
clearly establishes the reasonableness and accuracy of the ad@ust$ents/ 4hether such ad@ust$ent
leads to an increase or decrease in the value.
&2' >here the costs and charges referred to in sub:rule &2' of rule 10 of these rules are included in
the transaction value of identical goods/ an ad@ust$ent shall be $ade/ if there are significant differences in
such costs and charges bet4een the goods being valued and the identical goods in 7uestion arising fro$
differences in distances and $eans of transport.
&%' )n applying this rule/ if $ore than one transaction value of identical goods is found/ the lo4est
such value shall be used to deter$ine the value of i$ported goods.
1. Transaction value o( similar !oods. V &1 '-ub@ect to the provisions of rule %/ the value of i$ported
goods shall be the transaction value of si$ilar goods sold for export to )ndia and i$ported at or about the
sa$e ti$e as the goods being valued B
Arovided that such transaction value shall not be the value of the goods provisionally assessed under
section 1" of the Custo$s #ct/ 122.
&2' (he provisions of clauses &b' and &c' of sub:rule &1'/ sub:rule &2' and sub:rule &%'/ of rule 6 shall/ mutatis
mutandis/ also apply in respect of si$ilar goods.
?. 'etermination o( value w)ere value can not e determined under rules *3 8 and 1. V )f the value of
i$ported goods cannot be deter$ined under the provisions of rules %/ 6 and +/ the value shall be deter$ined
under the provisions of rule ! or/ 4hen the value cannot be deter$ined under that rule/ under rule " B
Arovided that at the re7uest of the i$porter/ and 4ith the approval of the proper officer/ the order of
application of rules ! and " shall be reversed.
>. 'eductive value. V &1' -ub@ect to the provisions of rule %/ if the goods being valued or identical or
si$ilar i$ported goods are sold in )ndia/ in the condition as i$ported at or about the ti$e at 4hich the
declaration for deter$ination of value is presented/ the value of i$ported goods shall be based on the unit
price at 4hich the i$ported goods or identical or si$ilar i$ported goods are sold in the greatest aggregate
7uantity to persons 4ho are not related to the sellers in )ndia/ sub@ect to the follo4ing deductions B V
&i' either the co$$ission usually paid or agreed to be paid or the additions usually $ade for profits
and general expenses in connection 4ith sales in )ndia of i$ported goods of the sa$e class or
*indC
&ii' the usual costs of transport and insurance and associated costs incurred 4ithin )ndiaC
&iii' the custo$s duties and other taxes payable in )ndia by reason of i$portation or sale of the
goods.
&2' )f neither the i$ported goods nor identical nor si$ilar i$ported goods are sold at or about the sa$e
ti$e of i$portation of the goods being valued/ the value of i$ported goods shall/ sub@ect other4ise to the
provisions of sub:rule &1'/ be based on the unit price at 4hich the i$ported goods or identical or si$ilar
i$ported goods are sold in )ndia/ at the earliest date after i$portation but before the expiry of ninety days
after such i$portation.
&%' &a' )f neither the i$ported goods nor identical nor si$ilar i$ported goods are sold in )ndia in the
condition as i$ported/ then/ the value shall be based on the unit price at 4hich the i$ported goods/ after
further processing/ are sold in the greatest aggregate 7uantity to persons 4ho are not related to the seller
in )ndia.
&b' )n such deter$ination/ due allo4ance shall be $ade for the value added by processing and the
deductions provided for in ite$s &i' to &iii' of sub:rule &1'.
H. Computed value. V -ub@ect to the provisions of rule %/ the value of i$ported goods shall be based on a
co$puted value/ 4hich shall consist of the su$ ofB:
&a' the cost or value of $aterials and fabrication or other processing e$ployed in producing the
i$ported goodsC
&b' an a$ount for profit and general expenses e7ual to that usually reflected in sales of goods of the
sa$e class or *ind as the goods being valued 4hich are $ade by producers in the country of
exportation for export to )ndia B
&c' the cost or value of all other expenses under sub:rule &2' of rule 10.
<. "esidual met)od. V &1' -ub@ect to the provisions of rule %/ 4here the value of i$ported goods cannot be
deter$ined under the provisions of any of the preceding rules/ the value shall be deter$ined using
reasonable $eans consistent 4ith the principles and general provisions of these rules and on the basis of data
available in )ndia B
Arovided that the value so deter$ined shall not exceed the price at 4hich such or li*e goods are
ordinarily sold or offered for sale for delivery at the ti$e and place of i$portation in the course of
international trade/ 4hen the seller or buyer has no interest in the business of other and price is the sole
consideration for the sale or offer for sale.
&2' No value shall be deter$ined under the provisions of this rule on the basis of B:
&i' the selling price in )ndia of the goods produced in )ndiaC
&ii' a syste$ 4hich provides for the acceptance for custo$s purposes of the highest of the t4o
alternative valuesC
&iii' the price of the goods on the do$estic $ar*et of the country of exportationC
&iv' the cost of production other than co$puted values 4hich have been deter$ined for identical or
si$ilar goods in accordance 4ith the provisions of rule "C
&v' the price of the goods for the export to a country other than )ndiaC
&vi' $ini$u$ custo$s valuesC or
&vii' arbitrary or fictitious values.
14. Cost and services. V &1' )n deter$ining the transaction value/ there shall be added to the price actually
paid or payable for the i$ported goods/ V
&a' the follo4ing to the extent they are incurred by the buyer but are not included in the price
actually paid or payable for the i$ported goods/ na$elyB:
&i' co$$issions and bro*erage/ except buying co$$issionsC
&ii' the cost of containers 4hich are treated as being one for custo$s purposes 4ith the goods
in 7uestionC
&iii' the cost of pac*ing 4hether for labour or $aterialsC
&b' (he value/ apportioned as appropriate/ of the follo4ing goods and services 4here supplied
directly or indirectly by the buyer free of charge or at reduced cost for use in connection 4ith
the production and sale for export of i$ported goods/ to the extent that such value has not been
included in the price actually paid or payable/ na$ely B:
&i' $aterials/ co$ponents/ parts and si$ilar ite$s incorporated in the i$ported goodsC
&ii' tools/ dies/ $oulds and si$ilar ite$s used in the production of the i$ported goodsC
&iii' $aterials consu$ed in the production of the i$ported goodsC
&iv' engineering/ develop$ent/ art 4or*/ design 4or*/ and plans and s*etches underta*en
else4here than in )ndia and necessary for the production of the i$ported goodsC
&c' royalties and licence fees related to the i$ported goods that the buyer is re7uired to pay/ directly
or indirectly/ as a condition of the sale of the goods being valued/ to the extent that such
royalties and fees are not included in the price actually paid or payableC
&d' (he value of any part of the proceeds of any subse7uent resale/ disposal or use of the i$ported
goods that accrues/ directly or indirectly/ to the sellerC
&e' all other pay$ents actually $ade or to be $ade as a condition of sale of the i$ported goods/ by
the buyer to the seller/ or by the buyer to a third party to satisfy an obligation of the seller to the
extent that such pay$ents are not included in the price actually paid or payable.
E6#lanation. V >here the royalty/ licence fee or any other pay$ent for a process/ 4hether
patented or other4ise/ is includible referred to in clauses &c' and &e'/ such charges shall be added
to the price actually paid or payable for the i$ported goods/ not4ithstanding the fact that such
goods $ay be sub@ected to the said process after i$portation of such goods.
&2' 1or the purposes of sub:section &1' of section 16 of the Custo$s #ct/ 122 &+2 of 122' and these rules/
the value of the i$ported goods shall be the value of such goods/ for delivery at the ti$e and place of
i$portation and shall include :
&a' the cost of transport of the i$ported goods to the place of i$portationC
&b' loading/ unloading and handling charges associated 4ith the delivery of the i$ported goods at
the place of i$portationC and
&c' the cost of insurance B
Arovided that V
&i' 4here the cost of transport referred to in clause &a' is not ascertainable/ such cost shall be t4enty
per cent of the free on board value of the goodsC
&ii' the charges referred to in clause &b' shall be one per cent of the free on board value of the goods
plus the cost of transport referred to in clause &a' plus the cost of insurance referred to in clause
&c'C
&iii' 4here the cost referred to in clause &c' is not ascertainable/ such cost shall be 1.12+, of free on
board value of the goodsC
Arovided further that in the case of goods i$ported by air/ 4here the cost referred to in clause &a' is
ascertainable/ such cost shall not exceed t4enty per cent of free on board value of the goods B
Arovided also that 4here the free on board value of the goods is not ascertainable/ the costs referred
to in clause &a' shall be t4enty per cent of the free on board value of the goods plus cost of insurance for
clause &i' above and the cost referred to in clause &c' shall be 1.12+, of the free on board value of the goods
plus cost of transport for clause &iii'.
Arovided also that in case of goods i$ported by sea stuffed in a container for clearance at an )nland
Container Depot or Container 1reight -tation/ the cost of freight incurred in the $ove$ent of container fro$
the port of entry to the )nland Container Depot or Container 1reight -tation shall not be included in the cost
of transport referred to in clause &a'.
E6#lanation. : (he cost of transport of the i$ported goods referred to in clause &a' includes the ship
de$urrage charges on charted vessels/ lighterage or barge charges.
&%' #dditions to the price actually paid or payable shall be $ade under this rule on the basis of ob@ective and
7uantifiable data.
&6' No addition shall be $ade to the price actually paid or payable in deter$ining the value of the i$ported
goods except as provided for in this rule.
11. 'eclaration 0 t)e importer. V &1' (he i$porter or his agent shall furnish :
&a' a declaration disclosing full and accurate details relating to the value of i$ported goodsC and
&b' any other state$ent/ infor$ation or docu$ent including an invoice of the $anufacturer or
producer of the i$ported goods 4here the goods are i$ported fro$ or through a person other
than the $anufacturer or producer/ as considered necessary by the proper officer for
deter$ination of the value of i$ported goods under these rules.
&2' Nothing contained in these rules shall be construed as restricting or calling into 7uestion the right of the
proper officer of custo$s to satisfy hi$self as to the truth or accuracy of any state$ent/ infor$ation/
docu$ent or declaration presented for valuation purposes.
&%' (he provisions of the Custo$s #ct/ 122 &+2 of 122' relating to confiscation/ penalty and prosecution
shall apply to cases 4here 4rong declaration/ infor$ation/ state$ent or docu$ents are furnished under these
rules.
12. "eMection o( declared value. V &1' >hen the proper officer has reason to doubt the truth or accuracy of
the value declared in relation to any i$ported goods/ he $ay as* the i$porter of such goods to furnish
further infor$ation including docu$ents or other evidence and if/ after receiving such further infor$ation/
or in the absence of a response of such i$porter/ the proper officer still has reasonable doubt about the truth
or accuracy of the value so declared/ it shall be dee$ed that the transaction value of such i$ported goods
cannot be deter$ined under the provisions of sub:rule &1' of rule %.
&2' #t the re7uest of an i$porter/ the proper officer/ shall inti$ate the i$porter in 4riting the grounds for
doubting the truth or accuracy of the value declared in relation to goods i$ported by such i$porter and
provide a reasonable opportunity of being heard/ before ta*ing a final decision under sub:rule &1'.
E6#lanation. : &1' 1or the re$oval of doubts/ it is hereby declared that B:
&i' (his rule by itself does not provide a $ethod for deter$ination of value/ it provides a
$echanis$ and procedure for re@ection of declared value in cases 4here there is reasonable
doubt that the declared value does not represent the transaction valueC 4here the declared value
is re@ected/ the value shall be deter$ined by proceeding se7uentially in accordance 4ith rules 6
to 2.
&ii' (he declared value shall be accepted 4here the proper officer is satisfied about the truth and
accuracy of the declared value after the said en7uiry in consultation 4ith the i$porters.
&iii' (he proper officer shall have the po4ers to raise doubts on the truth or accuracy of the declared
value based on certain reasons 4hich $ay include :
&a' the significantly higher value at 4hich identical or si$ilar goods i$ported at or about the
sa$e ti$e in co$parable 7uantities in a co$parable co$$ercial transaction 4ere assessedC
&b' the sale involves an abnor$al discount or abnor$al reduction fro$ the ordinary
co$petitive priceC
&c' the sale involves special discounts li$ited to exclusive agentsC
&d' the $isdeclaration of goods in para$eters such as description/ 7uality/ 7uantity/ country of
origin/ year of $anufacture or productionC
&e' the non declaration of para$eters such as brand/ grade/ specifications that have relevance
to valueC
&f' the fraudulent or $anipulated docu$ents.
Practical Prolems in Custom Valuation
:ro+lem 1% =rom the followin' #arti!ulars, determine the assessa"le value of the im#orted e1ui#ment
'ivin' e6#lanation for ea!h item%
.. =+@ !ost of e1ui#ment (Da#anese Nen) 2,33,333 Nen
2. =rei'ht !har'es in Da#anese Nen 23,333 Nen
8. Char'es for develo#ment !onne!ted to e1ui#ment #aid in ,ndia Rs. F3,333
7. ,nsuran!e !har'e #aid in ,ndia for trans#ortation from Da#an Rs. .;,333
;. Commission #aya"le to a'ent in ,ndia Rs. .;,333
E6!han'e rate as #er R@, is . Nen O Rs. 3.7;
E6!han'e rate as #er C@EC is . Nen O Rs. 3.;3
(andin' !har'es% one #er!ent of C,= !ost (; &ar4s) 9Dune 39<
:ro+lem 29 5hat would "e the value for the #ur#ose of !ustoms, if a !onsi'nment im#orted "y air has a C,=
#ri!e of *S P 2,;33 in!ludin' frei'ht *S P>33 and insuran!e *S P 93Q /he e6!han'e rate notified "y the
Government of ,ndia under se!tion .7 of the Customs A!t, .9F2 is Rs.7;.;3. (CS =inal Dun 37)
:ro+lem 9 A !onsi'nment is im#orted "y air. C,= #ri!e is *SP .2,;33. =rei'ht is *SP 2,7;3 and insuran!e
!ost is *SP 833. +n the date of #resentation of @ill of Entry, R@, floor rate was *SP O Rs.7>.A3 and rate
notified "y Government of ,ndia was Rs.7>.>;. =ind the value of the !onsi'nment for !ustoms #ur#oses. (CS
=inal Dun 32)
:ro+lem >9 A material was im#orted "y air at C,= #ri!e of ;,333 *SP. =rei'ht #aid was .,;33 *SP and
insuran!e !ost was ;33 *SP. /he "an4er reali0ed the #ayment from im#orter at the e6!han'e rate of
Rs.7; #er dollar. Central @oard of E6!ise and Customs notified the e6!han'e rate as Rs.77.;3 #er *SP.
=ind the value of the material for the #ur#ose of levyin' duty. (7 mar4s)9&ay 3;<
:ro+lem 59 CNK ,ndustries (td., has im#orted !ertain e1ui#ment from Da#an at an =+@ !ost of 2,33,333
Nen (Da#anese). /he other e6#enses in!urred "y &Bs. CNK ,ndustries in this !onne!tion are as follows%
(i) =rei'ht from Da#an to ,ndia ort 23,333 Nen
(ii) ,nsuran!e #aid to ,nsurer in ,ndia Rs..3,333
(iii) Eesi'nin' !har'es #aid to Consultan!y firm in Da#an 83,333 Nen
(iv) &Bs. CNK ,ndustries had e6#ended Rs..,33,333 in ,ndia for !ertain develo#ment a!tivities with
res#e!t to the im#orted e1ui#ment
(v) CNK ,ndustries had in!urred road trans#ort !ost from &um"ai #ort to their fa!tory in ?arnata4a
Rs. 83,333
(vi) /he Central @oard of E6!ise and Customs had notified for #ur#ose of se!tion .7(8)R of the Customs
A!t, .9F2 e6!han'e rate of . Nen O Rs.3.897A. /he inter "an4 rate was . Nen O Rs.3.73
(vii) &Bs CNK ,ndustries had effe!ted #ayment to the @an4 "ased on e6!han'e rate . Nen O Rs. 3.7.;3
(viii) /he !ommission #aya"le to the a'ent in ,ndia was ;S of =+@ !ost of the e1ui#ment in ,ndian
Ru#ees =+@ !ost of the e1ui#ment in ,ndian Ru#ees
Arrive at the assessa"le value for #ur#oses of !ustoms duty under the Customs A!t, .9F2 #rovidin' "rief
notes wherever re1uired with a##ro#riate assum#tions. (F &ar4s) 9&ay 3A<
:ro+lem 69 =rom the followin' #arti!ulars, !al!ulate assessa"le value and total !ustom duty #aya"le%
(i) Eate of #resentation of "ill of entry % 23.F.233F 9Rate of @CE 2;S$ E6!han'e Rate % Rs.78.F3
and rate notified "y C@EC Rs.78.A3<.
(ii) Eate of arrival of 'oods in ,ndia % 83.F.233F 9Rate of @CE 23S$ E6!han'e Rate% Rs.78.93 and
rate notified "y C@EC Rs.77.33<.
(iii) Rate of Additional Customs Euty % .F.7AS.
(iv) C,= value 2,333 *S Eollars$ Air =rei'ht ;33 *S Eollars, ,nsuran!e !ost .33 *S Eollars
9(andin' !har'es not as!ertaina"le<.
(v) Edu!ation !ess a##li!a"le 8S.
(vi) Assume there is no s#e!ial C)E. (F &ar4s)
:ro+lem 69 &Bs A'arwal ,ndustries im#orted "y Air from *SA !ertain 'oods at C,= value PF,;33. Air
frei'ht *SP .,733 and insuran!e !har'es *SP.33 were also #aid. @ill of Entry was #resented on 2A.32.3F,
"ut the Entry ,nwards was 'ranted on .3.38.3F. +ther relavant information is as follows%
As on 2A.32.3F As on .3.38.3F
Rate of E6!han'e%
As announ!ed "y C@EC *S P.O Rs. 7F.A3 Rs. 7F.F3
As announ!ed "y R@, *S P.O Rs. 7F.>3 Rs. 7F.;3
Rate of Custom Euty
@asi! Customs Euty 2;S 23S
Additional Customs Euty uBs 8(.) .FS .FS
Additional Customs Euty uBs 8(;) :il :il
/he same 'oods are e6em#t from e6!ise duty in ,ndia, if manufa!tured without the aid of #ower.
Com#ute the Assessa"le value and 'ive the rates of @asi! and Additional Euty to "e ado#ted in this !ase, as
also the "asis for arrivin' at the @asi! and Additional Euty (A!tual duty !al!ulations need not "e 'iven).
(:ov 38)
:ro+lem 89 An im#orter has im#orted a ma!hine from *? at =+@ !ost of .3,333 *? ounds. +ther
details are as follows%
(i) =rei'ht from *? to ,ndian #ort was >33 #ounds.
(ii) ,nsuran!e was #aid to insurer in ,ndia% Rs.F,333.
(iii) Eesi'n and develo#ment !har'es of 2,333 *? #ounds were #aid to a !onsultan!y firm in *?.
(iv) /he im#orter also s#ent an amount of Rs.;3,333 in ,ndia for develo#ment wor4 !onne!ted
with the ma!hinery.
(v) Rs..3,333 were s#ent in trans#ortin' the ma!hinery from ,ndian #ort to the fa!tory of
im#orter.
(vi) Rate of E6!han'e as announ!ed "y R@, was Rs.FA.A2 O one *? #ound.
(vii) Rate of e6!han'e as announ!ed "y C@ETC (@oard) "y notifi!ation under se!tion .7(8)(a)(i)%
Rs.FA.>3 O one *? #ound.
(viii) Rate at whi!h "an4 re!overed the amount from im#orter Rs.FA.8; O one *? #ound.
(i6) =orei'n e6#orters have an a'ent in ,ndia. Commission is #aya"le to the a'ent in ,ndian
Ru#ees U ;S of =+@ #ri!e.
Customs duty #aya"le was 2;S. ,f similar 'oods were #rodu!ed in ,ndia, e6!ise duty #aya"le as #er
tariff is 27S. /here is an e6!ise e6em#tion notifi!ation whi!h e6em#ts the duty as is in e6!ess of
.FS. =ind Customs duty #aya"le if
(a) ,m#orter is manufa!turer usin' the 'oods himself,
(") ,m#orter is a trader who has im#orted 'oods for su"se1uent sale in ,ndia. (C5A ,nter :ew
Sylla"us Ee! 37 ado#ted)
:ro+lem 99 &Bs. remium ,ndustries (td., has im#orted a ma!hine from Da#an at an =.+.@. !ost of .,33,333
Nen (Da#anese). /he other e6#enses in!urred were as follows%
(i) =rei'ht from Da#an to ,ndian ort .3,333 Nen$
(ii) ,nsuran!e #aid to insurer in ,ndia Rs. ;,333$
(iii) Eesi'nin' Char'es #aid to !onsultan!y firm in Da#an .;,333 Nen$
(iv) &Bs remium ,ndustries (td. s#ent Rs. ;3,333 in ,ndia for develo#ment wor4 !onne!ted with the
ma!hine,
(v) /rans#ortation !ost from ,ndian #ort to =a!tory Rs. .;,333$
(vi) Central Government has announ!ed e6!han'e rate of . Nen O Re. 3.73 "y notifi!ation under
se!tion .7(8). However the e6!han'e rate #revailin' in the mar4et was . Nen O Re. 3.73;2
(vii) &Bs remium ,ndustries (td. made #ayment to the "an4 "ased on e6!han'e rate of . Nen O Re.
3.7.;3,
(viii) /he !ommission #aya"le to the a'ent in ,ndia was U ;S of =.+.@. #ri!e in ,ndian Ru#ees. /he
rate of !ustom duty is 23S. Similar 'oods are su"Me!t to .FS e6!ise in ,ndia.
=ind the !ustom duty and other duties #aya"le %
(.) ,f the im#orter &Bs remium ,ndustries (td. is im#ortin' 'oods for !a#tive !onsum#tion
(2) ,f the im#orter &Bs remium ,ndustries (td. is a trader and im#orted 'oods for the #ur#ose
of tradin'. (C5A ,nter Dun 33)
:ro+lem 109 ,nfote!h (imited has im#orted a ma!hine from Da#an at =+@ !ost of ;3,333 Nen (Da#anese).
/he other e6#enses in!urred are as follows -
(i) =rei'ht from Da#an to ,ndian #ort ;333 Nen.
(ii) ,nsuran!e #aid to insurer in ,ndia Rs. 2;33
(iii) Eesi'nin' !har'es #aid to !onsultan!y firm in Da#an >;33 Nen
(iv) &Bs ,nfote!h s#ent Rs. 2;,333 in ,ndia for develo#ment wor4 !onne!ted with the ma!hine.
(v) /rans#ortation !ost from ,ndian #ort to fa!tory Rs. >;33.
(vi) Central Government has announ!ed e6!han'e rate of . Nen O Rs. 3.73 "y notifi!ation under
se!tion .7(8) of the Customs A!t, .9F2. /he e6!han'e rate #revailin' on that day in the mar4et
was . Nen O Rs. 3.73;2.
(vii) &Bs ,nfote!h made #ayment to the "an4 "ased on the e6!han'e rate of . Nen O Rs. 3.7.;3.
(viii) /he !ommission #aya"le to the a'ent in ,ndia was at ;S of the =+@ #ri!e in ,ndian ru#ees.
/he rate of Custom duty is 8;S. Similar 'oods are su"Me!t to .;S E6!ise Euty in ,ndia.
Clearly show your wor4in' to arrive at the total assessa"le value in ru#ees for #ur#oses of levy of
!ustom duty. (:ov. 32)
:ro+lem 119 Eetermine the assessa"le value and !ustoms duty amount from the followin' data %
.. :ame of the raw material C
2. =+@ value Euro . million
8. +!ean frei'ht A!tual data not availa"le
7. +!ean ,nsuran!e A!tual data not availa"le
;. =rei'ht from sea #ort to 'odown #aid in ,ndia Rs..3,333
F. /ransit insuran!e in ,ndia Rs.2,333
>. Sellin' !ommission #aid to a'ent in ,ndia ;S
A. Royalty on manufa!ture and sale of final #rodu!t
#aya"le to forei'n !olla"orator ;S
9. ,nterest #aya"le on raw material im#orted at
.A3 days !redit (on =+@ value) .2S #.a
.3. Eividend #aid to the forei'n su##lier of raw material Rs.2 #er share on . million
on their e1uity #arti!i#ation for the year 3.-32 shares of fa!e value Rs..3B
share.
a. ,m#orter su##lied desi'n and drawin's worth Euro .3,333 to the forei'n raw material su##lier.
". (andin' !har'es as #er Customs #rovisions
!. Customs duty rates% @CE - 83S, C)E - .F.7AS
d. E6!han'e rate% . Euro O Rs.72. (C5A ,nter Dun 32 ado#ted)
QQQQQQQQQ
Practical ;uestions in VAT
Illustration 1-Gperation of =#( syste$ and =#( accountingB
PLW ;fg. Co. 9td. of 5a@asthan purchased ra4 $aterial # fro$ 5a@asthan for 5s. 10/600 &inclusive
of 6, =#('/ ra4 $aterial B fro$ 5a@asthan for 5s. 22/+00 &inclusive of 12.+ , =#('/ ra4
$aterial C fro$ China for 5s. %%/000 &inclusive of 10, i$port duty' and ra4 $aterial D fro$
;aharashtra for 5s. 1+/6+0 &inclusive of 2, C-('. (he plant and $achinery re7uired for
$anufacture 4as purchased for 5s. 2/0"/000 &inclusive of 6, =#('. (he $anufacturing and V
other expenses &excluding depreciation' 4ere 5s. 1/++0. (he plant is to be depreciated at 100,.
(he $anufacturerKs $argin is 20, on cost. (he =#( rate on the $anufactured product is 6,.
By 4ay of necessary accounting entries and =#( chart/ sho4 the $ode of operation of =#(
syste$. )gnore the Central Excise i$plications/ assu$ing that there is no excise duty on the
$anufactured product.
&olution9 VAT C7A"T (amounts in "s.#
5a4 $aterial # &net of =#( 5s. 600' 10/000
5a4 $aterial B &net of =#( 5s. 2/+00' 20/000
5a4 $aterial C &i$port duty 4ill for$ part of cost/ as it is
not available as credit' %%/000
5a4 $aterial D &C-( 4ill for$ part of cost/ as it is not available as credit' 1+/6+0
Depreciation on plant and $achinery &100, of 2/00/000 i.e. price net of
=#( of 5s. "/000' 200/000
;anufacturing and other expenses 1/++0
Cost of the product %60/000
#ddB 20, $argin "/000
-elling price 60"/000
#ddB =#( O6, of 6/0"/000 1/%20
Cost to the purchaser 626/%20
=#( payable in cash by the $anufacturer 1/%20:600:2/+00:"/000Q 5s. +/620.
Illustration 2-=#( liability at different stages B .;anufacture P extracted ra4 produce P and ra4 produce
L fro$ $ines at 5s. 10/000 and 5s. 1+/000 respectively and sold the sa$e at 100, $argin to ;anufacturer
B &=#( rate is 6, on produce P and 12.+,on produce L'. ;anufacturer B used P and L as ra4 $aterial
and sold the resultant product for 5s. 2/00/000 to 4holesaler C &=#( rate is 6,'. >holesaler C sold the
sa$e to 5etailer D at 2+, above cost &=#( rate is 6,'. (he retailer D sold the sa$e to a consu$er at 20,
above cost &=#( rate is 6,'. Co$pute the a$ount of =#( payable in cash by each person.
&olution9 VAT C7A"T (all amounts in "s.#
1. =#( payable in cash by ;anufacturer #
6, on produce P i.e. 6, of 20/000&10/000R 100, of 10/000' "00
12.+, on produce L i.e. 12.+, of %0/000 &1+/000 R100, of 1+/000' %/!+0 6/++0
2. =#( payable in cash by ;anufacturer B
=#( O 6, on sale price of 5s. 2/00/000 "/000
9essB =#( credit on ra4 produce P U L 6/++0 %/6+0
%. =#( payable in cash by >holessler C
=#( O 6, on sale price of 5s. 2/+0/000&2/00/000R2+, of 2/00/000' 10/000
9essB =#( credit on purchases fro$ ;anufacturer B "/000 2/000
6. =#( payable in cash by 5etailer D
=#( O 6, on sale price of 5s. %/00/000&2/+0/000 R 20, of 2/+0/000' 12/000
9essB =#( credit on purchases fro$ >holesaler C 10/000 2/000
Total VAT paid to t)e Eovernment 123444
(he above illustration sho4s that the =#( paid to the 0overn$ent at various stages &here/ 5s.
12/000' is e7ual to the =#( collected fro$ the ulti$ate consu$er &here/ 5s. 12/000 or 6, of
%/00/000'.
Illustration *
Co$putation of =#( liabilityB ;r. P of 5a@asthan started business 4.e.f. 1:1:2002 and got hi$self
registered 4ith =#( authorities. 3e presents the follo4ing details for the $onth of <anuary/ 2002 :
Aurchases fro$ 5a@asthan 2/000/000
Aurchases fro$ Delhi "/00/000
-ales 4ithin 5a@asthan out of purchases fro$ 5a@asthan 1/00/000
-ales 4ithin 5a@asthan out of purchases fro$ Delhi 2/00/000
-ales to dealer of ;aharashtra Gut of purchases 4ithin 5a@asthan "/00/000
-ales to dealer of ;aharashtra Gut of purchases fro$ Delhi 6/00/000
Co$pute tax payable by ;r. P. #foresaid a$ounts are exclusive of taxes. =#( rate is 6,. C-( rate
is 2,.
&olution 9 (he tax payable by ;r. P for the $onth is co$puted hereinbelo4 :
-ales 4ithin -ales outside
5a@asthan &=#(' 5a@asthan &C-('
(otal -ales 1"/00/000 12/00/000
0ross =#( liability O 6 , U C-( liability O 2 , !2/000 26/000
)nput =#( credit available on purchases
fro$ 5a@asthan O 6, !2/000 "/000
%et taxpa0ale N)9 1/000
Excess =#( credit to be utilised against pay$ent of C-(YY "/000
(he =#( liability on sales 4ithin 5a@asthan is 5s. !2/000 4hile the =#( credit availed on
purchases fro$ 4ithin 5a@asthan is 5s. 60/000. 3ence/ 4hole of the output tax of 5s. %/000 4ill be
paid out of the input tax credit of 5s. 60/000. (he excess credit of 5s. 6/000 4ill be used for
pay$ent of C-( on sale outside the -tate of 5a@asthan. (he balance a$ount of &-( payable of 5s.
"/000&12/000 : 6/000' 4ill be paid in cash.
Illustration 8
(reat$ent of input =#(:creditB ;r. # presents follo4ing details for ;arch/ 2002
1. Gpening Balance of )nput =#( credit as on 1:%:2002B 5s. 1+/000.
2. )nputs purchased during the $onth of ;archB 5s. 1+ la*h.
%. >ithin the state sales of $anufactured goodsB 5s. 20 la*h.
6. )nter:state -ales B 5s. 6 la*h.
C-( rate is 2,. (here 4as no inventory as on 1:1:2002 or %1:%:2002. (he =#( la4s governing ;r.
# provide for the refund of input:=#( credit after the end of the first financial year itself. =#( rate
is 12.+, on inputs and 6, on sales. Co$pute the a$ount of refund available to ;r. #. :
&olution 9 Computation o( re(und availale to ,r. A (amounts in "s.#
Gpening balance of input =#(:credit 1+/000
#ddB =#( credit availed on inputs purchased during ;arch &12.+, of 1+ la*hs' 1"!/+00
9ess B =#( payable on sales &6, on 5s. 20 la*h :"0/000
9ess B C-( payable on inter:state sales &2, on 6 la*h' :"/000
/alance l0in! as VAT-credit as on *1-*-244< eli!ile (or re(und 1183144
Illustration 19 Need for input:credit on capital goodsB
;r. P $anufactures product # out of ra4 $aterial P. (he cost of ra4 $aterial P is 5s. 1 la*h. (he
labour and other $anufacturing cash costs are 5s. 6 la*h. (he $anufacturing process re7uires a
$achinery of 5s. 10 la*h &sub@ect to =#( O 12.+,'.
(he useful life of the plant is 6 years 4ith no salvage. (he expected output of product # is 1/000
units.
;r. P fixes a profit $argin of 5s. 100 per unit. Co$pute the selling price of product # and its cost
to consu$er if : &a' No credit is allo4ed on the capital goodsC &b' credit is allo4ed on the capital
goods. (he =#( rate on final product is 12.+,. (here is no =#( on ra4 $aterial.
&olution9 Computation o( sellin! price o( product A
(a# %o credit on (# Credit availale
capital !oods
on capital-!oods
5a4 $aterial cost 1/000/00.0 1/00/000.0
9abour and other $anufacturing cash costs 600/000.0 600/000.0
Depreciation on $achineryB
&10 la*h R 12.+, =#(' \6 &=#( credit not available ' 2"1/2+0.0
10 la*h R6 &=#( credit available/ hence/ =#( not NcostK' 2+0/000/0
Total cost !"1/2+0.0 !+0/000.0
Cost per unit !"1.% !+0.0
Arofit per unit 100.0 100.0
-elling price per unit ""1.% "+0.0
#dd B =#( O 12.+, 110.2 10.%
Cost to consu$er 221.6 2+.%
(hus/ the availability of =#( credit on capital goods reduces the cost and resultant selling price of
the goods and/ therefore/ eli$inates cascading effect of taxation.
Illustration ?
)nput:credit on co$$on goodsB ;r. I/ a $anufacturer of taxable as 4ell as tax:free goods/
furnishes the follo4ing infor$ation for the $onth of ;arch/ 2002B :
&a' -ales of Aroduct # &tax:free goods' B 5s. +0 la*h
&p' -ales of Aroduct B &taxable goods' B 5s. 100 la*hs &=#( O 12.+,'C
&c' Aurchases of input NPK &used in $anufacture of Aroduct # only' B 5s. %0 la*hs &=#( O 6,'C
&d' Aurchases of input NLK &used in the $anufacture of Aroduct B only' B 5s. !+ la*hs &=#( O
6,'C
&e' Aurchases of input NWK &used in the $anufacture of Aroduct # U.B' B.5s. 1+ la*hs &=#( O
20,'.
(here 4as no inventory as on 1:%:2002 as 4ell as on %1:%:2002.
Co$pute the a$ount of =#( payable in cash by ;r. I for the $onth assu$ing that input NWK is
used in product # and B in the ratio of 1 B2. )gnore i$plications under other la4s.
&olution9 Co$putation of =#( liability of ;r. I for the $onth of ;arch/ 2002 &a$ounts in 5s.
la*hs'
=#( on sales of product B &5s. 100 la*hs x 12.+,' 12.+
9ess B )nput =#( credit on input NLK &!+ la*hs x 6,' %
Aroportionate credit on input W &1+ la*hs x 20, x 2/%' 2
=#( payable in cash by ;r. I !.+
Illustration >
Co$putation of =#( liability B Calculate the total tax liability under the -tate =#( la4 and under
the Central -ales (ax #ct for the $onth of Gctober 200" fro$ the follo4ing particularsB
Particulars "s.
)nputs purchased 4ithin the state 1!0/000
Capital goods used in the $anufacture of the taxable goods +0/000
)nputs purchased fro$ a registered dealer 4ho opts for co$position
sche$e under the provisions of the #ct 10/000
3igh seas purchases of inputs 100/000
1inished goods sold B
&a' 4ithin the state 200/000
&b' in the course of inter:-tate trade 2+0/000
#pplicable tax rates are as follo4s B :
Case &a' B =#( rate on capital goods 12.+, C )nput tax rate 4ithin the state 12.+, C Gutput
tax rate 4ithin the state 6,C Central sales tax rate 2,
Case &b' B =#( rate on capital goods 6, C input tax rate 4ithin the state 6, C Gutput tax
rate 4ithin the state 12.+, C Central sales tax rate 2,.
YNote (he capital goods are not the goods included in the negative list.
("TP Pune3 244<#
Ans 9 Case (a#9 Computation o( t)e tax liailit0 (or t)e mont) o( $ctoer 244H-
Particulars "s.
Gutput:=#( on sales 4ithin the -tate O 6 , "/000
C-( on the inter:state sales O 2, +/000
(otal tax due 1%/000
9ess B )nput credit on eligible purchases and capital goods i.e. 12.+,
of 220000 &inputs purchased 4ithin state and capital goods'.
: )nputs purchased fro$ dealer under co$position sche$e
and high:seas purchases/i$port of inputs is not eligible for
input credit. 2!/+00
/alance input-credit to e carried (orward 16/+00
Case (# 9 Computation o( t)e tax liailit0 (or t)e mont) o( $ctoer 244H -
Particulars "s.
Gutput:=#( on sales 4ithin the -tate O 12.+, 2+/000
C-( on the inter:state sales O 2, +/000
Total tax due %0/000
9ess B )nput:credit on eligible purchases and capital goods i.e.
6, of 220000 &)nputs purchased 4ithin state and capital goods'.
)nputs purchased fro$ dealer under co$position sche$e
and high:seas purchases/i$port of inputs is not eligible for input credit. "/"00
Total tax pa0ale (or t)e mont) 21/200
Illustration H
Co$putation of =#( liabilityB Calculate the =#( liability for (he period <an. 1/ 2002 to <an.
%1/2002 fro$ the follo4ing particularsB
)nputs 4orth 5s. 1/00/000 4ere purchased 4ithin the -tate. 5s. 2/00/000 4orth of finished goods
4ere sold 4ithin the -tate and 5s. 1/00/000 4orth of goods 4ere sold in the course of inter:-tate
trade. =#( paid on procure$ent of capital goods 4orth 5s. 1/00/000 during the $onth 4as at
12.+,. )f the input and output tax rate in the -tate are 1.+, and 6, respectively and the central
sales tax rate is %,/ sho4 the total tax liability under the -tate =#( la4 and under the Central -ales
(ax #ct &Nov. 0" &N-' + ;ar*s'
Ans 9 Computation o( t)e tax liailit0 (or t)e period Pan. 13 244< to Pan. *13 244<9-
Particulars "s.
Gutput:=#( on sales 4ithin the -tate O 6, "/000
C-( on the inter:state sales O %, %/000
(otal tax due 11/000
9ess B )nput:credit on eligible purchases and capital goods i.e.
12.+, of 200000 &)nputs purchased 4ithin state and capital goods' 2+/000
Balance input:credit to be carried for4ard 16/000
Illustration <
Nor$al (axation v. Co$position -che$eB ;r. #/ a retailer 4ho *eeps no inventories/ presents the
follo4ing expected infor$ation for the year :
&1' Aurchases of goods B.5s. 20 la*hs &=#( O 6,'
&2' -ales &at fixed selling price indl of all taxes' B 5s. %0 la*hs &=#( on sales O 6,'.
Discuss 4hether he should opt for co$position sche$e if co$posite tax is 1, of turnover. Expenses
of *eeping detailed statutory records re7uired under the =#(:la4s 4ill be 5s. +0/000 p.a./ 4hich
shall get reduced to 5s. 20/000 if co$position sche$e is opted for. Gther expenses are 5s. %/00/000
p.a.
&olution 9 (he cost to the ulti$ate consu$er under t4o sche$es is as under :
%ormal Composition
VAT &c)emeW
Cost of goods sold &YNo credit under co$position sche$e/
hence/ cost of goods sold 4ill be higher' 2/000/000 2/0"0/000
#ddB Costs of $aintaining records +0/000 20/000
#ddB Nor$al Expenses %00/000 %00/000
T$TAL C$&T& 23*143444 238443444
-ales &inclusive of all taxes' %/000/000 %/000/000
9ess B (ax &=#( Q%0 la*h x 6R106'C
&Co$posite (ax Q%0 la*h x 1,' 11+/%"+ %0/000
-ales &net of taxes' 23HH83?11 23<>43444
Pro(it o( t)e dealer (&ales3 net o( taxes X Total Costs# 1*83?11 1>43444
ConclusionB )t is apparent that 4hile cost to ulti$ate consu$er/ in both the cases re$ains sa$e/ the
profit of the dealer is higher if the dealer opts for co$position sche$e. 3ence/ co$position sche$e
should be opted.
Illustration 14
9oss of =#(:chain due to co$position sche$eB ;anufacturer # extracted ra4K produce P and ra4
produce L fro$ $ines at 5s. 1+/000 and 5s. 20/000 respectively and sold the sa$e at 1+0, $argin
to ;anufacturer B &=#( rate is 6, on produce P and 12.+, on produce L'. ;anufacturer B is a
dealer operating under co$position sche$e 4ho is liable to =#( O 0.6, of turnover. ;anufacturer
B of <aipur used P and L as ra4 $aterialC added 100, of cost of ra4 $aterials to4ards
$anufacturing expenses and profits and sold the resultant product to 4holesaler C. >holesaler C
sold the sa$e toK 5etailer D at 2+, above cost &=#( rate is 6,'. (he retailer D sold the sa$e to a
consu$er at 20, above cost &=#( rate is 6,'. -ho4 the a$ount of =#( payable by each person.
&olution9 VAT C7A"T (all amounts in "s.#
Particulars VAT on sales O VAT credit%et VAT pa0ale
1. ;anufacturer # !/!+0 No input tax !/!+0
2. ;anufacturer B & Gpted for Co$position
-che$e' !2 No credit !2
%. >holesaler C 2/+2+ No credit 2/+2+
6. 5etailer D 11/6%0 2/+2+ 1/20+
%otes 9
(A# (he =#( liability at each stage is sho4n belo4 V 5s.
Cost to ;anufacturer # &1+/000 R 20/000' %+/000
#ddB Arofit of ;anufacturer # O 1+0, of cost +2/+00
-ale price of ;anufacturer # "!/+00
#ddB =#( H6, of &1+000 R 1+0, of 1+000' \ 12.+, of
&20000 R 1+0, of 20000' !/!+0
5a4 $aterial Cost to ;anufacturer B 2+/2+0
#ddB ;argin for expenses and profits at 100, of ra4 $aterial cost 2+/2+0
-ale price of $anufacturer B/Cost to C &Co$posite (ax cannot be recovered' 120/+00
#ddB Arofit $argin O 2+, 6!/2+
-ale price of >holesaler C 2%"/12+
#ddB =#( O 6, 2/+2+
Aurchase price of 5etailer D &inclusive of =#(' 26!/+0
Cost to retailer D &net of =#(' 2%"/12+
#dd B 20, $argin of D 6!/2+
-ale price of retailer D 2"+/!+0
=#( O 6, thereon 11/6%0
(/# (his illustration sho4s the effect of brea*age of chain due to co$position sche$e. # single
dealer 4ho has opted for co$position sche$e in the chain of sale of a product 4ould lead to
increase in cost due to no input:=#( credit to hi$ and no =#(:able invoice issued by hint.
T)e End