Page 49 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes Solution: There is no specific rule covering such a contingency. Transaction value in respect of
sales to unrelated buyers cannot be adopted for sales to related buyers since as per section 4(1)
transaction value is to be determined for each removal. For sales to unrelated buyers valuation
will be done as per section 4(1)(a) and for sale of the same goods to related buyers recourse will
have to be taken to the residuary rule 11 read with rule 9 (or 10). Rule 9 cannot be applied in such
cases directly since it covers only those cases where all the sales are made to related buyers only.
Problem 3: On 25.02.2007 goods were removed from the factory at Chandigarh for sale from the
depot at Mumbai. On that date the normal transaction value of the goods at Chandigarh factory
was 10,000 and tariff rate was 8%. These goods were sold ex Mumbai depot on 3.3.2007. On that
date the normal transaction value at Mumbai Depot was 11,000 and tariff rate was 16%. The
normal transaction value at Mumbai depot on 25.02.2007 was 9,000 and tariff rate was 8%. The
manufacturer has paid duty @ 8% on 10,000, but the department claims duty @ 16% on 11,000.
Discuss the correct approach to be adopted in the case.

Solution: According to Rule 7 of Central Excise Valuation Rules, 2000, in cases where the goods
are not sold at the factory gate or at the warehouse but they are transferred by the assessee to his
depots or consignment agents or any other place for sale, the assessable value for the goods
cleared from factory/warehouse shall be the normal transaction value of such goods at the
depot, etc. at or about the same time on which the goods as being valued are removed from the
factory or warehouse.
In the given case, 10,000 represents value on 25.02.2007 (time of removal) but it is not the value
prevalent on the depot. Similarly, 11, 000 represents depot price, but then it is not the price
prevalent on 25.02.2007 (time of removal).

The correct value to be adopted in this case is the depot price of such goods (normal transaction
value) on 25.02.2007 i.e., 9,000 and the correct rate will be 8%.
Problem 4: ABC Ltd. of Kanpur agreed to sell an electric motor to DEF Ltd. of New Delhi for
15000.00 on ex-factory basis. Other particulars are:
(i) Transportation and transit insurance were arranged by ABC Ltd. at the request of DEF Ltd.
for 1250.00 and 1500.00 respectively which were charged separately. Actual
transportation charges amounted to 1000.00 only.
(ii) A discount of 1000 was given to DEF Ltd. on the agreed price on payment of an advance
of 3500.00 with the order. (Ignore notional interest on advance)
(iii) Interest of 800.00 was charged from DEF Ltd. as it failed to make the payment within 30
days.
(iv) Packing charges of the motor amounted to 1300.00.
(v) The expenditure incurred by ABC Ltd. towards 'free after sale service' during warranty
period comes out to be 500 per motor.
(vi) Dharmada charges of 200 were recovered from DEF Ltd.
(vii) ABC Ltd. sold a lubricant worth 250.00 along with the motor to the interested customers.
Lubricant which was purchased from the market by ABC Ltd. at 200 ensured durability
and high efficiency of the motor. DEF Ltd. opted for the said lubricant.
Compute the assessable value.

Solution:
(i) Transportation charges will not be included in the assessable value as the sale is at the
factory gate and the seller has merely arranged for the delivery. The payment made by the

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