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Unit 3: Classification and Valuation of Excisable Goods

M/s Super Cassettes Industries Ltd., in Noida Commissionerate, engaged in the manufacture of Notes
unrecorded and recorded audio cassettes cleared a few unrecorded audio cassettes for sale in the
open market on payment of duty. Audit observed that the assessee had valued for captive
consumption 11.36 lakh unrecorded cassettes at 7.25 per cassette and 27.16 lakh unrecorded
cassettes at 7.50 per cassette for payment of duty, while similar unrecorded cassettes cleared in
the open market were valued at 15 per cassette for payment of duty. Adoption of lower
assessable value resulted in undervaluation of cassettes by 2.92 crore and consequential short
levy of duty of 48.60 lakh on captive consumption of 38.52 lakh unrecorded cassettes during the
year 2007-08. The duty short paid was recoverable with interest of 1.11 lakh (calculated till June
2008).
On the matter being pointed out (June 2008), the department issued show cause notice (October
2008) demanding duty of 12.84 crore for the period from October 2003 to March 2008.
The reply of the Ministry has not been received (December 2009).

Did u know? Duty at ad valorem rates is charged on a wide range of excisable commodities.
Valuation of such goods is governed by section 4 of the Central Excise Act, 1944, read with
the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

Practical Problems

Problem 1: MB Motors manufactures motor vehicles. It gets complete motor vehicles manufactured
by sending the chassis of the motor vehicles to BD Works, independent body builders (job-
worker), for building the body as per the design/specification given by it. The practice followed
is that the chassis is transferred to BD Works on payment of appropriate central excise duty on
stock transfer basis and is not sold to them. BD Works avails the CENVAT credit of the duty paid
on the chassis and clears the same on payment of duty to the Depot of MB Motors. The duty is
discharged by BD Works on the assessable value comprising the value of chassis and the job
charges. The Depot of MB Motors sells the vehicles at a higher price than the price on which duty
had been paid.
Discuss whether the practice followed is correct in terms of Central Excise Valuation
(Determination of Price of Excisable Goods) Rules, 2000.
Solution: As per rule 10A (ii) of the Central Excise Valuation (Determination of Price of Excisable
Goods) Rules, 2000 the assessable value for the purpose of charging central excise duty, in cases
where the job-worker transfers the excisable goods to the Depot/Sale office/Distributor and/or
any other sale point of the principal manufacturer, shall be the transaction value on which goods
are sold by the principal manufacturer from such a place. Accordingly, after the insertion of Rule
10A, the practice of discharging the duty on cost construction method by BD Works is not legally
correct.
Circular No. 902/22/2009 CX dated 20.10.2009 also clarifies that wherever goods are manufactured
by a person on job work basis on behalf of a principal, then value for the purpose of payment of
excise duty may be determined in terms of the provisions of Rule 10A of the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000 subject to fulfilment of the
requirements of the said rule.
Thus, BD Works should pay the duty on the transaction value on which vehicles are sold by MB
Motors from its depot.
Problem 2: How are goods valued when they are sold partly to a related person and partly to an
unrelated person?

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