TMI BlogValuation – Transaction Value – Section 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout payment of duty, c) a depot, place of consignment agent, or any other place from where the excisable goods are to be sold after their clearance from the factory. If the goods are not sold at the time and place of removal assessable value of the excisable goods so removed will be calculated in accordance with the provisions of Valuation Rules [i.e. Rule 4 and Rule 5] discussed below and not in accordance with the transaction value. 1. Valuation when sale is not at the 'time of removal' - a) In such a case valuation will be based on the value of 'such goods' sold by the assessee at any other time nearest to the time of removal, subject to reasonable adjustment (i.e. valuation should be on the basis of value of identical goods cleared at or around the same time of removal of free samples) [Rule 4]. 'Identical goods' means goods of the same class or group, of same size and capacity and of the same manufacturer. This rule applies in the following cases: · Free samples distributed to customers, · Free samples distributed to its employees, · Free parts provided under warranty scheme. b) In case of new or improved products or new variety of products, valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly or indirectly, in the business of each other. 1. Inter connected undertakings: - inter-connected undertaking means two or more under-takings which are inter-connected with each other in any of a number of ways such as if one owns or controls the other, or where the undertakings are owned by firm, or if such firms have one or more common partners, etc. [25% of total controlling power in both undertakings is enough to establish inter-connection]. In such a case price charged by assessee to buyer will not be accepted as 'transaction value'. However, the provisions in respect of 'inter-connected undertakings' have been made almost ineffective in Valuation Rules. Now the 'inter-connected undertakings' will be treated as related person only: · If they are holding and subsidiary or · If they are related person under any other clause. 2. Relatives: - relative means persons related as per section 6 of the companies act, 1956. The following are relatives: · Members of a HUF; · Husband and wife; · Relations as specified in schedule 1-A as follows: SCHEDULE IA See Section 6 (c) List of Relatives 1. Father ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. · The interest should be a 'right in profit' of each other. If the transaction and price are purely on commercial terms buyer and seller will not be treated as related persons. For e.g. if the buyer has 25% shareholding in seller but seller has no shareholding in buyer, they are not 'related persons', even if entire production is sold to the buyer, and technology and know-how was provided by the buyer. If the sale is exclusively ( means entire production) through related person, the assessable value of the excisable goods so removed from the factory will be calculated in accordance with the provisions of Valuation Rules [i.e. Rule 9 and Rule 10] as discussed below and not in accordance with the transaction value. 1.Valuation of goods sold through related person other than inter-connected undertaking - In such case assessable value will be the 'normal transaction value' of such related person to the unrelated (or ultimate) buyer, prevailing at the time of removal from the factory of assessee and not the price at which such goods are sold later by related person. 2. Valuation of goods sold through inter-connected undertakings - In such case, assessable val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plies some material to be used in manufacture of product and manufacturer charges lower price for the goods. b) If the purchaser agrees to pay advance along with order and manufacturer agrees to sell goods at lower price. c) If buyer agrees to incur some advertisement expenditure of the goods manufactured by the manufacturer and manufacturer agrees to give extra discount over normal price. d) Advance-license (owned by the buyer), surrendered in favour of seller is an additional consideration as this reduces the selling price of the goods. Thus cost of material supplied free or extra discount or concessions offered should be added back in the price charged by the assessee. 2. Price of additional consideration will be the price at which the buyer gets the material and not the market price. Also if cost of material supplied is not charged separately, it means that its cost is included in the selling price of final product. 3. Any cost incurred in respect of raw material such as handling charges, freight, insurance, interest charges etc. shall be includible. But duty paid on such raw material and profit margin of the supplier of raw material shall be excluded. Valuations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptive consumption - where the goods manufactured are used by the assessee himself, in such case valuation shall be done on the basis of cost of production plus 10% [Rule 8]. Treatment of Bought out items: Articles which are not manufactured by the assessee but are supplied along with the goods manufactured by the assessee are called bought out items as they are brought from outside the factory or from the buyer. For e.g. ribbon bought out for typewriter manufactured by the assessee. Value of essential bought out items, fitted to the main article at the time of removal should be includible in assessable value for the purpose of determining the transaction value, because this satisfy the three conditions of the transaction value mentioned above as - 1. Goods should be assessed in the stage in which they are removed. 2. Payment for such item is 'in connection with' the sale and the main article cannot work without this bought out part. 3.Value of essential part or component should be added even if it is supplied by the buyer. The reason is that if such part is supplied by buyer, 'price' is not 'sole consideration'. Thus, the additional consideration, i.e. value of parts su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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