News Update

Apex Court says NO to plea for deferment of Budget presentation on account of state elections40 Officers of CBEC bag Presidential AwardMeasures for reducing litigation - Clarification on Circulars 21/2015 and 8/2016Complexity of the Multilateral Convention for combating BEPS (See 'TII EDIT' in Taxindiainternational.com)Cooperative Banks not authorised to accept application for deposit in ‘Bond Ledger Account' of PMGK Deposit SchemeCX – Mixed questions of fact and law are capable of being properly resolved in appellate remedies available under CEA - Petitions disposed of: HCCapital market loses over Rs 5000 cr vide outflow of funds by FPIsWhether notice for reopening issued after six years of completition of assessment, against an original assessee which is not in existence due to compulsory amalgamation, is void ab initio - YES: HCWhether the proceedings initiated before expiry of limitation period, can be rendered invalid merely for the reason that the same was not concluded within a reasonable time period - NO: HCCompetition Act - Quoting unusually high prices in tender and committing lower quantity as part of sharing arrangement amounts to bid rigging, no requirement of law that colluding bidders must submit bids containing identical or similar conditions: CCI (See 'Legal Desk' in TIOLCorplaws)Service Tax - Valuation - Re-treading of tyres - Maintenance and Repair Services - Service Tax is payable only on service part - Value of goods sold excluded: Supreme CourtCus - Assumption by CESTAT that pending Writ petitions of others can provide adequate redress to petitioner is an entirely erroneous assumption: HCSupply of product dossier to overseas customer, whether export of service?GST-There is nothing new, but for clatter going on all over - Part-III-T - Whether AO can make disallowances in remand proceedings on issues which were not approved by ITAT, in absence of new evidences found during remand - NO: HCCX - Mentioning part number on Air shaft/Air chucks and brand 'TIDLAND' on letterhead, invoices and catalogues does not amount to use of 'brand name' so as to be held ineligible for benefit of SSI exemption notification: CESTATCongress Party joins hands with SP for UP polls; bags 105 seats out of 403 seatsGST - Division of assessee-base below Rs 1.5 Cr threshold - IRS officers upset; may hold EGM tomorrow; CBEC Chairman likely to pacify ruffled feathersIf Trump goes for Border Adjustment Tax, Indian pharma Cos would be in soupPHD Chamber urges FM to limit Corporate tax rate to 25%Trump thinks journalists in USA are most dishonest human beingsIndia teams up with largest warship INS Vikramaditya; ATM onboard inauguratedHirakhand Express derails; 35 pax killed; over 60 injuredRespect must be shown to National Anthem & National Flag; Govt asks all offices to comply with SC interim directions
 
Valuation of goods sold through depot - is rule 7 redundant?

TIOL-DDT 659
18.07.2007
Wednesday

1. Central Excise Valuation law has undergone a sea change with effect from July 1, 2000. A new Section 4 was introduced in the Central Excise Act, 1944 (CEA) supported by a new set of valuation rules [Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000]. The earlier concept of arriving at the value for the purpose of levy of excise duty based on the 'normal price in the course of wholesale trade' was replaced by the concept of 'transaction value'. The other significant change was the definition of 'place of removal' was restricted to that of a factory or a warehouse in the new Section 4 (3) (c) of CEA. The depots, consignment agent's premises were excluded from the definition of 'place of removal'. The definition of 'time of removal' was altogether deleted in the new Section 4.

2. In the new valuation rules, Rule 7 was introduced to deduce the value of a transaction from the factory gate to the customers through the depots/consignment agent's premises. The Rule 7 of the new valuation rules is extracted below for ready reference:

"Rule 7. Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment or any other place or premises (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where 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 normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment."

The concept of 'normal transaction value' was introduced in Rule 7 of the valuation rules. 'Normal transaction value' was defined as the transaction value at which the greatest aggregate quantities of goods are sold from the depot at or about the nearest time to the time of removal of the goods under assessment at the factory gate.

3. Since the normal transaction value of the greatest aggregate quantity was not immediately available for the factory gate sale at the time of removal, the assessees were forced to reconcile the factory gate stock transfer price with the 'normal transaction value' available at that point in time. This leads to a big arithmetic exercise for assessees who had a majority of sales through their depots. It was a mammoth exercise in futility. It normally resulted in payment of differential duty and also file refund claims wherever the 'normal transaction value' was less than the factory gate stock transfer price to a depot.

4. In the year 2003, vide Section 136 of Finance Act 2003 with effect from 14.05.2003, the definition of 'place of removal' in Section 4 (3) (c) of CEA was amended to include depots, consignment agent's premises among other things. The definition of 'time of removal' was also introduced vide a new sub-clause (cc) in sub-section 3 of Section 4. However Rule 7 of the valuation rules remained the same. When we substitute the words 'place of removal' for depot or the premises of a consignment agent, Rule 7 of the valuation rules will read as

"Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a "place of removal" (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where 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 normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment."

5. So it leads to an absurd situation because the value at one 'place of removal' has to be adopted at the other 'place of removal'. So the price at the factory gate can be adopted at the depot and vice versa. The original intention of the Rule 7 was to adopt the normal transaction value of the goods sold at the depot/consignment agent's at the factory gate by factoring in the nearest time. Now with the change in the definition of the 'place of removal' to include depot/consignment agent's premises etc the 'normal transaction value' at the factory gate can also be adopted for the sale at depot. The net result is that as there is no distinction between the factory gate and the depot, in other words, depot being an extension of the factory gate, the transaction value for each removal of goods at the depot or the factory gate shall be distinct from each other. The transaction value at one place of removal need not be adopted at the other place of removal because every transaction value is independent of each other. This leads us to a situation where even the removal of goods from a depot for sale to an independent buyer shall be covered in terms of Section 4(1) (a) of CEA.

6. Therefore, the assessees need not resort to any arithmetic jugglery to arrive at the 'normal transaction value' at the depots and adopt the same for the factory gate sale. In other words, Rule 7 of the valuation rules and the concept of arriving at the 'normal transaction value' have totally become irrelevant with effect from 14.05.2003.

7. However, unfortunately, many stakeholders viz., assessees, departmental officers and even the consultants in the indirect tax domain have failed to understand this significant change brought in by the amendments through Finance Act, 2003 and the consequential redundancy of arriving at the 'normal transaction value' and Rule 7 of the valuation rules for arriving at the value to be adopted for a factory gate sale. The amendments brought in by the Finance Act 2003 puts depot sales on par with the factory gate sale and the transactions at both the ends have to be viewed independently in view of the provisions of Section 4 (1) (a) of CEA.

My friend Santosh Hatwar sent me the above piece. He has a point. What do you think? Mail us your opinion and will CBEC take note?

Import of metallic waste and scrap - DGFT amends procedure - no more import through ICD, Delhi

As per para 2.32.2(b) of the HOP, Import of scrap would take place only through following designated ports and no exceptions would be allowed even in case of EOUs, SEZs:-

1

Chennai

8

New Mangalore

15

Kolkata

22

CFSMulund

2

Cochin

9

Paradip

16

ICD Ludhiana

23

ICD Kanpur

3

Ennore

10

Tuticorin

17

ICDDadri (Greater Noida)

24

ICD Ahmedabad

4

JNPT

11

Vishakhapatnam

18

ICD Nagpur

25

ICDPitampur

5

Kandla

12

ICDTughlakabad (New Delhi)

19

ICD Jodhpur

26

ICDMalanpur

6

Mormugao

13

Pipava

20

ICDJaipur

7

Mumbai

14

Mundra

21

ICD Udaipur

Now ICDTughlakabad (New Delhi) is removed from the list and ICDLoni, Ghaziabad is included in its place.

The new system of import from registered sources was to come into effect from 1.10.2007. Now they will be effective from 1.4.2008.

DGFT PUBLIC NOTICE NO. 19(RE-2007)/2004-2009., Dated: July 16, 2007

NO REVENUE DEFICIT BY 2008-09 - FM-SPEAK

After a meeting with the chief commissioners of income-tax yesterday, Mr Chidambaram said:-

1. The revenue deficit would be eliminated by 2008-09.

2. The target of reducing fiscal deficit to 3.3 per cent of GDP as well as collecting Rs 2,67,490crores direct tax revenues would be met this fiscal.

3. We have been right so far, there is no reason why we should be wrong next year.

4. The Fiscal Responsibility and Budgetary Management Act has targeted revenue deficit to be wiped out by 2008-09.

5. I will achieve whatever I have proposed in the budget

6. The total direct taxes collected for the first three months stood at Rs 41,154 crores. We are on target. I am confident that the targets would be achieved. Anything more than that, I will welcome.

7. Overall direct tax collections are expected to grow by 16.31 per cent at Rs 2,67,490crores.

8. e-filing of tax deducted at source (TDS) returns will be mandatory from September 1, 2007 for corporates and those companies whose turnover is Rs 40 lakh or more a year.

9. e-payment of TDS would be mandatory from them from January 1, 2008.

10. File your returns today; there will be no extension.

Income Tax Department launches Taxpayer Education Programme

To provide quality taxpayer service, the Income Tax Department has initiated a Taxpayer Education Programme where the taxpayers are trained in filling up the new Income Tax Return forms ITR 1, 2 and 4. It involves a tutorial which provides step by step information on how to fill up these forms. There is a voice over in English which explains the contents of the slide. The officers of the Department will train the taxpayers with the help of this tutorial.

From our Legal Corner - tomorrow's casesLegal Corner Icon

Customs

DRI raids importer - DRI officer arrested by CBI for taking bribe - importer to be detained under COFEPOSA - detention can be challenged before execution - Revenue fails to rebut allegations - order of detention is passed for extraneous reasons and not for collateral purpose : Delhi HC

Sales Tax

Spices after grinding made into masala powder - commercially a new commodity emerges - liable to sales tax : SC

THE appellant is engaged in the business of purchasing various spices like Cumin Seed (Jeera), Fenugreek Seeds (Methi), Cinnamon (Dalchini), Caraway Seeds (Shahijeera) etc. from the registered dealers in the State of Andhra Pradesh and the said items are subjected to sales tax at the point of first sale the Andhra Pradesh General Sales Tax Act, 1957. All the items are called spices. The appellant by mixing and grinding all these spices together produces masala powder which is used for enhancing the taste of food.

Income Tax

Order passed by transferred officer is valid because it was not originally challenged and because there is no prejudice caused : ITAT

See our columns tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@taxindiaonline.com


POST YOUR COMMENTS