Starting Series of Never Miss Questions(NMQs) for Every Paper of CA Final 2016 & Onwards.
CA Final IDT
Chapter Valuation
QUESTION:-
Surbhi Textile Ltd. (the assessee) is manufacturer of synthetic yarn, and is availing benefit of Sales Tax Incentive Scheme of State Government wherein it is allowed to retain 75% of sales tax amount collected from its customers and pay balance 25% to the State Government. The Central Excise Department has demanded inclusion of 75% portion of sales tax collected from customers and retained by the assessee, in transaction value of the goods whereas the assessee is contending that 75% portion of sales tax amount is an incentive to promote the industries and it has nothing to do with 'transaction value'. Examine with the help of a case law (if any), whether Surbhi Text ile Ltd. is liable to include 75% amount of sales tax in transaction value of the goods.
ANSWER:-
As per section 4(3)(d) of the Central Excise Act, 1944, transaction value, inter alia, excludes the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Hence, the amount of sales tax is excludible from the transaction value of goods only when such amount is actually paid/payable on such goods.
In the given case, since 75% of the sales tax amount collected from the customers had been retained by the assessee and not paid to the State Government (owing to a benefit under Sales Tax Incentive Scheme), same should form part of the transaction value of the goods.
The Supreme Court, in the case of CCEx v. Super Synotex (India) Ltd. 2014 (301) E.L.T. 273 (S.C.), has held that what is not payable/not to be paid as sales tax/VAT, should not be charged from the third party/customer, but if it is charged and is not payable or paid, it should not be excluded From the transaction value. Hence, unless the sales tax is actually paid to the Sales Tax Department of the State Government, no benefit towards excise duty can be given under the concept of "transaction value" i.e., it is not excludible.
Thus, Surbhi Textile Ltd. is liable to include 75% of the sales tax retained by it, in terms of the
Sales Tax Incentive Scheme, in transaction value of goods. Further, this view has also been endorsed in another decision of Supreme Court in CCE v.Maruti Suzuki India Limited 2014 (307) ELT 625 (SC).
Chapter Valuation
QUESTION:-
Surbhi Textile Ltd. (the assessee) is manufacturer of synthetic yarn, and is availing benefit of Sales Tax Incentive Scheme of State Government wherein it is allowed to retain 75% of sales tax amount collected from its customers and pay balance 25% to the State Government. The Central Excise Department has demanded inclusion of 75% portion of sales tax collected from customers and retained by the assessee, in transaction value of the goods whereas the assessee is contending that 75% portion of sales tax amount is an incentive to promote the industries and it has nothing to do with 'transaction value'. Examine with the help of a case law (if any), whether Surbhi Text ile Ltd. is liable to include 75% amount of sales tax in transaction value of the goods.
ANSWER:-
As per section 4(3)(d) of the Central Excise Act, 1944, transaction value, inter alia, excludes the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Hence, the amount of sales tax is excludible from the transaction value of goods only when such amount is actually paid/payable on such goods.
In the given case, since 75% of the sales tax amount collected from the customers had been retained by the assessee and not paid to the State Government (owing to a benefit under Sales Tax Incentive Scheme), same should form part of the transaction value of the goods.
The Supreme Court, in the case of CCEx v. Super Synotex (India) Ltd. 2014 (301) E.L.T. 273 (S.C.), has held that what is not payable/not to be paid as sales tax/VAT, should not be charged from the third party/customer, but if it is charged and is not payable or paid, it should not be excluded From the transaction value. Hence, unless the sales tax is actually paid to the Sales Tax Department of the State Government, no benefit towards excise duty can be given under the concept of "transaction value" i.e., it is not excludible.
Thus, Surbhi Textile Ltd. is liable to include 75% of the sales tax retained by it, in terms of the
Sales Tax Incentive Scheme, in transaction value of goods. Further, this view has also been endorsed in another decision of Supreme Court in CCE v.Maruti Suzuki India Limited 2014 (307) ELT 625 (SC).
QUESTION:-
How will the value of samples, which are distributed free as part of marketing strategy, or as
gifts or donations, be determined? Indicate whether your answer will remain same in case such samples are notified for MRP based assessment under section 4A of the Central Excise Act, 1944.
ANSWER:-
Circular No. 813/10/2005 CX dated 25.04.2005 clarifies that value of samples which are distributed free as part of marketing strategy, or as gifts or donations is determined under rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
In case such samples are notified for MRP based assessment under section 4A of the Central Excise Act, 1944, Circular No. 915/05/2010 CX dated 19.02.2010 clarifies that such goods would be assessed under rule 4 of the Valuation Rules by taking into consideration the deemed value under section 4A. Accordingly, the value for payment of excise duty for samples notified for MRP based assessment would be the value determined under section 4A for the similar goods (subject to adjustment for size and pack etc.).
How will the value of samples, which are distributed free as part of marketing strategy, or as
gifts or donations, be determined? Indicate whether your answer will remain same in case such samples are notified for MRP based assessment under section 4A of the Central Excise Act, 1944.
ANSWER:-
Circular No. 813/10/2005 CX dated 25.04.2005 clarifies that value of samples which are distributed free as part of marketing strategy, or as gifts or donations is determined under rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
In case such samples are notified for MRP based assessment under section 4A of the Central Excise Act, 1944, Circular No. 915/05/2010 CX dated 19.02.2010 clarifies that such goods would be assessed under rule 4 of the Valuation Rules by taking into consideration the deemed value under section 4A. Accordingly, the value for payment of excise duty for samples notified for MRP based assessment would be the value determined under section 4A for the similar goods (subject to adjustment for size and pack etc.).
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