GST- VALUATION

1. GST- VALUATION By: Pradeep K. Mittal B.Com, LLB, FCS Advocate, PKMG Law Chambers Past Central Council Member, The Institute of Company Secretaries of India, New Delhi e-mail id: pkmittal171@gmail.com Contact Nos. +91-9811044365, +91-9911044365

2. The Supreme Court in the case of CCE Vs. Aggarwal Industries 2011 TIOL 102 SC held as follows:- “It is well settled that the onus to prove under valuation is on revenue, but once the revenue discharge the burden of proof by providing evidence of contemporaneous imports at a higher price, the onus shifts to the importer to establish that the price indicated in the invoice relied upon by him is correct”

3. FUNDAMENTAL PRINCIPLE OF VALUATION: Once the sale price is genuine, it is not open to revenue to investigate whether the assessee is making profit or loss in the manufacture and sale of goods. CCE Vs. Mohan Crystal 2000(118) ELT 691 Tri. Department cannot determine the extent to which a business entity should earn its profit. CCE Vs. Limca Flavours 2006 (198) ELT 106. The goods are to be assessed in the form in which they are cleared from factory. ICI India Vs. CCE 2003(151) ELT 629 Tri.; Sirpur Paper Mills Vs. CCE 2012(280) ELT 235 Tri.

4. SECTION 15 (1) – VALUE OF TAXABLE SUPPLY Value of taxable supply:- The value of a supply of goods and/or services shall be the “Transaction Value” i.e. the price actually paid or payable for the said supply of goods and/or services where the supplier and recipient of the supply are not related and the price is the sole consideration for the supply.

5. EACH TRANSACTON IS A SEPARATE TRANSACTION: Each transaction is a separate transaction and has to be valued separately. Prakash Industries Limited Vs. CCE 2010(250) ELT 65 (Tri). Thus, separate prices for same product to different buyers is permissible. In case of parts, prices could be different to OEM suppliers and different to Dealer when Dealers sells as a spare parts. GNK Drive Shafts Vs. CCE 2003(154) ELT 177 (Tri). Goa Industrial Products Vs. CCE 2005(181) ELT 222. Exports Sales can be treated as sale to different class of buyers and FOB Value can be adopted for valuation. Vera Laboratories Vs. CCE 2004(173) ELT 43 (Tri).

6. The different price to different dealers in different regions based on pure commercial consideration to face stiff competition is permissible. Lime Chemicals Vs. CCE 2008(229) ELT 286 (Tri). Dual pricing – one for internal accounting like inter-unit transfer, sale to related persons, manufacture on job work, free supply for marketing and one set of price for independent sale. Bharat Petroleum Corporation Limited Vs. CCE 2009(242) ELT 242 (Tri).

7. TRANSACTION VALUE BELOW THE COST PRICE: In Gurunanak Refrigeration Corporation Vs. CCE 1996 (81) ELT 290, the Tribunal has held that : “if there is no allegation of flow back of funds of money from buyer to the assessee, if the price is the sole consideration and if dealings between assessee and buyers are at arms’ length, assessable value will be decided on the basis of selling price, even if it is below manufacturing costs.

8. The above view has been upheld by the Supreme Court in the case of CCE Vs. Gurunanak Refrigeration Corporation 2003 (153) ELT 249. However, in the case of CCE Vs. Fiat India (P) Ltd 2012(283) ELT 161 SC, the Supreme Court has reversed its own judgment, which in my respectful submission, requires re-consideration.”

9. MEANING OF WORD “ACTUALLY PAID OR PAYABLE The Supreme Court in the case of Purolator India Limited Vs. CCE MANU/SC/0988/2015, while defining the words “actually paid or payable” has observed as under:- “The expression 'actually paid or payable for the goods, when sold' only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of 'transaction value' is, therefore, the agreed contractual price. Further, the expression 'when sold' is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale.”

10. PRICE INCREASE SUBSEQUENT TO REMOVAL: Price relevant is ‘at the time of removal/delivery. Thus, any subsequent increase or reduction in prices of such goods after goods are cleared from the factory is not relevant, provided the price is final at the time of removal. Traco Cable Co. v. CCE 2004 (172) ELT 33 (CESTAT).

11. Even if the Government has fixed maximum selling price under Drug Price Control Order (DPCO), it is price at which the goods were actually sold would be relevant for payment of excise duty. CCE Vs. Vitara Chemicals 2008(232) ELT 374. If the price was final at the time clearance, any subsequent reduction in price cannot be considered and excess duty paid is not refundable. Indian Explosives Ltd Vs. CCE 2012(284) ELT 259.

12. The Supreme Court in the case of Steel Authority of India Limited Vs. CCE MANU/SC/1401/2015 has observed as under:- “It is undeniable that under Section 4 of the Act, the excise duty is to be paid on the 'transaction value' and such a transaction value has to be seen at the time of clearance of the goods. When the goods were cleared, the excise duty was paid taking into consideration the price that was actually charged and was reflected in the invoices raised for the said purpose, the Department cannot plead that as on that date, this was not the price charged.

13. The Supreme Court in the case of Purolator India Ltd Vs. CCE MANU/SC/0908/2015 has observed as under:- “It can be seen that Section 4 as amended introduces the concept of "transaction value" so that on each removal of excisable goods, the "transaction value" of such goods becomes determinable.

14. Section 15(2)(a): Any taxes, duties, cesses, fees and charges levied under any statute other than the {SGST Act/the CGST Act) and the Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016, if charged separately by the supplier to the recipient would be includible in “Transaction Value”. The Tribunal in the case of CCE Vs. Uttam Galva Steel Limited Vs. 2016(311) ELT 261 Tri, has held that even if actual amount of tax paid has been less, the whole tax is deemed to have been paid and the assessee shall be entitled the abatement of full amount and not the amount actually paid. Some State Governments allow sales tax exemptions to new industries in the first few years as an Incentive.

15. The CESTAT in the case of Hindustan Unilever Limited Vs. CCE MANU/CB/0061/2016 has observed as under: “In view of the above discussion, we hold that the appellants are entitled to claim the abatement of equalized sales tax from the transaction value. Accordingly, both the impugned orders are set aside and both the appeals are allowed with consequential relief.”

16. TRANSACTION VALUE Section 15 (2)(b): Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services; The Supreme Court in the case of CCE Vs. Ford India (P) Ltd MANU/SC/0179/2016 has ruled that the expenditure so incurred on any advertisement campaign was liable to be included as part of the Transaction Value under the Act for purposes of levy of excise duty.

17. However, in CCE v. Surat Textile Mills 2004 AIR SCW 2868=2004(5)SCC 201=167 ELT 379 (SC 3 member bench), it was held that advertisement expenditure incurred by customer can be added to sale price for determining assessable value only if manufacturer has an enforceable legal right against customer to insist on incurring of such advertisement expenses by customer – followed in Alembic Glass Industries vs. CCE 2006 (201) ELT 161 (SC).

18. SECTION 15 (2) (b) The cost of materials supplied free by buyers has to be added to arrive at full intrinsic value of goods. The fact that the petitioners are not the owner is irrelevant. Taxable event is manufacture and not ownership. The Board in its circular Letter F. No. 354/81/2000-TRU dated 30.06.2000 has viewed as follows:- “It may also be noted that where the Assessee charges an amount as price for his goods, the amount so charged and paid or payable for the goods will form the assessable value. If, however, in addition to the amount charged as price from the buyer, the Assessee also recovers any other amount by reason of sale or in connection with sale, then such amount shall also form part of the transactionvalue for valuation and assessment purposes. Thus if Assessee splits up his pricing system and charges a price for the goods and separately charges for packaging, the packaging charges will also form part of assessable value as it is a charge in connection with production and sale of the goods recovered from the buyer.”

19. SECTION 15 (2) (b) The value, apportioned as appropriate, of such of goods and/or services as supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued, to the extent that such value has not been included in the price actually paid or payable;

20. SECTION 15 (2) (c): Incidental expenses, such as, commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for any thing done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or, as the case may be, supply of the services;

21. 1. Sale at factory, depot or place of consignment agent – If goods are sold from factory, depot or place of consignment agent, that will be ‘place of removal’ as per section 4(3)(c)(iii) place of delivery as per Sec 15 GST Act. In such a case, transport, handling and insurance charges up to factory, depot or place of consignment agent will be includible in assessable value as factory, depot/place of consignment agent is ‘place of delivery’.

22. In Escorts JCB Ltd. v. CCE (2003) 1 SCC 281 = 53 RLT = 146 ELT 31 (SC), the contract was for sale ex-factory. Goods were handed over to the carrier/transporter. However, insurance was arranged by assessee, though charged separately. It was contended by department that since insurance is arranged by seller, the property in good passes to buyer only when goods reach the destination. Hence, buyer’s place will be the ‘place of removal’ and hence insurance and freight will be includible in the price – the above contention was rejected by SC. It was held that as per section 39 of Sale of Goods Act, delivery of goods to carrier is prima facie delivery of goods to buyer. This judgment was followed in CCE v. Indian Carbon Ltd. (2011) 269 ELT 6 (SC).

23. The factory can be “place of removal” even if insurance taken by assessee as service to customers – In Blue Star Ltd. vs. CCE (2008) 224 ELT 258 (CESTAT), transport was arranged by assessee since individual customer cannot arrange for transportation. It was held that insurance cover cannot be taken as criteria for determining ownership of goods. Once there was sale at factory gate, freight is not includible in assessable value. CBE&C, vide its circular No.287/3/97-CX dated 14-1-1997 had advised that in case of multi-product multi-location factories, equalized freight/averaged freight may be worked out on above basis.

24. CONTAINER SUPPLIED FREE OF COST BY BUYER, WHETHER COST OF CONTAINER IS LIABLE TO BE INCLUDED OR NOT ? The Hon’ble Supreme Court in the case of Jauss Polymers Ltd Vs. CCE MANU/SC/0927/2003 has observed as under:- “In that decision it is clearly set out that if the manufacturer asks the customer to bring his own container and does not charge anything therefore, packing cost cannot be added to the price at which the goods are sold by the manufacturer. This position was not detracted to in the decision in Government of India v. Madras Rubber Factory Ltd. (supra). In fact it was followed in:

25. The Supreme Court in the case of CCE Vs. Superior Products MANU/SC/8007/2008 has observed as under:- “Insofar as packing charges are concerned, tribunal has held that this point stands concluded against the revenue by a judgment of this Court in the case of Hindustan Polymers v. CCE MANU/SC/0298/1990 : 1989(43)ELT165(SC) . After going through the judgment in the case of Hindustan Polymers (supra), we are satisfied that this point is squarely concluded against the revenue and in favour of the assessee. The judgment of this Court in Hindustan Polymers (supra) has been confirmed by a subsequent judgment of this Court in the case of Jauss Polymers Ltd. v. CCE, Meerut reported in MANU/SC/0927/2003 : 2003ECR5(SC) . We endorse the finding of the Tribunal on this point

26. PACKING CHARGES: CONTAINER/CYLINDER/CATONS The packing which is necessary for putting excisable article in condition in which it is generally sold is includible in assessable value – Royal Enfield v. CCE (2011) 270 ELT 637 (SC). Container/cylinder supplied by buyer – In TCP Ltd. v. CCE (2008) 227 ELT 109 (CESTAT), buyer was supplying cylinders in which gas (liquid Sulphur dioxide) manufactured by assessee was filled in and supplied to buyer. The buyer and assessee were not related persons. It was held that value of such cylinders is not includible in assessable value of liquid Sulphur dioxide-relying on Grasim Industries v. CCE (2004) 164 ELT 257 (CESTAT).

27. SECONDARY/SPECIAL PACKING DONE AT THE INSTANCE OF BUYER NOT INCLUDIBLE: The secondary packing done which is not in case of normal delivery of goods to customers is not required to be added – National Leather Cloth Mfg v. UOI (2010) 256 ELT 321 (SC). Rental charges to buyer for durable containers is not includible in assessable value – In CCE v. Bisleri International Pvt. Ltd. (2005) 6 SCC 58=186 ELT 257 (SC), it was held that rental charges for container (ROC) and interest charged for delayed return of container are not includible in assessable value of cold drink – followed in Krishna Mohan Beverages v. CCE (2013) 289 ELT 197 (CESTAT).

28. EXCLUSION FROM TRANSACTION VALUE: The Supreme Court in the case of Gujarat Borosil Limited Vs. CCE MANU/SC/1554/2015 has held the amount towards “transit insurance” is liable to be excluded from the Transaction Value”. The Supreme Court in the case of Castrol India Limited Vs. CCE MANU/SC/1504/2015 has observed that “ interest on receivable” would be deductible from “Transaction Value”. However, under the amended Section 15, interest, penalty & amount towards Liquidated Damages are required to be included.

29. GST IS LEVIABLE ON PROFIT SECTION 15(2)(d): Interest or late fee or penalty for delayed payment of any consideration for any supply; The Supreme Court in the case of Baroda Electric Meters Ltd Vs. CCE 1997 (94) ELT 13 SC held that profits made by a Dealer on transportation was not included in the assessable value of the goods. The Supreme Court in the case of Indian Oxygen Ltd Vs. CCE 1988(36) ELT 732 SC, has held that Excise duty is a tax on manufacture and not a tax on the profits made by a Dealer on transportation.

30. SECTION 15(2)(e): Subsidies directly linked to the price excluding subsidies provided by the Central and State governments; The genesis of the above provision lies in the case of CCE Vs. Mazgon Docks Ltd MANU/SC/2753/2005 wherein the SC has held as follows: In our view the subsidy of 20% from the Government cannot be said to be additional consideration as is not received from the buyer either directly or indirectly. Therefore, that would not be includable in the price of the goods for the purposes of excise. However, it is an admitted position that 10% subsidy was received by the Respondent from the buyer. It is therefore additional consideration received by the Respondent from the buyer.

31. The fact that it is received under a policy of the Government does not detract from the above position. It is therefore includable. The judgment of the Tribunal holding that the entire subsidy (including the 10%) is not includable, is not correct and is set aside. Needless to say the amount of subsidy which has direct relation to the price given to the assessee by the Government is liable to be included. However, CBEC vide Circular No.983/7/2014 CX- dated 10.07.2014 has confirmed that the fertilizer subsidy received from the Government is not additional consideration to individual manufacturer of Fertilizers.

32. In CCE Vs. Super Synotex India Ltd 2014)301) ELT 273 SC, the position was that as per Sales Tax Incentive Scheme of the State, assessee was allowed to charge full sales tax in his invoice, however, he was allowed to retain 75% of sale tax amount to himself and balance 25% was required to be paid by him to the Government. Hence, it was held that the assessee shall be allowed the benefit of 25% and the balance 75% shall be included in the “Transaction Value”.

33. In Neyveli Lignite v. CTO(2001)9 SCC 648 (SC 3 member bench) (a sales tax matter), it was held ‘price’ is an essential element of contract of sale. Any other sum received by seller for a different purpose and not as consideration for the sale is not part of ‘sale price’ and hence not part of turnover. In this case, it was held that subsidy received from Government of India under Fertilizer (Control) Order is not part of taxable turnover.

34. SECTION 15 (3): RE-PRODUCE The value of the supply shall not include any discount that is given: (a) before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, provided that: • such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

35. ii) input tax credit has been reversed by the recipient of the supply as is attributable to the discount on the basis of document issued by the supplier.

36. QUANTITY DISCOUNT: Under the scheme of Quantity Discount, a dealer receives from the assessee a stated extra quantity if he buys a certain other quantity - that this will happen is known and agreed at the time of transaction is entered into. It is, therefore, a trade discount and is allowable as deduction. – CCE v. Hindustan Lever 2002 (142) ELT 513 (SC 3 member bench). Even verbal communication through salesman is sufficient to give quantity discount and then it is eligible as deduction. What were norms and criteria for giving discount is not relevant. What is relevant for assessment is whether a discount is allowed or not and not for what reason it is being allowed – Hindustan Lever Ltd. v. CCE 2005 (189) ELT 434 (CESTAT).

37. Trade discount may be in form of cash discount or in the shape of goods. Quantity discount has precisely the same effect as money discount, as in both cases, there is reduction in price charged to customers and hence permissible. – Queen’s Chemists Mfg. Deptt. V.CCE – 1979 (4) ELT (J 454) (Bom HC) – quoted with approval in Guljag Chemical and Plastics Pvt. Ltd. v. CCE – 1993 (63)ELT 710 (CEGAT).

38. The prompt payment discount is given if the buyer makes payment of bill within stipulated time. This is allowable even if it is limited to certain varieties of products. – GOI v. MRF Ltd. 77 ELT 433 = 1995 AIR SCW 2654 = (1995) 4 SCC 349. prompt payment discount is allowable as deduction if nature of discount was known at the time of removal of goods and was in fact allowed – CCE v. TFL Ouinn India (2011) 267 ELT 641 (CESTAT).

39. However, in CCE vs. Rishab Instruments (2008) 226 ELT 230 (CESTAT), one buyer (L&T) was given higher discount that others, on condition that he will promote sale and marketing of asessee’s products. The extra discount was to compensate advertisement and promotion activity undertaken by L&T. It was held that the additional discount cannot be allowed as deduction and the value of discount is liable to be included in the assessable value. Special discount for higher purchases is allowable as deduction for valuation – Sri Ramdas Motor Transport v. CCE 2005 (190) ELT 266 (CESTAT). Varying discount is permissible – ElgiEquipments v. CCE (2007) 215 ELT 348 (SC).

40. CASH DISCOUNT: The Department has confirmed that cash discount is allowable deduction, if actually passed on to buyer, if transaction is on principal to principal basis. CBE&C Circular No.643/34/2002-CX dated 1.7.2002. The Supreme Court in the case of Purolator India Limited Vs. CCE - MANU/SC/0908/2015 has observed “ In view of what has been said above, it is clear that "cash discount" has therefore to be taken into account in arriving at "price" even under Section 4 as amended in 2000.” In IFB Industries Ltd. Vs. State of Kerala (2012) 4 SCC 618 = 49 VST 1 (SC), it was held that trade discounts are allowable as deduction even if not shown in invoice but given separately by credit note (sales tax matter but principle applies here also).

41. SECTION 15(3)(i) Trade Discount paid later is allowable as deduction provided it is given under any agreement (agreement can be oral agreement also) is allowable. CCE Vs. DCM Textiles 2006 (195) ELT 129 SC. Trade Discount not shown in the invoices but allowed under the trade practice or under agreement (both oral or written) by way of separate Credit Note, is allowable as a deduction even if not shown in the Invoice but given by way of separate credit note. IFB Industries Ltd Vs. State of Kerala 2012(4) SCC 618. (Sales Tax matter).

42. Quantity Discount given later at Depot is permissible even if quantified on half year basis. Glenmark Pharmaceuticals Vs. CCE 2011(272) ELT 385. The commission paid to Selling Agent for services rendered by them as Agents cannot be regarded as a Trade Discount. Seshasayee Paper and Boards Limited Vs. CCE 1990(47) ELT 202 SC.

43. JUDGMENT ON RELATED PERSON SECTION 15 (i) In Alembic Glass Industries vs. CCE-2002 (143)ELT 244 (S.C), the Supreme Court has held as observed “The shareholder of a public limited company do not by reason only of their shareholding have an interest in the business of the company. Similarly two public limited companies having common Directors do not have an interest in the business of each other.”

44. Further, the Supreme Court once again in Flash Laboratories Ltd. v. CCE – 2003 (151) ELT 241 (SC) has observed “it appears that the shareholding test which held the forte since Atic Industries case has now been given a go by. The interpretation placed is probably correct given the wide expressions used in the Section. Mutuality of interest in each other business is satisfied where assessee Company selling 60% of its products to its holding Co. and the remaining 40% to another subsidiary of its holding Co., further, holding Co. also incurring expenses for sales promotion.” In Ceam Electronics P.Ltd. vs. UOI – 1991 (51) ELT. 309 (Bom.) has observed “Merely because, goods are manufactured with customer’s brand name and entire production sold to customer, does not mean that sales are to related persons.”

45. .