Sub: Central Excise-Valuation of Goods transferred to Depots-Provisional Assessment - Reg.


                            In the Regional Advisory Committee meeting held on 16.09.2002, Members of Trade and Industry, raised certain doubts about valuation of goods sold through Depots/Consignment Agents and about adoption of provisional assessment thereon. The issue raised by the Members were examined and the following clarification are issued for the benefit of all concerned.

  2.               Where a manufacturer sells his goods through Depots/Consignment Agents, the sale of goods for delivery does not happen at factory gate and so the valuation can not be done under the provisions of Section 4(1)(a). Therefore, resort is to be made to the provisions of Section 4(1)(b) under which, Central Excise Valuation Rules,2000 are notified.

  3.                 When the sales are through the Depot/Consignment Agent, the applicable Rule of Central Excise Valuation Rules, 2000, is Rule 7.  Under that Rule, the value to be adopted is mentioned as "normal transaction value". The definition for normal transaction value given at Rule 2(b) of the Rules reads as " Normal Transaction Value means the Transaction Value at which the greatest aggregate quantity of goods are sold".  It has since been clarified in Board's Circular No:643/34/2002-CX dated 01.07.2002 (Trade Notice No. 62 /2002 dated 19-7-2002) that, the Transaction Value of the "greatest aggregate quantity"  would refer to the price at which, the largest quantity of identical goods are sold on a particular day irrespective of the number of buyers. In case the ”normal transaction value" from the depot is not ascertainable on the day identical goods are being removed from factory, the nearest day when clearances of the goods were effected from the depot should be taken into consideration.

4.                 The concept of Normal Transaction Value can also be understood by a reference to the Interpretative Notes to Rule 7 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1998, wherein similar concept prevails. An example for greatest aggregate quantity has been given therein which is reproduced below:-


Sale quantity

Unit price

Number of sales

Total quantity sold at each price

1-10 units


10 sales of 5 units, 5 sales of 3 units


11-25 units


5 sales of 11 units


Over 25 units


1 sale of 30 units,   1 sales of 50 units


 The greatest number of units sold at a price is 80, therefore, the unit price in the greatest aggregate quantity is Rs. 90/- provided, the sales are to persons who are not related.

  5.                 Asssuming the above illustration is the transactions of a particular day, namely, 1.9.2002, at the Depot, then for all the clearances from factory to the said Depot on 01.09.2002, excise duty is to be paid at the value of Rs. 90/- per unit. The Normal Transaction Value may vary between Depot to Depot also.

  6.                 A consignment cleared from factory adopting  normal transaction value may be sold later, at the Depot, at a higher price or lower price. Such difference in price as regards that consignment is immaterial. In other words, once the correct Normal Transaction Value is adopted for payment of excise duty then, the consignment is  not required to be chased to know the ultimate sale price. The valuation ends with adoption of correct normal transaction value.

 7.       Generally, the price at which the goods are to be sold at depot are also decided by the management of the company and in such a situation there may not be much difficulty in adopting Normal Transaction Value to pay excise duty. However, it is well known that certain commodities like 'Cotton Yarn' etc. are prone to wide fluctuation in price within a day, and so it may not be possible for a manufacturer to ascertain the Normal Transaction Value then and there. In such situations, assessees may request for provisional assessment, if they desire so. Finalisation of provisional assessment on account of non-availability of Normal Transaction Value need not wait for the close of the accounting year and so it is advised that the assessees may in their own interest furnish the finalisation proposals to the jurisdictional officers, once in a month where the number of Depots are less or once in a quarter where the number of Depots are more, depending on the suitability.

 8.       Certain  manufacturers grant 'Quantity Discount' depending on the off-take per consignment and 'Annual Turnover Discount' on the off-take in a year. Such assessees who make sales through depots may not know the Quantity Discount and Annual Discount at the time of removal from the factory. In such situation also, assessee may request for provisional assessment, if they so desire. Here also it is advised, that the finalisation proposals for the Quantity Discount may be furnished to the jurisdictional officers once in a month or a quarter depending on the suitability. As regards to Annual Discount, which are finalised by the assessee at the end of the year, proposals for finalisation are to be provided within a reasonable time from the close of the year.

 9.                Assessees are requested to explicitly state in clear terms, the grounds on which provisional assessment is sought to the jurisdictional Divisional Officer substantiating their claim. Resort to provisional assessment as a matter of routine or on vague grounds will not be entertained by the Department. Attention of the Trade and Industry is invited to sub-rule (4) of Rule 7 of the Central Excise Rules, 2002, wherein it is stipulated that assessees are liable to pay interest on differential duty payment to Government, consequent to finalisation of provisional assessment, from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.         

      (Issued from File C.No. IV/16/33/2002 CX.III)


                                                             (G.K. PILLAI)








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