Valuation of goods is one of the most important steps in central excise. After duty liability is established and after the product is correctly classified, the next question is 'What is the Excise Duty payable?'
If you refer to CETA, you will find that some rates are fixed on per Kg or per quintal basis, while some rates are based on '%' basis. This percentage is the % of 'Assessable Value' of goods fixed as per section 4 of Central Excise Act.
Excise duty is payable on one of the following basis:-
(1) Specific Duty -
It is the duty payable on the basis of certain unit like weight, length, volume, thickness etc.
For example, duty on Cigarette is payable on the basis of length of the Cigarette, duty on sugar is based on per Kg basis etc.
Presently, specific rates have been announced for -
(c) Marble slabs and tiles
(d) Colour TV
When MRP is not marked on the package or when MRP is not the sole consideration.
(2) Tariff value - In some cases, tariff value is fixed by Government from time to time. This is a "Notional Value" for purpose of calculating the duty payable. Once 'tariff value for a commodity is fixed, duty is payable as percentage of this 'tariff value' and not the Assessable Value fixed u/s 4.
This is fixed u/s 3(2) of Central Excise Act. Government can fix different tariff values for different classes of goods or goods manufactured by different classes or sold to different classes of buyers.
Presently, tariff values have been fixed for pan masala packed in retail packs of less than 10 gm per pack, vide notification No 16/98-CE(NT) dated 2nd June 1998.
(3) Value based on Retail Sale Price - Section 4A of CEA (inserted w.e.f. 14.5.1997) empowers Central Government to specify goods on which duty will be payable based on 'retail sale price'.
The provisions are as follows -
(a) The goods should be covered under provisions of Standards of Weights and Measures Act
(b) Central Government can permit reasonable abatement (deductions) from the 'retail sale price'. While allowing such abatement, Central government shall take into account excise duty, sales tax and other taxes payable on the goods
(c) If more than one 'retail sale price' is printed on the same packing, the maximum of such retail price will be considered
(d) The 'retail sale price' should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc.
(e) Central Government has to issue a notification in Official gazette specifying the commodities for which the provision is applicable and the abatements permissible
(4) Ad valorem Duty - Fixing specific duty or tariff value is possible only for few selected items like Sugar, pan masala, consumer goods, Cigarette etc.
Generally, it is not practicable to fix specific duty or tariff value for numerous products produced. Similarly, paying duty on the basis of MRP is possible only in respect of a few selected commodities. In other cases, Central Excise is payable on the basis of value. This is called "ad valorem duty".
The 'assessable value' is arrived at on the basis of Section 4 of the Central Excise Act and rules made thereunder. Duty is payable on the basis of such value.