Live Course on Drafting of Appeal and Reply of Penalty Notice by CA Sachin Sinha. Register Now!!

Pls explain the 5 valuation methods

CA Anand Sarda (Working) (1580 Points)

24 January 2008

1. Specific Duty Method,

2. Duty as a percentage of Fixed Tariff,

3. MRP Based Valuation,

4. Compounded Levy Scheme,

5. Advalorem Duty.

Pls dont give the book definition , explain with the help of an example.

Reply
Follow
Share

9 Replies

Geek (Student CA Final ) (107 Points)
Replied 24 January 2008

MRP Based Valuation For some goods which are notified by Central Govt., it is binding on a manufacturer to calculate Assessable Value (AV) on the basis of Maximum Retail Price (MRP), irrespective of actual sale price. e.g. the MRP of a medicine is Rs. 120 and it is actually sold for Rs.110. Rate - 16% In normal circumstances, the AV would have been Rs.110. But if the said medicine is notified to be valued on the basis of MRP U/s 4A, then Excise Duty (including 3% Cess)= 16.48/116.48 of 120= Rs. 17 (approx)

Geek (Student CA Final ) (107 Points)
Replied 24 January 2008

Duty as a percentage of Fixed Tariff For some goods , Govt. fixes tariff value, (neither actual sale price, nor MRP is considered for calculating AV), then the prevailing rate is applied on tariff value to calculate the duty. e.g. If Govt. fixes the tariff value of Pan Masala @ Rs.200 per Kg. Then AV shall be = Qty. produced (removed) x Rs.200.

Geek (Student CA Final ) (107 Points)
Replied 24 January 2008

Advalorem duty Advalorem is nothing, but on the basis of value. i.e. when duty is to be calculated on the basis of value. For quantification of duty, what you need is rate of duty and some base on which you can apply that rate. When the said base is in terms of amount (value), it is said ti be advalorem duty, Duty calculated on Transaction value, MRP based valuation are all advalorem duties.

Kapil Bajaj (Service) (112 Points)
Replied 24 January 2008

Specific Duty Method,
In this type of method the government charges duty from assessee @ a fixed rate.It is irrespective of the value of the good.
Say suppose, If 10 units o f X are produced
and duty is charged on X is Re 1/unit,
the duty is to be paid is Rs.10.

Duty as a percentage of Fixed Tariff
In this the government assumes the value of a particular commodity according to the average industry rates and charges duty accordingly
Say price of a Product Y is Rs 100/unit and duty charged is @ say 10% then even if the cost or market price of product Y is Rs.150 or 200.The duty is to be paid on Rs.100 @ 10%.

MRP Based Valuation
In this method the government charges duty on the basis of the printed price on the articles which are sold in the market.
Like soaps,shampoos,toothpaste,etc

Compounded Levy Scheme
In this method the government charges duty on the basis of the factors which are relevent to production.
(Like Production capacity of the plant)
(If you would have watched "GURU" you would recall that ;when madhavan would interview his abhishek bachhans friend in his factory; would conceal the Plants and machinery and would show only lower capacity of its plant to evade this kind of duty)
duty is paid say on the capacity of production of plant of the assessee.

and
Advalorem Duty
it is paid on the additional value created by the assessee on the goods manufactured by him.
say he bought wheat for Rs.10 and processed it to make Wheat flour the value of which is 20. The duty to be paid on Rs. 20 (and by claming rebate on Rs 10 ) is called advalorem duty.

hope i am able to make you clear. thanx

CA Anand Sarda (Working) (1580 Points)
Replied 25 January 2008

thank u friends for such grt help... i hv started idt subject few days back... so pls help me for other queries...

Kapil Bajaj (Service) (112 Points)
Replied 25 January 2008

u r wellcome!!

Geek (Student CA Final ) (107 Points)
Replied 03 February 2008

@ Kapil Advalorem does not mean duty on the value added, rather, it means duty on the basis of value.i.e. some amount is taken as base for applying the rate that may be on value added or not.

K.santosh kumar (CA Final Student) (59 Points)
Replied 07 February 2008

Hi Kapil,
Iam in CA final i am planning to start IDT which book i shall go bcoz so confused i cant go for classes.pls help me - suggest.thx for explanation of 5 concepts in IDT

Aditya M (Student) (166 Points)
Replied 11 February 2008

AD VALOREM - Lat. According to the value. This term is used in commerce in reference to certain duties, called ad valorem duties, which are levied on commodities at certain rates per centum on their value. Hope this will help clarify.. Sourced from Lectric Law Library's Lexicon