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Rule 10 of central excise valuation rules,2000

Rahul Bansal (Finalist) (35929 Points)

19 March 2013

Can anyone explain with examples

"RULE 10 "

Sale through related person being interconnected undertaking

Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.......?

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9 Replies

CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27344 Points)
Replied 19 March 2013

Dear Rahul,

In That Rule Nothing as Such to Understand.

Just Relative Concept is There.

Read Relative Definition and If Transaction with Them, Then For Calculation of Excise Duty, Amount of Sale is to be Taken as Per Fair Market Value.

For The Valuation of Goods, Check With Valuation Rules of Excise.

1 Like

Rahul Bansal (Finalist) (35929 Points)
Replied 19 March 2013

CASE:1

Sale at Price 1 Sale at Price 2

M------------------------------------->ICU-------------------->NRP==> AV....?

Not applicability of sec 4(3)(b)

CASE:2

Sale At Price 1 Sale At Price 2

M------------------------------------>ICU------------------>NRP==> AV...?

Applicability of sec 4(3)(b)

WHERE,

M---------------> MANUFACTURER

ICU------------->INTER CONNECTED UNDERTAKING

NRP------------->NOT RELATED PARTY

AV---------------->ASSESSABLE VALUE

Question is:

Which "price" will be applicable as "AV" in both of the above cases...............???????????

Note: Sec 4(3)(b) here means :

--------->Sec. 4(3)(b)(ii)

--------->Sec. 4(3)(b)(iii)

--------->Sec. 4(3)(b)(iv)

CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27344 Points)
Replied 19 March 2013

Dear Rahul,

Pls Read Word by Word By Giving Concentration.

After Reading, I Hopw You Shouldnt Left with any query in your mind.

Where goods are transferred to a sister unit or another unit of the same company valuation will be done as per the proviso to rule 9.

Where goods are sold through related persons, the transaction value is not applicable and the assessable value shall be the value at which the-related-person- sells the goods (Rule 9). If-the related- person (foes not sell the goods but uses them in manufacture of other articles, the value shall be 110% of the cost of production. For the purposes of Rule 9, related person means:

1. relatives;

2. buyer is a relative and distributor of the assessee or sub-distributor of such distributor or

3. persons having interest, directly or indirectly, in the business of each other.

Similarly, where goods are sold through an inter-connected undertaking, the value at which the goods are sold by such inter-connected undertaking shall be the assessable value (Rule 10). However, for such valuation the inter-connected undertaking should also be related in any of the manner described above (Rule 9). If such relationship is absent, ‘Transaction value’ shall be the basis of valuation for sales through inter-connected undertakings

For the purposes of valuation, ‘inter-connected undertakings’ shall have the meaning assigned to it in clause (g) of Sec.2 of the `Monopolies & Restrictive Trade Practices Act, 1969′ and ‘relative’ shall have the meaning assigned to in clause (41) of Sec.2 of the Companies Act, 1956. The relevant extracts of the two Acts are reproduced herein :

As per Monopolies & Restrictive Trade Practices Act, 1969 (Extracts) the “Inter-connected undertakings” means two or more undertakings which are inter-connected with each other in any of the following manner, namely :-

(i) if one owns or controls the other;

(ii) where the undertakings are owned by firms, if such firms have one or more common partners;

(iii) where the undertakings are owned by bodies corporate, -

(a) if one body corporate manages the other body corporate,

(b) if one body corporate is a subsidiary of the other body corporate, or

(d) if one body corporate exercises control over the other body corporate in any other manner;]

(iv) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more pal tners of the firm, -

(a) hold, directly or indirectly not less than fifty per cent of the shares, whether preference or equity, of the body corporate; or

(b) exercise control, directly, or indirectly, whether as director or otherwise, over the body corporate.

(v) one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management;

(vi)if the undertaking are owned or controlled by the same person of the same group;

(vii)if one is connected with the other either directly or through any number of undertakings which are inter-connected undertakings within the meaning of one or more of the forgoing sub-clauses.

Explanation I.- For the purpose of this Act, two bodies corporate shall be deemed to be under the same management, -

(i) if one such body corporate exercises control over the other or both are under the control of the same group or any of the constituents of the same group ; or

(ii) if the managing director or manger of one such body corporate is there managing director or manager of the other; or

(iii) if one such body corporate holds not less than one-third of the equity shares in the other or controls the composition of not less than one-third of the total membership of the board of directors of the other; or

(iv) if one or more directors or one such body corporate constitute, or at any time within a period of six months immediately preceding the day when the question arises as to whether such bodies corporate are under the same management constituted, whether independently or together with relatives of such directors of the employees of the first mentioned body corporate one fourth of the directors of the other; or

(v) if the same individual or individuals belonging to a group, while holding, whether by themselves or together with their relatives not less than one fourth of the equit, shares in one such body corporate also hold, whether by themselves oar together with their relatives not less than, one-fourth of the equity shares in the other ;

(vi) if the same body corporate or bodies corporate belonging to a group holding, whether independently or along with its or their subsidiary or not less than one-fourth of the equity shares in one body corporate, also hold not less than, one fourth of the equity shares in the other; or

{vii) if -not tess-ttian-, one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individual whether independently or together with his relatives or the same body corporate, whether independently or together with its subsidiaries; or

(viii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individuals belonging to a group or by the same bodies corporate belonging to a group, or jointly by such individual or individuals and one or more of such bodies corporate; or

(ix) if the directors of the one such body corporate are accustomed to act in accordance with the directions or instructions of one or more of the directors of the other or if the directors of both the bodies corporate are accustomed to act in accordance with the directions or instructions of an individual, whether belonging to a group or not.

Explanation II. – If a group exercises control over a body corporate, that body corporate and every other body corporate, which is constituent of, or controlled by, the group shall be deemed to be under the same management.

Explanation III. – If two or more bodies corporate under the same management hold, in the aggregate, not less than one-fourth equity share capital in any other body corporate, such other body corporate shall be deemed to be under the same management as the first-mentioned bodies corporate.

Explanation IV. – In determining whether or not two or more bodies corporate are under the same management, the shares held by financial institutions in such bodies corporate shall not be taken into account.

Illustration

Undertaking B is inter-connected with undertaking A and undertaking C is inter-connected with undertaking B. Undertaking C is inter-connected with undertaking A; if undertaking D is inter-connected with undertaking C, undertaking D will be inter-connected with undertaking B and consequently with undertaking A; and so on.

As per Companies Act, 196 (Extracts [Act No, 1 of 19561 the Meaning of "relative".- A person shall be deer led to be a relative of other if, and only if, -

(a) they are members of a Hindu Undivided family; or

(b) they are husband and wife; or

( c) the one is related to the other in the manner as indicated in the following list.

List of Relatives

1. Father

2. Mother (including step-mother)

3. Sons (including step-son)

4. Son's wife

5. Daughter (including step-daughter)

6. Father's father

7. Father's mother

8. Mother's mother

10. Son's son

9. Mother's father

11. Son's son's wife

12. Son's daughter

13. Son's daughter's husband

14. Daughter's husband

15. Daughter's son

16. Daughter's son's wife.

17. Daughter's daughter

18. Daughter's daughter's husband

19. Brother

(including step-brother)

20. Brother's wife

21. Sister (including step-sister)

22. Sister's husband

Where goods are sold partly to related persons and partly to independent buyers, there is no specific rule covering such a contingency. Transaction value in respect of sales to unrelated buyers cannot be adopted for sales to related buyers since as per section 4(1) transaction value is to be determined for each removal. For sales to unrelated buyers valuation will be done as per section 4(1)(a) and for sale of the same goods to related buyers recourse will have to be taken to the residuary rule 11 read with rule 9 (or 10). Rule 9 cannot be applied in such cases directly since it covers only those cases where all the sales are to be related to buyers only.

3.3. Some important circulars issued on Valuation covering specific situations are reproduced for reference:

2 Like

Rahul Bansal (Finalist) (35929 Points)
Replied 19 March 2013

I already had these notes with me which u have shared Ayush....................Tnx. for that.......

But, I am really in need of exact answer...............

According to my understanding..............Answer to :

CASE 1: Price 1

CASE 2: Price 2

1 Like

Rahul Bansal (Finalist) (35929 Points)
Replied 19 March 2013

REASON ARE:

For Case 1: AV=TV u/s 4(1)(a)

For Case 2: As per Rule 9 of CEVR, 2000.

CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27344 Points)
Replied 20 March 2013

M------------------------------------->ICU-------------------->NRP==> AV....? Not applicability of sec 4(3)(b)

CASE:2 Sale At Price 1 Sale At Price 2

M------------------------------------>ICU------------------>NRP==> AV...? Applicability of sec 4(3)(b)

Both Case are Same.

How The Answer Differs ?

Rahul Bansal (Finalist) (35929 Points)
Replied 20 March 2013

Originally posted by : CA AYUSH AGRAWAL
	M------------------------------------->ICU-------------------->NRP==> AV....? Not applicability of sec 4(3)(b) CASE:2 Sale At Price 1 Sale At Price 2 M------------------------------------>ICU------------------>NRP==> AV...? Applicability of sec 4(3)(b) Both Case are Same. How The Answer Differs ?

Answer will be differ due to Not applicability of sec 4(3)(b) and Applicability of sec 4(3)(b) .

CA Saroj Kumar (Keen to learn something new every moment) (2588 Points)
Replied 22 March 2013

frist Case ....Assessable value will be " Transaction Value"

in second case - Normal Transactional Value"- i.e Greatest Agreegate Quantity"

lets assume..

Mr.A to ICU-

sells 1000 Qty @ 650

2000qty @ 1450

1500Qty @ 500

Q-1-----Solution-----> Transaction value...Agreegate of All. in this case it is assumed that what will be value the same party are not related.

Q---2-------> total Quantity @ 1450 (greatest Agreegate Quantity sold @ 1450.as per rule - 9

if any remains doubt..

i feel free to contact me

at my mail Id- sarojca88 @ gmail.com

2 Like

Rahul Bansal (Finalist) (35929 Points)
Replied 24 March 2013

Originally posted by : saroj kumar Kushwaha
	frist Case ....Assessable value will be " Transaction Value" in second case - Normal Transactional Value"- i.e Greatest Agreegate Quantity" lets assume.. Mr.A to ICU- sells 1000 Qty @ 650 2000qty @ 1450 1500Qty @ 500 Q-1-----Solution-----> Transaction value...Agreegate of All. in this case it is assumed that what will be value the same party are not related. Q---2-------> total Quantity @ 1450 (greatest Agreegate Quantity sold @ 1450.as per rule - 9 if any remains doubt.. i feel free to contact me at my mail Id- sarojca88 @ gmail.com