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Valuation of sale to subsidiary

Ramya Kinthali (Financial Consultant) (108 Points)

23 March 2011

as per rule 10

if sale is made to company which is interconnected undertaking alone, and not relative in any other way as per excise act...

rule 10 says sale price will be treated as transaction value.....

so if holding sells goods to subsidiary at less price, as they r interconnected undertakings alone , how can we treat it as transaction value,

will the holding and subsidiary companies be called as mutually interested undertakings , ( meaning of relative includes mutually interested)

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11 Replies

Ramya Kinthali (Financial Consultant) (108 Points)
Replied 23 March 2011

sorry i forgot to mention it

its rule 10 as per central excise valuation rules

DAYANANDA K N (ACCOUNTS EXCECUTIVE) (575 Points)
Replied 23 March 2011

In case of related person valuation shall be as per rule 9 of valuation rules which states "normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail "

For excise purposer you should not consider the value at which one related undertaking bills to another.

shankar patil (CEO) (85 Points)
Replied 23 March 2011

I FEEL RULE WILL DEPEND UPON WHTHER THE RECEIVER/PURCHASER OF THE GOODS IS USING THE GOODS FOR HIS MANUFACTURER ACTIVITY - IF YES THEN COST OF THE GOODS + 10% PROFIT

Ramya Kinthali (Financial Consultant) (108 Points)
Replied 23 March 2011

RULE 9 is for relatied persons other than interconnected undertakings......

in the given situation , they r relatives who r inter connected undertakings.....

if the realted person is inter connected undertaking it is covered under RULE 10

my doubt in the situation i stated is,.... whether subsidiary company is inter connected undertaking or will the holding and subsidiary can be considered as mutualy interested ..

if they r mutuallly interested , as per rule 10 , rule 9 is to be followed....

if they r interconnected undertakings alon... as per rule 10, the tracsaction value is to be taken as assessable value....

DAYANANDA K N (ACCOUNTS EXCECUTIVE) (575 Points)
Replied 23 March 2011

There are two methods mentioned in rule 10 for 2 difference situation

1) If the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9.

2) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of section 4.

In situation 1 applies if they related in terms of in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act - which is inter-connected undertakings,are relatives,amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor.

Since your are specifying they are inter realated undertaking according to me Rule 9 should apply.

Regards

Dayananda

Ramya Kinthali (Financial Consultant) (108 Points)
Replied 23 March 2011

first situation is = [inter connected undertaking ]as well as [relative or relative cum distributor or subdistributor or mutually interested]

2nd situation= any other case = it includes = inter connected undertakings alone, tat means they r not relative cum distributor or subdistributor or mutually interested..

m asking subsidiary is covered under which situation

in both situations interconnected undertakings r there, thing is wehter they r also mutually inteerested or not

DAYANANDA K N (ACCOUNTS EXCECUTIVE) (575 Points)
Replied 23 March 2011

It should be under situation 1 as the defination of "Inter connected undertaking" under excise is linked to defination under MRTP ACT which states subsidaries also "inter conncted undertakings"

Ramya Kinthali (Financial Consultant) (108 Points)
Replied 23 March 2011

@ DAYANAND....

subsidiary is interconnected undertaking as per MRTP act , even i am telling the same, i dont have any doubt regarding that.... ...

In ay of the following circumstances assesee and buyer ashall be treated related pserson as per excise act ....

-> inter connected undertaking as per mrtp act

-> reltives as per companie act (they r natural persons,like brother sister, inlaws, their brothers etc etc)

->relative cum distributor as well as its subdistributor

->mutually interested in business of one another

now subsidiary will be related as inter connectd undertakings , there is no doubt in that point ,

As per Rule 10 if it is interconnected undertaking as well as related in any other way, rule 9 shall follow

If it is interconnected undertaking alone ( any other situation) transaction value will prevail....

Ramya Kinthali (Financial Consultant) (108 Points)
Replied 23 March 2011

Am sorry to say, but dayanand sir, what u r insisting is

As it is inter connected undertaking and hence first situation

but interconnected undertaking can be related in any other way or may not be related in any other way..

if it is related to assessee in in any other way also besides being related as inter connected undertaking.-- rule 9 will come

if it is not related in any other way , except as being interconnected undertaking -- TV will prevail...

sorry if am not proper in conveying this meaning......, but this is what is correct,

my doubt is concerned with, whther subsidiary are mutually interested tooo, last case of related persons

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 23 March 2011

SECTION 4. Valuation of excisable goods for purposes of charging of duty of excise. -

(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;

(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.

Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.

(2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3.

(3) For the purpose of this section,-

(a) “assessee” means the person who is liable to pay the duty of excise under this Act and includes his agent;

(b) persons shall be deemed to be “related” if -

(i) they are inter-connected undertakings;

(ii) they are relatives;

(iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or

(iv) they are so associated that they have interest, directly or indirectly, in the business of each other.

Explanation. — In this clause -

(i) “inter-connected undertakings” shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969); and

(ii) “relative” shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956);