MRP-based valuation is not applicable to products sold in bulk to industries

Written by Kamal Aggarwal | Payal Tuli | Updated: Apr 3 2009, 07:09am hrs
We are a paint manufacturing company and sell our products in the retail market. We are required to adopt MRP-based valuation as per Section 4A of the Central Excise Act for the payment of excise duty. However, many times we get purchase orders from industrial buyers who buy our products in bulk. We have come to know that duty computation on MRP is not applicable in case of industrial sale. Please advise.

MRP-based valuation is governed by Section 4A of the Central Excise Act, 1944. The primary requirement attracting MRP-based valuation of goods under excise is that the goods should be notified under Section 4A of the Act and should be covered within the purview of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977. These rules do not apply to packaged commodities that are meant for sale to industrial/institutional consumers, who purchase the commodities for using the products in their industry. Sale of bulk quantities of your product, not intended for sale in retail, to industrial buyers would be outside the purview of the Standards of Weights & Measures (Packaged Commodities) Rules, 1977 and, therefore, would not attract MRP-based valuation for the purpose of payment of excise duty.

We are a medium-sized enterprise engaged in import of apparels. During the course of import, we pay the applicable customs duty. Also, we wish to avail the benefit of SAD refund on trading of apparels. We are not directly engaged in trading of these imported goods and the sales are made by our consignment agents at various locations as per our directions. Accordingly, the sale invoices and VAT challans are in the name of consignment agent. Please advise whether we should be able to claim SAD refund in such a case.

This issue has been clarified by a circular issued by Central Board of Excise & Customs wherein the guidelines to be followed, when the sale of imported goods is not made by the importer himself but is made by the consignment agent as per the directions of the importer, have been prescribed. The circular provides that it is possible to obtain refund in such cases, provided the conditions prescribed therein are complied with. Some of the conditions prescribed include the requirement of an agreement between the importer and the consignment agent authorising the consignment agent to sell the imported goods and make payment of VAT thereon, on behalf of the importer. Further, the sales invoices issued by consignment agent should indicate that the sale is made by him on behalf of importer in the capacity of consignment agent. In addition, the refund application should accompany a certificate by statutory/VAT auditor of the importer certifying that the appropriate sales tax/VAT has been paid by consignment agent on behalf of importer.

Ours is a recently set up company and we are in the process of construction of factory for manufacturing of excisable products. We are paying service tax on various activities. Please confirm whether we can avail credit of all the service tax paid or there are any restrictions on it.

As per the cenvat credit rules, the primary condition in order to avail credit is that the service of which the credit is sought to be taken should qualify as input service. The definition of input services in the cenvat credit rules is an inclusive definition and includes services used by the manufacturer in relation to setting up, modernisation, renovation or repairs of a factory. Therefore, you may avail cenvat credit of service tax paid on input services used for setting up the factory.

We are a manufacturer of Reverse Osmosis machines. We have recently undertaken annual maintenance contract for the machines installed by us. We understand that such an activity would be covered under works contract for payment of VAT and we have opted for composition scheme for the purpose of payment of VAT. Please advise whether we can opt for composition scheme for payment of service tax under works contract service.

The annual maintenance contracts do not come within the purview of the definition of works contract service and, therefore, the maintenance services rendered by you cannot be classified under the taxable category of works contract service. Accordingly, the option to avail composition scheme under works contract service is not possible. The maintenance services would get classified under the taxable category of management, maintenance or repair services.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information