We are manufacturers of cables/wires. We clear the manufactured goods to our depots which in turn supply the goods to distributors across India. We provide turnover discount to our distributors at the time of supply from the depot which cannot be quantified at the time of sale of goods. Please clarify whether the discounts would form the part of transaction value.
Excise duty is payable on the ?transaction value? of the goods at the time of removal. The Central Board of Excise & Customs (?CBEC?) has clarified, vide circular dated 30 June 2000, that if in any transaction, a discount is allowed and passed on to the buyer as per common practice, such discount should not be included in the transaction value of the goods. In case the discount would be known only subsequently, the assessment for such transactions may be made on a provisional basis. However, the assessee has to disclose the intention of allowing such discount to the excise department and make a request for provisional assessment. Further, the Supreme Court in the case of Bombay Tyre International-MRF Ltd has held that turnover discount known at the time of the removal, but if quantified subsequently, is eligible as an admissible deduction for determining the assessable value.
Hence, turnover discount provided subsequently and not known at the time of removal from your factory/depot would not form part of the transaction value for levy of excise duty. However, it would need to be established that the discount in the above transaction has actually been passed on to the buyer and that the discount should be known at the time of sale.
We are engaged in the trading of iron & steel piston rings in India. We plan to import such goods from our group companies located outside India for sale in India. We understand that our imports would be investigated by the customs department since we are importing from our group company. Also, we would be required to pay provisional duty of 1% in addition to the customs duty payable on all such imports. Could you let us know the method of computation of such provisional duty so that we can estimate our import costs.
You are correct that imports from related parties are subject to scrutiny by the Special Valuation Branch (SVB) of customs. During the pendency of an SVB proceeding, all bills of entry filed by the importer are assessed provisionally and the importer is required to pay an extra duty deposit (EDD) of 1% of the assessable value of the imports. The EDD can be increased to 5% if the reply to the SVB questionnaire is not filed within 30 days of receipt of the questionnaire. The customs authorities have been following two different methods for computing the EDD. Under the first method, the EDD of 1% is added to the assessable value (CIF plus 1% landing charges) of the imported goods. Thereafter, customs duty, as applicable, on such imports was computed on such value.
Under the second method, EDD is separately levied as a duty @ 1% of the assessable value of the imported goods. Additionally, customs duty applicable on the import of such goods is also separately levied.
The first method of loading the EDD in the assessable value is not correct since the clarification issued by the CBEC clearly states that EDD is calculated as 1% of the assessable value of the imported goods. Hence, the second method of treating EDD as duty amount and computed on the assessable value is the correct method of computing EDD.
We understand that earlier some customs ports followed the first method of computation of EDD. However, such practice has been discontinued at most of the ports.
We trade in a variety of goods in India imported or procured locally. We currently stock the goods in our warehouse in Haryana from where we sell the goods to customers in different states. We are looking at the possibility of stocking goods in a Free Trade and Warehousing Zone (FTWZ) as we would be eligible to import goods into the FTWZ without payment of customs duty. We understand that local procurements by FTWZ unit are also exempt from VAT/ CST subject to satisfaction of prescribed conditions. Kindly advise.
FTWZ are allowed to hold the goods on behalf of a foreign supplier for dispatch as per owner?s instructions. Accordingly, you would be allowed to import goods into a FTWZ unit without payment of customs duty on complying with the prescribed procedure. However, we would like to highlight that effective customs duty needs to be paid on clearance of goods for sale in domestic tariff area in India. Further, you are correct that inter-state purchases by a FTWZ unit/developer are exempt from CST subject to such goods being used for authorised operations and issue of prescribed declaration by FTWZ unit. Also, generally, intra-state sales to FTWZ unit/developer are exempt/zero rated from VAT depending upon the specific state legislation. However, the above exemptions are generally available only to a FTWZ unit/developer. In the present case, we understand that you are neither a FTWZ unit nor a developer of such unit. Accordingly, you would need to examine whether the above exemptions on local procurements by a FTWZ unit would be available to you.
The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies