This article throws light upon the top two methods for the valuation of excisable goods.
Excisable Goods Valuation: Method # 1. First Method:
It is used to determine the value on the basis of value of the comparable goods produced or manufactured by the same assessee or by any other assessee, after making reasonable and necessary adjustment of all relevant factors in particular, the difference in the material characteristics of the goods to be assessed and of comparable goods.
However, while selecting the comparable goods the following four tests should be kept in mind:
(i) The comparable goods should fetch approximately the same price in the retail market as the assessable goods can fetch;
(ii) The assessable value of the comparable goods should not be under dispute;
(iii) The manufacture and sale of the comparable goods should be near to the place of removal of the goods under assessment; and
(iv) The manufacture of the comparable goods should be in the same type (size) of the unit otherwise the difference in the cost of production of those two products is a possibility, which will vitiate the purpose.
Excisable Goods Valuation: Method # 2. Second Method:
In view of the limitations involved in the first method, the valuation may not be possible and so the second method of valuation provided under rule 6(b)(ii) of the Central Excise Valuation Rules is to be followed.
According to this rule, the value of the goods consumed in the manufacture of other goods will have to be determined according to the following formula:
Cost of production + Manufacturer’s Profit i.e. Manufacturing Cost + Manufacturing Profit.
In this method, the manufacturer should, therefore, furnish the information regarding the ‘manufacturing cost’ with the details of break-up under the cost elements, like the cost of raw materials/component parts, manufacturing expenses, overheads, etc., and the information relating to ‘manufacturing profit’.
The Excise authorities, in this respect, enjoin a provision that these elements of ‘manufacturing cost’ and ‘manufacturing profit’ should be certified by a practising Chartered Accountant or Cost Accountant, for the purpose of determining the assessable value.
The assessable value so determined remains valid for a period (usually a calendar year) unless major fluctuations in the price of raw materials or in the profit margin of the manufacturer warrant a fresh determination of the value during the same calendar year.
The small manufacturers, who do not avail themselves of the services of a practising Chartered Accountant or Cost Accountant, have however been exempted. Thus, for the purpose of determination of value, the concepts of ‘Manufacturing Costs’ and ‘Manufacturing Profits’ have assumed a great significance and a considerable importance to the accountancy professionals.
In this respect, the Institute of Cost and Works Accountants of India has issued a draft guideline in January, 1982.