TRANSACTION VALUE – amount paid to a third party

by

 

K. VIJAY KUMAR¹

MA, BL, B.Ed, MBA

 

Transaction Value means the price actually paid or payable for the goods when sold and includes in addition to the amount charged as price, any amount the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty.

 

In simple English, this means that any amount payable by
the buyer or on behalf of the buyer to the assessee (with of course certain exceptions which are not within the purview of this article) is the TRANSACTION VALUE. The question this article poses is, " What about the amount payable by or behalf of the buyer to a person other than the assessee?"

 

Let us see an example.

 

A is the assessee. He has an agreement to sell his products to B for Rs. 100/-. C pays to A Rs. 20/-. B pays to D Rs 30/-. Assume A, B, C and D are not related and the price is the sole consideration for sale and the sale is for delivery at the place and time of removal. Here the buyer is liable to pay Rs. 100 and on his behalf another person C pays Rs. 20. By reason of and in connection with this sale another person D gets Rs. 30/-. D could be a temple, a charitable trust, a state agency like JPC, an extortion mafia etc. Now as per the definition of Transaction value, the price paid by B ie Rs 100/- and the amount paid by C ie Rs. 20/- are includible. Therefore the Transaction value in this case is Rs. 120/- But the actual value of the transaction is Rs 150/-. though Rs. 30/- actually goes to a person other than the assessee. As per the law, only the amounts payable by the buyer or on behalf of the buyer is includible in the value. The "on behalf " is for the buyer and not the seller/assessee.

 

This was explained in Board's circular F. No.B-10/1/2000 dated 12.5.2000 – 2000 (118) ELT T.45 in para 2.2 which said, …" Any amount paid by the buyer himself or on his behalf to the assessee by reason of, or in connection with the sale, would form part of the transaction value. Any amount that is charged or recovered from the buyer on account of factors like advertising…. Will also form part of the transaction value…………". Here also the question of including some amount which a third party realises from the buyer is not clarified.

 

Transaction value under the Customs Valuation Rules is the price actually paid or payable for the goods when sold …………. adjusted in accordance with the provisions of Rule 9…

such a definition in Central Excise would
have been better as there would have been less confusion.

 

The American Excise laws define the price as

In general. the ``price'' for which an article is sold includes the total consideration paid for the article, whether that consideration is in the form of money, services, or other things. ……Any charge which is required by a manufacturer.. to be paid as a condition of its sale of a taxable article and which is not attributable to an expense falling within one of the exclusions provided in section 4216 of the Code or the regulations thereunder is includable in the taxable sale price. It is immaterial for this purpose that the charge may be paid to a person other than the manufacturer…, or that it may be separately billed to the purchaser as a charge earmarked for expenses incurred or to be incurred in his behalf, such as charges for demonstration or display of the article, for sales promotion programs, or otherwise …….

 

(If not anything the above extract proves that the American laws are as confusing as ours, but their language appears to be more understandable than ours. After all we speak better English than the queen!)

 

When I discussed this point with some colleagues and senior officers, they told me

1. The words "by reason of, or in connection with" take care of the situation. Any amount paid in connection with or by reason of the sale is includable.
   
2. A sale where a third party gets some money is not a sale where the price is the sole consideration for sale and so this would go out of the scheme of transaction value.
   

Both the arguments are specious. Any amount by reason of or in connection with the sale is includable if it is paid by the buyer or on his behalf to the assessee. Certainly not if it is paid to somebody.

And here the price IS the sole consideration; there is absolutely no dispute on that.

 

In this connection a look at Rule 6 of the valuation rules is pertinent. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section 4 of the Act except the circumstance when the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Here also only the consideration flowing from the buyer to the assessee is covered, not the additional consideration flowing to another person.

 

The simple problem is " why the law has not made it clear that when an amount payable on behalf of the buyer is includable, an amount payable to sombody for the seller is not includable?

 

Is this not an unintented benefit which may become the subject of litigation in future. I think it is better to rectify and clarify the position now than make Parliament pass a law with retrospective effect that it was never the intention of the Government to exclude such charges.

 

**** EXCISE LAW TIMES – 15.11.2000 – A13