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Valuation of goods specified in the Seventh schedule
By I T Solanki
Jun 04, 2020

THIS is most opportune coincidence that in the time of covid-19- a National Calamity-there has been an increase in the levy of National Calamity Contingent Duty (NCCD) with effect from 01.02.2020 vide the Finance Bill, 2020 read with declaration under the provisional Collection of Taxes Act, 1931.

Prior to the Apex court decision in the case of M/s Unicorn Industries vs. UOI [TOG-2795-SC-CE-2019] in the Civil appeal No.9237 of 2019 on the levy of National Calamity Contingent Duty (NCCD), the matter was shrouded in dispute amidst interpretation that there was / is no NCCD on the goods specified in the seventh schedule to the Constitution of India when primary excise duty was exempted as well as in the GST era in light of abolition of excise duty. Precisely, for the said understanding, nominal excise duty came to be imposed by the Government. That incidence of NCCD was & is always on an act of manufacture remained in oblivion till the apex court decision supra , which is evident in imposition of excise duty from 0.5 % ad-valorem to a fixed amount based on the units on tobacco products & crude petroleum in the Budget 2019 (Finance Bill No. 2 of 2019).

It should be recalled that vide Section 136 of the Finance Act, 2001, NCCD has been imposed on the goods specified in the seventh schedule to the constitution of India. Section 136 reads as –

National Calamity Contingent duty.

136. (1) In the case of goods specified in the Seventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, by surcharge, a duty of excise, to be called the National Calamity Contingent duty (hereinafter referred to as the National Calamity duty), at the rates specified in the said Schedule. (1 of 1944.)

(2) The National Calamity duty chargeable on the goods specified in the Seventh Schedule shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force. ( 1 of 1944.)

(J) The provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty, shall, as far as may be, apply in relation to the levy and collection of the National Calamity duty leviable under this section in respect of the goods specified in the Seven''. Schedule as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be.

Vide section 174 (1) of the Central Goods & Services Act, 2017, on and from the date of commencement of the CGST Act i.e. with effect from 01 July 2017, the Central Excise Act, 1944 has been repealed except as respects goods included in entry 84 of the Union List of the Seventh Schedule to the Constitution. Therefore, levy of the NCCD continues post GST on the specified goods and incidence being on manufacture, it did not actually call for imposition of excise duty on the specified goods. In terms of section 136 of the Finance Act, supra , chapter II on "Levy & collection” of the Central Excise Act, 1944 is applicable for the purpose of computation of NCCD. Accordingly, in terms of the section 4 or 4A of the Central Excise Act, 1944 as the case may be, NCCD is calculated ad-valorem on the transaction value or the Retail Sale Price less abatement respectively to be paid to the Government.

It should be carefully noted that the value adopted for the purpose of computation of NCCD is not the value for the purpose of determination of the GST which is governed by the chapter III of the CGST Act, 2017 & corresponding State & UT Acts i.e. Levy & Collection of Tax. In terms of section 9 of the CGST Act, there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services on the value determined under section 15 of the CGST Act. Therefore, there is every likelihood that the value adopted for computation of the NCCD may be adopted for determination of the GST as well as compensation cess in oblivion that value as per section 15 of the CGST Act is required to be adopted.

I beg to oversimplify the value of supply in terms of section 15 as per the equation stated below where supplier & recipient are not related & price is the sole consideration. In terms of the proviso to sub section 2 of section 8 of the Goods & Services Tax (Compensation to states Act), 2017, where cess is chargeable ad-valorem, value shall be determined in terms of section 15 of the CGST Act, 2017. Hence -

Value of supply 1 = Transaction value

1: Value of supply to include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than the CGST Act, the SGST Act, the UTGST Act & the Goods and Services Tax (Compensation to States) Act, if charged separately.

Let us determine transaction value as per section 4A of the Central Excise Act, 1944 for the goods falling under CETH 2403 99 90 i.e. "Pan Masala Containing Tobacco”;

Computation of NCCD

-Let there be a Retail Sale Price (RSP) of Rs.20/- per pouch.;

-There is a pack of 5 pieces of pouch (Rs.20x5)=Rs.100;

- Rate of abatement 55% as per Notification No. 49/2008 CE(NT);

- Transaction value as per section 4A is Rs.45/- [Rs.100- (Rs.100x55%]

- Rate of NCCD on Pan Masala = 25%; as amended vide Finance Bill, 2020 with effect from 01.02.2020

- NCCD payable=Rs.11.25 i.e. Rs.11 [Rs.45x25%]

Computation of GST, Compensation Cess & Excise

- Value of Pan Masala (not RSP) per pouch is Rs. 12/- hence a pack of 5 cost Rs. 60/-.

- NCCD is Rs. 11/- (see above)

- Value of supply as per section 15 = Rs.71/-

[Value of supply Rs.60/- (Rs12*5 Nos.) + Rs.11 NCCD].

- Rate of GST 28%

- Total GST @ 28% on Rs.71/- = Rs.19.88 i.e. Rs.20/-

- GST if NCCD not included i.e. charged separately =16.8 i.e. Rs.17/- [Rs.60*28%]

- Compensation Cess @ 204% on 71/- Rs.144.84% i.e.Rs.145

- Compensation Cess @ 204% on 60/- Rs.122.4 i.e. Rs.122

[NCCD is charged separately]

- Rate of excise duty 0.5%

- Excise duty is Rs. 0.30 [Rs.60*0.5%]

It can be seen in the above example that for every supply of a pack containing 5 pieces of pouch by the manufacturer-Taxpayers, there is a short payment of GST to the tune of Rs.3.00 which is to the extent of amount of NCCD charged separately (not included in the value of supply) as well as short payment of Compensation Cess to the tune of Rs.23.00. Taxpayers engaged in the manufacture of goods specified in the seventh schedule to the constitution of India may ensure that the value adopted during the time of supply of the specified goods for the purpose of payment of GST & compensation Cess conforms to the section 15 of the CGST Act where NCCD is charged separately. Similarly, payment of education cess & Secondary & higher education cess may also be revisited where exemption of Central excise duty was claimed.

[The views expressed are strictly personal.]