Madhur Ltd. is engaged in the manufacture of machines. It has supplied one machine to Zeal & Co. at a price of ₹8,50,000 (excluding taxes and duties) on which a cash discount @ 2% is allowed as per terms of contract,

Computation of Assessable Value and Excise Duty Particular Amount (in ₹) Price of Machine (excluding taxes and duties) 8,50,000 Installation and Erection Charges (Note 1) - Packing Charges (Note 2) 12,500 Design and engineering charges (Note 3) 4,000 Cost of Material (supplied free of charge by Zeal & Co.) used in production of machine (Note 4) 10,000 Pre-Delivery inspection charges (Note 5) 1,000 Total 8,77,500 Less: 2% cash discount on price of machinery (2% on ₹8,50,000) (17,000) Assessable Value 860,500 Excise Duty @ 12.5% 1,07,563 Notes: Installation and erection charges would not be included as they are only in relation to sale, not in connection with sale. Amount charged from buyer in relation to packaging (whether primary or secondary) will be included. As per Rule 6 of Valuation Rules, 2000, design and engineering charges will be included in computation of assessable value. Cost of material supplied free of charge by buyer will form a part of assessable value as it is additional consideration flowing from the buyer to seller. Since, pre delivery inspection charges are charged by the manufacturer and therefore includible in the assessable value. Bought out accessories, supplied along with the machinery, assumed to be non essential, and thus not been included. Cash discount will be allowed as deduction if actually passed on to buyer and is the transaction is on principal to principal basis.