Tax collected and payable under this Act is termed as CENVAT or DUTY CENVAT or DUTY is collectable tax What is Excise Duty? Excise Duty is applicable on GOODS which are PRODUCED or MANUFACTURED and consumed in India Only Movable goods will attract EXCISE DUTY. Immovable goods are out of the purview of Excise Duty For Administrative convenience duty is paid to Excise authorization only as and when Goods are removed from factory premises No duty payable if goods manufactured but not cleared from factory premises
Why Excise Duty?
Single largest Revenue to Government out of every Rupee Earned by Govt. of india. 22 Paise Excise 18 Paise Customs 12 Paise Income Tax
Applicability of Excise duty, Excise duty is applicable on Goods Produced or Manufactured and Consumed in India Goods 1. Process 2. New Commodity 3. Marketability 4. Movable
Produced Manufactured Consumed in India For Administrative convenience duty is paid as and when goods are removed Factory Lay out Store Room for storing Finished Goods Excise (govt Officers.) Excise Staff (Companys Employee) Raw materials consumable, spares etc Plant/machine Process I Process II Process III Finished Goods Store Room: 1. Store room is a place for depositing manufactured finished goods which are excisable 2. All excisable goods manufactured must be stored/deposited in store room immediately 3. Only Non-duty paid goods must be deposited in the store room 4. Store room should be properly demarked with locking facilities 5. Stock of Finished goods must tally at any point of time with DSA 6. Any discrepancies between store room and DSA, a demand for duty will be raised by the authorities 7. In case of theft, duties will be payable to the authorities Daily Stock Account (DSA): 1. It is prepared in order to daily production of Finished goods. (Ready for marketable) 2. Each Folio to be maintained to record different class of goods 3. Only finished goods must be recorded in DSA (No raw materials) 4. Entry to be made in DSA based on production report on the day of production 5. Stock of Finished goods in store room must tally with DSA Room XYZ LTD Production Report Sr. No 1 (Machined No) Date : 01/04/05 Description of goods Quantity Location Videocon TV Set 100 Bazoomba Model Batch No: 145 dated 01/04/05 at 2pm For XYZ ltd
Manager (Quality Assurance)
Obligations of a manufacture Registration under Central Excise Act Every manufacturer manufacturing excisable goods are required to get registered with excise authorities Turnover (clearances) limit for registration for Manufacturer / Producer is Rs.150 Lakhs for any financial year (Clearances), covering all the manufacturing plants/locations
Types of Duties and Rate of Duties 1.Basic Excise Duties 16% on Assessable value 2.Education Cess 2% on Excise duties & 1 % HEC Time limit for Payment of Duties Excise Duty payment is required to be made on a monthly basis within 5 days from the Month end (April 2005, duty to be paid on or before 5 th
May,2005) Manner in which duty is required to be paid 1.Adjust first through cenvat credit account RG23A (II) credit inputs 2.Adjust through cenvat credit account RG23C (II) credit on capital goods 3.Finally, pay through cheque through personal ledger account TR-6 challan Types of removal of goods from factory premises Factory Valuation of Finished Goods Specific Duty: It is the duty payable on the basis certain unit like weight, Length, Volume, Thickness, etc. eg Cigarattes on size , Sugar on Kg basis. 1. Advolorem Basis: Under this method finished goods are valued as a % on the amount to be recovered from the Buyer 2. MRP (Maximum Retail Price) Basis: Under this method prices are all inclusive MRP mentioned on the product, less abatement (reduction %) to be applied to arrive at assessable value. Abatement rate 60 % to 75 % Valuation of goods -Continued Duty on the basis of Production Capacity : It is the duty payable on the basis production capacity without any reference to actual production. Paan Masala ,Gutkha & Chewing tobacco.
Tariff Value : In some cases, Tariff value is fixed by Govt. from time to time. This is a notional value for the purpose of calculating duty payable. Once the tariff is fixed duty is payable on Tariff value irrespective of Assessable Value. Cenvat Credit under Excise Laws It is a benefit available to manufactures only Manufacturers registered under Excise Act are only eligible to claim cenvat credit Cenvat Credit is refund of excise duties paid on inputs Cenvat Credit is granted only to avoid double taxation Cenvat Credit is granted only if there is Manufacturer Process which do not amounts to manufacturing, no cenvat credit is granted Inputs and outputs must be excisable for availing credit No to one co-relation of inputs and out is require, but records required to be maintained showing utilisation of Inputs Cenvat Credit is availed based on duty paid documents i.e. Excise Invoice, Transporters copy Inputs must be received in the factory premises directly for availing Cenvat Credit is classified as : Credit on Inputs (100% credit available in the year of purchase) Capital (50% in the year of purchase and 50% in the next year) Capital goods means goods defined under Excise Act Manufacturers can claim either 1. Cenvat Credit on Capital Goods or 2. Depreciation (on duty elements only) Both benefits for Individual transactions is not allowed Records required to be maintained 1. RG 23A (Part I) Accounting of Inputs only 2. RG 23A (Part II) Accounting of cenvat credit on Inputs only 3. RG 23C (Part I) Accounting of Capital goods only 4. RG 23C (Part II) Accounting of capital goods Cenvat Credit only Cenvat credit availed is utilised against payment of excise duties on removals No cash refund is granted for Balance lying in cenvat credit account Cenvat credit cannot be transferred from one plant to another plant Export of Excisable goods Exports are priority of any country Goods and services are to be exported, taxes are not to be exported Export of goods means physically movement of goods from one country to another country Exports are vital for our economy Any stoppage in expert consignment means loss of exports orders to the exporter and loss of foreign exchange to the country Exports are free from all Taxes (Excise and CST) Exports are made free form all taxes to boost/encourage exports for economic growth and earning foreign currency. Export Procedures for Excise : There are basically two procedures for dispatching goods out of India First Procedure : Goods are removed without payment of cenvat / excise duties under procedure letter of undertaking. No duty is payable under this procedure Export of Excisable goods (manufactures) Export means transferring goods from one country to another country Export does not attract any excise duty/sales tax Types of Export under Excise: 1. Export without payment of Duty (UT1) 2. Export with payment of duty (Rebate for claim) Export without payment of duty : Under this method manufacture exporter will export the goods w/o payment of duty - Manufacturer exporter will submit letter of undertaking (UT-1 form) to the excise authorities. It is an undertaking of exporting the goods - Exporter is required to submit proof of exports Export without payment of duty (UT 1 Form) : Exporter to submit letter of undertaking to the excise authorities Prepare Excise Invoice and ARE 1 Copies (6 Copies) Inspection of Goods by Excise Customs Seating of goods at factory / customs Obtain endorsement of goods exported on ARE 1 from customs Submit ARE 1 as proof of export to excise authorities Export with payment of duty Prepare Excise Invoice and ARE 1 form (6 Copies) Debit duty through Personal Ledger Account or Cenvat Credit Inspection of Goods by Excise / Customs Seating of goods at factory / customs Obtain endorsement of goods exported on ARE 1 from customs Claim refund in one year from maritime commission in Form R Export of Goods by Merchant Exporters Manufacturer Merchant Exporter Japan 16% Exports How to avoid? Merchant exporters to obtain CT 1 Form from excise authorities by furnishing bank guarantee for equivalent amount of excise duties Merchant exporter need not be registered with excise authorities CT 1 form will be submitted to manufacturer, Manufacture based on CT 1 form will charge 0% duty (SCN) Show Cause Notice U/S II A Excise Act It is a legal notice issued to the manufacturer / assesses SCN is issued directing manufacturer to show cause as to why action cannot be initiated for recovery of the duty mentioned there in for contraverring the provisions SCN is issued under following circumstances 1. For non payment of duties 2. For short payment of duties 3. When refund is erroneously granted 4. Wrongly claiming of cenvat credit 5. Suppression of facts, frauds committed SCN is therefore nothing but a communication from the department conveying their intention to recover duties It is mandatory on manufacturer to show cause of allegation made in SCN SCN is always issued when there is recovery SCN is issued by excise officer but must be signed by Deputy commissioner of Excise Why show cause notice? Audi Alteram partners Which means hear the other side also None shall be unheard If the manufacturer is strength away penalized under excise law without issue of SCN it will amount to Gross violation of the Principles of Natural Justice SCN must be served within one year from the relevant date. If department alleges suppression of facts, willful mis- statement, fraud on the part of assesses with the intention to evade duty the period of recovery can be extended to five years Ingredients of SCN Specific charges relied upon evidence should be made clear SCN should be addressed to the concerned person specifically SCN should be complete with date reference number signature etc Documents relied upon must be supplied with SCN It should show the amount of duty payable\ How SCN is served? SCN is generally served in person by the inspector and acknowledge obtained as a proof of serving the same At time show cause notice is served by Registered post to the available address of the Assesscee It is also an accepted practice for the officers to affix a copy of SCN, at the door of the Assesscee if he is not available obtaining the signature of two witnesses
Actions to be taken on receipt of SCN Assesscee to accept SCN. Assesscee cannot refuse to accept the same Assesscee to study carefully and forward the same to the legal department with brief note on the facts of the issue under dispute Legal department will examine the SCN notice from all angles and it is a common practice to seek an extension of time to submit reply Normally 30 days time limit is granted to submit the reply. Sufficient time is granted on request. In case Assesscee fails to reply to SCN, adjudicating officer has the right to pass ex-parte order confirming the liability mentioned in SCN Legal department will thereafter compile all the documents referred in SCN which are required to reply the SCN so that allegations mentioned in the SCN can be denied with justifications How to reply the SCN? SCN to be replied carefully and to the specific SCN to be addressed to the specific authority only who has issued the same. SCN should be replied only against allegations made in SCN with Serial Number as well as rules which are contravened History of the case may be analysed in brief which has resulted in the issue of SCN to give an idea about the background to the adjudicating officer Detailed Submissions: For each allegations detailed submissions may be made so that allegations mentioned in the SCN are denied properly and with justification While denying allegations, wherever the company relies upon certain documents, such documents should be enclosed on annexure to the reply For each allegations, separate paragraph may be prepared since lengthy paragraphs discredits the reader to concentrate patiently Citation of the case laws Since the excise law is taking shape based on the decisions of tribunals, high courts and supreme courts, it is an essential feature in the reply to the show cause notice to cite the case laws in support of the contention taken in the reply to the SCN Citation of the Case Laws Since the excise law is taking shape based on the decisions of tribunals, high courts and supreme courts , it is an essential feature in the reply to the show cause notice to cite the case laws in support of the contention taken in the reply to the SCN Actions to be taken on receipt of SCN Assesscee to accept SCN. Assesscee cannot refuse to accept the same Assesscee to study carefully and forward the same to the legal department with brief note on the facts of the issue under dispute Legal department will examine the SCN notice from all angles and it is a common practice to seek an extension of time to submit reply Normally 30 days time limit is granted to submit the reply. Sufficient time is granted on request. In case Assesscee fails to reply to SCN, adjudicating officer has the right to pass ex-parte order confirming the liability mentioned in SCN Legal department will thereafter compile all the documents referred in SCN which are required to reply the SCN so that allegations mentioned in the SCN can be denied with justifications How to reply the SCN? SCN to be replied carefully and to the specific SCN to be addressed to the specific authority only who has issued the same. SCN should be replied only against allegations made in SCN with Serial Number as well as rules which are contravened History of the case may be analysed in brief which has resulted in the issue of SCN to give an idea about the background to the adjudicating officer Detailed Submissions: For each allegations detailed submissions may be made so that allegations mentioned in the SCN are denied properly and with justification While denying allegations, wherever the company relies upon certain documents, such documents should be enclosed on annexure to the reply For each allegations, separate paragraph may be prepared since lengthy paragraphs discredits the reader to concentrate patiently Citation of the case laws Since the excise law is taking shape based on the decisions of tribunals, high courts and supreme courts, it is an essential feature in the reply to the show cause notice to cite the case laws in support of the contention taken in the reply to the SCN Citation of the Case Laws Since the excise law is taking shape based on the decisions of tribunals, high courts and supreme courts , it is an essential feature in the reply to the show cause notice to cite the case laws in support of the contention taken in the reply to the SCN Concluding Paragraphs A specific mention may be made to seek personal hearing in the matter before adjucating officer The prayer should therefore include a request for personal hearing besides for setting aside SCN Personal Hearing As a part of the principles of natural justice. The adjudicating authority must grant a personal hearing in the matter before passing the order During personal hearing an advocate or a consultant may be of help in presenting the case Order by the Adjudicating Authorities After having received the SCN and replied the same, the adjucating authority after giving the personal hearing in the matter decides the case and issues an order The order is termed as order-in-original Order-in-original contains the following: Brief facts of the case Submission made by the Assesscee Findings of the adjudicating officer Order Appeals Proceeding Adjudicating Authority Order Passed by officer
Order passed by commissioner of Central Excise (Appeals)
Order passed by CESTAT
Order passed by the High court Appellate Authority Commissioner of central Excise (appeals) Customs Excise and Service Tax Appellate tribunal (CESTAT)
High Court
Supreme Court
Types of Audit 1. EA-2000 (Audit conducted by the departmental officers) 2. Audit by controller and Auditor General (Audit by Government on department) Termed as CERA (Central excise receipts audit) 3. Special Audit by nominated cost accountant (Pertaining valuation and Cenvat credit availment respectively
Excise Audit 2000 (EA-2000) More systematic audit Gather information and analysis of transactions Assesscee are consulted to make audit user friendly To introduce effective system of audit to encourage greater compliances and more revenue To safeguard revenue and transparency To make optimal use of manpower in Audit Evaluation of Internal control within the company It will create more compelling environment of voluntary compliance Selection of Assesscee To be selected on priority basis taking into Account the Risk Factors Who have bad track record Having past duty evasion case Major Audit objective Part duty dues Audit Report: On completion of audit, an audit report will be prepared containing the following - Reply and explanations given by the assesscee - Reasons for the auditors not being satisfied by reply - Amount short payment of duties Demand notice will be raised / issued for recoveries of duties Tips and Cautions for EA 2000 Maintain excise records upto date Reconcile excise records maintained by other departments for different purposes Provide all the records requested by audit team Extend co-operation to the audit staff