Central Excise Act 1944

It is a central Act common in whole of India

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
Produced

2. New
Commodity

Manufactured

3. Marketability
4. Movable
Sh
o

be
t
s
u
m ble
s
d ova
o
Go m

Consumed in
India

ul
ce d fa
n t ll
Ta ral E und
rif x er
f A cis
ct e

For Administrative convenience duty is paid as

and when goods are removed

Factory Lay out

Excise (govt
Officers.)
Excise Staff
(Companys
Employee)

Raw materials
consumable,
spares etc

Plant/machine
Process I
Process II

Store Room for

storing
Finished Goods

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
Videocon TV Set

Quantity

Location

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 5th
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
ec
r
i
D

Ba
r

te
r

s
RF
T
k

c
Sto
Exports

Ca p
tive
Ex
c

Donation
Fre
eS
am
ple
s

Factory

le
Sa

ha

ng
e

c on

s um
ptio
n

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

Exports
Manufacturer

16%

Merchant
Exporter

Japan

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 misstatement, 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

Order passed by
commissioner of Central
Excise (Appeals)

Appellate Authority
Commissioner of central
Excise (appeals)
Customs Excise and
Service Tax Appellate
tribunal (CESTAT)

Order passed by CESTAT

High Court

Order passed by the

High court

Supreme Court

Adjudicating Authority
Order Passed by officer

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