BASIC CONCEPTS OF EXCISE TAX

A. SOME IMPORTANT ASPECTS GENERAL ± Central Excise Duty is renamed as ³Central Value Added Tax´ (CENVAT) w.e.f. 12.5.2000. 1. BASIC CONCEPTS Basic pre-requisites for levy of Central excise duty ± In order to acquire basic working knowledge in relation to law on Central Excise, understanding of some of the basic concepts of Central Excise would be very much essential. In order to attract levy of excise duty: STEP 1 - There should be production or manufacturer of goods in India: STEP 2 - Such production or manufacturer should result in creation of excisable goods, and STEP: 3 - Such excisable goods should be specified in the Schedule to Central Excise Tariff Act, 1985 (CETA).

2. MANUFACTURE In order to levy central excise duty; it is necessary that a new article should come into existence as a result of manufacturing activity. Unless there is manufacture, excise duty is not payable. (Hawkins Cookers Ltd. V Collector ± 1997 ELT 507 S.C.).Section 2(f) of the Central Excise Act,1944 (CEA) defines ³manufacture´ as ³manufacture´ includes any process: (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985, as amounting to manufacture, or (iii) which in relation to goods specified in Third Schedule, [MRP Goods] involves packing or repacking of such goods in a Unit container or labeling or rebelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer. The statutory definition would indicate that ³manufacture´ under Central Excise has to be construed in Two ways: (A) ³general concept´ of manufacture: (B) ³deemed concept´ of manufacture. A. General concept- The general concept of manufacture has been a subject matter of discussions in a number of cases by the Supreme Court. Some of the leading case laws on the subject are UOI vs. Delhi Cloth and General Mills Co. Ltd. 1 ELT J 199 (SC), South Bihar Sugar Mills vs. UOI 2 ELT J 336 (SC), Empire Industries Ltd. Vs. UOI 20 ELT 179 (SC),Food Packers 6 ELT 343 (SC), Sterling Goods vs. State of Karnataka 26 ELT 3 (SC), Siddheshwari Cotton Mills P. Ltd. vs. UIO 39 ELT 498 (SC), Mafatlal Fine Spg. & Mfg. Co. Ltd. vs. CCE 40 ELT 218 (SC), State of Maharashtra Vs Mahalaxmi Stores 152 ELT 30 S.C. In the Delhi Cloth Mills case the Apex Court observed that: µan activity or process, in order to amount to manufacture must lead to emergence of a new commercial product, different from the one with which the process was started. In other words, it should be article with different name, character and use.¶ µManufacture¶ implies a change but every change in raw material is not

manufacture. Something more is necessary. There must be such transformation of raw material that a new and different article emerges having a distinct name character and use. In the case of Mahalaxmi Stores, the Hon. Supreme Court observed that ³Every type of variation of goods or finishing of goods would not amount to manufacture unless it results in emergence of new commercial commodity. Repair or reconditioning of an article does not amount to manufacture because no new goods come into existence.

B. Deemed concept of manufacture- Section 2(f) (ii) and (iii) of CEA, provides for concept of deemed manufacture. If an activity, in relation to specified goods, is specified as amounting to manufacturing activity in the relevant Chapter Notes/Section Notes of CETA, then such activity would amount to manufacture and the resultant products would attract levy of excise duty. [Section 2(f) (ii)]. To illustrate, normally an activity of repacking from a bulk pack to smaller packs would not amount to manufacture under the general concept. However in Chapter 29 such an activity is specified as amounting to manufacture by way of a Chapter Note. Such activity would therefore be deemed to be manufacture in relation to goods falling under Chapter 29 and attract levy of Central Excise duty, irrespective of the principles relating to manufacture under the general concept. Similarly Section 2(f) (iii) provides for a deeming fiction that in relation to goods specified in Third Schedule, [MRP goods] the activities of packing or repacking in a Unit container or labeling or rebelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, shall amount to ³manufacture´.

3. MANUFACTURER The Excise Duty is payable by a manufacturer. The concept of µmanufacturer¶ is relevant for fixation of liability to Central Excise Duty. Section 2 (f),of the CEA, while defining µmanufacture¶ states that the word µmanufacturer¶ shall be construed accordingly and shall include not only a person who employs hired labor in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account. As per the statutory definition there are two categories of the persons who can be termed as a manufacturer. (i) Persons who manufacture the goods themselves on their own account (including on job work basis) and (ii) persons who get the goods manufactured through hired labor. If the hired labor is an employee, his employer will be considered as manufacturer. The relationship of servant and master must be established in order to treat the employer as manufacturer.

4. EXCISABLE GOODS

According to Section 2(d) of CEA: ³Excisable goods´ means goods specified in the first schedule and the second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as

being subject to a duty and includes salt´. Thus any manufactured product becomes ³excisable goods´ as defined under CEA, the product or article should be µgoods¶. The term ³goods´ has not been defined under CEA/CER. i. Article 366 (12) of the Constitution of India which gives an inclusive definition of the term ³goods´ states that: ³Goods´ includes all materials, commodities and articles´. ii. The Hon Supreme Court in DCM case has observed that an article can be called µgoods¶ if it is known to the market as such and ordinarily come to the market for being bought and sold. Actual sale of the article is not important but it must be capable of being bought and sold. iii. The concept of µgoods¶ and test of marketability has been discussed in detail in Supreme Court ruling in the case of Moti Laminates Pvt. Ltd. vs. CCE 76 ELT 241 (SC), wherein it is observed that: ³The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be usable, moveable saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rational for levying excise duty, linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling´. An Explanation has been added to Section 2(d) to define the term ³goods´ as including any article, material or substance which is capable of being bought and sold for a consideration and that such goods shall be deemed to be marketable.

iv. It may happen that in the course of manufacture of final products, various other articles arise at intermediate stages which are elementary or unfinished or which are crude, impure or unrefined or which have short shelf life. Such articles not being acceptable to the consumer or being capable of coming to market to be bought and sold are not µgoods.¶

v. Immovable property or articles embedded to earth, buildings and civil structures are also not goods because they cannot ordinarily come to the market to be bought and sold. vi. Information technology/intellectual property may be an intangible asset but the moment they are put on a media (paper, cassettes, diskettes, etc.) and supplied on such media, they become chattel or goods.

vii. An article or product may fall under a specific heading/sub-heading in the Schedule to CETA but upon application of test of marketability, as applied by the Hon. Supreme Court from time to time, it may not constitute µgoods¶ so as to attract excise duty.

5. CLASSIFICATION Central Excise Tariff, Classification of excisable goods and general principles of classification. i. Proper classification of excisable goods is essential for determination of correct Central excise liability. Classification consists of determining the Chapter, Heading and Subheadings of Central Excise Tariff Act, 1985 under which the goods are covered. Classification is also relevant for determining eligibility to exemptions which are mostly specified with reference to the tariff headings/sub-headings of CETA. ii. The rates of Central Excise duty are specified in the Schedule to CETA which contains the Rules of Interpretation and the Section/Chapter Notes which serve as statutory guidelines for classification. The said Schedule contains 96 Chapters grouped in 20 sections, each section relating to a broad class of goods. With effect from 1.3.2005, Central Excise Tariff (Amendment) Act, 2004 has replaced the 6 digit classification codes by new 8 digit classification codes in Schedules 1 and 2 of the CETA 1985. Accordingly classification of every product now consists of 8 digits. The new coding system is in line with the system adopted for export-import tariff. For the first time, a standard unit of quantity is also specified for each tariff item to facilitate the collection, comparison and analysis of trade statistics.

iii. Some of the general principles of classification of goods laid down by the Supreme Court and other judicial authorities are explained hereunder in brief. a. Classification is to be based on statutory definition, if any, and in the absence thereof on trade or common parlance, [CCE vs. Fusebase Eltoto Ltd. 67-ELT 30 (SC): Indian Cable Co.Ltd. Vs. CCE ± 74 ELT 22 (SC); Metagraphs Pvt. Ltd Vs. CCE-88 ELT 639 (SC): United Copiex (India) Pvt. Ltd. vs. CST ± 94 ELT 28 (SC)] b. It is an accepted principle of classification that the goods are to be classified according to their popular meaning as understood in the commercial sense and not as per the scientific/technical meaning [Plasmac Machine Mfg. Co. Pvt. Ltd. Vs. CCE 51 ELT 161 (SC)]. However, where the tariff heading/sub-heading itself uses highly scientific and technical terms, the scientific/technical meaning shall take precedence over the commercial/trade parlance [UOI vs. Sahney Steel and Press Works Ltd. 58 ELT 38 (SC)]. Also, classification according to commercial nomenclature or trade understanding should be avoided where the statutory context in which the tariff entry appears requires otherwise. [Akbar Badruddin Jiwani vs. Collector of Customs 47 ELT 161 (SC)].

c. Normally, classification is to be done with reference to the specific wordings of the headings/sub-headings as mentioned in the tariff. However, where the goods in question are capable of being called by more than one name, the classification is to be done with reference to the most appropriate name and for this purpose, the basic functional/character/use would become more relevant. The functional aspect was considered by the Supreme Court in Atul Glass Industries Ltd. vs. CCE 25 ELT 473 (SC): Indian Tool

Manufacturers vs. CCE 74 ELT 12 (SC): CCE vs. Kumudam Publication (P) Ltd 96 ELT 226 (SC).

d. Section 37B of CEA empowers the CBEC to issue instructions to field formations for the purpose of maintaining uniformity in the matter of classification. Such instructions/guidelines are neither binding on the assessee nor the Appellate/Adjudicating authorities. However, these are binding on the departmental authorities and the courts may compel compliance with such instructions as are for the benefit of the assessee [British Machinery Supplies Co. Vs. UIO 86 ELT 449 (SC), Ranadey Micronutrients vs. CCE 87 ELT 19 (SC) CCE vs. Koreas (India) Ltd 89 ELT 441 SC].

e. An established practice of classification cannot be changed without cogent reasons, Refer Collector v. Tata Iron & Steel Co. 13 ELT 113 CEGAT. The Civil appeal filed by CCE was dismissed [Refer 94 ELT A133 (SC)]. Any change in classification of goods can take effect prospectively only [CCE. Vs. Cotspun Ltd. 99 ELT 24 (SC)]. f. Section 11A empowers the department re-opening of a decided classification and assessment but re-opening is not permissible on account of mere change of opinion Shahnaz Aruvedics vs CCE 2004(173) ELT 337(All). The Department appeal against this judgment is dismissed by the Hon. Supreme Court.

6. VALUATION Since most of the excise duty rates specified under CETA are on ad valorem basis, valuation is very important for determination of excise duty liability. CEA provides for 3 methods for valuation viz. (a) fixation of Tariff Values u/s. 3 (2) of CEA by the Government (b) Determination of Assessable Value in accordance with provisions of Section 4 of CEA and (c) Determination of value with reference to Retail Sale Price (RSP) of the goods in accordance with provisions of Section 4A of CEA.

6.1. Tariff Value ± In respect of few products Tariff Value is fixed by the Central Government. These values are incorporated in the relevant tariff entry itself and the Excise duty for such products is to be paid with reference to the Tariff Values. 6.2 Transaction Value.²W.E.F 1.7.2000 a significant change is made whereby the then existing concept of normal price based valuation is replaced by Transaction Value basis. New valuation Rules are also notified w.e.f f. 1.7.2000. The new system is explained hereinafter in brief.

i. In respect of almost all the excisable goods (exception being few goods where Tariff Value is fixed in terms of Section 3(2) of CEA), the value is now to be determined on the basis of ³transaction value´ which is defined very broadly. It includes all elements of cost imparting

value to the goods on the basis of the principles enunciated by Supreme Court in the cases of Bombay Tyres International Ltd. and MRF Ltd. It now specifically includes any amounts that a buyer is required to pay in connection with sale or by reason of sale and includes amounts in respect of (a) Advertising & Publicity (b) Marketing & Selling organization expenses (c) Storage (d) Outward handling (e) Servicing (f) Warranty (g) Commission.

ii. The concept of normal price based on ³wholesale price´ is done away with and therefore, each sale now could have a different value based on specific transaction value of that sale transaction. In cases where the sale price is cum duty price, transaction value will be considered as inclusive of excise

iii. Department Circular No.354/81/2000 dated 30.6.2000 clarifies that following charges, if separately recovered from buyers, would be includible in value of goods (a) Packing charges, ordinary or special (b) Warranty charges for optional or mandatory warranty (c) Advertising or publicity charges recovered from buyers. Following would not be includible in determining value.

a. Interest charged on receivable for delayed period, i.e. beyond normal credit period. b. Discounts ± Cash discount, quantity discount, yearend discount and like. iv. Ordinarily, ³transaction value´ is not applicable in the following circumstances (a) where goods are not sold: or (b) the time of delivery is other than that of ³removal´: or (c) the place of ³removal´ is not the place of delivery or (d) price is not the sole consideration for sale or (e) transactions are between related parties. v. Difference in time of removal and delivery ± The value, in such cases, is required to be determined on the basis of the price at which such goods are sold for delivery at any time nearest to the time of removal of such goods after making reasonable adjustment for the time difference. vi. Difference in place of removal and delivery ± In such cases, the actual transport cost incurred for transport of goods from the place of removal to the place of delivery is to be excluded from the transaction value on an average or equalized basis. vii. Clearances to depots, premises of consignment agents or any other premises. ± If goods are cleared from place of manufacture or bonded warehouse and transferred to depot, premises of consignment agent or any other place of premises from where they are sold, the value of such goods would be the normal transaction value, i.e. the transaction value at which greatest aggregate quantity of such goods are sold from such place. It there is no sale at the time of removal, the normal transaction value at the time of nearest to the time of removal is required to be adopted. viii. Price not the sole consideration for sale ± In such cases, additional consideration flowing

directly or indirectly from the buyer is required to be added to the transaction value. It is now clarified, by way of an Explanation, that money value of the following goods and services supplied free of cost or at concessional price for use in connection with manufacture of goods would have to be added to the transaction value if the same is not included in sale price.

Value of materials, components, parts and similar items relatable to such goods; o Value of tools, dies, drawings, blue prints, technical maps and charts and similar items used in the production of such goods; o Value of material consumed, including packaging materials, in the production of such goods; o Value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and used for the production of such goods. Such value may be apportioned in appropriate circumstances; e.g. dies may be used in manufacture of number of pieces, in which case, the money value thereof would have to be apportioned over total pieces manufactured by use of such dies. ix. Captive consumption ± In such cases, the value is now deemed to be 110% {115% up to 5.8.2003} of the cost of manufacture or production.

x. Sale to or through related person ± In cases where the persons are deemed to be related on account of (a) Their being relatives (b) Their being relatives and distributor or sub distributor or such distributor and (c) Their being associated in a manner that they have direct or indirect interest in the business of each other the value would be the price at which maximum aggregate quantity of such goods is sold by such related person to an unrelated person at the time of removal of goods. If, however, the related person does not sell to unrelated person, the value shall be the price at which goods are sold to the related buyer who sells such goods in retail. If the related person does not sell goods but consumes them captively, the value would be the value of would be 110% of cost of manufacture of such goods. The same principles would also apply where the relationship is on account of the manufacture and buyer being interconnected undertaking and the two undertakings are related in the manner specified above or are holding and subsidiary.

xi. In all other cases, the value is required to be determined using reasonable means consistent with the principles and general provisions of the valuation rules and section 4(1) of the CEA.

6.3. RSP based levy--Some of the important features of RSP based assessments are given hereafter in brief. ‡ Section 4A of CEA (inserted w.e.f. 14.5.1997) empowers Central Government (CEG) to specify goods on which duty will be payable based on µretail sale price¶. ‡ The goods should be covered under provisions of Standards of Weights and Measures Act, 1976.

‡ CEG can permit reasonable abatements (deductions) from the µretail sale price¶. While allowing such abatement, CEG shall take into account excise duty, sales tax and other taxes payable on the goods. ‡ If more than one µretail sale price¶ is printed on the same packing, the maximum of such retail price is to be considered. ‡ The µretail sale price¶ is the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc.

‡ CEG is required to issue a notification in the Official Gazette specifying the commodities for which the provision is applicable and the abatements permissible. Effective 1.3.2003, more than 90 commodities are covered under RSP based levy. The definition of RSP, as mentioned in Explanation I to Section 4A of CEA, covers cases where the governing law on such goods permits declaration of RSP exclusive of any tax, local or otherwise. For example, Drug Price Control Order (DPCO) prescribes for declaration of RSP excluding local taxes in respect of certain medicines falling in its ambit. Provisions of Section 4A of CEA are also amended so as to:

o Provide that in case of affixing higher RSP subsequent to clearance of goods on payment of duty on a lower RSP, the excise duty would be leviable on the basis of such higher RSP affixed later on. o Assume powers to ascertain the RSP of goods having no RSP declared or the declared RSP being tampered with, obliterated or altered and; o Assume power to make rules for such ascertainment. The central Government has notified, w.e.f. 1.3.2008, Central Excise (Determination of Retail Sale price of Excisable Goods) Rules, 2008 to provide for the manner of determination of retail sale price where the same is not declared on the packages or tempered or altered.

6.4. Capacity based levy ± Section 3A provides for levy of excise duty on the basis of capacity of production in respect of notified goods. The Central Government is empowered to notify such goods and also the procedure for the payment of duty on such goods.

7. CENVAT CENVAT Scheme is explained in a concise form for easy understanding; 7.1. CENVAT Scheme is comprised in CENVAT Credit Rules, 2004 notified vide Notification No. 23/2004-C.E. (N.T.) effective from 10.9.2004.

7.2. All final products i.e. excisable goods manufactured or produced by an assessee, in the factory of a manufacturer are eligible for Cenvat Credit. Credit is now allowed in respect of cenvat and service tax across goods and services.W.e.f.10.9.2004, a manufacturer is allowed to take cenvat credit of not only excise duty paid on capital goods and inputs but also service tax paid on input service used for manufacturer of final products.

7.3. ³capital goods´ (CG) eligible for CENVAT Credit are: i. All goods falling under Chapter 82,84,85,90,and heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the CETA; ii. Pollution control equipment; iii. components, spares and accessories of the goods specified at (i) and (ii) above. iv. Moulds and dies v. Refractory and refractory materials; vi. Tubes and pipes and fittings thereof vii. Storage tank Used in the factory of the manufacturer of the final products.

[Note: ³Capital goods´ do not include any equipment or appliances used in an office] 7.4 ³inputs´ eligible to CENVAT Credit are all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacturer of final products or for any other purpose, within the factory of production, and also includes lubricating oils, greases, cutting oils and coolants. [Notes: (1) The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever. (2) Inputs include goods used in the manufacture of CG which are further used in the factory of the manufacturer.]

7.5. Input service- means any service used by the manufacturer, whether directly or indirectly ,in or in relation to the manufacturer of final products and clearance of final products up to the place of removal and includes services used in relation to setting up,

modernization, renovation, or repairs of a factory or an office relating to such factory, advertisement or sales promotion, market research, storage up to a place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment, and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outwards transportation up to the place of removal.

7.6 The Specified Duties (SD) that are eligible for availment of credit under CENVAT Scheme are; i. The duty of excise specified in the First Schedule to CETA; ii. The duty of excise specified in the Second Schedule to CETA; iii. The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978); iv. The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance)Act, 1957 (58 of 1957); v. The National Calamity duty leviable under Clause 129 of Finance Act, 2001 as amended by clause 161 of the Finance Act, 2003. vi. The Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act 2004. vii. The additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v), above, viii. the additional duty of excise leviable under section 157 of the Finance Act, 2003. ix. The service tax leviable under section 66 of the Finance Act, 1994. x. The Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act 2004. Paid on any inputs, CG or input service received in the factory on or after the tenth day of September 2004.

7.7 CENVAT Credit can be availed in respect of SD paid on Inputs/CG received and used in the factory. However, no credit of SD paid shall be allowed on CG which are exclusively used in the manufacture of exempted goods.

7.8 CENVAT Credit cannot be availed if a manufacturer claims depreciation under ITA on the SD paid on such CG under ITA.

7.9 CENVAT Credit in respect of inputs can be taken immediately on receipt of inputs in the factory of the manufacturer.

7.10 CENVAT Credit in respect of CG received in a factory can be taken to the extent of 50% of SD paid on such CG in the financial year of receipt of such CG and the balance 50% of credit can be taken in the subsequent financial year(s) subject to the condition that CG

(other that components, spares, accessories, refractors and goods of Ch. 68.02/6801.01 CETA) are still in possession and use of the manufacturer in such year.

7.11 Credit in respect of input service can be taken on or after the day on which payment is made of the value of input service and the service tax as indicated in bill/invoice.

7.12 The CENVAT Credit may be utilized for payment of any duty of excise on any final products manufactured by the manufacturer or for payment of duty on inputs or CG themselves if such inputs are removed as such or after being partially processed, or such CG are removed as such.

7.13 Credit in respect of SD specified in 7.6 (iii) and (v) as also such duties included in (vi) above shall be utilized only towards payment of respective duties on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves if such inputs are removed as such or after being partially processed.

7.14 Credit in respect of Education Cess can be utilized for payment of education Cess only.

7.15 CENVAT Credit shall be allowed even if any inputs or CG as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final product, or for any other purpose, and it is established form the records, Challans or memos or any other document produced by the assessee availing the CENVAT Credit that the goods are received back in the factory within 180 days of their being sent to a job worker. If the inputs or the CG are not received back within 180 days the manufacturer shall pay an amount equivalent to the CENVAT Credit attributable to the inputs or CG by debiting the CENVAT Credit or otherwise. However, the manufacturer can take the CENVAT Credit again when the inputs or CG are received back in his factory.

7.16 CENVAT Credit shall also be allowed in respect of Jigs, fixtures, moulds and dies sent by a manufacturer of final products (FP) to a job worker for the production of goods on his behalf and according to his specifications.

7.17 In cases where CENVAT Credit of duty paid inputs which are used in manufacture of both, dutiable and exempted FP and separate records are not maintained by such manufacturer then: (i) If exempted FP fall under Chapters 50 to 63, newsprint falling under Heading No. 48.01 of CETA, goods falling under heading 22.04 of CETA Low Sulphur Heavy Stock falling under Chapter 27 of CETA used in the manufacturer of fertilizers. Naphtha & furnace oil falling under Chapter 27 of CETA and used for generation of electricity, and

goods supplied to defense personnel or for defense projects and to Ministry of Defense in specified cases, the manufacturer is required to debit and amount equivalent to the credit availed on inputs at the time of clearance of such FP from the factory; (ii) In other cases ,proportionate Cenvat credit used for manufacture of exempted goods or an amount equal to 10% of total price (excl. taxes) of exempted FP is required to be debited at the time of clearance of such FP from factory.

7.18 The above provisions would not apply to clearances to FTZ, SEZ, EOU, EHTP, STP, for specified international projects, for exports under Bond and gold or silver falling under Chapter 71 of CETA arising in the course of manufacture of copper or zinc by smelting.

7.19 CENVAT Credit can be taken by the manufacture on the basis of invoice, Bill of Entry or any other specified documents indicating payment of duty. Credit would be admissible even if inputs/CG is purchased from a First Stage/ Second Stage dealer. A list of specified documents for availment of CENVAT Credit is given hereafter.

7.20 Manufacturer of FP is required to maintain proper records for the receipt, disposal, consumption and inventory of inputs/CG in which relevant information regarding value, duty paid, supplier etc. is recorded.

7.21 The manufacturer of FP is required to submit within 10 days from the close of each month a monthly return in the prescribed form.

7.22 Unutilized CENVAT Credit on account of change in ownership or change in site of factory resulting from sale, merger, amalgamation, lease or transfer to a Joint Venture is permitted to be transferred.

7.23 Any amount of credit earned by a manufacturer under CENVAT Credit Rules, 2002; as it existed prior to 10.9.2004 and remaining unutilized on that day, shall be allowable as CENVAT Credit to such manufacturer.

7.24 Credit of SD paid on inputs used in FP cleared for exports can be refunded in cash, under certain circumstances, provided the manufacturer does not avail duty drawback or claim rebate of duty under CER.

7.25 Action for recovery of any CENVAT Credit wrongly availed/utilized can be initiated by CED within 1 year/5 years depending upon the circumstances. 7.26 Mandatory interest is payable at the rate of 13% p.a. from the first day of the month

succeeding that in which duty ought to have been paid.

7.27 Under certain circumstances mandatory penalty up to an amount equivalent to the amount of credit disallowed can be levied.

List of eligible documents for availment of CENVAT Credit.

The CENVAT Credit shall be taken by the manufacturer on the basis of any of the following documents, namely;-

a. an invoice issued by ± i. manufacturer for clearances of‡ inputs or capital goods from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer; ‡ Inputs or capital goods as such; ii. An importer iii. An importer from his deport or from the premises of the consignment agent of the said importer

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