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WHAT IS EXCISE DUTY It is a duty levied upon goods manufactured and not upon sales or the proceeds of sale of goods. Therefore the duty of excise is levied on a manufacturer or producer in respect of the commodities produced or manufactured by him. It is a tax upon manufacture of goods and not upon sales or proceeds of sale of goods. ‘Duty of excise’ has been renamed as Central Value Added Tax (CENVAT). CENVAT includes ‘duty’, ‘duties’ ‘duty of excise’ or ‘duties of excise’. Excise duties are of following types – Duties under Central Excise Act, 1944 Basic excise duty: This duty is levied under section 3(1)(a) of Central Excise Act. As per section 2A of Central Excise Act, basic excise duty is termed as Cenvat with effect from 12- 5-2000. It is levied at the rates specified in First Schedule to Central Excise Tariff Act, read with exemption notification, if any. Special excise duty: This duty is levied under section 3(1)(b) of Central Excise Act. Special duty of excise is leviable on some commodities like pan masala, cars etc. These items are covered in Second Schedule to Central Excise Tariff. Duty in case of 100% EOU and FTZ: Hundred percent Export Oriented Undertakings (EOU) and units in Free Trade Zone (FTZ) export all their production. However, when they clear their final products in Domestic tariff area (DTA), excise duty has to be paid. The duty amount is equal to the aggregate of the duties of customs leviable on like article if imported in India. Even if rate of customs duty is considered for payment of duty, actually the duty paid by them is Central Excise Duty. The rate of customs duty is taken only as a measure. Duties under Other Acts
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Some duties and cesses are levied on manufactured products under other Acts like Additional Duty on Goods of Special Importance [AED(GSI)] and Additional Duty on Textile Articles. The administrative machinery of Central Excise is used to collect these taxes. Provisions of Central Excise Act and Rules have been made applicable for levy and collection of these duties/cesses. HISTORY OF CENTRAL EXCISE LAW Prior to 1944 there were 16 individual Acts which levied excise duty. Each such act dealt with one or same type of commodities. All these acts were consolidated and a consolidating Act was passed in 1944 called as Central Excises and Salt Act, 1944 which came into effect from 28th February 1944. In I996 the Act was renamed as Central Excise Act, 1944. The Central Excise Act, 1944 (originally Central Excises and Salt Act, 1944) and Rules framed there under came into force on 28th February, 1944. The Act applies to the whole of India. India includes Indian territorial waters. Indian territorial waters extend upto 12 nautical miles from the Indian land mass. It also extends to areas designated in the Continental Shelf and Exclusive Economic Zone of India. The ‘exclusive economic zone’ extends upto 200 nautical miles inside the sea from base line. Though originally the Act did not apply to the State of Jammu and Kashmir, its application was extended to that State since the enactment of Taxation Laws (Extension to Jammu & Kashmir) Act, 1954. BODY OF CENTRAL EXCISE LAW Central Excise Law includes (a) Central Excise Act, 1944 (b) Central Excise Rules, 2002 (c) Cenvat Credit Rules, 2004 (d) Central Excise (Appeal) Rules, 2001 (e) Central Excise (Advance Rulings) Rules, 2002. (f) Central Excise (Settlement of Cases) Rules, 2001. (g) Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001
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(h) Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (i) Central Excise Tariff Act, 1985 (a) Central Excise Act, 1944 : This Act contains the basic provisions relating to the levy of excise duty. There are 10 chapters in the Central Excise Act. These are briefly as follows: Chapter I Short title, extent and commencement of the Act including definitions Chapter II Levy and collection of duty Chapter IIA Indicating amount of duty in the price of goods, etc., for purpose of refund and crediting certain amounts to the Consumer Welfare Fund Chapter III Powers and Duties of Officers and Land Holders Chapter IIIA Advance Rulings Chapter V Settlement of Cases Chapter VI Adjudication of Confiscations and Penalties Chapter VIA Appeals Chapter VIB Presumptions as to Documents Chapter VII Supplemental Provisions
(b)Central Excise Rules, 2002: These Rules contain the procedure for the assessment and collection of duty including other procedures like manner of payment of duty, registration, maintenance of records, invoicing, rebate of duty, export without payment of duty etc. (c)Cenvat Credit Rules, 2004 : The provisions relating to Cenvat credit which were a part of Central Excise Rules, 1944 were given a separate identity from 1st July 2001 and were called Cenvat Credit Rules, 2001. These Rules were superseded by the Cenvat Credit Rules, 2002. However, with effect from 10.09.2004 Cenvat Credit Rules, 2002 have been replaced by a new set of rules, viz., Cenvat Credit Rules, 2004 which provide for extending credit across goods and services. (d)Central Excise (Appeals) Rules, 2001 : The procedure relating to appeals are covered in this rules which was earlier included in Central Excise Rules, 2001.
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(e)Central Excise (Settlement of Cases) Rules, 2001 : The procedural aspects relating to settlement commission are contained in these rules. (f)Central Excise (Advance Rulings) Rules, 2002: These rules contain the provisions relating to Advance Rulings. (g)Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 : These rules contains the provisions and procedure relating to the goods removed at concessional rate of duty for manufacture of excisable goods. (h)Central Excise Tariff Act, 1985 : The Central Excise Tariff which was originally a schedule to the Central Excise Act, 1944 was de-linked from it and the Central Excise Tariff, Act 1985 containing the Tariff schedule was enacted, based on the international product coding system called Harmonised System of Nomenclature(H.S.N.). However, w.e.f. 28.02.2005 the Central Excise Tariff (Amendment) Act, 2005 has been brought into (i)Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 have been framed to prescribe valuation methods where transaction value cannot be determined under Section 4. EXEMPTION NOTIFICATIONS IN CENTRAL EXCISE Central excise legislation is driven by exemption notifications. Under section 5A(1), the Central Government is empowered to grant exemption in public interest either absolutely or subject to conditions (either before or after removal) from the whole or any part of the duty of excise payable. Notifications issued under section 5A(1) are not applicable to 100% EOU/EPZ/STP/EHTP unless otherwise specified. This is because such units are exempted under other notifications issued specially for them. DEFINITIONS UNDER EXCISE LAW Section 2 of the Act contains definitions of certain terms which are given below. "Excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt; (Sec 2(d)). "Factory" means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or
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wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on; (Sec 2(e)). "Fund" means the Consumer Welfare Fund established under section 12C; (Sec 2(ee)) "Manufacture" 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 the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or reIabelling 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, and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account; (Sec 2(f)). "Sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration; (Sec 2(h)) "Wholesale dealer" means a person who buys or sells excisable goods wholesale for the purpose of trade or manufacture, and includes a broker or commission agent who, in addition to making contracts for the sale or purchase of excisable goods for others, stocks such goods belonging to others as an agent for the purpose of sale; (Sec 2(k)). LEVY AND COLLECTION OF DUTY Chapter II of the Central Excise Act, 1944 deals with levy and collection of the duty. This
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chapter contains sections 3, 4 & 4A. Section 3 is the charging section, section 4 provides for the method of valuation of excisable goods and section 4A deals with valuation based on maximum retail price (MRP). Section 3(1) which is the charging section states : There shall be levied and collected in such manner as may be prescribed: (a) a duty of excise on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates set forth in the First Schedule to the Central Excise Tariff Act, 1985; (b) a special duty of excise, in addition to duty of excise specified in clause (a) above, on excisable goods (excluding goods produced or manufactured in special economic zones) specified in the Second Schedule to the Central Excise Tariff Act, 1985 which are produced or manufactured in India, as, and at the rates set forth in the Second Schedule. However, the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured,(i) in a free trade zone and brought to any other place in India; or (ii) by a hundred percent export oriented undertaking and brought to any other place in India shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act or any other law for the time being in force on like goods produced or manufactured outside India if imported into India. Where in respect of any such like goods, any duty of customs leviable for the time being in force is leviable at different rates, then, such duty shall, be deemed to be leviable at the highest of those rates. Section 3(1) speaks of levying two types of duty, firstly Basic Excise Duty (BED) at the rates specified in the First Schedule to the CETA, 1985; secondly Special Excise Duty(SED) at the rates specified in the Second Schedule to the CETA, 1985 in addition to BED. An analysis of section 3 of the Central Excise Act, 1944 which is the charging section, throws out the following propositions :(a) There must be a manufacture (b) Manufacture must be in India and (c) The manufacture must result in “goods”
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(d) The resultant goods must be “excisable goods” Each of these propositions are discussed below. GOODS & EXCISABLE GOODS Before we examine the question of what amounts to manufacture, it must be understood that unless the goods that are manufactured are excisable goods, there will be no question of attracting excise duty. Section 2 (d) of the Act defines excisable goods to be “goods which are specified in the Tariff as being subject to a duty of excise”. Therefore, first of all the items which are subject to tax must be goods, then they must be specified in the Tariff and they must come into existence as a result of manufacture. The word “goods” has not been defined in the Central Excise Act. The word “goods” is defined in Article 366(12) of the Constitution of India as “goods include all materials, commodities and articles”. Sale of Goods Act, 1930 in section 2(7) defines goods to mean “every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to and forming part of the land which are agreed to be served before sale or under the contract of sale”. To be “goods” the article concerned must be movable. In other words, immovable property cannot be goods. Any movable property whether visible, tangible, corporeal or not will constitute goods. The Supreme Court has held that in order to be goods the articles must be capable of coming to the market to be bought and sold. Therefore, to be called goods, the items must be moveable and marketable. From the above, two fundamental aspects of the term “goods” arise that they should be ‘moveable’ and ‘marketable’. The two fundamental aspects of the term “goods” ‘moveable’ and `marketable’ are discussed in detail. Concept of ‘Moveable’: The first aspect of goods is that they should be moveable. In Union of India Vs. Delhi Cloth Mills (1977) ELT J-199 and in
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South Bihar Sugar Mills Vs. Union of India (1978) ELT J-336, the Supreme Court enunciated the principal that to be called goods, the articles must be such as are capable of being bought and sold in the market. The articles must be something, which can ordinarily come or can be brought to the market to be bought and sold. As opposed to moveable goods, immoveable goods like property cannot be brought to the market to be sold. Under section 3 (36) of the General Clauses Act of 1897, moveable goods mean property of every description except immoveable property. Section 3(26) of the General Clauses Act, 1897 defines the term immovable property as: “Immoveable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.” Thus excise duty cannot be levied on immoveable goods and property. There are several case law on this aspect and they are discussed subsequently in the section “Dutiability of Site Activities’. Concept of ‘Marketable’: Unless the goods are capable of being marketed, they cannot be charged to duty. Marketability is the capability of a product of being put into the market for sale. In order to become goods, an article must be something, which can ordinarily come to the market to be bought and sold. Marketability is an essential ingredient in order to render goods dutiable under law. Whether a product is marketable or not is to be decided on the facts of each case. The burden of proving marketability of goods is on the revenue, if the assessee were to claim non-marketability.
MANUFACTURE Concept of Manufacture: The term “manufacture” literally means to make by hand. However, in the context of today’s mechanised world, the term includes making articles by machines also. However, as far as central excise is concerned the term has a specific definition in the Central Excise Act, 1944 which is contained in Section 2(f) of the Act. It defines manufacture in an inclusive manner as follows : “Manufacture includes any process, (i) incidental and ancillary to the completion of a manufactured product; and
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(ii) which is specified in relation to any goods in the Section or Chapter Notes of the Schedule of the Central Excise Tariff Act, 1985 as amounting to manufacture; or (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or reIabelling 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, and the term manufacturer shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.” 2 Classification of Excisable Goods: INTRODUCTION The actual amount of excise duty payable on excisable goods is, inter alia, dependent upon the rate of duty. The rate of duty is determinable on the basis of classification of goods. The classification of goods consists of determining the headings or sub-headings of the Central Excise Tariff under which the said goods would be covered. The classification of goods is also required to be decided for the purposes of determining eligibility to exemptions, most of which are with reference to the Tariff headings or sub headings. CENTRAL EXCISE TARIFF Prior to 1986, the First Schedule to the Central Excises and Salt Act, 1944 contained a schedule of the goods. This Schedule contained bare descriptions of products, split up into number of items and sub-items relating to each type of commodity. The Central Excises and Salt Act, 1944 also did not provide any guidelines as to the manner in which the said goods were to be classified. Accordingly, the goods used to be classified as per the popular or trade understanding of the same in commercial parlance.
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However, from 28th February, 1986, the Tariff Schedule was taken out of the Central Excises and Salt Act, 1944, and a new Tariff Schedule based on the Harmonised System of Nomenclature (popularly known as HSN) was brought into force under an independent enactment called the Central Excise Tariff Act, 1985. HSN is an internationally accepted product coding system formulated under the auspices of the General Agreement on Tariffs & Trade (GATT). This new Tariff Act is modelled along with international practices. The international practice of adopting a uniform classification was done to facilitate a common understanding of products across countries. It consists of two Schedules. First Schedule consists of 96 chapters which group similar class of products under broad sections and specific classes of products under specific chapters. The chapters are arranged classifying all goods of a kind beginning with the raw material and ending with the finished products, within the same Chapter. Also, it is designed to group all goods relating to the same industry and all goods obtained from the same raw material under one Chapter in, progressive manner. The said 96 chapters are grouped into twenty sections. Each of these sections relates to a broad class of goods. For example, section I relates to Animal and Dairy products while Section V relates to Mineral products. Each of these sections has been divided into various Chapters and each Chapter contains goods of a particular class. Each Chapter has been further divided into various Headings, depending upon the different types of goods belonging to the same class of products. This Schedule provides the rates of basic excise duty (CENVAT) leviable on various products. The Second Schedule specifies the items on which special excise duty is leviable. Second Schedule contains only few items. It has been clarified that the Tariff headings given in the Second Schedule will be interpreted in the same way as those in First Schedule. Unlike the earlier Central Excise Tariff, the new Central Excise Tariff contains Rules of Interpretation, Section/Chapter Notes and Chapter Sub-Notes giving detailed explanation as to the scope and ambit of the respective Chapter. These notes have been given statutory backing and have been incorporated at the top of each Chapter. Residuary items have been provided separately for each class of goods under each Chapter. With effect from 28.02.2005, the excisable goods are classified by using 8digit system. The first two digits refer to the Chapter Number of the Tariff,
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the next two digits refer to heading of the goods in that Chapter, the next two digits indicate Chapter sub-heading and the last two digits refer to the Chapter sub-sub-heading. Description with eight digits is termed as ‘tariff item’. The 8-digit tariff has a triple dash (---) scheme. If the description of the articles is preceded by a single dash, it means that it is a sub-classification of the immediately preceding heading. If there is double dash or triple dash before a description, it means that it is a sub-classification of the immediately preceding item which has either a single dash or double dash. Thus, to a considerable extent, the concepts of classification of goods on the basis of popular meaning, commercial parlance or trade understanding has been done away with but to the extent that the goods are not covered by the Section Notes and Chapter Notes specifically resort must yet to be had to the commercial or trade parlance in order to determine the classification. VALUATION OF EXCISABLE GOODS BASIS OF VALUATION The excisable goods are those goods which are charged to duty as per the Tariff. The duty is payable on the basis of any of the following : (a) Specific duty (b) Duty based on value (i) Duty based on the Tariff Value (ii) Duty based on the value arrived at on the basis of valuation u/s 4. (iii) Duty based on Maximum Retail Price (MRP) Specific duty: In the case of some goods, duty is payable on the basis of certain unit, length, weight, volume, etc. For instance, duty payable on cigarettes is on the basis of length. However, this method of levying duty demands frequent revisions in order to increase revenue since while the prices may be increasing, the duty would remain the same quantum when based on length. Since specific duties do not keep pace with inflation, more and more tariff entries are designed based on advalorem duty structure. Presently, specific rates have been specified for: (i) cigarettes -on the basis of length (ii) matches- per 100 boxes or packs (iii) sugar -on the basis of quintal
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(iv) marble slabs and tiles- on the basis of square meter (v) colour TV (only when MRP is not marked on the package or it is not the sale consideration) -on the basis of screen size in cm (vi) cement clinkers –on the basis of per tonne (vii) molasses –on the basis of per ton Duty based on value (Ad valorem duty): In the case of duties charged on the basis of value, such value may be charged on either of the following basis : (a) Duty as a percentage of Tariff value fixed by the Central Government u/s 3(2) of the Central Excise Act, 1944 The Central Government is empowered to notify the values of goods which will be chargeable to ad valorem duty as per Central Excise Tariff Act, 1975. In such a case, the task is easy since the value is already fixed. For example, Central Government has fixed tariff value for pan masala and readymade garments. The Central Government has also got the power to alter the tariff value once fixed. The Central Government may fix different values for different classes or descriptions of the same excisable goods. The Central Government can also fix different values for same class or description of the goods but produced or manufactured by different classes of producers or manufacturers. (b) Duty as percentage of Assessable Value determined in accordance with section 4 of the Central Excise Act, 1944 (Ad valorem duty). Section 4 deals with the valuation of goods which are chargeable to duty on the basis of ad valorem. Prior to 1st July 2000 the valuation under this section was based on the principle of ‘normal price’ which was based on the prices at which manufacturer sold the goods. Since 1st July 2000, the new concept of transaction value has been brought in to the central excise law as a precursor to introduction of full fledged VAT in the country. (c) Duty may also be fixed on the basis of maximum retail price after giving permissible deductions. This has been done under section 4A on many mass consumption products where the retail price and wholesale price of goods are at wide variance and the Government wants to raise revenues knowing that the manufacturer has shifted much of the overheads away from the manufacturing location.
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VALUATION UNDER SECTION 4 (AD VALOREM) With the intention of making the valuation mechanism simple, from 1st July 2000 valuation mechanism based on “normal price” was replaced by a user friendly and commercially acceptable new mechanism based on “transaction value”. Valuation provisions are contained in section 4. Section 4 reads as under: “4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall – (a) In a case where the goods are sold by the assessee, for delivery at the time and Valuation of Excisable Goods Place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; (b) In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. Explanation – For the removal of doubts, it is hereby declared that the pricecumduty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cumduty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.
Valuation under Central Excise
Are tariff values being fixed under Section 3(2)?
Valuation under Section 3(2)
Chart showing the scheme of valuation under Central Excise
Are the goods notified for valuation with reference to retail sale price?
Valuation under Section 4A
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