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Central Excise -A guide to Assessees
Central Excise duty is an indirect tax which is levied and collected on the goods/commodities manufactured in India. Generally, manufacturer of commodities is responsible to pay duty to the Governme This indirect taxation is administered through an enactment of the Central Government viz., The Central Excise Act, 1944 and other connected rules- which provide for levy, collection and connected procedures. T rates at which the excise duty is to be collected are stipulated in the Central Excise Tariff Act, 1985. It is mandatory to pay Central Excise duty payable on the goods manufactured, unless exempted eg., duty is no payable on the goods exported out of India. Further various other exemptions are also notified by the Government from the payment of duty by the manufacturers.
Principles of Excise Control
I. CONSTITUTIONAL BACKGROUND
Constitution of India is foundation and source of powers to all laws in India. India is a Union of State The structure of Government is federal in nature. Government of India (Central Government) has certain powers in respect of whole country. India is divided into various States and Union Territories and each Stat and Union Territory has certain powers in respect of that particular State. Article 246 of our Constitution indicates bifurcation of powers to make laws, between Union Government and State Governments. Parliame has exclusive powers to make laws in respect of matters given in list I of the Seventh Schedule of the Constitution (called "Union List''). Entry 84 in Union List reads as follows :Entry No. 84 - Duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol, opium or narcotics.
Power to impose excise on alcoholic liquors, opium and narcotics is granted to States under entry No 51 of list II of Seventh Schedule to the Constitution and it is called 'State Excise'. The Act, Rules and rates excise on liquor are different for each State.Thus, power to levy Central Excise duty by Union Government clearly based on constitutional authority. II. BASIC CONDITIONS FOR EXCISE LIABILITY
Section 3 of Central Excise Act ( often called the 'Charging Section' ) states that 'There shall be levie and collected in such manner as may be prescribed duties on all excisable goods other than salt which are produced or manufactured in India - . - . -'. These words are same as those used in Entry No 84 to list I. Th definition of Central Excise duty is vital, because it clearly signifies that there are four basic conditions for le of Central Excise duty. (1) The duty is on goods. (2) The goods must be excisable. (3) The goods must be manufactured or produced (4) Such manufacture or production must be in India. Unless all of these conditions are satisfied, Central Excise Duty cannot be levied.
This is called 'Classification' of a product. man-made filaments. while second schedule gives list of items on which . called Harmonised Commodity Description and Coding System.f. IV. biris. if any.e. 2. There are over 1. CLASSIFICATION OF GOODS There are thousands of varieties of manufactured goods and all goods cannot carry the same rate or amount of duty. 1-3-2001.e. (1) CETA is Based on HSN .f. necessary to identify the numerous products through groups and sub-groups and then to decide a rate of duty on each group/sub-group. 1957. 1985 (CETA) classifies all the goods under 91 chapters (in fact 96 chapters ou of which 5 are blank) and specific code is assigned to each item. National Calamity Contingent Duty (NCD) .Additional duty on mineral products (like motor spirit. The Central Excise Tariff Act. Though CETA generally follows HSN pattern. metallised yarn etc. TYPES OF EXCISE DUTY Excise duties are of following types 1. This classification forms basis for classifying the goods under particular Chapter head and Sub-head to prescribe duty to be charged on that particular product. cars etc. Cess .CETA consists of two schedules . 195 7. which means determination of heading or subheading under which the particular product will be covered. pan masala and miscellaneous tobacco products w. 12-5-2000) is levied at the rates specified in First Schedule to Central Excise Tariff Act. (2) CETA contains two schedules .Additional excise duty of 15% on certain textile and textile articles li articles of silk / wool / cotton.Some goods of special importance are levied Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act. Once the liability of paymen established. read with exemption notification. 1955. 6. 5.000 sub-headings.e.A duty of excise is imposed on medical preparations under Medical and Toilet Preparations (Excise Duties) Act.A 'National Calamity Continent Duty' has been imposed on cigarettes.f. Additional Duty on goods of special importance . Cenvat duty) leviable on various products. there are wide variations between HSN and CETA.000 tariff headings and 2. 3.2001.CETA is based on International convention of Harmonised System of Nomenclature (HSN). diesel and furnace oil) is payable under Mineral Products (Additional Duties of Excise and Customs) Act. Some commodities like pan masala.the first schedule gives basic excise duties (i. This is an Internation Nomenclature standard adopted by most of the Countries to ensure uniformity in classification in Internatio Trade. though both are based on HSN. It is.III.Basic duty and special duty of excise are levied under Central Excise Ac Basic excise duty (also termed as Cenvat as per section 2A of CEA added w. Duty on Medical and Toilet preparations . The CETA also varies significantly from Customs Tariff. The revenue from these levies goes fully to Central Government. Additional Duty on Textile Articles . are leviable with special duty. is imposed under Additional Duties Excise (Textile and Textile Articles) Act. The general rate is 16% w.e. 1-3. Additional duty on mineral products . It is also not possible to identify all products individually. 1978. Salient features of the tariff are a follows. it is not a copy of HSN. 4. kerosene. Duties under Central Excise Act .A cess has been imposed on certain products. therefore. The liability of payment of excise is on the Manufacturer. Excise is a duty on excisable goods manufactur or produced in India. the next question is what is the amount of duty payable. The two step process is (a) Correctly classify the goods (b) Find its assessable value. There is partial exemption of 8% and 4 % to a few products. Often.
Chapters 47 to 49) Textile and Textile Products (Section XI . Section I is 'Animal Products'. Each of 20 sections is related to a broad class of goods e. Aircrafts.04 relates to silk yarn and 50. Items included in second schedule are already covered and included in first schedule. Goods are classified beginning with raw materials and ending with finished products within the same chapter. Articles of human hair (Section XII . Chapter 53 is other vegetable textile fabrics. cork. '50' related to the Chapter Number. Headgear.0 relates to silk waste. 50. next two digits e. For example 5004. Section XI is 'Textile and Textile Articles'. Paper-board and articles (Section X . The single dash (-) indicates sub-classification of article covered by the heading. which govern entries in that Chapter.. (3) Sections and Chapters of CEA .Chapters 7 to 14) Animal or vegetable fats (Section III . Chapter 51 is Wool. 5004. soap etc. Fertilisers.Chapters 41 to 43) Wood.Chapter Notes are given at the beginning of each Chapter. (Section VI . whil two dashes (. Chapter 50 relatin to Silk is further divided into 5 headings. which govern entries in that Section. For instance.Chapters 64 to 67).05 relates to woven fabric of silk. Chapter 52 is Cotton. first two digits i. So far practicable.g. Section XVII is 'Vehicles.Chapter 15) Prepared foodstuffs. For example.Chapters 39 and 40) Leather and articles (Section VIII .g.Chapters 16 to 24) Mineral Products (Section V . . 50.01 relates to Silk worm cocoons. These notes are applicable to all Chapters in that section.11 means silk yarn containing 85% or mor by weight of silk or silk waste.Chapters 28 to 38) Plastics and Rubber and their articles (Section VII .-) at the beginning indicate a sub-group.All excisable goods are classified using 4 digits system and 2 more digits are added for further sub-classification whenever required.Chapters 2 to 5) Vegetable Products (Section II . Coding of Single and Double dashes . Umbrellas. (4) Groups and Sub-groups within the Chapter . Section divided in Chapters .Following is broad grouping of goods in CETA: Animal Products (Section I . it is a sub-sub-classification. There are 96 chapters out of which five are blank. 01 or 02 relate to heading of the goods in that chapter and last 2 digi indicate sub-heading.e. Grouping of goods . Section XI relates to Textile and Textile Articles and within that Section. Chapter 50 is Silk. straw and their articles (Section IX .02 relates to raw silk.Each of the sections is divided into various Chapters and each Chapter contain goods of one class.Chapters 25 to 27) Chemicals. Second schedule contains only few items.) is the sub-classification of the preceding article whi has single dash (-) i. 50.Chapters 44 and 46) Pulp.19 means containing less than 85% by weight of silk or silk waste. Chapter Notes . In above example.special excise duty is payable. Vessels and associated transport equipmen etc. It has been clarified that the tariff headings given in second schedule will be interpreted in the same way as those in first schedule. beverages (Section IV .The tariff is designed to group all goods relating to same industry and all the goods obtained from the same raw material under one Chapter in a progressive manner as far as possible. The headings are sometimes divided into further sub-headings. Section VII is 'Plastics and Articles thereof'.Chapters 50 to 63) Footwear. while double dash (.Tariff is divided in 20 sections.e. 50. Section Notes are given at the beginning of each Section. Paper. Chapter 61 is Articles of Apparel and so on. Six Digit classification .Single dash (-) at the beginning of description indicates a group. (5) Broad grouping in CETA .Each chapter is further divided into various headings depending on different types of goods belonging to same class of products.
surgical instruments. ceramic.Chapters 7 to 83) Machinery and mechanical appliances.Chapters to 92) Arms and Ammunition (Section XIX . Steel. precious metals (Section XIV . clocks.5. electrical equipments. thickness etc. you will find that some rates are fixed on per Kg or per quintal basis. specific rates have been announced for . glass (Section XIII . You may also refer to BIS or other standards. Aircrafts.e.Chapter 93) (6) Steps of classification . This percentage is the % of 'Assessable Value' of goods fixe as per section 4 of Central Excise Act. duty on Cigarette is payable on the basis of length of the Cigarette. If trade understanding of a product cannot be established. photographic. (Section XVI . but classification of finished product is known. vessels ( Section XVII . Prefer speci heading (5) If problem is not resolved. plaster. Duty based on Maximum Retail Price printed on carton after allowing deductions .Chapters 68 to 70) Pearls. find out which heading is specific and which heading is more general. Presently. find technical or dictionary meaning of the term used in the tariff.Chapters 84 and 85) Vehicles. 14. Tin etc. (Section XV . while some rates are based on '%' basis.1997) Duty as % based on Assessable Value fixed under Section 4 (ad valorem duty) (1) Specific Duty . (2) If meaning of word is not clear.). (1) Refer the heading and sub-heading.Chapters 86 to 89) Optical.Following are the steps of classification. length. (4) If ambiguity persists. Nickel. volume. . classify in same heading. Valuation under Central Excise After duty liability is established and after the product is correctly classified.section 4A of CEA (added w. Zinc.It is the duty payable on the basis of certain unit like weight. find which comes last in the Tariff and take it - (7) If you are unable to find any entry which matches the goods in question. find goods which are most aki V. television etc. the classification is final and you do not have to look to classification rules or trade practice or dictionary meaning. If there is n ambiguity or confusion. Copper. refer to trade practice. medical. the next question is 'What is th Excise Duty payable ?' If you refer to CETA. (3) If goods are incomplete or un-finished. Excise duty is payable on one of the following basis : Specific duty Duty as % of Tariff Value fixed under Section 3(2).f. musical instruments (Section XVIII . (6) If both are equally specific. but trade parlance is most important. duty on sugar is base on per Kg basis etc.Chapter 71) Base metals and articles of base metal (Iron. Read corresponding Section Notes and Chapter Notes.(a) cigarettes (b) Matches (c) Marb slabs and tiles (d) Colour TV when MRP is not marked on the package or when MRP is not the sole consideration. find which material or component is giving 'essential character' to the goods question. For example. find if the unfinished item has essential characteristics of finished goods.Articles of stone. If so.
e. wa replaced by a new section based on 'transaction value' for assessment. it is not practicable to fix specific duty or tariff value for numerous products produced. freight. Central government shall take into account excise duty. The existing section 4 of Central Excise Act.5. the old section 4 and new section 4 are radica . While allowing such abatement. by 'Value'. The 'assessable value' is arrived at on the basis of Section 4 of the Central Excise Act and rules made thereunder. Central Excise is payable on the basis of value. packing.Practically. Generally. Similarly. This is fixed u/s 3(2) of Central Excise Act. it may be true that new section 4 is not radically different from old section 4. In other cases. which is based on concept of 'normal price'. delivery. commission payable to dealers and a charges towards advertisement.Section 4A of CEA (inserted w. This is a path breaking departure fr the traditional approach. vide notification No 16/98-CE(NT) dated 2nd June 1998 (3) Value based on Retail Sale Price . consumer goods.In some cases. tariff values have been fixed for pan masa packed in retail packs of less than 10 gm per pack.The original section 4 of the Act provided for a 'deemed value' for purpose of valuation. Concept of valuation is a radical departure from past .f. paying duty on the basis of MRP is possible only in respect of a few selected commodities. the maximum of such retail price will considered (d) The 'retail sale price' should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. we understand the price as mentioned in Bill or Invoice. This is a "Notional Value" for purpose of calculating the duty payable. Cigarette etc. Background of changes in respect of valuation . (4) Ad valorem Duty . What is Assessable Value? (AV) Assessable Value (AV) is the 'Value' on which duty is payable as a percentage. The provisions are a follows (a) The goods should be covered under provisions of Standards of Weights and Measures Act (b) Central Government can permit reasonable abatement (deductions) from the 'retail sale price'. tariff value is fixed by Government from time to time. Duty is payable on the basis of such value.1997) empowers Central Government to specify goods on which duty will be payable based on 'retail sale price'. conceptually. This is called "ad valorem duty". user-friendly and also on commercially acceptable lines fr 1st July. However. duty is payab as percentage of this 'tariff value' and not the Assessable Value fixed u/s 4. p masala. However. It includes all taxes. controversies continued even after amendments to section 4 of th Act. forwarding charges etc. Once 'tariff value for a commodity is fixed.(2) Tariff value . sales tax and other taxes payable on the goods (c) If more than one 'retail sale price' is printed on the same packing. However. Government can fix different tariff values for different classes of goods or goods manufactured b different classes or sold to different classes of buyers.Fixing specific duty or tariff value is possible only for few selected items like Sugar. 2000. (e) Central Government has to issue a notification in Official gazette specifying the commodities for which t provision is applicable and the abatements permissible . transport charges. Section 4 wa completely revamped in 1975. The duty was based on normal wholesale price at factory gate. for excise purposes. 14. Presently. The valuation mechanism was made simple. Generally. it is not possible to fully rely on such price as (a) Duty is payable even if goods are not sold (b) It is desirable to have uniform policy in fixing the AV (c) Chances of manipulation in such price should be minimum.
then value will be based on the value of such goods sold by assessee at any other time nearest to the time of removal. durable and returnable packing. this rule should apply case of removal of free samples or supply under warranty claims. Value nearest to time of removal if goods not sold . design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of the goods . Under these powers. plus money value of the additional consideration received. (i) Materials. Goods sold at different place . duty will be payable on price of identical goods sold by assessee near about the time of removal of the samples. dies. actual cost of transportation from place of removal upt place of delivery of the excisable goods will be allowable as deduction. . technical maps and charts and similar items used (iii) Material consumed. 2. Each item of payment and expenditure will now be freshly scrutinised. goods may be sold at place other than the place of removal e. parts and similar items (ii) Tools. . if transport charges are collected separately in the Invoice o actual basis. In such cases. [rule 5]. Basis of Assessable Value . development. In case of removal of samples or free replacement under warranty claims.g. Provisions in earlier section 4 in respect of packing charges. if the goods are sold at the factory gate to an unrelated buyer when price is the sole consideration. The buyer may supply any of the following directly or indirectly.. which may or may not tally with the Invoice pri However. [Rule 4]. free or at reduced cost. 2000. subject to reasonable adjustments. This provision should also not apply for 'job work' as indeed in case 'job work' there is no 'sale' of goods. . moulds.If price is not the sole consideration for sale. Buyer and assessee should not be related Price should be the sole consideration for the sale. Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 have been made effective from 1-7-2000 1. Thus. This rule applies when price at the time of removal i not available as the goods are not sold by the assessee at the time of removal.different. Valuation Rules to determine Assessable Value Section 4(1)(b) of the Central Excise Act states that if Assessable Value' cannot be determined u/s 4(1)(a). in case of FOR delivery contract. Provision when price is not the sole consideration . blue prints. Thus. it was a 'deemed value'. components. the 'Assessable Value' will be the price charged by assessee.In short.e. 3. The price in respect of each removal of goods w be 'transaction value'.sectio 4(1)(b) The basic provisions of new Section 4(1)(a) state that 'assessable value' when duty of excise is chargeable excisable goods with reference to value will be 'transaction value' on each removal of goods. shall be determined in such manner as may be prescribed by rules. if these are charged separately in invoice on actual basis. excise duty is payable on basis of 'transaction value'. these will be allowed as deduction. class of buyer and trade discount are completely absent in new section 4.f. .As per new section 4 w. drawings. new section 4 has scrapped that concept totally. 1st July. if following conditions are satisfied The goods should be sold at the time and place of removal. Old section 4 was based on 'normal whole at which such goods are ordinarily sold at the factory gate to an unrelated buyer'. Thus. valuation will be done as per Valuation Rules. including packaging materials (iv) Engineering. This rule should not apply in respect of depot transfer or branch transfer or in case of sale to 'related perso as specific provisions have been made.Some times. art work.If goods are not sold at the time of removal. If these requirements are not satisfied. most of the case law under old section 4 has become of doubtful validity.
258/92-96-CX dated 30-10-1996. The term 'greatest aggregate quantity' is used in rule 7 of Customs Valuation Rules.7. It do not matter if subsequently the goods are actually sold from depot at higher or lower price. 95 and 80 units are sold @ Rs. [rule 7] For example. 9 per unit. then the normal transaction value on 1.7. (Rule 8 of Valuation Rules). Meaning of 'normal transaction value' .2000 there were no sales of that variety from Agra depot but the sales were effected on 1.7. Board had advised that CA certificate and profit and loss statement should be scrutinised carefully and should not be accepted blindly o automatically. 15. if an assessee transfers a consignment of paper to his depot from Delhi to Agra on 5. valuation shall be done on ba of cost of production plus 15%.2000 shall be assessed to duty on the basis of Rs. which will be the basis for valuation. In short. since the term used is 'cost of production'. if 65 units are sold @ Rs. cost of production of goods should be determined so as to include cost of material. In such cases. This rule states that while considering sell price of imported goods in India. However. [Proviso to rule 9] The simplified provision has been probably made as in most of the cases. In case goods are supplied to a 'related person' but consumed by the related person and not sold. Material Cost should be exclusive of duty paid on inputs and cost of as material handling of inputs should b . This eventuality is indeed not envisaged in 'stock transfer' as 'stock transfer' or 'branch transfer' is envisaged only of standard products with fixed ex-depot prices. then greatest aggregate quantity is 80 which is sold @ Rs. "normal transaction value" mean the transaction value at which the greatest aggregate quantity of goods are sold.When goods are sold through depot.7. labour cost and overheads including administrative cost.4.2000 at transaction value of Rs. In such cases. valuation will be done on the basis of cost of production plus 15%. there is no 'sale' at the time of removal from factory.In case of captive consumption. but at the time of removal from the factory will be relevant. Normally. 100. per normal costing principles. unit price at which greatest aggregate quantity of identical or similar good are sold to unrelated persons in India should be the basis. the consignment cleared from the factory at Delhi on 5. (shown just to save sales tax). interest etc.2000 fr the Agra depot to unrelated buyers. price ruling at the depot. sales overheads should not be considered. Goods should not be despatched or identified for a particular buyer. 90. there are wide fluctuations in prices and depot prices may change frequently. However. The value should be 'normal transaction value' of such goods sold from th depot at the time of removal or at the nearest time of removal from factory.000 per tonne to unrelated buyers. 'cost of production' should include production overheads and proportionate share of administrative overheads. Captive consumption means goods are not sold but consumed within the factory. e.2000. price prevailing at depot (but at the time of removal from factory) sha be the basis of Assessable Value. 55 units are sold @ Rs. fluctuations in prices at depot is a practical reality. where price is the sole consideration for sale.7. 5. If assuming that on 5. advertising expenses. Valuation in case of captive consumption . Sale at depot / consignment agent . [In the opinion of author. As per department's earlier circular No. depreciation.000 per tonne as the assessable value.7.As per Valuation Rule 2(b).g.2000. it is a sale and not a stock transfer. assessee may resort to assessment on provisional basis. In short. advertisement costs in relation to selling expenses should not form pa of 'cost of production']. At times. If the buyer is known or identified before despatch of goo from the factory. where price is the sole consideration shall be the basis of assessment. and that variety and quality of paper is normally being sold at the Agra depot on 5. [Illustration given in the departmental circular dated 30-6-2000]. 6. the buyer will be able get Cenvat credit of duty paid on inputs and there is hardly any incentive to avoid any payment of duty.It may be noted that 'stock transfer' or 'branch transfer' envisages despatch of goods of standard size and specifications to the depots / branches. This principle should apply in deciding 'normal transaction value' under rule 2(b) also. Buyer should not be known in stock transfer. 15. stock transfer of tailor made goods is a bogu stock transfer. Other instructions in the circular regarding calculation of profit margin have now become redundant. certificate from Cost / Chartered Accountant in respect of cost of production should be obtained.
8.included in view of case law discussed above.500 per un 7. Best judgment Assessment . 11. For sake of convenience. If the value of any excisable goods cannot be determined under the forego rules. the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act. 2000.000 per unit. these are discussed under 'Related Person' and hence are not discussed here. [Rule 11] . Provisions in respect of sale to related buyer are covered in rules 9 and 10 of Central Excise Valuation Rules. If the cost of production based upon general principles o costing of a commodity is Rs. assessment will be done by 'best judgment'. Thus.If assessment is not possible under any of the foregoing rules. However. Goods sold solely through related person .If goods are sold solely through a 'related person'. the formula for determining value is simple. 10. Definition of 'related person' as contained in section 4(3)(b) covered 'inter connected undertakings' as defin under MRTP Act. price at which such related person makes onward sale to an independent buyer will be the 'Assessable Value'. This would have affected many assessees. the assessable value of the goods shall be Rs. the definition has been made almost ineffective in Valuation Rules.
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