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July 06, 2010 Types of Indirect Taxes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Customs Act, 1962 Central Excise Act, 1944 Central Excise Tariff Act, 1985 Central Tariff Act, 1975 Central Excise Rules, 2002 Cenvat Credit Rules, 2004 Customs Tariff (Identification, Assessment and Collection of damages for Dumped Goods) Rules, Customs Valuation Rules, 2007 Central Excise (Determination of Retail Sale Prices) Rules, 2008 Finance Act, 1994 Central Excise Valuation Rules, 2000 CESPAT Procedure Rules, 1982
Scheme of Taxation under the Constitution of India In the basic scheme of taxation in India, it is envisaged that (a) Central Government will get tax revenue from Income Tax (except on Agricultural Income), Excise (except on alcoholic drinks) and Customs (b) State Government will get tax revenue from sales tax, excise on liquor and tax on Agricultural Income ( c) Municipalities will get tax revenue from octroi and house property tax. Income Tax, Central Excise and Customs are administered by Central Government. As regards sales tax, Central Sales Tax is levied by Central Government while State Sales Tax is levied by individual State Governments. Though Central Sales Tax is levied by Central Government, it is administered by State Governments and tax collected in each State is retained by that State Government itself. Powers of taxation under the Union List Entry 82 - Tax on income other than agricultural income. Entry 83 - Duties of customs including export duties. Entry 84 - Duties of excise on tobacco and other goods manufactured or produced in India except alcoholic liquors for human consumption, opium, narcotic drugs, but including medicinal and toilet preparations containing alcoholic liquor, opium or narcotics. Entry 92A - Taxes on the Sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of Interstate trade or commerce. Entry 92B - Taxes on consignment of goods where such consignment takes place during Interstate trade or commerce. Entry 92C - Service Tax Entry 97 - Any other matter not included in List II, List III and any tax not mentioned in List II or List III. (Residual Powers’.)
July 07, 2010 Excise Duty is charged on goods manufactured or produced in India. Section 2(d) defines excisable goods. Section 2A of the Act states that excise duty also known as CENVAT. (Central VAT) Section 3 is the charging section of the Act. SEZs are non excisable. Excise Duty is levied and collected in such manner as prescribed: All excisable goods which are produced or manufactured in India at the rate applicable in the first schedule (of the Tariff Act), Basic Excise Duty (12%) Special duty of excise in addition to the BED on goods mentioned in the second schedule (of the Tariff Act) at the rates prescribed in the second schedule.
Excisable Goods is defined in section 2(d): all goods mentioned in first and second schedule of the Tariff Act. Supreme Court: goods must be marketable, mere production/mention in the Tariff act is not enough. There was controversy until the 2008 amendment which added the following explanation to Section 2(d): for the purpose of this clause goods includes articles and substances which are capable of being bought and sold for a consideration. Actual sale is not required just commercial capability. (Tariff Act contains 10 to 12 sections, there are certain broad categories like Animal Products and these goods are contained in this section, Each section has chapters, chapters have headings, headings have sub headings, sub headings have sub-sub headings. This is not a mere list of items, often it is chemical components or a manufacturing process.) Conditions for goods to be subject to excise duty 1. The subject of duty must qualify as “Goods” i. Must be movable ii. Must be marketable 2. Excisable goods (must be mentioned in the tariff act) 3. Goods must be manufactured or produced (manufactured is not defined, only deemed manufacture is, manufactured is taken from court decisions.) 4. Manufactured in India All these features must be there for the goods to be subject to excise duty. Sale and Marketability are not connected in any way. If a substandard (unmarketable good) is sold, it does not make it marketable. Similarly if a marketable good is given as a free sample (i.e. not sold) it is still marketable. If you have to dismantle something in order to move it, it is not movable. Goods must be marketable in the condition is which they have been produced. If further processing is required then it is not marketable as yet. 1989: Bhor Industries v CCE - Mere mention of goods in tariff act is not enough for an item to be excisable, it must be marketable. Essential Test: is the product capable of being bought and sold in the market.
Ambalal Sarabhai v CCE 1989 43 CLT 214 (SC): in the course of production of dextrose they also produced starch hydrolysate (intermediate product). In the Tariff Act “lysate of starch” is mentioned as an entry. The CCE issued a notice to the assessee for payment of duty. However the assesseecontended that this intermediate product has a very short shelf life of 28-32 hours, thus it is not marketable and not subject to excise duty. Supreme Court upheld the contention of the assessee. Union of India v GCM 1997 (5) SCC 767: If the goods are not upto standard, they are not marketable. Assessee was manufacturing calcium carbide further used to produce acetylene gas. Contention of the assessee was that calcium carbide was not of the purity prescribed by the ISI. Thus th e calcium carbide sold in the market is of a different quality, and the Calcium Carbide being produced by the assessee is not marketable. Supreme Court agreed with the contention of the assessee. Moti Laminates v CCE 1995 (3) SCC 23: crude products are unstable products and not marketable. CCE v Mann Structurals Ltd. (2001) 44 ELT 113 – The Court in this case, accepted the tests for excisable goods laid down in the earlier cases and laid down the following principles:1. 2. 3. 4. An item will not be excisable unless it is marketable The test does not depend on the actual sale of the product. Probability of sale is sufficient. Goods having short shelf life/unstable are not excisable. Goods which are part of a continuous process and cannot be sold as such are not excisable.
Following these cases came the 2008 amendment adding an explanation to Section 2(d). Cadilla Laboratories v CCE AIR 2003 SC 1700 – It is not required that goods must be actually bought or sold in the market. The goods in the crude or unstable form and which require further processing to be marketable are not subject to excise duty. Gujarat Narmada Valley Fertilisers v CCE (2005) 7 SCC 94 – Sale is not necessary for goods to be marketable. Even if the goods are for capital consumption, they may be subject to excise duty. UOI v DCM AIR 1963 SC 791: to become goods an article must be something which can be ordinarily bought and sold in the market. There was the manufacture of vanaspathi oil and the raw materials used were groundnut oil and til oil. In between this process and independent product was refined oil. Contention of the assessee was that refined oil in the market is always dehydrogenated/de-orderised which this one is not thus it is not marketable. Indian Cables company Ltd. V CCE AIR 1995 SC 64: marketable only means suitable for sale it need not even be marketable. Market does not mean open market, even if there is one purchaser that is enough. Associated Cement Companies v CC (Collecter of Customs) AIR 2001 SC 862: Drawings and designs are also goods. Even if payment is made for technical services, it may be included in the value of goods. CCE v TISCO (2004) 9 SCC 1: Zinc dross and skinning are merely refuse, they are rubbish. It is not the result of any treatment, labour or manipulation, even if it fetches some price in the market it is not marketable. Everything which is sold is not necessarily a marketable commodity.
CCE v Pentamedia Graphics 2006 198 ELT 164 (SC): The motion picture animation file recorded in the machine readable format and capable of being manipulated by a data processing machine is also software. v CCE: burden of proof on revenue department. (Order no 58 of 2002 dated 15. Indica Laboratories v CCE 2007 213 ELT 20(AT) – Excise duty is payable even if goods are given as free sample. and the machine was embedded with nuts and bolts. Gujarat Narmada Valley Fertilizer Co. product must be commercially known. However if it can be removed without dismantling the parts. Electrical energy or goods specified in Heading 2716 of the Customs Tariff Act and Excise Tariff Act are goods. It is a simple value addition. But there is CVD (counterveiling duty) on canned software if imported at par with excise. it can be moved without dismantling the parts. Respondent was engaged in manufacture of asphalt. No excise is leviable on uncanned (customized) software.1. There is no custom duty on canned or uncanned software. Bata India Ltd. Movable property is subject to excise duty and not immovable property. V CCE: Goods should be in a position to be taken to market and sold. (Notification no. SC held that the machine is moveable. Hence there could be not question of excise duty. Sale is not necessary condition for levy of excise duty. The assessee was manufacturing pipes in 1 unit and galvanizing the same in another unit.2002) Triveni Eng. Hence it cannot be said to be embedded in the earth. Ltd. 12% excise duty is levied on canned software. 4 . it will be moved. CCE v Solid and Correct Eng. Uncanned software is subject to service tax. hot mix for construction of roads. It is not immovable property as once the road is made. Dross and skinnings were added to the schedule in the Central Excise act by an amendment. th Shakti Tubes v CCE 2002 51 RLT 463 – State of goods at the time of removal is important. it is movable and subject to excise duty and it becomes marketable. There is no change in the value of the pipes. If the final product is exempted then so is the waste and scrap. Big plants and machineries are not subject to excise duty. It was held that galvanization does not amount to manufacture. State of AP v NTPC. Works (2010) 252 ELT 481 (SC): Meaning of “embedded in the earth” was explained in this case. department had not shown enough evidence to prove marketability. Molten iron which requires 1400-1600 degree Celcius heat to keep it in molten form is not marketable. 2010 Waste and Scrap: Excisable if they are marketable and manufactured.However in 2005. TCS v State of Andhra Pradesh: Canned and uncanned softwares are mentioned in heading 8523 of the Tariff Act. 9 JULY. v CCE: Hypothetical possibility of sale and purchase is not enough. Burden of proof CCE v United Phosphorus Ltd: onus of proving always on the department. 89 of 1995 mentions this) Plant and machinery erected at sight: Immovable (cannot be removed without dismantling parts) and hence there is no excise duty.
We need to know this definition because repacking. Transformation from raw material to final product. th If you import any item from outside India: you will pay custom duty. Section 2(29)BA of Income Tax act also defines manufacture. Thus to avoid the excise duty all alterations are done at the dock itself. Also CVD will apply. Hence excise duty may be leviable on any Central or State Government undertakings. thus an amendment was made and SC upheld the validity of this amendment. If Shirts are within MRP Valuation: then excise duty will also apply. 12 JULY. is applicable only to the 100 or so goods mentioned in MRP valuation and not to the others. Something more is required: transformation. However can a good not mentioned in MRP valuation but repacked be brought within the ambit of clause 1? 5 . however SC said that it fell within Entry 97. Then you repack the shirts. Karya Palak Engineers v Rajasthan Taxation Board (2004) 177 ELT 3 (SC) – restrictions under Article 284-289 of the Constitution of India are only on taxes which directly affect income or property and not indirectly. Deemed Manufacture: Any process which is incidental or ancillary to the completion of the finished product. It was challenged on the ground that Entry 84 uses the terms “manufactured or produced”.Kerala State Road Transport Corporation v CCE . Any process of packing. Wastes and scraps are manufactured products. However this applies only to those goods which are mentioned in Schedule 3 (MRP Valuations) of the Tariff Act. relabeling etc. UOI v DCM AIR 1963 SC 731: Every change is not manufacture. There must be transformation. It should be something distinct and entirely changed from the raw material. A show cause notice was issued for payment of duty. before it clears the customs barrier. Manufacture. In a number of Supreme Court judgments a reference is made to the Income Tax act definition.Change is manufacture but every change does not amount to a manufacture. repacking. All changes ate subject to treatment manipulation or labour but that is not enough. the wastes and scraps are also exempted. labeling or relabeling. The assessee was a manufacturer of vanaspati from groundnut oil and the intermediate product was refined oil. It was held that the refined oil was not subject to duty as even though the refined oil was deodorized. alteration of retail price. Value addition. name and use.They purchase the chassis from a company and assemble it themselves. Excise duty will be charged on just the cost of repackaging etc. 2010 Manufacture: What is manufacture for the purpose of Excise duty? Section 2(f) defines deemed manufacture. It was held that it is subject to excise duty even though it is not sale and used for capital consumption. it was still in raw form and hence not marketable. anything which makes it fit to be taken to the market. The Supreme Court had earlier excluded this from the purview of manufacture. The finished product must be different by nature. But if the final product is exempted from Schedule. Any process which is mentioned in the Central Excise Tariff Act. CCE v Indian Aluminium (2006) 203 ELT 3(SC) – Aluminum dross and skinning are not subject to excise duty. Vanaspati was not classified in the tariff Act but refined oil was.
2009 235 ELT 537: Company was manufacturing Infant goods (which are exempt) Lactogen and Cerelac. The question was whether this activity amounted to manufacture. However the SC stated that it is manufacture. Manufacturer purchased cotton fabrics from different manufacturers. SC held that tissue is base paper and not subject to any treatment. They purchased various Vitamins from other manufacturers and mixed them on the basis of a predetermined ratio using electromagnetic means. Refuse/residential products are also produce which may be excised. 6 . Production Natural Process involved Every production can’t be a manufacture Manufacture Mechanical or manual process involved Every manufacture is a production th When production is used in juxtaposition with manufacture then it takes in bringing into existence. Ltd. 801B) but it is manufacture under the excise act. it does not mean that it is excisable. This contention was upheld by the SC. They are mentioned in the Tariff Act CIT v N. (2002) SC 142 ELT: cotton fabric made into bed sheets. SR Tissues v CCE (2005) 6 SCC 310: The Assessee purchased jumbo roles of tissue paper on which excise duty was paid under the heading 4803. thus no manufacture. In that case.CIT v Arihant Tiles and Marbles Pvt Ltd. The Court said that here. 2010 Hyderabad Industries v UOI 1995 5 SCC 338: If an item is mentioned in the Tariff Act.: Revenue department contended that while converting big slabs into marble.C. (2010) 321 ITR 79 (SC) – Converting marble slabs into tiles and polishing them was not held to be “manufacture” by the Revenue department. CCE v Kabuli International Pvt. So no excise duty should be levied on small tissue if jumbo rolls have been excised already. SC rejected the contention. So excise duty may be levied if:1. The Assessee cut the size to make it into 36 cm size. AIR 1993 SC 2529: Difference between manufacture and production. SC held that nothing new has emerged and is just convenience for which the size has been reduced. The Tariff act is only for classification of goods. then it is not excisable. Production has wider connotation than manufacture. it is a different product and hence excise duty should be charged. 13 JULY. The Court has basically differentiated the products on the basis of “use” CIT v Arihant Tiles and Marble Ltd. polishing process is not manufacture under IT act (exemption under s. They made bed sheets and pillow covers. Budharaja and Co. However the contention was that such a product is not known to the market and more importantly there is no change to the vitamins only a mixing. They are produced in India 3. This is called an intermixture of vitamins. If a good is mentioned in the tariff act but is not marketable. Nestle India v CCE. the process will not be treated as a manufacturing process for the purpose of taxation. Now Heading 4803 mentioned Jumbo Roles while 481890 mentioned Small tissue paper. new goods which may or may not be “manufactured”. Intermixture of vitamins is mentioned in the Tariff act. Goods are manufactured and marketable 2. held to be manufacture.
Hence they are exempted under the IT Act Overruled Tata Iron. Ltd. use and name. This was a three judge bench and hence more binding. Hence it is not subjected to excise duty However coke is excisable as it is raised from the earth. SC held that it is not manufacture. Mere processing does not mean manufacturing. roasted spice. 2. Whether the commodity which was in existence will be no commercial use but for the said process. Change in the product has to be proved by the market person dealing with the product. a different commodity comes into existence. as it is a natural resource and it is extracted from the earth. It was transported from one division to another. The manufacturing activity does not prove its marketability. This is also called “Trade Parlance Theory”. dying or printing amounts to manufacture. wheat. UOI v IG Glass Industries AIR 1998 SC 839: Manufacture of glass bottle. The dry fruits were cleared in small pouches. SC gave a twofold test to decide whether a process is manufacture. the proposed commodity is distinct from the original product. th 7 . It was mentioned in the Chemical Wash Directory in the journal as intermediary products and was hence subject to Excise duty by the revenue. There is no evidence of buying and selling or of its capability of being bought and sold. The test is whether in eyes of those dealing in the commodity or in commercial parlance. 14 JULY. The question was whether BMS is marketable or not. CIT v Sesa Goa pvt. Cipla Ltd v CCE (2008) 155 ECR 66 (SC) – Marketability of BMS (Benzyl Methyl Salicylate). There is a distinct difference between the character. SC held that mere mention of the product in the Directory does not make it marketable. Sterling Foods v State of Karnataka (1986) 3 SCC 469: Commercial identity must be known to market. chana and chana daal. The burden of carrying out a market survey lies on the revenue department. They used to put glass bottles in another unit which added ceramic colors. However it held that there was a value addition to the bottles.CCE v Tata Iron 2003 154 ELT 343 (SC): is coal produced or manufactured? SC said neither. Some new product must emerge out of the process. It was alleged that this was a manufacturing pr ocess. 1. 2005 271 ELT 331(SC): Iron ore is a produce and is extracted from the earth. Section 2(d) was questioned. BMS was an intermediary product. peanuts and also activity of cleaning of dalia. SC held that it is manufacture. It determines how does the consumer identify the product? What is in his mind? Whether in commercial parlance commodity has a distinct character and identity from the original commodity? The consumer while buyer the product always has some intention in his mind. Whether the identity of the previous commodity ceased to exist or whether by the said process. SC held that it was manufacture as the final product was distinct and the characteristic was also changed as there was flavour addition and also a distinct product was formed. The Directory is no authority to state its marketability. Excise duty was already paid on the glass bottles. 2010 India Cine Agencies v CIT (2008) 233 ELT 8(SC) – Whether conversion of jumbo rolls of photographic films into small rolls of desired size is manufacture or not. Hence its is not marketable and not excisable SKB Dryfruits Marketing Pvt Ltd v CCE (2008) 224 ELT 339 (SC) – Assessee carried on the activity of selling dry fruits. Processing fabric by bleaching . Empire Industries v UOI: process and manufacture distinguished.
character and use. State of Karnataka v Kothari Industries: Mixing of urea. 479/45/79 – Assembly of the parts of an AC is not manufacture. Putting together various parts at the user’s end does not amount to manufacture. Century Spinning and Weaving Company. new use. 8 . Just because the input and output are mentioned in the same heading of tariff act does not mean that it is not manufacture. GAIL India v CCE (2004) 163 ELT 37(AT): Mixing of butane and propane leads to a new product LPG. character and use and hence is manufacture. CST v Bechu Ram (1976) 38 STC 236 (All) – Mixing of scent in oil is not manufacture. Eureka Forbes v CCE (2000) 125 ELT 195 (AT) – Assembling of filter. CKD/SKD (Completely Knocked Down) products do not fall under the ambit of manufactured products. However. v UOI (1981) 8 ELT 676 (Bom HC): Remelting/moulding of a plastic article to rebuild the same is not manufacture. 2010 CST v Dunkin Coffee Manufacturing Company Ltd. in a Calcutta High Court case. car. the rubber ring. (1975) 35 STC 493 (Bom): Mixing coffee powder with chicory to make French coffee.Kores India Ltd. computer. thus this is manufacture. etc. ammonium sulphate to make NPK mixtures is not manufacture as the end result is also fertilizer. v CCE: Jumbo roles of ribbon cut into small pieces amounts to manufacture. purifier and re filter at user’s end is not manufacture. results in a new product. (contradicts the tissue case) ASSEMBLY OF PRODUCTS Circular No. The general principle is that assembled products are not manufactured. Decorating Laminates v CCE: Conversion of commercial plywood into Slip Proof commercial plywood used for flooring is manufacture.g. E. steel vessel. attaching rubber nipples and packaging them does not amount to manufacture.g. (Ordinarily coconut oil may be used for cooking as well) 19th JULY. whistle etc of a pressure cooker) Bonny Baby Care v CCE (2005) 184 ELT 101 (AT): Purchasing plastic bottles. CCE v Goyal Gases (2000) 119 ELT 5(SC): Mixing of O2 and N2 with inert gasses is not manufacture as there is no change. it was held that mixing of scent in coconut oil to make it into hair oil is manufacture as the purpose changes. A/C. new character and thus is manufacture. This amounts to change in name. National Metal Works v CCE (2005) 179 ELT 189 (AT) – Melting of scrap to make Aluminum slab is manufacture as it is a new product altogether by name. SUPPLYING 2 OR MORE ITEMS TOGETHER Hawkins Cooker v CCE (1997) 96 ELT 507(SC): Putting two or three items together into one packet is not manufacture.(e.
Also cutting boulders to make smaller stones is not manufacture CBEC Circular No. the products cannot be sold. freezing. 454/20/99 – Upgradation and modification of computers is not manufacture. The final product was sold from their houses. JULY 20. The process may be ancillary to sale. One who employs hired labor. MEANING OF “INCIDENTAL AND ANCILLARY” PROCESS IN MANUFACTURE ITC Ltd. CCE v MM Khambadwala AIR 1996 SC 3319: There was supply of raw materials to various household ladies who were manufacturing Agarbattis in their houses. It is required within the law itself to provide information about the drug. Repair is not manufacture. Here the manufacturer is not the loan license but the actual manufacturer. v CCE (2002) 151 ELT 246 (SC) – Packing of cigarettes is not an incidental or ancillary process to manufacture of cigarettes as cigarettes are saleable in the market without the packing. stitching clothes. st 9 . the process was included in the schedule to bypass the court ruling. Pujan Banerjee v State of Kerala (2003) 131 STC 538 (Ker HC) – Purification of water is not manufacture. 2010 Wallace Flour Mills v CCE (1989) 4 SCC 592(SC) .Excise duty is levied on the date the goods are removed from the factory. Without labeling. However after this case. Section 4(c) of the Central Excise Rules deals with excise duty leviable on the manufacturer. building concrete from ready mix. 2010 Manufacturer: Who pays the duty? Section 2(f): Manufacturer includes 1. Khambadwala. It involves pumping of liquid (soft serve) into the machine. There was supervision and price control done by Mr.Gramophone Company of India Ltd. 21 JULY. amount to manufacture. etc. Connaught Plaze Restaurant v CCE (2003) 154 ELT 187 (AT) . One who engages in production on own account Loan license under Drugs and Cosmetics Act – He takes a license from the Controller and provides it to the person having infrastructure. principal-agent relationship not an independent contractor 2. Calcutta Clinical Research Industries v UOI (1999) 109 ELT 506 (Cal HC) – Labeling is a process incidental to the manufacture of medicines and drugs. Extracting oil from oil seeds. Polishing of diamond is not manufacture. Here the ladies were held to be the actual manufacturers. v CCE AIR 1989 SC 4501 – Recording of songs in blank audio cassettes amounts to manufacture as pre recorded audio cassettes are sold separately in the market.Instant Softy Ice cream process amounts to manufacture. incorporation of air and putting the semi solid substance into a cone.
10 . 2010 Dasti Sugar Mills v CCE (2000) 115 ELT 826 – Independent contractor had assembled a crane in the factory of the company. then the actual person would be the manufacturer. It was held that Britannia is not the manufacturer. packaging and other value additions are deemed manufacture. Ujagar Prints v UOI (1989) 39 ELT 493 (SC) – Whether the raw material supplier is the manufacturer or the workers? SC said that ownership is not the test for manufacture. They are covered under “deemed manufacture”. 22 nd JULY. Contention of Sri Agencies was that they were selling Cotton Yarn and purchasing Fabric and since sale and purchase are independent transactions. Hence the manufacturer is the contractor and not the company. Labelling. Maruti Udyog v CCE (2001) 134 ELT 188 (AT) – Maruti was providing raw material to the person and he was manufacturing the same in the factory of Maruti. they are not liable to pay duty for manufacture of fabric . All goods under the Standards of Weights and Measures come under the MRP Scheme. One who transforms the goods is the manufacturer. Britannia was responsible for supply of raw materials and quality check. Philips India v UOI (1980) 6 ELT 263 (All) – Section 2(f) uses the term “on his own account” which means supervision and control of the company. Pawan Biscuit v CCE : The Company was making biscuits for Britannia. So if a person has supervision and control over manufacture of goods and the other factory owner is a dummy. However the looms were found to be dummy agencies and it was held that Sri Agencies are liable to pay tax.Shree Agencies v Revenue iAIR 1972 SC 780: The assessee would supply cotton to power looms for conversion to fabric and then they would purchase the fabric back and sell it themselves.
Assessee may/not opt this scheme. Showrooms shall be the place of removal and the excise shall be leviable there. Earlier it was Rs 15. 3. cement. 6. Section 4A has overriding effect on Section 4 Rate of abatement [Deduction on value of the goods] Covers only hundred 100 goods mentioned Applicable to goods which are for retail sale only. Hence these goods have a fixed duty levied by the Government. One can’t change the scheme that frequently. Sugar. 4. 2003. match box (per hundred boxes). 5. transport th th 11 . 8. rd Specific Duty – Duty on the basis of weight. Rate of duty is Rs 30. Compound Levy Scheme – (Rule 15) – This is optional.23 JULY. MRP valuation is applicable only on sealed packs.g. thickness. CCE v Venus Casting Ltd. the valuation is done on the basis of the retail/sale price. readymade garments. E. etc. Even if the price of goods increases. They look at the production capacity. 2. Duty levied on the basis of average production capacity of the manufacturers. pan masala. 2010 VALUATION OF EXCISABLE GOODS Methods of valuation:1. molasses (per ton basis) etc. cigarettes (length basis). the duty on the goods will not increase. Its applicable to stainless steel. description. Advantages of this are that if one chooses this scheme then the other formalities towards the Government will get reduced. In cases of deemed manufacture. 1. The following are the conditions for goods to be valued under this scheme. Specific Duty method Tariff Value method (Under section 3(2)) Compound levy Scheme – Rule 15 of Central Excise Rules Production capacity under Section 3(a) MRP Valuation – Under Section 4(a) Transaction value method also ad valorem duty under Section 4 of the Central Excise Act. freight. local or otherwise.000 per gold rolling for machines. Explanation to Section 4A states that “retail sale price” means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes. They fix the value “per machine”.g. 5. 4. E. Tariff Value – The Central Government may by notification in the Official Gazette alter the tariff value on different classes. 2010 MRP Valuation Scheme – Section 4A – For goods under the MRP Scheme. 9. etc. AIR 2000 SC 1568 – The assessee can’t claim relief for reduction of duty on less production. volume. Production Capacity Method – Applicability from 10 May. 6. MRP is declared in consonance with Central Excise (MRP Valuation) Rules. marble. E. etc. Goods are excisable goods and are subject to excise duty. 2. of goods.000. 28 JULY. Pan masala. 3. 7. One has to follow it at least for a year.g. a third person alters the MRP by re-packaging or re-labelling. aluminum articles. Central Government/notification – goods covered under MRP Scheme.
Bottles did not have any MRP. The question was whether free gifts are subject to MRP Valuation. 915/05/2010 – states that in case of free samples. “Package” containing 12 bottles cannot be viewed as a “wholesale package”. Section 4A(4) states that if the manufacturer clears goods without declaring the retail sale price or incorrectly declares the retail sale price then the goods shall be seized. If different prices are declared on different packaging in different areas then the price of the particular area shall be taken. Indian drugs Manufacturer’s Association v UOI (2008) 222 ELT 22 (Bom) – Physicians samples are not covered under section 4A of the Act but is covered under Section 4. and all charges towards advertisement. In this case there was a string of 72 sachets th 12 . Explanation 2 to Section 4A states that where more than one retail sale price is declared on packaging then the higher MRP shall be taken as the value. the MRP value of the product written on the packet shall apply. It was held that transaction value and not MRP valuation shall be applicable.charges. commission payable to dealers. 7. It was held than only if the free soap could be separated then it can be subject to MRP valuation separately. 2010 Cases on MRP Valuation Free Samples 1. Jayanti Food processing v CCE MANU/SC/3474/2007 . 6. If the goods are under 10 grams then they are not covered under the MRP Scheme (Standards of Weights and Measures Act) 11. packing. AIR 2008 SC 2238 – Multi-piece packaging – There are certain exemptions given under Standard of Weights and Measures Act which state that goods below 10 grams or measuring less than 10 mm are exempt from excise duty. If the price mentioned on packaging at the place of removal is later altered then the altered price shall be taken as the MRP. Circular No. 29 July. Held. Sony India v CCE (2004) 167 ELT 385 (SC) – Assessee was giving free gifts with television. after the first sale.Manufacturer used to pack 12 200 ml mineral water bottles in a single package and used to mention the MRP on the package. It is compulsory to declare the price of goods while importing them. 2. 5. the transactional value is applicable and not the MRP of the product as it is not for retail sale. Indica Laboratories c CCE – In case of extra supply of the product in the same packet. Icon Household Products v CCE (2007) 216 ELT 579 (CESTAT) – A mosquito repellant device was being sold as a combo pack along with the liquid. If the free product has “not for sale’ written on it then for transaction value to apply. Valuation should be under Section 4A. 3. it must be attached to the product. delivery. It was held that the price declared on the combo pack shall be applicable for MRP valuation and not the individual prices. bottles go directly to the “ultimate consumers”. (VERY IMPROTANT CASE ON GENERAL SCHEME OF SECTION 4 and 4A) CCE v Krafttech Products Ltd. CCE v Godrej Soaps (2006) 198 ELT 450 – Godrej was selling 3 soaps with one soap free in the same wrapper. 10. If the item is separable then the MRP of that free product becomes applicable. forwarding and the like and the price is the sole consideration for such sale. Cadilla Pharmaceuticals v CCE (2008) 232 ELT 245 (CESTAT) – Free samples given to doctors are not covered by MRP Valuation 4.
2008. it can be tested by consumers and then repacked and hence it falls MRP valuation scheme. 5. SC said that the MRP cannot be challenged as after the removal of the goods from the factory. The entire carton is meant for wholesale and not retail sale as no one will purchase the whole sale pack. The basis of valuation became Specific Value i. Ltd. SC held that it was an open packaged commodity i. In all cases of goods for export the MRP valuation shall not be applicable and only transactional value shall be applicable.of lip smoothener. ITC Ltd. Rule 40 of the above rules states that MRP valuation shall not apply if:1. Rule 4 states that:- 13 . The revenue challenged this on the ground that cigarettes are often sold separately by shopkeepers and dealers and hence it is not possible to verify the correctness of the MRP printed on the packet. The Revenue considered them as one whole piece rather than 72 sachets. Packages above 25 Kg/litre/50Kg/litres except for cement and fertilizers. v CCE (2002) 145 ELT 686 (CEGAT) – If 2 products are sold together in the same product where one is covered under MRP and the other is not then the transactional value under Section 4 shall be applicable for both products. on the basis of length of cigarette. However in 2005 – Government came out with an Ordinance saying that the effective price is to be considered and not the MRP.e. 2008 – This came into st effect on 1 March. Non applicability of MRP Scheme Rule 2A and 3A of Standards of Weights and Measures (Packaged Commodity) Rules state that MRP valuation shall not apply to:1.e. MRP is not declared on the product 2. SC held that it is a multi-piece packet and not one packet and hence not subject to tax and subject to exemption. v UOI AIR 2008 SC 397 – Refrigerators fell under the MRP Valuation scheme and hence the same was challenged as it was not a packed commodity. the manufacturer has little or no control over them. Whirlpool India Ltd. Industrial or institutional customers Packages up to 10 gm/ml Scheduled drugs or cosmetics Agricultural farm produce above 50 Kg. All of them were packed in a single carton and price was declared on both the carton and on the single piece. But later there was a compromise with the Government and even this position was changed. v CCE AIR 2005 SC 1370 – Cigarettes were under specific duty scheme. Air Light Electronics Pvt. 3. Bidis for retail sale. The government applied the MRP scheme vide a notification to cigarettes as well. This mandated that the MRP shall be printed on the packets of cigarettes. If the MRP is obliterated or changed after removal then the goods will be confiscated and price shall be determined by the Department. Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules. 2. 6. MRP is not declared as per the required law 3. 4.
This is the residuary method. 2000 shall be applicable.1. The goods will be liable for confiscation. if any.This is an offence and also liable to penalty. the said inquiries shall be carried out on sample basis. when retail sale price is required to be ascertained based on market inquiries. 4. Conditions for application of Transaction Value 1. Sale Sale must be at the time and place of removal Buyer and seller must not be related Price must be the sole consideration. servicing. If the manufacturer has removed identical goods within. It states that whatever is the actual price at the time the sale is excisable. commission or any other matter. 30 JULY. If there is no sale then transaction value method shall not be applicable. Proviso – The highest value should be taken if both these methods are adopted. actually paid or actually payable on such goods. 2010 Section 4 – Transaction value/Assessable value/Ad valorem duty/Price-cum-duty – After the 2000 amendment. Section 4(3)(d) – defines “Transaction Value” – The price actually paid or payable for the goods. whether payable at the time of the sale ny amount charged for. value is assessable on each transaction. warranty. Rule 5 states that when the manufacturer alters or tampers with the MRP after removal which results in the increase of the MRP such value will be taken as MRP for all goods removed from the factory in the preceding one month and the month following such alteration. 2. and includes any amount that the buyer is liable to pay to. the assessee. but does not include the amount of duty of excise. Rule 6 states that if the retail sale price of any excisable goods cannot be ascertained under these rules. before or after one month by declaring the MRP then such value is to be taken for the purpose of valuation. then this method is resorted to. sales tax and other taxes. If no other method is applicable. it was assessed on the wholesale value. storage. or to make provision for. All transactions must be at arm’s length. The fair market value shall be taken as MRP when there are similar or identical goods in the market or by conducting and inspection in the market. marketing and selling organization expenses. or on behalf of. th If the buyer and seller are related then the Valuation Rules will be applicable. 3. the retail sale price shall be ascertained in accordance with the principles and the provisions of section 4A of the Act and the rules aforesaid. However before 2000. Explanation – For the purposes of this rule. Hence it is the discretion of the Assessing Officer to decide the MRP using best judgment assessment on the basis of similar or identical goods in the market. 14 . 2. or in connection with the sale. outward handling. advertising or publicity. Excise Valuation Rules. Price must be the sole consideration – If there are other considerations like some advance money paid by the buyer the same also is includible. when sold. by reason of.
in the business of each other. After a few days. directly or indirectly. Relatives as defined under Section 2(41) of the Companies Act. However as the settled law goes. 4. it won ’t be considered as it is not manufacture. Amongst them the buyer is a relative and a distributor of the assessee. 138/08/2000 CCE v. Now if there is another processing of the product like Galvanization. different prices may be fixed on those different days. Taxable event is that of manufacture and the removal of the goods. Hence value addition done outside factory is not included – CBEC Circular No. revenue cannot challenge the MRP.K. Export is exempt from all kinds of duty. Hence the question to be determined is whether the price is what was charged in the local market or the one at which they were removed. If there is no instance of flow back of money from the buyer (e. then the value will be considered for valuation. If it takes place in the same unit.g. If the transaction is at arm’s length.g buyer provides some other benefit as well) then the MRP can’t be challenged. or a sub-distributor of such distributor. Hence the seller may fix a price for each transaction. Inter-connected undertakings as defined under Section section 2 of the Monopolies and Restrictive Trade Practices Act. it cannot be challenged as well. Hence the condition during at the time and place of removal is important. (e. circulars are not binding on the Courts.Section 4(3)(b) – Related Person – The following are included under the definition of related persons:1. SC said that price at time of removal will be considered. Presumption is that the business is not at arm’s length. 2 AUGUST. 1969 2. a Circular was issued in 2002 wherein it was stated that an exception can be made in case of exports. Akay Cosmetics 2005 182 ELT 294 (SC) – The condition in which goods are removed from the place of removal are very important. After this. If it takes place in different units. this may be challenged under any other act like Competition Act but not under the Central Excise Act. 1956 3. J. GKN Driveshaft v CCE 2003 154 ELT 177 CAT – It states that each removal is a different transaction. However. Hence they charged a lower price.SC held that even if the value is below the manufacturing cost. Hence if goods were removed on different dates. price for selling to whole seller and to manufacturer may be different) Proctor and Gamble Hygiene and Health Care Ltd v CCE 2005 190 ELT 289(SC) – The concept of manufacture and the concept of value addition are different. Section 4 states that there must be sale at the time and place of removal. They are so associated that they have interest. Papers v CCE 2003 157 ELT 184 (AT) – The assessee had cleared the goods for export. 1944. there was det erioration in the product. But subsequently they cleared the goods from the factory and diverted it into the local market as the importer refused to purchase. Hence any change taking place after removal is not material. “Each other” means that both of them should have an interest in each others’ business. 2010 Cases on Section 4: Transaction Value CCE v Guru Nanak Refrigeration Corporation 2003 153 ELT 249 (SC) . 15 . They can also fix different price for diff erent buyers.
(vii) if one is connected with the other either directly or through any number of undertakings which are interconnected undertakings within the meaning of one or more of the foregoing sub-clauses. whether as director or otherwise. of the body corporate. (ii) where the undertakings are owned by firms. or (b) if one body corporate is a subsidiary of the other body corporate. 16 . who sells such goods in retail. 2010 Only one sided interest is sufficient for Income Tax Act but for excise. directly or indirectly. Under DTC 10 % substantial interest is sufficient. to buyers (being related person). or (d) if one body corporate exercises control over the other body corporate in any other manner. over the body corporate. 2008 talk about related undertakings. In such a situation it would be presumed that the transaction is at arm’s length. In Competition Act. a related person. if such firms have one or more common partners. directly or indirectly. (a) if one body corporate manages the other body corporate. not less than fifty per cent of the shares. Calcutta Chronotype Ltd. it cannot be presumed that the price is not the sole consideration especially when the good is being sold to a third party at the same price. CCE v Acorn Engineering Ltd. or where such goods are not sold to such buyers. or (c) if the bodies corporate are under the same management. Rules 9 and 10 of the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules. the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal. Price is not the sale consideration (rebuttable presumption). or (b) exercise control. (iii) where the undertakings are owned by bodies corporate. Rule 10 states that the method used in Rule 9 for valuation applies if the assessee so arranges that the excisable goods are not sold by him except to or through an inter-connected undertaking and If the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee. a mutual interest is essential. if one or more partners of the firm. (iv) where one undertaking is owned by a body corporate and the other is owned by a firm. (a) hold. Rule 9 states that When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii). Cup method of valuation takes into account. comparable and controlled price. This case is also on the lifting of corporate veil. Interconnected undertakings – Section 2(g) of MRTP Act states that 25 % of controlling power of both undertakings is enough to prove that the undertakings are interconnected.3 AUGUST. whether preference or equity. if such bodies corporate are under the same management. (v) if one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners. V CCE AIR 1998 SC 1631 – Price to the buyer will not be regarded as the normal price if they (2 enterprises) are related. Test for interconnected undertakings under MRTP Act 1 (CHECK THE SECTION) rd 1 (i) if one owns or controls the other. (2005) 181 ELT 175 – Merely because the buyer is a holding company. to buyers (not being related person). (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act. If the same persons are behind the corporate veil then it is possible to lift the corporate veil if the entities are controlled by the same persons. (vi) if the undertakings are owned or controlled by the same person or by the same group. it is 20 %.
Engineering or technical knowledge – charges for these are inclusive in the value of the goods. UOI v Atic Industries Ltd 1984 17 ELT 323 SC. They are also in connection with the sale. Proctor and Gamble case Supreme Court said that valuation provisions and Cenvat provisions are separate.g. As per Section 4(b) and 4(c) there should be mutual interest to qualify as interconnected. SC said that there is no interest of Gujarat Coop in business of the assessee. 2002 – It states that the cost of packing supplied by the buyer should be added in the transaction value. CBEC circular No. SC said that mere shareholding in another undertaking does not show the undertakings are interconnected. However any commission to any agent is not included in transaction cost. First there is classification then there is valuation. However. Principle of classification is irrelevant for valuation. But Atic industries had no stake in the other undertaking. CCE v. the same is not applicable. in case of durable packing supplied by buyer which can be used repeatedly. 137/3/2006 dated . royalty.Mutual Interest in each other’s business – UOI v Keira District Cooperative Milk Producers Union 2002 146 ELT 502(SC) – In this case. then they are not related. 4 AUGUST. Inclusions and Exclusions in Transaction value Section 4(d) defines transaction value – price to be paid or payable by buyer by reason or in connection of the sale. Also things like designing charges.Buyer had 50% shareholding in Atic industries. then they are said to be related undertakings.Even if two public companies have shareholding in each other. However in case of extended warranty. then the cost of packing must be amortized in the lifespan of the packing material. 2010 th st 17 . Under Income Tax act one sided shareholding is enough to have a one sided stake to qualify as related parties for the purpose of transfer pricing mechanism. If they are private companies. E. The federation was charging commission for marketing of the product.The Cenvat provisions and the valuation provisions are the same. 2007 216 ELT 497 SC . The assessee was selling product to the federation. Hence they are included as well. the assessee was a member of Gujarat Milk Cooperative Marketing Federation Ltd. Alembic Glass Industries v CCE 2000 143 ELT 244 (SC) . etc are also part of the transaction value. Frick India Ltd. Advertisement expenses are also includible in the value of goods. Also shipping charges are to be excluded. CBEC Circular Number 643/34/2002 of 1 July. (However charges up to the showroom are includible). V CCE 2003 158 ELT 552 (SC) – Royalty charged in any franchisee agreement is inclusive in transaction value. Design. Hence the commission charged should be deducted from the actual price. If the factory gate is the place of removal. it is not included. An amount charged for free after sales service in includable in transaction value. Pepsi Foods Ltd. Hence the royalty is added along with the actual cost for manufacturing cold drinks.
the same is considered as “other taxes” under the CEA and is deductible from the transactional value. However. Advertisement Expenditure – Advertisement and sales promotion expenses incurred by buyer are part of the transaction value. or warranty and pre-delivery inspection (PDI) charges are included in the price. CCE 2007 212 ELT 44 Optional after sales service is not included in the price as it is not connected with the sale but only in relation to the sale. some administrative tax was charged on the Cheeni Mills under U. then the same can’t be claimed as a discount and hence the same can’t be deducted from the transaction value. one of which is not manufactured by them. CCE v Hindustan Lever 2002 142 ELT 578 (SC) – Discount in the form of supply of additional quantity is also deductible from the transaction value. But it should comply with the normal practice. if there is anything which is in relation to the sale. the deduction of the amount from the transaction value is permissible. 643/34/2002 (READ). V CCE AIR 2005 SC 1523 – It said that the discounts should be uniform in all cases.g.India Tin Industries v CCE 2000 125 ELT 864 – Free after sales service and warranty is includible in the price. 2010 Kirloskar Brothers Ltd. It may vary from buyer to buyer but such variation should be on rational basis. In the case State of U. This was held in the case of Pearl Drinks v CCE 2002 140 ELT 496 (AT). 354/81/2000 – Trade Discounts –Trade discounts or quantity discount or cash discount or any other discount is not included in the transaction value. Sheera Niyantran Adhiniyam. However “other taxes” are not defined under the act. Manufacturer provides a free cold drink with a shirt. CCE v Kisan Sahakari Cheeni Mills 2001 255 ITR 57 (SC) – They have discussed the meaning of “other taxes” under 4(d) (2). (Excise. Only the actual amount paid or payable is deducted from the transaction value. it is not includible. CBEC Circular No. It cannot be said that discounts shall be uniform all over the country. sales tax and other taxes actually paid or payable). This is due to the reason that all of them are in connection with the sale. 5 AUGUST. DEDUCTION OF TAXES Section 4(d) includes certain things but excludes all taxes from the transaction value.P. Ford India v. Volvo India v CCE 2005 182 ELT 471 (AT) – Optional after sales service is not includible in the price. – Cost of after sales service. CCE v DCM Textiles 2006 195 ELT 129 (SC) – Even if trade discount is provided after the removal of the goods. 1994 on the molasses sold by the occupier of a factory to any person. SC said that even if there is administrative levy under any enactment. (Note that this is only manufacturer’s discount and not retailer’s discount) In Elgi Equipments v CCE 2007 215 ELT 348 (SC) – SC said that variable discounts are permissible. then he can claim deduction on the basis of the free drink). (e. (e. CBEC Circular No.P. would be reduced from the price of the goods. Buy 1 get 1 free offers). Therefore trade discount etc.g. However if the manufacturer is providing different kinds of goods. th Formatted: Highlight Formatted: Font: Bold 18 .
then the same will be included in the transaction value. CCE v Rajasthan Spinning and Weaving Mills 2007 218 ELT 641 – Valuation is not an exact science.CBEC Circular No. CCE v Surat Textile Mills (2004) 5 SCC 201 – If there is an agreement between the buyer and the manufacturer and the same is enforceable by the manufacturer. Circular CBEC No. then the expenditure for advertisement is to be included in the transaction value. Rules apply in sequential order. Rule 4 – It shall apply when price at the time of removal is not available in case of free supply and in case of free samples given. This is only when there is supply of free samples. use or characteristics etc. 7 AUGUST. quantity. th 19 . On the general observation of VAT Rules. This was followed in the case of Alembic Glass Industries v CCE 2006 201 ELT 161 (SC). 643/34/2002 – It has clarified that even when the advertisement or the publicity charges are borne by the buyer. However if any one of these conditions are not satisfied. 2010 Indian Drugs Manufacturing Association Ltd. However this is applicable on identical and similar goods.g. rational basis on which it needs to be applied. There is guesswork involved in it. It includes same quality goods by the same manufacturer. CENTRAL EXCISE VALUATION (DETERMINATION OF PRICE OF EXCISABLE GOODS) RULES. 813/10/2005 – Verified that in case of sample distributed for free and supply under warranty scheme. Goods must be similar or identical in relation to quality. Hence Rule 4 of Custom Valuation Rules applies. it was held that valuation is not an exact science and there is a reasonable. then the advertisement expenditure is not included in the value of the products manufactures. Free supply or warranty is not sale. e. v UOI (2008) 222 ELT 22 (Bom) – Define meaning of “such goods”. Rule 4 will be applicable. the Central Valuation Rules will apply. if there is an agreement (written or oral) that the buyer will incur certain advertisement expenditure. The golden rule is that anything in connection with the sale is includible in the transaction value. intermediate product for capital consumption Rule 4 – It is applicable in case of free samples or supply of goods under warranty scheme. Rule 3 of the Central Valuation Rules state that if the value of excisable goods for the purpose of sub Rule 4 to 11 applied to various situations such as no sale at place of removal. 2000 Section 4 of the Central Excise Act applies when the sale takes place at place of removal and other conditions mentioned therein. The value of excisable goods shall be the value of goods as on the date of removal which is nearest to the date of assessment. The advertisement by Pepsi or Coca Cola will not be a part of the transaction value for the purpose of the glass bottle manufacturer. If there is no such agreement.
2007. sale is from any other place other than the place of removal. Rule 7 of the Custom Valuation Rules: Normal Transaction value is defined under Rule 7 of the Custom Valuation Rules. father. It means goods used by the manufacturer himself. the value shall be the normal transactional value at the time and place of removal or any time nearest to the time of removal. etc b) If distributor is relative of buyer th 20 . (1999) 112 ELT 353 – The Retail Market price must be exclusive of CENVAT Credit. The price of wheels and axel needed to be added to determine the value of the wagon. HBL Aircraft Batteries v CCE (2004) 167 ELT 483 – Cost of material to the buyer and not the fair market value should be added to the value of the goods. It says that when the goods are sold at the greatest aggregate quantity. Rule 9 – Where the transaction is between relatives. Or 55 units of goods are sold at Rs 95 and 80 units are sold at Rs 90 Rule 8 – It applies in case of capital captive consumption. Rule 5 – When goods sold at difference place. Advance payment made by buyer to manufacturer – Notional interest shall be added if there is any influence in the prices. Rule 8 says that where the excisable goods are not sold by assessee but are consumed by him. 9 AUGUST. v CCE AIR 1992 SC 1801 – Assessee was manufacturing wagon for the Railways. This is also as per the Cost Accounting Standard – 4.g. except where goods are sold at a place other than place of removal different from place of delivery then Transaction Value should exclude the cost of transportation from the place of removal to the place of delivery. the value of goods shall be 110 % of the cost of production or manufacture. Compare value of the product of that manufacturer. where assessee and buyer are not related persons and where price is the sole consideration. 100. Must be as far as possible identical goods and of the same quality. The fact that the petitioner is not the owner of the wagon is irrelevant. Universal Glass (2005) 182 ELT 3 (SC) – Definition of “such goods”/“comparable goods”. mother. Railways were supplying wheels and axel.e. 2010 Rule 7 – When the excisable goods are not sold by the assessee at the time and place of removal i. Explanation – Cost of transportation from the factory to the place of removal shall not be excluded (in case the place of removal is different from the factory gate) Rule 6 – When the price is not the sole consideration – When the assessable goods are sold except where the price is not the sole consideration then the consideration shall be determined by adding the value of the goods provided for free. is 65 units are sold at Rs.CCE v. Relative is defined in Section 4(3)(b) sub clause (2). No notional interest shall be added unless the department has evidence to prove that advance money has influenced the fixation of the price. CCE v Dai Ichi Karkama Ltd.g. Rule 9 is applicable in case of:a) Relative as per income tax act e. Tax Maco Ltd. (3) and (4) as a) Interconnected undertakings or b) both have mutual interest or c) If distributor is relative of buyer etc. Greatest aggregate quantity – e.
is not included in the transaction value. then this section applies. then the value charged to the non relative shall be the transaction value. d) mutual interest in each other’s business. 10 AUGUST. Rule 11 – Best judgment assessment. Only rates are different.e. B sells them to C who is not his relative for Rs 200. then the normal transaction value shall be the value of goods at which they are sold from the other place. Example a simple difference between an ayurvedic medicine and a th 21 . Rule 10 – Interconnected undertakings. However. the transportation charge from the place of job worker to the place of removal. Rule 9 states that where the assessee so arranges that the goods are not sold to any other person other that a related person as mentioned above and the person to whom the goods is sold is not a relative. then Rule 8 shall be applicable. Sub clause 2 says that when the goods are not sold by the job worker from his factory but is transferred to another place and sold from there. 2010 CLASSIFICATION OF GOODS Why is classification important? Classification under Central Excise Tariff Act and Customs Excise Tariff Act are same. Rule 10A – It applies when the production is by the job worker on behalf of the principal manufacturer. When the assessee so arranges that the capital goods are sold by him only to interconnected undertakings. (3) and (4). Interconnected undertakings come under Rule 10.c) If sub-distributor is relative of buyer. Then the valuation would be as per rule 9. Value of goods shall be the Normal Transaction value when the goods are sold to buyer who is not relative or the value charged if sale is made to a non-relative or price is charged on retail sale. they have to use the test of reasonableness. Under this. Thus interconnected undertakings under Rule 10 only include holding or subsidiary companies. A sells goods to his relative. b) Buyer is holding or subsidiary company of the undertaking. In case where goods are sold by principle manufacturers from place of job worker to a p erson who is not related to principle manufacturer or price is not the sole consideration then value of excisable goods shall be the transaction value of the same goods sold by the principal manufacturer. B at Rs 100. Slight difference in classification changes rate of duty. Then the transaction value is Rs 200 and not Rs 100. then the revenue department can use best judgment assessment to determine the value. Interconnected undertakings include:a) Undertakings are connected so that they are “relative” under Rule 9 i. Rate of duty depends on classification. Section 4(3)(b) sub clause (2). This is shown by the following example. If any of the above rules do not apply to the goods and the value of the goods are not determined. If buyer uses goods for capital captive consumption. They may use any of the aforementioned rules or devise their own rule provided that the same is reasonable.
there are a number of headings. So 500310 – Silk waste not corded. heading 10 sub-heading 20 sub-sub-heading 30 Rate of duty depends on the 8 digit code i. Now each heading has a sub heading. Central Excise Tariff Act – 1. Schedule 1 covers import duty while Schedule 2 covers export duty.e. It has 4 columns. 5. It has three schedules. 22 . Export duty is exempted. 50039020 – tusser silk waste. Chapter 52 – Cotton.cosmetic changes the rate of duty. Tariff No. Description Quantity Rate of duty Preferential Rate of duty. Chapter 50. Chapter 51 – Wool.g. This is provided specifically for certain Description of the Goods Quantity Rate of Duty 2. 2. there is more than one chapter. Schedule 3 covers goods under MRP Valuation. It has 96 chapters. Section of the Central Excise Act says that the rate set forth in the first schedule of the Tariff Act shall be applicable for the purpose of taxation. Chapter 50 . Initially we adopted the Harmonized System of Nomenclature which had a 6 digit Code and later extended it to an 8 digit code. However if the six digit code is not available then the duty is charged upon the 6 digits itself. Schedule 2 talks about additional excise duty. Under every section. There are several sub-sub-headings 50039010 – mulberry silk waste. It has 2 schedules. 50102030. 4. Hence the 8 digits specify the rate of duty. Section XI of the Central Excise Tariff Act – Textile and textile Articles. e. Customs Tariff Act 1. Chapter 50-01 talks about the Silk Warp cocoons 50-02 – Raw silk. This comes from the International Convention on Harmonized System of Nomenclature issued by the World Customs Organization. Tariff Heading 3.g.(One “-“denotes a chapter) Heading 5001 – (Two “-“denotes a heading) Sub Heading 500120 – (Three “-“denotes a sub-heading) Sub-sub heading 50012033 – (four “-“denotes a sub-sub heading) General Interpretative Rules (6 rules) for Customs Tariff Manual. In each chapter there are a number of headings. Every Chapter starts with Chapter notes which is very important as it states which kind of goods are covered under the act. Chapter 50 – Silk. Now for Chapter 50. Each sub-heading has a number of subsub-headings. It has 20 sections. 50-03 is Silk Waste. Each heading has a number of sub-headings. Schedule 1 talks about basic excise duty. e. It has 5 columns.
sale and pre-dominant use has also to be taken into account for classification of an item. 5. 15 % was chargeable for toys while 20 % was chargeable for furniture. design. fun fliers. This is as per Chapter IV Para 7 of the CBEC Custom Manual 2001. GIR Rules (General Interpretative Rules) These rules are applied sequentially. 4.K. Hence equal importance should be given to GIR (general Interpretative rules). there were 11 items manufactured by them. SC said that it was too big and even the adults could sit in it. Hence GIR Rules are the part of the Act and they have binding effect. Generally a lower rate of duty is chargeable on toys. 2. SC has interpreted it in terms of “predominant use”. 2010 th O. 3. slides. As per GIR. The trade parlance shall only be taken into account if it is not possible to classify the items as per the GIR rules. The Court held that it was furniture. There cannot be a specific parameter for correct classification. Revenue classified it as “bath items” under 3922 while assessee classified it as toys. However 9503 refers to toys as “reduced size model”. Play India Ltd. Therefore the explanatory notes provide a safe guide for classification. play tables. Next item included was rocker. The third item was “play pools”. If that is not possible then Rule 2 and so on should be applied. It has 2 chapters It has 21 sections 11 AUGUST.countries. activity chairs. 2. 4. Hence ideally such tables should have also qualified as reduced size models. Revenue wanted to classify them as articles for exercise. Hence it was a bath item. V CCE AIR 2005 SC 1023 In this case. SC said that they are toys. In this case.It states that the classification should be taken in light of Rule 1. SC has held:1. does not make it a toy. These pools had 5 feet diameter. 23 . CCE v Wood Polymers Ltd 1998 97 ELT 193 – Classification should be done as per the rules of interpretation contained in the Tariff and not as per common parlance and trade parlance. The Scheme of central Excise Tariff is based on the Harmonized System of Nomenclature (HSN classification) and the explanatory notes therein. The assessee classified these goods as toys under Heading 9503 But Revenue classified it under heading 9401 as furniture. swings. 3. It is important to bear in the mind that the functional utility. the assessee was manufacturing toys. No one single and universal test can be applied for correct classification. Equal importance is to be given to the rules of interpretation of excise tariff. First item was. the heading providing a specific description has overriding effect over a general heading. etc.5 feet deep and the water capacity was 1000-1500 litres. Court said that the mere fact that an article was made for the use of children.
Polar Appliances v CCE 2001 127 ELT 448 (AT) . rule 3 becomes applicable. Hence they will be classified as “drawing instruments” and not as pencil and eraser separately. all the CKD products should be imported at one time or at one port. it does not mean that fax machine has been imported even if as per Rule 2(a) it means that it resembles the finished product. (b) and (c) shall apply. parts of computer shall be classified as the Computer itself. They a re classified as the finished item. Held that SKD needs to be classified as finished product if it has its characteristics. 2010 Thomson Consumer Electronics Ltd. Hence heading stating “Suitcase” shall prevail over heading stating “plastic articles”. However this rule is very controversial. V CCE 1995 97 ELT 8 (SC) – SC held that the Tariff shall be determined on the basis of the heading.However to classify as finished product. E. RULE 2 (a) – Any reference in a heading to an article shall be taken to be a reference to that article which is incomplete or unfinished provided that the unfinished article has characteristics of the finished product. There was a notification for exemption for the fax machine but not its parts. However people take advantage of the exemption that Government gives to parts and not finished products by importing parts at different times.g. chapters and sub-chapters should determine the classification. it is not a finished product. Modi Xerox v CCE 2001 133 ELT 91 (SC) – The Supreme Court dismissed the Appeal of the assessee. chapter notes and the Section. The Supreme Court held that the intention of the party was to avoid tax. CKD (Completely Knocked Down) Goods. E. Mixtures made up of several components or set made of a number of articles and put up for sale shall be classified.g.RULE 1 – It says that the title of the Sections. th 24 . It was held that if the components of the fax machine are imported in the CKD condition. It includes unassembled products. They should be read with heading or chapter notes. Circular 1 of 2005 – Mobile handsets imported in CKD condition are classified as complete products and not as parts. when rule 2(b) is not applicable. 2004 164 ELT 292 (AT) – Assessee was importing SKD packs of audio system. e. Hence in a number of cases. They are also applied sequentially.g. 3a) Heading giving specific description shall prevail over heading giving general description. Thus it says that one should refer to Heading Notes + Chapter Notes read with relevant Section. E. 3b) Mixture – Applies in case of 2 or 3 mixtures or composite goods. article or gold with some other article. Rule 3 – If classification is not possible as per Rule 2(b) or any other purpose. pencil etc and make up a set of articles. Rules of interpretation are important for classification. rules 3(a). 16 AUGUST. If they are imported at different points of time. Saurashtra Chemicals v CCE 1986 23 ELT 283 (CEGAT) – Court says that the classification is to be determined on the basis of the chapter and heading of the Section. Rule 2(b) – Rule 2(a) is not applicable then Rule 2(b) becomes applicable – Any reference to a material or substance will also include a reference to a mixture or combination of that material or substance with that material or substance. Drawing instruments consist of eraser.g. Fenner India Ltd.
Circular 17/2007 – Mobile Handsets – Mobile phones with additional features (alarm. Jyoti Industries v CCE 2000 115 ELT 559(AT) – Whether kitchen sink will be classified as sanitary ware or as “household articles of iron and steel”? Since “sanitary ware” is more specific.Goods which cannot be classified as per the above rules then the same is classified under the heading which is most similar to it. Rule 5(a) – Classification of the packing materials and the packing containers. E. 2005 1 ELT 345(SC) – It was observed by the SC that Rule 3 must be resorted to if rule 2 is not applicable. computer) is still considered as mobile phone as the primary function of the mobile is that of a telephone.g. Pragati Silicon Pvt. 2007 218 ELT 17 (SC) –It was held that a desktop computer is a combination of CPU. browser. th 25 . 17 AUGUST.Priority has to be given to the main entry and not the residuary entry. Nagaraj Brothers v State of A. successfully classify the goods. Hence if an item cannot be brought under any other heading. Simplex Mills Company Ltd. being an integral part of the laptop should be chargeable to excise duty. Hence it is not a set of articles but has a different heading under which it CCE v HP India Ltd.3c) If goods can’t be classified as per 3a or 3b it shall be classified under the heading which occurs last in numerical order and those which equally merit consideration. 2010 Judgments on 3a CCE v. SC said that essentially hard disk is the container but software is integrated to it. Rule 4.000 and software of 67 lakhs within it. it must be brought under the residuary heading. V. SPIRIT RPG India Ltd v CCE 200 116 ELT 6 (SC) – The company was importing hard disk of 65. Laptop comes in an integrated and inseparable form and CPU. 2005 ELT 215 ELT 484 (SC) – Preloaded software in a laptop forms preloaded part of a laptop as it can’t work without the Operation System. State of Maharashtra v Bradma AIR 2005 SC 956 – Resort can be had to residuary heading only when a specific heading cannot by liberal construction. Judgments on 3c CCE v Acer India Pvt. Ltd . Ltd. CCE v Gujarat Perstorp electronics Limited – 2005 7 SCC 718 . monitor. it prevails over “household articles of iron and steel”. .“Suitcase” shall prevail over heading stating “plastic articles”. keyboard etc are all integrated. Cases are generally classified with the goods itself. It basically states that every chapter has a residuary heading.P. Hence the software (which is otherwise exempted from excise duty). Camera cases shall be considered a part of the camera. mouse and keyboard. v CCE 2007 211 ELT 534 (SC) – Plastic name plate of a motor vehicle is to be classified as the accessory of the motor vehicle and not as “any other plastic article” as the specific artic le prevails over the general one. Hence it is classified as a set of articles. Hence the value of the software should be charged. Each of them can be used individually but are iused together as a set.
Eureka Forbes v CCE 2001 130 ELT 146 (AT) – hose/pipe of the aqua guard machine can only be used with the aqua guard and hence cannot be classified separately. However accessory and spare part is not a part of the whole. whether they are medicament or ayurvedic medicine.Part of a part is a part of the whole. Hence SC said that it is a general part and not part of an AC as it can be used separately. It is not a general part and should be classified with the machine itself. Hence it will be classified as a general part “aluminum grills” and not as “AC”. The Court said that the burden of proof that a good falls under a particular category i s on the Revenue because the consumers are guided by the advertisement that it is “not a cosmetic’ and that the ingredients of the cream are found in Ayurvedic text books. The assessee showed that they had drug controller’s license to manufacture Lal tail. Hence the SC held that Lal tail is a medicament. They also showed prescriptions of ayurvedic doctors recommending Lal tail. Indore (2006) 2 SCC 351 The last rule of classification is the trade parlance or commercial parlance theory. The popular opinion amongst the public stated that it was an ayurvedic medicine. Rule 6 – For legal purpose. They said that a medicine is prescribed be a medical practitioner for a limit ed use and not everyday use th 26 . CCE v Vicco Laboratories 2005 179 ELT 78 – The question was whether Vicco Turmeric cream was a medicament or a cosmetic. Vaidyanath Medical Hall v CCE 1996 9 SCC 402 – Question whether Lal Dant Manjan is a medicament. 18 AUGUST. the classification of goods should be done under the appropriate subheading. Part is to be classified with the whole as the whole cannot function without it. This is based on the reason why consumers purchase goods and the commercial understanding of the same.Rule 5(b) – Subject to the provisions of rule 5a. Classification of the parts CCE v Insulation Electricals 2008 224 ELT 512(SC) – A part is an essential component of the whole without which the whole cannot function. The product must be classified by the popular meaning attached to it by those using the product. CCE v Aldic Corporation 2005 188 ELT 241 (SC) – The assessee was manufacturing aluminum grills which were used by buyer in air conditioner and were also used for general purpose. the provision does not apply if the packing materials/containers are used repeatedly. Regarding Janamgutti the question was whether it was aqueous distillate or aqueous solution or extraction of essential oil. Dabur India Ltd. v CCE 2005 4 SCC 9 – Here the items in question were Dabur lal Tail and Janamgutti (i.e. 1990 46 ELT 68 (SC) . Only sub headings at the same level are comparable. 2010 Case presentation Vikram Cement v CCE. They referred back to the lower authorities to verify the process of manufacture. CCE v MP India Ltd.Tyre is a part of cycle and valve is a part of tyre hence valve is a part of a cycle. Two items were in question i) Turmeric cream and ii) Vicco toothpaste. the last resort is the trade parlance theory. If it is not possible to classify the goods as per the rules or the chapter notes.
Medicament is used to treat some medical problem while a cosmetic is used to improve the appearance of a person. Non – filtered cigarettes are non dutiable. Here the SC clearly negated their own reasoning in Vaidyanath Medical Hall. ii) Whether ingredients used in the product are mentioned in an Ayurvedic textbook. They discussed CCE v Pandit D. The ingredients of the oil find mention in the Ayurvedic books. Sharma 2003 5 SCC __ – Question was whether the Himtaz oil was a medicament. Here it was said that a prescription of doctor is not required for a product to qualify as medicament. Generally the percentage or dosage of medicament is small to make it suitable for human use. Court held that the onus on proving that the product falls within a certain category is on the Revenue. CCE v ITC Ltd 2008 231 ELT 207 – The question was about non filtered and filtered cigarettes. The assessee showed that the product was used to cure headache. i) Whether the item is commonly understood as a medicament. 2010 In Dabur India. Parachute Hair Oil is classified as Hair Oil in West Bengal as no one uses it as edible oil in West Bengal.unless it is for diseases like diabetes. it shall qualify as Ayurvedic medicine. the perception and meaning of the product. Puma Ayurvedic Herbal v CCE 2006 3 SCC 266 – Supreme Court laid down 2 tests to find out whether a product is a cosmetic or medicine. etc. the Court stated that people purchase this oil because it is supposed to cure medicaments and hence it is a medicament and not mere perfumed hair oil. CBEC has also issued a Circular No. 19 AUGUST. The Court held that doctors also prescribed the power. it has been treated as a drug. However even in 2009. 333/49/1997 that if the ingredients find mention in an Ayurvedic text book then even if the preparation is not as per the Ayurvedic textbook. In this case. The court should be guided by classification of goods and not demolish the purpose of goods. night blindness. Hence it is not a medicament as it is not prescribed by doctors and not used for a limited time. the case of CCE v Sharma Chemical Works was referred 2003 5 SCC 63 – The question that arose in this case was whether Banphool oil was a medicament. th 27 . The use of a medicament might improve the appearance also but it does not make it a cosmetic. Ayurvedic medicines have lower duty than cosmetics. In this case assessee was manufacturing a cigarette having a Tipper Gold Tip and it is a non filtered cigarette but it consists of a soft tip which is not meant to filter the tobacco. For sales tax act. It was said that medical practitioner’s opinion is not needed to make it fall under the class of medicaments. The bottle of the product does not mention “Hair Oil”.P. However it is classified as edible oil in Southern States as people use it as hair oil in those states. in a similar case between Vaidyanath Medical hall and CCE it was again held that Lal Dant Manjan is a toothpowder and not a medicament. Thus common parlance needs to be taken into account. Muller and Fipps v CCE 2004 167 ELT 374 – Prickly heat power is a medicament. The Supreme Court agree on the point stating that the basic character and use of the product is more important than the basic character and use of the cigarette. Hence its classification is based on common parlance/trade parlance. the marketing and advertising of the product needs to be taken into account while classifying it. Also.
2002 and Service Tax Credit Rules. So tax is paid only on the value addition. Thus the manufacturer could avail the credit on duty for both input services and goods. Without CENVAT Credit Price of raw mat Value Addition Selling Price Duty Tot 110 40 150 15 165 With CENVAT Credit 110 40 140 (as Rs 10 is CENVAT credit) 14 154 (Hence only 4 is paid as duty) st e. SC lid two tests for this purpose:i) It must be predominantly made by hand. Thus it taxes any kind of value addition. introduced GST in 2004 partially. a service provider availing input goods and services can avail duty on services and goods. In 2004 they merged these schemes together as the CENVAT Credit Rules. SC classified it as a candy. tot price is 154. the amount of sugar was 97% and 3% was Ayurvedic. In 1986 the Government had issued MODVAT (Modified Value added tax). Similarly. 2002 for service providers. In 2002. The schemes are same in both but CENVAT has more explanative definitions. In 2000 they introduced CENVAT (Central Value Added Tax). thus Govt. 2004. However in case of Swad candy. CCE v Dabur India 2002 146 ELT 311 (SC) – SC held that Hajmola candy is an Ayurvedic medicine as 75% of it is Ayurvedic medicine while 25% is sugar. ii) It must be graced with visual appeal in the nature of ornamentation or in labour lending in an element of artistic improvement.g. 28 .10% duty = 14. Now 10 is the credit availed so 14-10 =4 is the duty payable. 21 AUGUST. Handicrafts items (also exempted) CCE v Louise Shoppe 1996 2 SCC 445 – The question arose whether wooden furniture is a handicraft or not. 2010 CENVAT Credit They are governed by the CENVAT Credit Rules. 40 is value addition total = 150. Say cost price of raw material is 100 and 10 % is duty on it. So the manufacturer purchases it for Rs 110.Natural Health Products v CCE 2003 158 ELT 257 – Vicks Vaporub and cough drops are Ayurvedic medicines. This provided a scheme of interchangeability. The benefit of this is to prevent cascading effect and prevention of double taxation. CENVAT taxes the difference between manufacturing price and sale price. the Government came out with the CENVAT Credit Rules.
However it uses the word “input”. The duty is Rs 10 and the input services is Rs 20. However this clubbing is not possible if the goods are manufactured by the same person but in different premises. 23 AUGUST. – If he has purchased the machine for 10 lakhs and 2 lakh is the duty then 50% of the duty can be availed in one year and the remaining in the next year. the duty is very high. “Used in” suggests that the goods were a component of the manufacturing process. So under the CENVAT credit rules. Hence in this case the Rs 10 duty on export can be set off against the duty on import. then a refund can be claimed from the government. Formatted: Highlight 29 . “used in” or “in relation to” – There is a difference between “used in” and “used in relation to the manufacturing process directly or indirectly”.A is manufacturing goods. then the manufacturer has to take credit on F2 of Rs 200.g. Rs 10 is the duty on the export of the final goods. It says that input means all goods except a) light diesel oil ii) High speed diesel oil or iii) motor spirit used in or in relation to the manufacture of the final product whether directly or indirectly and whether contained in the final product or not and includes lubricating oils. Duty on F1 and F2 are 150 and 400. and the duty on the final service is low hence the same cannot be set off. If he is manufacturing goods for home consumption then he can claim a refund. cutting oils. L1 and L2 are two input goods. coolant and accessories which is cleared along with the final product (Thus any duty paid on such accessories or t he input is used to make the accessories then the CENVAT credit can be availed on the same). Under Central Excise Act. However motor vehicles should be used for service provider and not manufacturer. L1 is used to make F1 and L2 is used to make F2. The entire amount need not be availed in one year. 2010 rd Input Goods:Rule 2(k) defines input goods. electricity provided in the canteen since canteen is a part of the factory under the Factories Act). Duty on L1 is 350 while that on L2 is 200. If the duty on import is 20 and there is no export duty. If both of these are manufactured in the same premises then the two can be clubbed and no credit needs to be obtained. grease. However the Rajasthan HC has stated in CCE v Hindustan Zinc has stated that a plinth made by cement for fixing the machine cannot be said to be “in relation to the manufacturing process”. they policy of 50% exemption is provided. factory means any premises including the precinct thereof where the goods apart from salt are being manufactured. It is an exhaustive definition and not inclusive. “used in relation to the manufacturing to” has a very wide meaning. CENVAT Credit is available for 1) Input goods – all materials used for manufacturing 2) Input services – all services availed for manufacturing process 3) Capital goods – machine for internal production. Otherwise if it is done separately. It also includes packing material. However there may be 2 situations. Since in capital goods. However this is a very debatable question. This however does not include buildings as they have a different exemption that applies to them. paint. Scope of “all goods”. However. or anything used to generate electricity or steam etc then CENVAT credit can be availed on the same or items used for any other purpose within the factory premises (e.
iii) Those which act like catalytic agent while influencing and accelerating the chemical reaction and themselves remain uninfluenced and unaltered and remain independent of and outside the product. v CCE 2005 181 ELT 295 (SC) – It was said that there are 4 kinds of input used in the manufacturing process which are eligible for CENVAT Credit. Formatted: Highlight J. Cotton Spinning and Weaving Mills v STO 2007 has said that building material used for factory. Bikram Cement v CCE 2006 194 ELT 3(SC) – Input need not be used within the premises of the factory. 30 . SC said that hospital equipments. Eastern Electro-chemicals Industries Ltd. iv)Those which might be burnt up or consumed in the chemical reaction but are not present in the end product. dispensary. Sterlite Industries v CCE 2006 203 ELT 283 (CESTAT) . It may be inputs used in the captive mines or captive power plants which are at a distance from the factory.K. Hence if goods are used in the process of manufacture then it is covered under CENVAT Credit but if it is used to facilitate the process. stationery etc are likely to facilitate the manufacturing process or mining but it cannot be said that it is a part of the manufacturing process. UOI CCE v Hindustan Zinc Ltd 2007 218 ELT 503 (Raj HC) – Cement and steel used for foundation of machinery is not eligible for CENVAT Credit as they are not used in relation to the manufacturing process. Lloyd’s Steel Industries v CCE 2007 211 ELT 275 (CESTAT) . it cannot be said to be included under CENVAT Credit. Cotton AIR 1965 SC 1310: if the process is inextricably connected with the product that it is not possible to produce the goods without that process then whatever is used in this process is also input goods for this product. Ballapur Industries: Presence in of the input goods in the end product is not a necessity for claiming CENVAT credit. CCE v. v CST State of Bihar AIR 1965 SC 891 – There was supply of equipments for mining purpose. medical supplies.The CENVAT credit for cement and steel used for making foundation for installation of plants machine or equipment is eligible for CENVAT Credit. equipments like fans coolers etc are only to facilitate the manufacturing process and are not eligible for CENVAT Credit.K. i) Those inputs which retain their dominant individual identity and character throughout the process and they are present in the end product also.Steel used for construction of building.The CESTAT in J. Indian Copper Corporation Ltd. ii) Those which as a result of interaction with other chemicals or ingredients might themselves undergo chemical or qualitative change and in such altered form find themselves in the end product. generator shed etc is not eligible.
v. Indian Farmers Fertilizers Company v. CCE 1996 86 ELT 177 SC: Inputs used in the effluent treatment plant would also be inputs in the final product and duty paid in those inputs is also eligible for CENVAT credit. however if it is due to manhandling.e. CCE 2004 166 ELT 349 Mumbai Tribunal: If the activity does not amount to manufacture then there is no excise duty. Rajasthan Chemical Works.CCE v.g. Court held that the credit cannot be denied if the Sulphuric Acid is not fully used in the manufacture of the product. 25 AUGUST. It is only to maintain the machines used to manufacture goods. This is not in relation to the manufacturing process. ACC v. Veruna Sulphonatus v. It states that input includes:i) All goods ii) Used in or iii) In relation to the manufacture iv) Directly or indirectly v) Whether contained in that product or not 2 Part of the definition (2) – Input goods for service provider – All goods used for providing output services shall be regarded as input goods. UoI 1993. but if they are intended to be used in the manufacturing or in relation to the manufacturing process then the CENVAT credit can be taken. CENVAT credit can be taken if the goods have been purchased. If loss in the input is due to natural causes. v. then CENVAT credit can be taken. Syndet India Ltd. then can the person claim CENVAT credit as there is no provision for refund. BPL display devices Ltd. 68 ELT 42(All). This is in relation to the manufacture of the final product and not directly in the product. AIR 1991 SC 2222: discussed under manufacturing where integral process is discussed. stationery. CCE 2004 174 ELT 5: The goods may be used after siz months. CCE 1990 50 ELT 295 Tribunal: Inputs used in the maintenance of the machine or equipment is not eligible for cenvat credit. i. However if CENVAT credit taken but goods are not used in the process then there is reversal of CENVAT credit. 2010 Rule 2(k) 1 part of the section defines Input for manufacturer. Partial use of the input goods: even the partial use is sufficient for CENVAT credit. E. but the manufacturer pays the duty and the department has accepted that duty. nd st th 31 . then reversal of CENVAT credit is required.
facilitation of process. The fuel used for the same included Low Sulphur Heavy Stock (LSHS) which was also used in the manufacture of cement and caustic soda. However the Court allowed it on the ground of “secondary packing”. it is inexpedient to market the goods. The Court held that LSHS would fall under the definition of “used in or in relation to manufacturing process” and hence CENVAT credit can be claimed. REVERSAL OF CENVAT CREDIT 32 . Rajasthan Chemical Works AIR 1991 SC 2222 – The Supreme Court defined “process” as the process used in the manufacture or in relation to manufacture and which employs not only production but also includes any change which the raw material is subject to in the process. CCE v Solaris Chemtech (2007) 214 ELT 481 (SC) – The assessee wanted to produce electricity for captive consumption. The Department did not allow CENVAT credit on this ground. then such a process would be regarded as “in the process of manufacture”. In this case. If any process which is so connected with the manufacture that without it. If the goods are remotely connected with the process i. 50% of the product was packed with a wrapper and put into jars. Input used in the process to make capital goods in order to make the final product would also be eligi ble for CENVAT Credit.e. JayCo India Ltd v CCE (2007) 220 ELT 123 (CESTAT) – No difference drawn between primary and secondary packing. The production of electricity was meant for the purpose of captive consumption for an uninterrupted process. Hindalco Industries v CCE (2006) 201 ELT 44 (AT) – Electricity used for captive consumption is eligible for CENVAT Credit. Duties eligible for CENVAT Credit:i) Basic excise duty (Schedule 1) ii) Additional Excise Duty (Schedule 2) iii) Education Cess iv) Higher Education Cess v) CVD at par with excise duty vi) CVD at par with sales tax – 4% vii) Additional duty like NCCD (National Calamity) 1 % viii) EC on CVD ix) HEC on CVD CCE v Eastend Paper Industries AIR 1989 SC 488 – SC held that anything required to make the goods marketable. The use of wrapping paper is necessary ro make the goods available in the market hence any goods used in the manufacturing process to make the goods marketable shall be eligible for CENVAT Credit. 2% of the electricity was sold to the grid. In this case. The rest was packed with tattoos and credit was claimed on the tattoos as they amount to secondary material. then they shall be ineligible for CENVAT credit.CCE v. Hence the Court stated that CENVAT credit can be claimed for electricity for captive consumption and in such cases apportionment needs to be done. all the processes required to do so will be considered as “in the process of manufacture”.
2010 INPUT SERVICES st th 33 .CENVAT can be claimed. duty paid on purchase shall be availed when paying duty on the final product. there needs to be a value addition to the final product. Input used in ancillary/ preparatory process. If due to accident. Lotte India v CCE 224 ELT 102 (CESTAT) – Assessee was selling a combo pack of Coffee Bite and Butter Scotch. No maximum limit of storing the goods. Even after 2008. goods are damaged.If goods are damaged during transport or in store house and if damage is due to Vis Major then CENVAT Credit can be availed. Under a promotional scheme. If final product shall be treated for input of the changed product. Even the defective final product is eligible for CENVAT Credit. Court held that whatever is the duty on the soap dish CENVAT credit can be availed. Butter Scotch was bought out. 31 AUGUST. CCE v Gupta Soaps (2007) 213 ELT 372 (AT) – Supply of soap along with the soap dish in one pack. 30 AUGUST. Rule 3(5C) – Where any goods manufactured or produced by assessee. the duty paid on the goods has been remitted by the Central Government then the CENVAT Credit availed on the goods needs to be reversed. Tribunal held that as the chocolate was not used in the manufacturing process and MRP of the product was the same hence no credit can be claimed. However prior permission of the Assistant Commissioner or Deputy Commissioner must be taken. In case of bought out items. v CCE (2007) 209 ELT 196 (Mum AT) – Appellant was the manufacturer of the product “Bournvita”. input goods can be stored outside and the same shall be considered as an extension of the factory. a 2 piece star chocolate with the product. then there is no CENVAT Credit and there is reversal of the same and the entry for the same is cancelled. Appellant’s claim of credit on the chocolate was not admitted. (Rule 16 of the Central Excise Rules) – There needs to be some value addition in the goods. Exceptions – Rule 8 – 1) In case there is no space or the goods are of dangerous nature. Inputs must be stored within the premises of the factory for CENVAT Credit to be availed. CCE v Maruti Udyog Ltd. Shree Varna Sehkari Doodh Utpadak Prakriya Sangh Ltd. MRP of the final product remained the same. 2010 Rule 3(5B) of the CENVAT Credit Rules – An important condition for availing CENVAT Credit reversal is that the value of the goods before being used in the process should be written off in the books of accounts. CESTAT held that this combo pack was a manufactured item and hence Credit can be claimed. Provided that if input or capital goods is used in the manufacture/ production process then the CENVAT Credit can be claimed. (2000) 120 ELT 580 (AT-CEGAT) – The Court held that an antenna assembly fitted into the deluxe model of a car is eligible for CENVAT Credit as input includes any accessories cleared with the final product.anything bought out then CENVAT Credit can be availed if it is used as an input good.
Whether it is an input service? – If the service is at the office. NICE Telecommunications v CCE 2007 8 STT 159 (CESTAT) – Mobile phones are eligible for CENVAT Credit. (ii) Now they have deleted any activity relating to the business. However this scope was restricted vide the amendment in 2008. Under the Old definition: (Note : now it would not be available) Indian Rayon Industries v. the ambit of services which could avail CENVAT Credit was very wide as the word “from” indicated that any service after the final product is removed shall be considered. Thus any activity which is in relation to earning profits amounts to a business. it undoubtedly qualifies as input service as the activity carried out by then is for busines s. Thus prior to the amendment. Coca Cola v CCE (2009) 15 STR 657 (Bom) – Definition of “business” says that all services must be used by the manufacturer in relation to the process or in the process. Meaning of “in relation to the business” – Business is a very wide term vis-à-vis “in relation to earning profit”. The Bombay High Court held that CENVAT Credit could be availed on the duty paid on the concentrate as the advertisement is an essential service as the concentrate cannot be sold as it is. However now it is upto and therefore now services used after the place of removal are not covered. The Credit could be availed on the duty that was paid.Rule 2(l) – Definition – 1) Any service used by the provider of taxable service for providing output services. (iii) Service of Business Exhibitions and Legal Services has been included. Changes in the Definition applicable from 1 of April 2011: (i) CENVAT Credit relating to the setting up of the business would not be allowed. modernization and renovation of the factory. premises of output services provider or offices of the manufacturer. The controversy was regarding service installed at residence. This rule was amended in 2008 – The phrase “from the place of removal” was substituted by the words “upto the place of removal”. 2) Used by the manufacturer 3) whether directly or indirectly or 4) in relation to the manufacture of the final product and for 5) clearance of the final product upto the place of removal. sales promotion and market research. Explanation – Includes services used in relation to setting up. 2010 Telephone services at the residence of executives. Formatted: Superscript Cenvat Credit Rules. For INPUT GOODS CENVAT Credit is on excise duty. 2004 34 . CENVAT Credit can be availed if service tax is paid. advertisement. The advertisement of the soft drink was done by Coca Cola but the manufacturing was done by the bottling company. Excel Corporation Care v CCE 2007 7 STR 451 (CESTAT). (iv) Certain services have been specified which would be available only if they are used by the service provider to provide output service. CESTAT held that the CENVAT credit cannot be availed by the company as they are not manufacturing the product that is being advertised. CENVAT Credit of the advertisement was availed on the value of the concentrate. Royalty and price charged by Coca Cola plus the value of the concentrate formed the selling price. 2 SEPTEMBER. The service amounts to a perquisite and is hired by the employer and hence it is also relatable to business. CCE 2007 6 STT 328 Mumbai Tribunal: Service tax paid on the mobile phone services is available as a credit to the service provider and the manufacturer. For INPUT SERVICES CENVAT Credit is on Service tax. 2 nd st 2 Comment [AA1]: Previously it was from the place of removal.
This is because the HO hires these services and distributes it amongst the factories. ISD means an office of the manufacturer which receives invoice towards purchase of input services and issues challan for the distribution of these services as per the proportion. Metro Shoes v CCE 2008 (CESTAT) – Place of removal is the showroom in this case. CAPITAL GOODS – Rule 2(a) – Capital goods means i) All goods under chapter 82. dyes and fixtures v) Refractory and refractory material vi) Tubes and pipes and fittings thereof vii) Storage tanks The conditions for the above to qualify as capital goods is that i) It must be used in the premises of the manufacturer ii) Does not include any appliances used at the office iii) Does not include any input service. v CCE 2007 7 STR 310 – Internet services at residence are eligible for Cenvat Credit. GHCL Ltd v CCE 2007 10 STT 254 (CESTAT) – It was held that the services provided at the residence of the staff members is not eligible for CENVAT Credit. Bhoruka Gases v CCE 2008 22 ELT 449 (CESTAT) – Commission paid to the commission agent is also eligible for Cenvat Credit. Input Services Distributor (ISD) – Rule 2(m) – If the Head Office of a company is at a particular place and factories are at other places. 84. it is necessary to register the HO with the Central Excise Department to avail these services. spares and accessories of the goods of the goods falling under the chapters in (i) iv) Moulds. Excel Corporation Care v CCE 2007 7 STR 451 (CESTAT) – Construction service for setting up garden and building a signboard. 84. 35 . Hence CESTAT stated that whatever services were hired at the showroom were eligible for Cenvat Credit. CESTAT held that it is not eligible for Cenvat Credit. the HO can still be eligible for Cenvat Credit under the system of Input Services Distributor. 85 and 90 ii) Pollution control equipment iii) Components. However the case of Shaw Builders v CIT settles the law stating that the service provided at home amounts to a perquisite and is hired by the employer and hence it is also relatable to business. Rule 4(7) of Cenvat Credit Rules states that Cenvat Credit on input service can only be availed if the service tax had been paid for the input service. However for this.Universal Cables Ltd.
36 . Sub rule (2) States that CENVAT Credit on capital goods can be taken up to 50%in the same financial year and remaining 50% can be availed in the next year. (Rule 2(a) B) Thus anything which is not eligible under Capital Goods will be eligible as input goods (Rule 2(k)) 4 SEPTEMBER. Motor vehicles for providing services to the service provider are capita goods for the service provider. he can avail CENVAT credit on the appliances used in his office. Rule 4 – Conditions for allowing CENVAT Credit – Sub rule (1) CENVAT Credit on inputs is available as soon as inputs are received in the factory of the manufacturer or the premises of the output service provider. 2010 Basic Procedures for CENVAT Credit Rule 3(1) of the CENVAT Credit Rules .If the same person is both a service provider and a manufacturer. This is provided that the capital goods are used in the process of manufacture or in relation to the same. Generally one to one correlation is not required however there are exceptions:th Exceptions i) Whatever education cess is availed on the input services or goods can only be availed against the education cess paid on the final product. However they aren’t capital goods for the manufacturer. ii) Whatever NCCD is availed on the input services or goods can only be availed against the NCCD paid on the final product.Duties which are eligible for CENVAT Credit i) Basic Excise duty ii) Education cess and Higher education cess on basic excise duty iii) Countervailing duty which is at par with basic excise duty as per Section 3(3) of the Custom Tariff Act iv) Education cess and higher education cess on CVD v) Additional custom duty as per Section 3(5) of the Custom Tariff Act (4%) vi) Education cess and higher education cess on the above CVD vii) NCCD (National Calamity contingent duty) 1% viii) Service tax ix) Education cess and higher education cess on the service tax.
15. a) The manufacturer of goods shall pay 10% of the exempted goods and 8 % of the value of the exempted service b) The manufacturer of the goods or provider of output service shall pay an amount equivalent to the CENVAT Credit taken on the input goods and services.Sub rule (3) CENVAT Credit on Capital goods is allowed even if they are acquired on lease. Sub rule (5) Inputs and capital goods can be sent outside for job work but should be brought back within 180 days. invoice.000. Sub rule (7) – In case of service tax. (Rule 6 is applicable from 2008) Separate inventory. If the above is not maintained then either of the following conditions should be followed. Depreciation can only be allowed on the 1 lakh and not 15. Rule 6. Hence total cost is 1. TRANSFER OF CENVAT CREDIT Rule 10 (1) – If the manufacturer of the final product:i) Transfers his factory to another site OR ii) Enters into a Joint Venture agreement OR iii) Merges with another entity. Suppose value of capital goods is 1 lakh and duty portion on the same is 15. only when the payment is made to the Service provider CENVAT Credit can be claimed. Sub rule (4) Assesses should not claim depreciation on the excised portion of the capital goods. AND There is transfer of liability then the CENVAT Credit can be availed on the same. and receipts for exempted and dutiable goods.If the manufacturer uses same inputs for the exempted and the dutiable goods then the following needs to be observed. hire/purchase or loan. Sub rule (6) – Components of jigs and fixtures are also eligible as capital goods.000 as it is the excised value. Rule 6(4) – If the capital goods are partially used for exempted services and partially for the final dutiable product then the entire CENVAT Credit can be availed. Tahir Ali Inductries v CCE 2006 195 ELT 2005 (CESTAT) – It is the option of the assessee to exercise either of the 2 above options. Rule 10 (2) – If the output service provider:i) Transfers his factory to another site OR ii) Enters into a Joint Venture agreement OR 37 . 000.
2002 means a person who has one or more registered premises under the Central Excise Act. P. Exclusive benefits for LTUs. Transfer of challan. 2010 Rule 12A of CENVAT Credit Rules– In 2005-2006 the Large Taxpayer Scheme (LTU) was introduced by the Finance Minister. Each LTU shall be controlled/ headed by the Chief Commissioner of CBDT or CBEC. and other taxes separately but at a single window. 3. AND there is transfer of liability then the CENVAT Credit can be availed on the same.If the total tax Central Excise Duty = 5 crores. Rule 2(ea) Central Excise Rules. The Assistant Commissioner from Income Tax or Excise and customs shall be the client executives. 2. one cannot remove input and capital goods. 1994 and is assessee under the Income Tax Act holding a PAN and satisfies the conditions and observed the procedure issued in Circular No. 834/11/2006. the input goods or capital goods which are lying in the store are also transferred to the transferee. one or more registered premises under the Finance Act. This scheme is not available for tobacco and pan masala manufacturers. This prescribes an exclusive procedure for LTUs and the same overrides all the general rules stated under the CENVAT Credit Rules. 6 SEPTEMBER. Certain other benefits are conferred on LTUs such as certificate of removal is not required at the time of removal. Service tax = 5 crores and Income Tax = 10 crores then the entity becomes a Large taxpayer Unit. The prior permission of the Deputy Commissioner or Central Excise should be taken for the same. It is present in most developing countries and has been started recently in India and Bangladesh. These large taxpayer units are present in Bangalore. For application for an LTU one needs to make an application under Form 21 of 2006. bills etc are required to distribute the services or input duties. Chennai and Mumbai. No challan. inventory is not required at the time of removal.Ordinarily in order to avail CENVAT Credit. invoice. 38 . Chidambaram. th Eligibility. A proposal for the same has been made for Delhi. 30 days notice must be given from the beginning of the financial year. However this restriction is absent for LTUs. 4. If a unit wants to exit the scheme. Rule 12(bb) of Central Excise Rules also talks generally about LTUs. Rule 10(3) – The transfer of CENVAT Credit under 10(1) and 10(2) shall be allowed only if along with the transfer. Rule 12A of CENVAT Credit Rules Procedures and facilities for Large Tax payers with respect to CENVAT Credit.iii) Merges with another entity. It is a single window clearance system designed to give benefit to a large taxpayer. Administration of LTUs 1. Each LTU is assisted by the client executives. Thus large taxpayer units do not have to pay excise duty.
Rule 14 of the CENVAT Credit Rules – Recovery of CENVAT Credit wrongly taken – If the CENVAT Credit has been wrongly taken, the same along with interest shall be recovered from the manufacturer or provider of service. For this, Section 73 and 74 of the Finance Act, 1994 and Section 11A and 11B of Central Excise Act shall be applicable. Rule 15 – Confiscation and Penalty – (1) If any person takes CENVAT Credit wrongly or in contravention of the rules, then all such goods shall be confiscated and a penalty not exceeding the duty equivalent to the excise duty on the goods or Rs 10,000 (changed to 10,000 from 2,000 in 2007) whichever is higher shall be charged. (2) In a case where the CENVAT Credit in respect of capital or input goods has been taken wrongfully or fraudulently or utilized wrongly in contravention of the Central Excise Act or the rules thereunder then the goods may be confiscated and the provisions of Section 11AC of Central Excise Act shall apply (3) CENVAT in respect of input service wrongly taken – Penalty not exceeding the duty equivalent to the excise duty on the services or Rs 10,000 whichever is higher shall be charged. (4) In a case where the CENVAT Credit in respect of input services has been taken wrongfully or fraudulently or utilized wrongly in contravention of the Central Excise Act or the rules thereunder then the goods may be confiscated and the provisions of Section 11AC of Central Excise Act shall apply (5) Any order issued by the Central Excise Department under the aforementioned rules shall follow principles of natural justice. Rule 15A- General Penalty- If no penalty is prescribed in respect of a violation then a general penalty of Rs 5,000 will be charged.(Introduced in 2008)
Excise Chief Commissioner Commissioner
Customs Chief Commissioner Commissioner Additional Commission er Joint Commission er Assistant/Deput y Commissioner Appraiser Examiner
Additional Commissioner Joint Commissioner Assistant/Deput y Commissioner Superintendent Inspector
How are the goods removed from the place of removal? Before 1968 there was removal under physical control .Thus the supervision of the inspectors was required. This was a cumbersome procedure. Thus after 1968, we have a procedure for self removal and no counter sign of inspector was needed. Thus a challan or invoice is required only and not actual supervision. 8 SEPTEMBER, 2010 BASIC PROCEDURE UNDER THE CENTRAL EXCISE When is duty payable? The taxable event is manufacture. However, rate of duty is determined at the time of removal. Rule 4 of the Central Excise Rules – In case of molasses, the incidence is on the procurer and not the manufacturer. Rule 4(4) – Commissioner may, having regard to the nature of the storage goods allow the goods to be stored in any place outside the factory premises without payment of duty. Rule 5 – Rate for determination of duty- The rate on the date on which goods are removed. In case of molasses the rate of duty is when it is received on the premises of the procurer.
Rate of duty for goods in captive consumption – The date on which goods have been issued for the next process. Rule 6 and 7 – Self Assessment – It is a form of self assessment. It is applicable in all cases except that of cigarettes. Rule 7 – Provisional Assessment – If the assessee is unable to determine the value on the rate of goods, then he may request the Assistant Commissioner in writing to allow the payment of duty on provisional basis. Rule 7(2) – Provisional duty payable is subject to execution of bond. Rule 7(3) – Assistant Commissioner to pass an order of assessment within 6 months. Rule 7(4) – If a differential amount is payable, then interest is also payable. Rule 7(5) – Interest also payable on refund of excess amount. 9 SEPTEMBER, 2010 CCE v Hindustan National Glass 2005 182 ELT 12 – Provisional assessment is not to be conducted unless there is an express order of given by Assistant Commissioner or Deputy Commissioner as per Rule 3 of Central Excise Rules, 2002. Ravi Mardia v CCE 2000 11 ELT 627 (5 member bench of CEGAT) – Once an assessment is provisional for one purpose, it is provisional for all other purposes. E.g. demand, refund, etc. CBEC Manual- Chapter 3 Part IV Para 3.1 of CBEC Manual 2005 – Department cannot order provisional assessment if it is found that documents submitted by the assessee are not in order. Under Rule 7, provisional assessment can be filed for if the assessee:i) Is unable to finalize the value of the goods and rate of duty OR ii) Is unable to classify the goods RULE 8 – Manner of Payment – Duty on goods removed from the factory shall be paid by the 6 day of th next month if the duty is paid electronically or else by the 5 day of next month in any other case. But for st the month of March it has to be paid before 31 March (next financial year). If the assessee are availing SSI scheme on the removal of goods, shall pay duty by 15 of next month or th 16 of next month for electronic. If the assessee is paying more than 50 lakh duties in one financial year by utilizing CENVAT Credit, they have to pay through electronic means only. The duty/liability to pay shall be discharged if it is credited to the account of the authorities. If the assessee deposits the duty by cheque, the date of presentation of the cheque before the bank designated by the CBEC shall be the date for the payment subject to the realization.
th th th
SEZ Units Rule 9(3) – Registration shall be subject to conditions as prescribed by the Government. He nce the wording of this rule should be reading with the object of the Act which is to regulate the traders and manufacturers.Only for hand processing units or dealers of yarns or manufacturers of readymade units. Rule 9 gives the procedure of registration – Every person who produces. SACER (System for Allotment of Central Excise Registration). then deregistration shall be applied for within 30 days. Registration certificate shall be granted within 7 from date of application or else it will be deemed to be granted. iii) A-3. There is no need for renewal. If business is transferred. The Registration certificate is a 15 digit number. The first 10 digits constitute the PAN Number. 662/53 of 2002 – Procedure for obtaining the registration. 2010 RULE 9 – Registration of the dealers or manufacturers or the premises of manufacture – Without registration.Manufacturers of hand rolled tobacco. This code is called ECC (Excise Control Code). The last three digits is the code given by the department. E.13 SEPTEMBER. Section 6 of the Central Excise Act and Rule 9 of the Central Excise Rules deal with registration of dealers. CBEC Circular No. The meaning of “otherwise uses” does not include individual consumers but only institutional consumers like hotels. Registration can be revoked or suspended if the holder of registration or any person in his employment commits breach of any of the provisions of the act or the rules made there-under. If there is any change in the constitution of the firm then they should inform within 30 days of the change to the excise department. Notification 35 of 2001 prescribes the form for the application of registration. Separate registration is required for different units if the same manufacturer has different units within the same premises.e. The Government may by notification exempt certain units from registration. The Proviso stated that the registration obtained under Rule 174 of Central Excise Rules shall be deemed to be as valid as registration obtained under Rule 9.g. then a fresh registration is required i. Registration certificate is permanent unless it is revoked or there is change in the nature of goods manufactured. registration is not transferrable. This registration certificate has to be pasted at a visible place where anyone can see it. manufactures or carries on trade or otherwise uses excisable goods are to register themselves. The next two characters are either XM. th 42 . Section 6 states that any person who is engaged in production or manufacture of any process or any goods mentioned in the Schedule or are wholesale purchasers. which denotes manufacturer or XD which signifies dealer. If the manufacturer ceases to manufacture. one cannot start any kind of production. There are three forms:i) A-1 – General Form ii) A-2. or dealers or stores specified goods are to be registered.
The Supreme Court held that the department cannot challenge its own circular. It can only withdraw with prospective effect. 789/April 2000) stated that goods or transactions that are chargeable under Mauritius law shall not be taxed again in India however for this purpose. There was a shell company in Mauritius which was exempted from tax. i) Personally who are manufacturing excisable goods which are unconditionally exempt from Excise Duty ii) SSI Units are also exempted.Exemption from registration – Rule 9(2) – It is notified every year in the official gazette. 14 SEPTEMBER. the Department challenged a circular. if all the goods are subject to exports.000 whichever is higher shall be payable. Azadi Bachao Andolan v UOI (2003) 263 ITR 706 (SC) – In this case. CCE v. Maruti Foam 2002 6 SCC … even if there is contrary decision by the Supreme Court. 2010 Binding nature of circulars CST v Indra Industries AIR 2000 SC 3442 – Circulars and Press Notes are no binding on assessee but the department cannot take a stand against it. There was a DTAA between Mauritius and India. are to be exempted. Assessee has right to claim on the basis of a circular and Court and the Court may consider the beneficial interpretation for the assessee. Rayon Glues v. iii) Persons getting goods manufacturer from others on his own account if he authorizes actual manufacturers to pay excise duty. Additionally the goods are liable to be confiscated under Section 9 and also imprisonment upto 7 years and minimum 6 months. Court and quasi judicial authority can challenge the circular. Union of India 2002 149 ELT 319 (Bom). in case of conflict between judgment of CESTAT / quasi judicial authority and a circular the CESTAT or quasi judicial authority will prevail CCE v Easwara and Sons Engineers AIR 20053 SC 613 – Department officers are bound by circulars as per Section 37B of Central Excise Act. The duty on the contravening goods or Rs 10. iv) Persons manufacturing excisable goods under custom warehousing procedures. The Circular (Circular No. v) SEZ units. 2002. UoI 2000 117 … the department cannot issue circulars contrary to the decision of the CESTAT or any other quasi judicial authority Century Rayon v. there must be a company in Mauritius. the departmental circulars would be binding on the department until they are withdrawn. The assessee claimed no liability under Indian law by stating the circular and also stating that exemption from taxation does not mean that the goods were not chargeable to tax. If the manufacturer manufacturers anything without obtaining registration. Thus if the value of goods is less than a particular amount then excise goods need not be paid. th Formatted: Underline 43 . then he is liable under Rule 25(1c) of the Central Excise Rules. However. It can at the most withdraw the circular. the CBDT challenged the circular stating that this would amount to tax evasion in both countries. The following units are exempted.
The decision of the Central Government cannot be appealed against but an SLP or a writ petition can be filed against it. The second Appeal from the decision of the Commissioner may lie to the CESTAT and then the procedure is followed as mentioned in ii). Ltd. AIR 1989 Bom 183. Union of India 2005 185 ELT 59 (Guj. benefit is already provided on the basis of a new Supreme Court judgment against the circular but the SC judgment is binding on the pending matters in the Court and not the circulars. ii) If the matter first comes before the Commissioner. Therefore unjust enrichment has to be considered. 1962) Appeal . Flock India Pvt.There may be two ways of appeal:i) If the matter comes before the Assistant/ Deputy Commissioner the first appeal lies to the Commissioner and the same has to be done within 60 days. 2000 6 SCC 650. Similarly there is a case of unjust empoverishment. Therefore how can the state collect a tax which has not been levied by the authority of law. 1944 and Sections 128-129 of Customs Act. Appeals and Revision (Sections 35-36 of the Central Excise Act. Refund Section 11B provides for claim of the refund and 11BB provide3s for interest on refund. a revision application may be filed to the Central Government. However the court said that the tax payer is the people of India the state can retain the same on behalf of the people of India. From the decision of the CESTAT (within 180 days) an appeal 44 . 265 says that no tax shall be levied or collected save as by authority of law. Ropeless Ltd. the first appeal may lie to the CESTAT and the limitation period for the same is 3 months. Suchitra Components v CCE (2008) 208 ELT 321 (SC) – Oppressive circular will be applicable with prospective effect. Mafatlal v. UoI 1997 5 SCC: Constitution Art.SAIL v CC (2000) 115 ELT 42 (SC) – Circular under Section 37B is binding on revenue even if it is contrary to law because they cannot challenge their own circular. Union of India v. Kalyani Packaging v UOI (2004) 6 SCC 719 – An old case cannot be reopened for which. Formatted: Font: Bold Formatted: Centered Formatted: Font: Bold Dunlup … AIR 1977 SC 597 Refund of cenvat credit INDO Nepo Chemicals v. If there is no second appeal. Beneficial circular shall be applicable with retrospective effect.) CCE v. CCE v Dhiren Chemical Industries (2002) 2 SCC 127 – The Supreme Court held that “Regardless of interpretation of a circular that we had placed if there is a circular which places a different interpretation of the same phrase then that is binding on the revenue.
it does not mean that he is not liable to pay duty pending the adjudication. Revision – A revision application may be filed under the following circumstances:i) Loss of goods in transit ii) Rebate of duty on excise on goods exported outside India. In 1924. iii) Goods exported without payment of India except Nepal or Bhutan iv) Matter related to baggage and duty drawback. 1962 i) Customs Tariff Act. 2010 th 45 . HC has stated that all tax matters must be decided by at least a 2-Judge bench (Section 35T of central Excise Act) CUSTOMS DUTY Applicable laws i) Customs Act. 16 SEPTEMBER. It dealt with goods transported by air.High Court has no power to condone delay unless expressly provided by excise. In 1911 the Aircraft Act was passed which dealt with the movement of goods by air. In 1962 all these acts were consolidated into the Customs Act. 1878. classification and value of goods. CCE v Hongu India Ltd (2009) 236 ELT 417 (SC) . 1975 iii) Custom Valuation Rules. Siddharth Turbo v CCE (2000) 123 ELT 516 (AT) – Mere filing of appeal does not amount to stay of recovery.may lie to the High Court and then to the Supreme Court or directly to the Supreme Court only in cases pertaining to rate of duty. Application for stay of recovery to be filed along with the appeal as per Section 35F of Central Excise Act and Section 129E of Customs Act. the Land Customs Act was passed which dealt with transport of goods by land. 1962. After these two cases an amendment giving effect to the judgment above was brought about in the Excise Act but no amendment was brought in the Income Tax. custom or income tax laws. Chaudrana Steels Pvt Ltd v CCE (2009) 238 ELT 705 (SC). 2007 History Earlier we had the Sea Customs Act. Departmental Appeals Assistant Commissioner Commissioner Commissioner (Appeals) Commissioner CBEC CESTAT Duty under Protest – It is the prior deposit of duty pending appeal. So if one is appealing against duty levied on him.
Finally. it was stated that import commences when the goods enters into the territorial waters and complete when it passes the customs barrier and is available for home consumption.g. UOI v Rajendra Dyeing and Printing Mills 2005 180 ELT 433 (SC) – It was held that the export completes when the goods cross the territorial water of India. The Exclusive Economic Zone is upto 12 nautical miles from the baseline. Section 3 of the Customs Tariff Act is the charging section for countervailing duty. However the same may be exempted by notifications. Indian Airlines v CC 2005 180 ELT 502 (CESTAT) – The fuel which was used for an international run would be used again in the domestic run. Hence once the consignment enters the EEZ. 2010 Definition of Export is under Section 2(18). Jain Brothers v UOI AIR 1999 SC 2550 – It mentions the charging sections for import and excise duty (Section 12 of Customs Act) and countervailing duty (Section 3 of the Customs Tariff Act). There may be a situation when the ship crosses the initial barrier and then sinks. Section 12 of the Customs Act is the charging section for import and export duty. Hence the question was. Notification No. Hence this is quite different from the case of imports. the SC settled the controversy regarding completion of import in Kiran Spinning Mills v CC AIR 2000 SC 3448 and Garden Silk Mills v UOI AIR 2000 SC 33 – SC said that import completes only when the goods cross the customs barrier and the duty is leviable on the date of crossing of the custom barrier and not on the date when it lands in India. CVD under Section 3(5) is to countervail the sales tax. When is import completed? India includes the territorial waters of India and includes 12 nautical miles from the baseline. The Court answered in the affirmative. 80/70 – Exemption is not allowable for the import of goods under free warranty scheme for commercial purpose. If the ship sinks within territorial waters then export is not completed. CVD under Section 3(3) is to protect the excise duty. The question whether customs duty can be levied when the ship crosses the territorial waters only is a very controversial issue. should the same be subject to custom duty when the same is used in India. Central Government is also subject to the excise and custom duty. However an import completes when the consignment crosses the “Customs barrier”. v CC 1996 87 ELT 509 (CEGAT) – Q: If an item is imported from outside India which is under warranty scheme and the goods need to be replaced and are replaced for free. If export is not completed then duty drawback cannot be claimed. they come within jurisdiction of the Customs Authority. th 46 . Export is defined as “taking out of India to a place outside India”. 18 SEPTEMBER. If it is for commercial use then it is not exempted. In Garden Silk Mills. will it be subject to import duty again? A: It is for personal use then it is exempted from excise duty in case of free replacement under warranty scheme. Hence the power to make legislations levying customs duty vests with the Central Government. 2(23) defines import and 2(27) defines India. E. Hence rate of duty applicable is on the date of crossing the custom barrier. since the fuel was bought outside India and was used outside initially. New Video Ltd.Entry 83 of List 1 – Duties of customs including export duty. A customs barrier is crossed when the bill of lading is shown to the port authorities or the airport authorities.
No import duty even when goods are lying on the dock. rent is charged by the Government!!! Section 15 talks about date for determination of rate of duty in case of imported goods and 16 of the Customs Act talks about date for determination of rate of duty in case of Exported goods. customs duty is 10%. Thus the rate of duty applicable is determined by the date on which the same is made applicable for home consumption. 2010 Types of Custom Duty i) Basic Custom Duty – Section 12 of the Customs Act. Thus even if vessels or ships turn due to engine problem.CC v Sun Exports 1988 35 ELT 241 (SC) – Supreme Court held that export is complete once the goods leave Indian waters.300. When is export/import duty levied? The rate of duty applicable is when the goods to be exported cross the custom barrier. ii) Countervailing duties (CVD) Section 3 of Customs Tariff Act – This is duty on duty. Section 16 – The date on which the “Proper Officer” clears the goods for loading for the purpose of export. Section 3(5) – CVD at par with other local taxes. such date shall be the date for applicability of the rate of duty. Even if goods are lying on the dock for the fault of Government. It must be cleared for home consumption in order to make import duty applicable.If the same or like article is manufactured in India then CVD is levied at par with Basic Excise Duty Section 3(3) – CVD at par with Basic excise duty paid on raw material used in the final product. 22 iii) Protective duty (Section 6 of Customs Tariff Act) nd th SEPTEMBER. Section 2(22) – Definition of goods – (Inclusive definition) Goods includes:-i) vessels ii) aircrafts iii) vehicles iv) stores v) baggage vi) currency and negotiable instruments and vii) any other kind of movable property. 20 SEPTEMBER. Hence they are not goods and there is no question of custom duty. Section 3(1) . Digital Equipment v CC 2001 135 ELT 962 (AT) – CEGAT stated that transfer through email is not a transfer of movable property. Education at par with Excise duty at 3% on this 1300 = Rs 40. the export is complete once the goods leave the Indian waters.340) Hence CVD is a duty on duty. 1962. Education cess CVD on custom duty on the total (Rs 22. Process . CVD is payable at 12% on (10000 + 1000) = 1.000. 2010 47 .Say value of goods is 10. Section 15 – The date on which the bill of entry of goods is presented to the authority the same shall be taken as the date of application of rate of duty for the imported goods.
then it may impose protective duty to safeguard the interest of any industry of India. However for the purpose of CVD. it must become law or else the same shall lapse. Thus the basic custom duty has been increased. If the goods are the same as mentioned in the Customs Tariff. The object is to countervail the duty paid. Thus from 2007 there is no CVD on liquor. Priyesh Chemicals v CCE 2000 120 ELT 259 (CESTAT 5 member bench) – If the product is exempted subject to some conditions then CVD will not be exempted and the same will be imposed. However this notification must be laid before the Parliament within 6 months. then CVD will also be imposed on the basis of the MRP declared in it. it shall be valid. the same rate would apply. But if one is labeling that price in India after having imported it from outside India. it will amount to deemed manufacture and it will be subject to excise duty in addition to CVD. If like articles are under MRP provision. CC v Indian Organic Chemicals 2000 118 ELT 3 (SC) – The Supreme Court stated that CVD is at par with excise duty but is not “duty as such” as it is charged under Section 3 of Customs Tariff Act and not Section 12 of the Customs Act. However if here is conditional exemption via notification on a particular good then CVD will be applicable if such goods are imported from outside India. there will not be any CVD as well. Hence it is always beneficial to alter the price or label goods outside India. 48 . the higher of the 2 rates shall apply. However if any action has been taken in the time being on that notification. It is therefore additional custom duty. If the goods are exempted from excise duty in India.iv) Safeguard Duty (Section 8 B of Customs Tariff Act) v) Goods from China (Section 8C of Customs Tariff Act) vi) Bounty fed duty (Section 9 of Customs Tariff Act) vii) Anti Dumping duty (Section 9A of Customs Tariff Act) Dumping Margin – Margin of injury = Anti dumping duty (mod value is taken) There is no education cess on specific CVD. Goodyear India Ltd. v CCE AIR 1997 SC 1683 – The highest rate is applicable for CVD if an imported good of exactly the same description is manufactured in India. Motiram Tolaram v UOI AIR 1999 SC 3121 – SC said that CVD must be levied on the effective rate of excise duty in India and not the rate mentioned in the Tariff Act. Rate of CVD in case of liquors – Liquors are subjected to State excise duty. upon a recommendation made by the Tariff Commission is satisfied that conditions exist where necessary action must be taken to protect an Indian industry. For example when chalk is imported from outside it can be subject to 2 types of duty as in India chalk has 2 types of duty depending on the fact whether it is made with aid or without aid. Protective Duty (Section 6) When the Central Government. Countervailing duty Section 3(1) states that CVD is charged at par with excise duty. If goods have different rates mentioned then the highest rate shall be applicable.
A manufacturer is unable to start a business just because there are imports from another country which are available at a lower price. Section 8C talks about safeguard duty on goods coming from China. Even if the dumping causes material deterioration to the domestic market. it becomes illegal. they can levy safeguard duty. Margin of Dumping – The difference between the market price at the country of dumping and the export price. 9B. Director General Anti Dumping (Designated Authority) is a part of the custom department who deals with anti dumping. GATT Article 6 lay down the legal framework dealing with anti dumping. the extra amount is subject to refund. 9C. Generally safeguard duty is for 4 years to a maximum of 10 years. after conducting such enquiry is satisfied that a material is imported in India in increased quantity to cause or threatening to cause damage to an Indian industry. rd Anti-dumping duty (Section 9A) When an article is imported to India from any other country or exported from India to another country. It also depends on the NIP (Non injurious price). (Margin of Dumping = (Export price – normal price) (Mod value is taken) Margin of Injury – The difference between the fair selling price in India and the landed cost of the product in India. If there is a difference between the provisional duty imposed by DA and the duty imposed by Central Government. Duties are not subject to unjust enrichment. at a price less than the market price. There is no remedy apart from a writ petition. 2010 Dumping per se is not illegal. It is the Govt. 49 . Provisional safeguard duty shall extend for 200 days. The Indian Govt. No safeguard duty shall be imposed on any goods coming from a developing country unless the imports exceed 3% of the total import. If imports are originating from several developing countries then the safeguard duty is not imposed unless they do not exceed 3% individually and the aggregate of them does not exceed 9%. However it depends on the circumstances whether the dumping of the goods is harmful to the domestic market. CESTAT has a separate bench for Anti Dumping Duty cases having at least a 3 judge bench. the authority shall impose anti-dumping duty not exceeding the margin of dumping or margin of injury. it must cause injury to the domestic producer. The powers of investigation and recommendation rest with the DA while that of imposition and collection rest with the Central Government. Bounty Fed Duty (Section 9) It is the subsidy upon manufacture/production/transportation. due not collected. For the dumping to be illegal. (Margin of Injury = (Fair Selling Price – Landed Cost) (Mod value) Anti-dumping Rules of 1995 Customs Tariff Act 9A. The Govt.Safeguard duty (Section 8A) If the Central Government. 23 SEPTEMBER. Any kind of benefit given by the Govt or bestowed by the Govt on the manufacturer amounts to subsidy. The order of the Central Government can be appealed against however DA’s recommendation is not appealable. E.g.Subsidy is a financial contribution by the Government. Subsidy . can impose CVD on their origin country/manufacturing country or third country. provides goods free of cost.
Anti dumping duty shall be levied if there is an injury to the market linked with the dumping. Arms length valuation (in case of related parties like associated industries) b. De minimis Margin -If the difference between NV and export price is less than 2% then goods are not subject to anti dumping. Article 14 read with Article 6 of GATT states that Anti dumping duty shall not exceed dumping margin or margin of injury whichever is lower. dumping duty can be imposed from all goods from that country. This case also discusses as to how to calculate Non Injurious Price (NIP). Related parties – There is Arm’s Length Price. iv) Margin of Injury Margin of Injury refers to the difference between landing price (computed by adding customs duty on export price) and the basic price of domestic goods. However if the normal value cannot be determined as per the regular rules. (2009) SCC. 2010 There are few important terms under :i) Normal value – As per section 9(a). th 30 SEPTEMBER. 2010 th 50 . Resale c. However. ii) Export price – Price paid or payable by the independent buyer. 29 SEPTEMBER. Dumping Duty is normal price less export price. However rate of duty may differ from exporter to exporter. normal value is the comparable price at which goods are sold in ordinary course of trade. the above question as discussed in Reliance case has been referred to a larger bench in DAV Indian Metal Ferro Alloy Ltd. a. Best Judgment iii) Dumping Margin: Dumping Margin is the difference between the export price and the basic price of the goods produced domestically. If the total exports from that country are less that 3% of the whole. Article 14 of the Agreement for implementation of Anti Dumping and Rule 4 of the Anti Dumping Rules 1995 states that the designated authority can launch an investigation into dumping into India and causing injury to any other member of the WTO. Exporter charges price from independent buyer in country of import.Reliance Industries v DA 2006 202 ELT 23 (SC) – SC said that once dumping of goods from a country is established. then also goods are not subject to anti dumping duty. Exception to the above rule: New Shipper Review – If there is a new exporter from that country then they can file a requisition before the Indian authority for review of the duty. Price in the country of the exporting country. Hence the policy is exporting country oriented and not exporter oriented. we can determine the same by:a) Comparable representative export price through an appropriate third country b) Cost of production in the originating country plus reasonable addition.
then there shall be no duty payable in case of dumping. Period of investigation must not be less than 6 months and not more than 18 months. Application for investigation – The DA has the power to undertake suo moto investigation. 2010 Application Procedure . ii) Price effect – There is price decrease or undercutting or when price of indigenous goods cannot be increased due to dumping. the DA shall send a deficiency letter to the domestic producer to file or produce additional th 51 . ii) The domestic producers expressly supporting the application must account for more than 50% of the total production of the like article including producers supporting and opposing the application (since even the importers are domestic producers). Confidentiality . it cannot be disclosed to any third party unless authorized specifically by the party. However an application can be filed by domestic producers however there are 2 conditions:i) The domestic producers expressly supporting this application must account for not more than 25% of the total production of that like article in India.000. Similar means having closely resembling characteristics. Investigation Process – 1) Preliminary screening – The application is scrutinized by the DA to find out if there is sufficient evidence and information and whether the application is properly documented. “Like Article” – Identical or similar article. Identical means alike in all respects. decline in output and proper capacity utilization (where capacity of machine is to produce 1000 tonnes and due to dumping only 500 tonnes are produced) are some of the factors may lead to price or volume effect. Lesser duty rate – Article 6 of GATT states that every country may impose a lesser duty rate. India follows this system. If such essential s are absent. Price undertaking – If during the investigation the exporter has agreed to undertake the price (the margin between the normal value and export price which means that he has agreed to increase the normal value to the export price. Only the party can make information confidential. The DA itself has no power to make information confidential.Rule 5 of Anti Dumping rules Under the ministry of Commerce an application for investigation process for anti dumping has to be filed by the domestic producers in the given format by furnishing a fee of 15. The anti dumping duty will not exceed the margin of dumping. Injury determination – There are 2 methods for determination of injury.Margin of Dumping – If the export price has been determined Whether or not the anti dumping duty should be exporting country model or exported country model is yet to be determined in the Reliance Industries case. There must be a causal link between dumping and injury. They will take into consideration the actual consumption of an article in India. Loss of sales. i) Volume effect – The DA will examine the volume of the imports and also cases where a significant increase in the import is likely.If there is any confidential information disclosed by a party. 6 OCTOBER.
(Rule 22) 3.If there is a new exporter from a country which generally has anti dumping duty already existing on that country then they can file a requisition before the Indian authority for review of the duty. The DA’s recommendation has to be ratified by the Central Government for the enforcement of the same. Request of domestic producers 2. less than 2 %) Review of Anti Dumping duty 1. the DA can impose provisional duty. They are bound to disclose the reasons. 3) Access to information – The DA shall provide access to the non confidential evidences presented to it by the concerned parties in the form of the public file. Indian Metal and Ferro Alloys. Sunset review – 5 years is the maximum time for imposing anti dumping duty. The designated authority will inform all the parties the basis of its investigation and finding. New Shipper review . Hence sufficient evidence of the injury must be provided by the domestic producer. Shenyang Matsuchita Batteries v. 2005 181 ELT 320 SC: 52 . 4) Preliminary finding of the DA – The preliminary finding is normally made within 150 days from the date of initiation. In case of De minimis margin (If the volume of dump import is less than 3% and for more than one country. If the DA rejects the application. Review is applicable Prospectively. within 45 of the filing of a properly documented noticeapplication. the DA can make final determination. there is no remedy by way of appeal. it is possible only after preliminary finding. This is called sunset review. 2) Initiation – When the DA is satisfied of the material contained in the application. Rishiroop Polymers v DA 2006 196 ELT 385 (SC) – It was held by the Supreme Court that the scope of review is subject to the satisfaction of the DA in continuing the anti dumping duty. Thus provisional duty cannot be imposed before 105 days (60 days + 45 days for filing) 5) Final Determination – After consulting the concerned parties. Provisional duty can be imposed only after 60 days from the initiation of investigation. If the injury is negligible 3. Kalyani Steels Ltd v DA 2006 203 ELT 418 (CESTAT) – It was held that the anti dumping duty cannot be revoked on the ground that the performance of the domestic industry has improved. After preliminary finding. Exide Industries Ltd. UoI 2004 177 ELT 22 (Bom HC): In the case of new shipper review. a public notice is issued initiating an investigation.evidence within 20 days of the application. Only a writ petition can be filed. Termination of 1. After 5 years there is a review whether the same should be continued. It has to be done within 150 days from Preliminary determination. DA v. Mid-term Review – Review within the period of 5 years of imposing the duty (Rule 23) 2. H & R Johnsons Ltd. v.
2007 2. Stage subsequent to the import of the goods is not relevant.8 and 9 will be applicable. 2007. The exporter was not charging license fee.Rule 8 The importer has a choice to choose between Rule 7 or Rule 8. Union of India AIR 1996 SC 1543 Value of the goods means the value at the time and place of importation. Buyer purchased the machine from an exporter. The condition was also that the buyer purchased semi processed raw material from the seller. Transaction value method – Section 14(1) and Rule 3 of Custom Valuation Rules.and 5. Rule 10 inclusions and exclusions in the customs value. Jindal Photo Films v. Residual Method (fall Back method) . Section 14(2) talks about tariff value method. Warle Weams Pvt. Computed method. v.4. Identical goods – Rule 4 of Custom Valuation Rules. These are at par with the WTO Regulations. 1) There must be sale 2) Price must be the sole consideration 3) Buyer and seller must not be related. Section 14 of Customs Act has been amended in 2007 to bring it at par with the WTO regulations. 5. So whatever is the price at the time of importation has to be considered.6. 8.25". 2007 which are in consonance with Article 7 GATT Kinds of methods of valuation 1. No bullets or numbering th 53 .Rule 9: Best judgment method they can follow any one method or a combination method to calculate the cost. Rule 6 says that if the above rules are not applicable then rules 7. Formatted: Indent: Left: 0.5. 2010 Applicable laws for Custom Valuation 1. However there is no choice between rule 3. 4. 3. 7. If the transaction value method is not applicable then rules as per the Custom Valuation Rules. 2007 3. Globe entertainment v. Similar goods – Rule 5 3. Therefore CVD will also be levied only on the value of the goods or the condition of the goods at the time of import of the goods.4. Ltd. CCE 2005 180 ELT 258 CESTAT : Valuation is the value of the information contained in the article. Rules under the Custom Valuation Rules. 2002 141 ELT 202 Appellate Tribunal case on price must be sole consideration. Section 14(1) of the Customs Act talks about transaction value method 2.Section 9B: CUSTOM VALUATION Custom is generally on the assessable value/ transaction value of the goods. Under customs also the definition of transaction value is the same as in the excise act. 4) duty must be imposed at the time of importation 7 OCTOBER. CCE. Deductive method – Rule 7 – It is the profit split method.
Therefore it was held that price is not the sole consideration and the value of the license will have to be added to the cost of the machine. then only 60% of the declared price of the goods shall be considered for charging duty. If purchase from an agent then invoice of agent has to be shown.g. Even if the goods are cleared 54 . then the invoice from the manufacturer needs to be shown. Rule 11(2) – Revenue can satisfy itself by asking for any information. if the tariff value is fixed at 60%. It is fixed for around 5 or 6 items. Third proviso of section 14 such price shall be derived as per the rate of exchange prescribed by the CBEC. There must be sale 2. Loading and unloading charges. The rate of exchange determined by the CBEC will be binding and not the value determined by the RBI. 6. in 2009. Price must be sole consideration – Tie in consideration is excluded. Rate of exchange as devised by the CBEC shall be applicable on the date the Bill of entry is presented to the excise officer. the normal value and not the transactional value was applicable. etc. Rule 12 – Rejection of declared value – The authority can reject the declared value of the goods when the officer has reason to doubt the summary of the information received. This definition was amended in 2007. crude soybean oil.g. Tariff Value is fixed for brass scraps. Earlier. Rule 11 – Declaration by the importer – The importer or his agent shall disclose the full or accurate details of the goods imported and if goods are directly purchased from the manufacturer. The proviso to Section 14 states that there are certain additions to the transaction value. Section 14(1) states that for the purpose of the Customs Tariff Act the value of imported goods shall be the the transaction value which is the price paid or payable for goods exported to India at the time and the place of importation. Tariff Value Method The Government fixes the tariff value of goods. Buyer and seller must not be related – The transaction value will be accepted if the transaction is at arm’s length. It also amounts to improper imports. Provisions of penalty. The methods have to be applied sequentially however the importer has a choice between the Deducted value and the Computed value method. e. The conditions for application of Section 14 are:1. crude iron. etc. transportation charges. the officer may intimate the grounds of rejection and may hear the parties regarding the same. 3. Date of determination of duty – Section 15 of the Tariff Act states the rate of duty applicable is the duty on the date on which the Bill of Entry is presented before the excise officer. In such case price is not the sole consideration and the transaction is not at arm’s length. E. However the burden of proving so shifts on the importer. At the request of the importer. confiscation and prosecution shall apply in case of wrong information being given. For example A agrees to sell his car if the buyer agrees to buy his bike also.
The royalty may be charged directly or indirectly. Corporation Ltd. This was said to be includible in the price. Circular No. 13 October. However post importation charges shall only be includible if the same is a condition for the import. MS Shoes v CC 2007 210 ELT 641 – Transactional value as on the date of filing of bill of entry shall be the rate of duty. 86 of 2002 . SC held that any amount paid for post importation activity shall not be included in the value of goods. CC v J. 2. This was not included as a part of the value. Wareli Weras Pvt Ltd. In this case. 5. 4.Royalties and license fee paid by or payable by the buyer must be included in the price charges by the imported goods. Subsequent depreciation shall not be applicable. 2007 208 ELT 485 – In this case. CC v Toyota Kirloskar 2007 213 ELT 4 SC– There is no controversy regarding inclusion of pre importation charges. unloading and handling charges are to be included in the price. Matsushika Televisions v CC 2007 211 ELT SC (SC) – Television was being imported to India and was being sold. after this case. However. 55 . v UOI AIR 1996 SC 1543 – Customs duty shall be levied on the goods in the stage and condition when they are imported. It shall include:i) Cost of transport from the place of export to the place of import. the importer paid some money in addition to the price for plant and machinery for obtaining the technical knowhow for operating the same. the rate and the value applicable shall be the one of the date of filing the Bill of Entry. 3% royalty was being charged for sale of the television in India. Rule 10(2) – The value of imported goods shall be the value of goods as at the date and time of import. 2010 Inclusion in Transaction Values Rule 10(1)(b) – The following shall be includible in transaction value 1. 3. then they must be valued as a set and not individually. Commission or brokerage except buying commission Cost of container included in the price Cost of packing Any feature supplied by buyer free of cost or reduced cost Any price and design paid by buyer th Rule 10(1)(c) . ii) Loading.Any royalty related to a cinematographic film are includible in the price of goods.10 years after the filing of the bill of entry. there was an amendment that the post importation charges shall also be included in the value of the goods.K. Subsequent processing and addition shall not be considered. CCE v Indian Organic Chemicals – If the Goods are imported as a set.
Rule 2(d) defines identical goods as goods which are:1. function. 2010 Rules for valuation 1. 8. If they are officers or directors of one and another’s business. ii) The loading or unloading charges shall be 1% of the FOB value of the goods iii) Where the cost of insurance is not ascertainable. Similar Goods – Rule 2(f) defines similar goods as:1. Formatted: Font: (Default) Arial. 4. Same in all respects which include physical characteristics. 5. Section 14 – Transaction value Rule 4 – Identical Rule 5 – Similar goods Rule 6 : if rules 3. 3. 5. 7. 3.4. Provided that if the cost of transport is not ascertainable then :i) Such cost shall be 20% of the Free on Board (FOB) value of the goods. One of them directly or indirectly controls the others] Both directly or indirectly control a third party Both are directly or indirectly controlled by a third person They are members of the same family. Rule 7 – Deduction value Rule 8 – Computed value Rule 9 – Residual method. there should be mutual business. 6. 14 OCTOBER. If he is not available. It must be manufactured by the same manufacturer. It must belong to the same country 3. The persons shall be deemed to be related if:If they are employer and employees Any persons directly and immediately holding or controlling 5% of the outstanding stocks or shares of both the companies In all cases of related parties. Related Parties Rule 2(2) defines related parties:1. 9. In identical goods.125 % of the FOB value of the goods.and 5 cannot be used then the later rules i.iii) The cost of insurance is to be included in the price. there may be minor difference in appearance. 2. it shall be 1. 7. 2. It is not alike in all respect 2. rules 7 and 8 are to be used. 6. Rule 3. It must have same characteristic. Partners in business. 10 pt th Identical goods . quality and reputation 2. 10. then any other manufacturer may be considered. 4. same component material 56 .e.
Hence cost such as transportation etc is deducted from the selling price. Rule 6 says that if rules 3.5".g. Identical goods must be imported into India at the same time. (It may be before or after but the nearest time is taken as the date of import) 2. This method involves profit split. However the exporter has to disclose the cost of production in the exporting country Residual method – Rule 9 (Best judgment method or fallback method) If the valuation cannot be done as per the other rules. If he is not available.3. Computed Value – Rule 8 (Cost plus method) The cost of production in the exporting country plus additions to the same is considered as the value of goods. If there is different in the transportation. Rs 3 is deducted for commission. It must be manufactured by the same manufacturer. 7. He can choose between deductive value and computed value method. 6. the Greatest Aggregate quantity has to be considered. tax. rules 7. Rs 10 is the price at which the go ods are sold. It must belong to the same country 5. Formatted: Indent: Left: 0. Provided that at the request of application of the importer and approval of the customs authority. 5. No bullets or numbering Valuation of Similar Goods – Rule 5 The method of valuation is same as that of identical goods. Transaction value of identical goods sold at same commercial level or quantity then the same may be found at different level and quantity provided they are identical. It must be imported at same quantity value and same commercial level 3. however the definitions of similar and identical goods are different.g. 4. 8. and therefore Rs 7 is the value of the goods under this method. 57 . 8 and 9 shall apply. Valuation methods of Identical Goods – Rule 4 1. etc. For the selling price. This method can be followed depending upon the choice of the importer. the prudence of the tax authority shall be used to arrive at the same. Different commercial level and same quantity Same commercial level and different quantity Different commercial level and different quantity. loading and unloading goods for the identical goods (e. E. Deductive Value – Rule 7 also called the profit split method. different transportation costs from different ports) then adjustment is made. 4 or 5 do not apply. However goods of the same country are required to be compared and not different countries. the order of application of rules 7 and 8 can be reversed. Commercially interchangeable 4. Same Commercial level and same quantity. then any other manufacturer may be considered.
6-12 months etc). 1. Eg: softwares.76 Drawback on imported material used in manufacture of goods which are exported . Re-export of goods . Where duty drawback is not applicable in some cases . then duty drawback cannot be claimed. then the brand rate is fixed by the govt. CVD.74 2.import duty paid on the raw material is subject to drawback Three methods to determine duty drawback: 1. drawback is possible. If inputs are exempted from duty. Brand rate: on certain standard products. if it is not possible to fix all industry rate. 76 of Customs Act deal with Duty drawback. 18 OCTOBER. 2. it is not possible to fix all India rate 3. Import-process-Export . It is fixed on a % of FoB.Avg rate is fixed for the entire industry by considering the average quantity of input imported into India. For personal use. Depending on how much it is used. the manufacturer has to submit an application 60 days from the export. Special Brand Rate: Rule 7 . 3. Brand Rate: Rule 6 of Duty Drawback Rules – It is fixed for a certain standard product. Rate of depreciation on quarterly basis shall be applied. all duty paid on packing material etc is eligible for duty drawback. 4.If goods are re-exported (as such or after use also . 2010 DUTY DRAWBACK Section 74. 58/2002 – Duty Drawback = Custom Duty + Countervaling Duty + Excise Duty paid on indigenous goods + Duty paid on packing material The amount paid on import if not claimed under CENVAT can be claimed as Duty Drawback. But this is only for commercial use. All Industry Rate: Rule 3 of Duty Drawback Rules .Rule 12: The authorities can reject value as per any of the rules if they are not able to accept the value or they have doubt regarding the suitability of the value. then credit cannot be availed. In case those goods are being exported. 1. For fixing brand rate. Special brand rate: If the manufacturer shows that the actual duty paid on inputs is higher than the all India rate originally fixed by govt.there is a separate rate applicable. there are % of drawback possible (6 months. if the final product is exempt.For special brand rate. the manufacturer has to submit an application 30 days from the export. then they can apply and seek special brand rate Duty Drawback Rules 1995 + Cir No. Duty Drawback on Re-export: Section 74 . 58 . All India rate: fixed by govt on basis of avg rate of duty payable on particular types of goods (90% items are based on this) 2.75 3. then duty drawback can be availed. Custom Duty.max 3 years limit for use). 75. In case of CENVAT credit.
Section 11 of the Act gives the government. natural resources. g) Any dutiable or prohibited goods unloaded or attempted to be unloaded in contravention of section 33 and 34. In such cases. the power to restrict any export or import.112. then the goods are known are prohibited goods.which defines smuggling states that it is any act or omission which shall render such goods liable to confiscation under Section 111 or 113. Smuggling may be defined but it is not used later on in the act. 133. f) Any goods which are required to be mentioned in the import manifest or import report and are not mentioned therein. 2010 Improper Imports Smuggling is defined under Section 2(39) while 2(33) defines prohibited goods.20 OCTOBER. patents.(E. The other relevant sections are Sections 111.113. The various reasons for the same are mentioned in 11(2):i) Security ii) Prevention of injury to domestic produce iii) Conservation of natural resources iv) Protection of patent or trademark v) Implementation of any treaty vi) Prevention of dissemination of documents th th 59 . wildlife. 25 OCTOBER.114. 134. etc. (Section 11 defines prohibited goods). After 2003. h) Any dutiable or prohibited goods found concealed in any manner in any package either before or after unloading of the goods.g. Section 111 (confiscation of improperly imported goods) a) Goods imported by sea or air which are unloaded or attempted to be unloaded at any place other than customs port or airport b) Goods imported by land or inland water through any route other than the ones specified through notification c) Any dutiable or prohibited goods brought into any bay or tidal water. prevention of deceptive practices. Section 2(39). even non excisable and non dutiable goods came under the purview of prohibited goods if they have violated any import or export norms. 2010 Section 2(33) – Prohibited goods – It states that all goods which are improperly imported or attempted to be exported improperly. even the conveyance shall be seized by the Government.) d) Any goods which are imported or attempted to be imported contrary to any law imposed under the act. e) Any dutiable goods found concealed in any manner in any conveyance.
then the whole mixture. : CC v. penalty may be leviable even if the goods are cleared. Carriers are subjected to confiscation –Since it is an economic offence the mens rea does not play an important role in the same.vii) Any other purpose conducive to the interest of the general public.A penalty “shall be” made applicable. CC v Swastik Woollen Mills . Hence a penalty is mandatory in any case. Indo –China Steam Navigation v Jasjit Singh. The amount keeps differing. 133. Section 135. 60 .Section 112 – Any person who has committed an offence under Section 111 or has transported prohibited goods. If the prohibited goods are present in a mixture. Improper Export – Section 113 – Attempt to improper export may result in confiscations of the goods. Hence a penalty is mandatory in any case. whichever is greater. Kusum Bhai Patel v CC 1995 79 ELT 292 (CEGAT) – Even if the goods are allowed to re-exported. CC 2002 141 ELT 278: case relating to over-invoicing of exports. redemption fine can be imposed. Penalty for Improper Import. 134. shall be confiscated. 114. penalty can be levied. The amount keeps differing. Section 117 prescribes a general penalty of Rs 10. 116. Section 112 : Penalty for improper imports. Elephanta Oil 2003 152 ELT 257 SC: Held that even if the goods are confisc ated and are allowed to be re-exported. 113. A penalty “shall be” made applicable. Swastik Wollen mills 1999 112 ELT 156 CGAT 5 member bench: question was whether penalty is mandatory under the customs act. 132. 112. shall pay a penalty amounting to the value of the goods or a fine of 5000. CC v. Section 133 states that obstruction of the Customs officers exercising powers vested in him by the Customs Act 6 months or fine or both. The word used in the section is shall and therefore the penalty is mandatory. Penalties and Offences under the Customs Act 2(39): 111. 134 Prohibited goods defined u/s 2(33) Om Prakash Bhatia v.000 if no penalty has been levied under any other section.133 and 123 contains the prosecution for offences under the Customs Act. CC v Elephanta Oil 2003 152 ELT 2007 – even if the goods are confiscated and the goods are reimported. if inseparable. The power to levy penalty under Section 112 is different from power to confiscate the goods. Section 134 states that if any person refuses to take X-ray picture of his body or other suitable measures such as surgery under the supervision of any doctor then he shall be liable to imprisonment. Section 138A: mensrea is always presumed. 117.
Pansari Grms 2005 179 ELT 253 CEGAT Special member bench. Circular 60/2000 of 12. 20 is very clear that if the goods are re imported in India after exportation. Super Cassette Industries 2008 129 ECC 63 (SC) Sec. So either you can export in the same package. 61 .Section 155 protects the customs officers. they would be liable for all the conditions and restrictions to which goods of the like kind and value are liable or subject. It was held that CVD can be imposed on the reimports. on the share certificate that is re-imported. CCE v. There is no condition that the goods must be reimported in the same packet. Saurabhmni Gems v. CCE Section 22 : Abatement of the custom duty.7. CC v.2000.