1 CHAPTER - 1 CONCEPTUAL FRAMEWORK 1) Direct Vs Indirect Taxes: Taxes Direct Taxes I) Income Tax, Wealth Tax Ii) Paid directly

by person concerned iii) Tax payer pays directly from his Income or wealth IV) Paid after income reaches hands of Tax payer 2) • • • • • • • • • • • • • • • Indirect Taxes Central Excise, Customs, Service tax Central Sales Tax, VAT, State Excise Tax ii) Paid by one person but he records the same from other person iii) Tax payer pays while purchasing goods and / or services IV) Paid before goods/ services reach the tax payer I)

Advantages of Indirect Taxes Psychological advantage to tax payer Easier to collect Less tax evasion Lower collection cost Control over wasteful expenditure Channelise industrial growth Support local industry [ High Customs Duty low Excise Duty] High revenue [ 71% of tax revenue ]

3) Disadvantages of Indirect Taxes: Tax is uniform whether purchased by rich or poor Reduces demand of goods Increases project cost Shield to inefficient local industries Cost of modern imported m/c & technology Smuggling / tax evasion Inflationary 4) • • • • • • • • Laws Relating to Central Excise Central excise Act 1944 Central excise rules Central excise valuation rules (2000) Central excise tariff Act (CETA) 1985 Additional duties on goods of SP. Importance Act. 1957 Customs excise & service tax appellate tribunal (CESTAT ) procedure rules 1982 Notifications issued by central excise Deptt. Circulars issued by central excise Deptt.

2 5) Important features of Excise Duty (E.D.) • Power to impose E.D. is given by constitution to Central Govt. • Power to impose E.D. on liquor, opium & narcotics to S. Govt. • Any article can be levied C.E. duty if all following conditions are satisfied : a) Duty is on goods [movable & Marketable b) Goods must be excisable i.e. mentioned in schedule to CETA 1985 c) Goods must be manufactured or produced d) Such mfg. or production must be in India • Goods manufactured in SEZ are “excluded excisable gods”& no E.D. is livable on such goods • Taxable event is manufacture or production in India • Once duty liability is fixed, it can be collected from a person at time & place found administratively most convenient for collection • Liability to pay E.D. is on manufacturer or producer of excisable goods. • When goods are stored in a warehouse without payment of duty the liability to pay duty is on person who stores goods i.e. warehouse keeper. • Duty payable is as applicable on date of removal • Duty is payable even when Goods are used within factory Goods are captivity consumed within factory for further manufacture Goods given as free samples Goods given as free replacement Duty can be levied on Govt. undertaking also •E.D. should be considered as manufacturing expenses & should be considered as an element of cost for inventory valuation •Goods manufactured or produced in SEZ are excisable goods’ but no duty is leviable on these goods 6) Types of Excise Duty i) Basic Excise Duty : (BED) Also termed as CENVAT Levied as per rates specified in Sch. I of CETA 1985 General rate is 16% There is partial exemption to few products ii) Special Excise Duty. (SED) Charged on items given in Sch. II of CETA 1985 At present there is no SED on any product iii) National calamity contingent duty (N.C.C.D) In additional to BED Imposed only on specified goods Various for different goods from 10% to 45% If goods are exempted from Excise duty they are

3 Exempted from N.C.C.D. also. iv) v) vi) 7) Additional Excise Duty on Pan Masala & Tobaco products: Introduced w.e.f. 1-3-2005 Imposed by way of surcharge Payable @10% of aggregate of normal rate of Excise duties For Pan Masala mfd. / unmfd. Tobaco, Cigars, Cigarettes Education Cess: Payable on C.E., Customs, Service Tax, Income Tax Calculated on all duties of Excise @ 3% on duty payable. Thus if duty rate is 16% education cess is 0.48% Duties payable under other Acts: Medical & Toilet preparations Additional duty on mineral products Cess on certain products such as automobiles, Beedis, Jute sugar, Coffee, Tea, etc.

Important Definitions: i) Goods

To levy Excise Duty article is considered as goods if it satisfies following two conditions: a) It must be movable b) Must be marketable i.e. capable of being bought or sold ii) Excisable goods : These are the goods specified in schedule to CETA 1985. Only these goods can be levied Excise Duty as per the rates specified in the schedule iii) Produced The word produced covers a) b) c) d) Items like coffee, Tea, Tobaco, dairy products etc. which are produced Live products like horse, flower, fish etc. which are produced. By products, scrap etc. which are not manufactured buy they get produced. It also covers manufactured goods.

4

iv)

Manufacture: a) b) c) d) e) Includes any process incidental or ancillary to the completion of manufactured product Any process specified in schedule I of CETA 1985 as amounting to manufacture [ 35 process given in CETA 1985 ] In case of goods specified in 3rd schedule to CETA repacking, relabeling, putting or altering M.R.P. is treated as manufacture [Both above are deemed mfg.] As per various courts decisions manufacture takes place only when process results in a commercially different article or commodity Following are instances when mfg. has taken place Mfg. of table from wood Conversion of pulp into base paper Conversion of sugarcane to sugar

v)

Manufacturer: a) b) c) d) e) The liability to pay duty is on manufacturer Duty cannot be recover from his purchaser Demands for Excise Duty are raised & recovered form manufacturer Manufacturer is a person who actually manufactures or produces excisable goods. Thus person who transforms commodity into another commodity having distinct name & character is the manufacturer.

vi)

Job Worker

The manufacturer can send inputs for job work. Following are eligible to send materials for job work (a) Manufactures (b) Exporters (c) Units in SEZ, FOU, and EHTP & STP (d) who are supplying final products to United Nations or international organization for their official use or to project funded by them. If job worker is actual manufacturer, he cannot avoid duty liability even if there is agreement with principal that principal would meet all duty liabilities of manufacturer Duty liability is of the job worker who actually manufacturer the goods, unless the raw materials supplier undertakes the responsibility of paying duty

5 CHAPTER – 2 CLASSIFICATIONS OF GOODS 1) Once the liability of payment of excise duty / customs duty is established, the next question is what the amount of duty payable is. The two step process is (a) Correctly classify the goods, to find out rate of excise /customs duty (b) Find its assessable value to which the rate of duty is to be applied for calculating amount of duty payable. The rate of duty is found out by classifying the product in its appropriate heading under central excise tariff / customs tariff. The Central Excise Tariff Act, 1985(CETA) classifies all the goods under 96 chapters and specific code is assigned to each item. There are over 1,000 tariff headings and 2,000 subheadings. This classification forms basis for classifying the goods under particular chapter head and sub-head to prescribed duty to be charged on that particular product. Central Excise Act (CEA) and Central Excise Tariff Act. (CETA) are linked together as follows – (a) Section 2 of CETA states that rate at which duties of excise shall be levied under CEA are as specified in schedule to CETA (b) Section 3(1) of CEA specifies that duty shall be levied and collected on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the schedule to the Central Excise Tariff Act (CETA). Thus both Acts are linked to each other. Both Excise and customs Tariffs contains schedules. Schedules to Central Excise Tariff – Central Excise Tariff consists of three schedules –the first schedule gives basic excise duties (i.e. Cenvat duty) leviable on various products, while second schedule gives list of items on which special excise duty is payable. Items included in second schedule are already covered and included in first schedule. (The second schedule has lost relevance contains item covered under MRP valuation provision, which are covered under ‘deemed manufacture’ provisions. Central Excise Tariff is divided in 20 sections, while there are 21 sections in case of customs tariff. A ‘section’ is a grouping of a number of chapters which codify a particular class of goods. Each of the sections is related to a broader class of goods e.g. Section I is ‘Animal Products’ Section VII is ‘Plastics and Articles thereof’ Section XI is Taxtile and Textile Articles’, section XVII is ‘Vehicles, Aircrafts, Vessels and associated transport equipment’, etc. Section Notes are given at the beginning of each Section, which govern entries is that Section. These notes are applicable to all Chapters in that section. Each of the sections is divided into various chapters and each chapter contains goods of one class. For example, section XI related to Textile and Textile Articles and within that section, chapter 50 is Silk, Chapter 51 is wool, Chapter 52 is cotton,

2)

3)

4)

5) 6)

6 and Chapter 53 is other vegetable textile fabrics, Chapter 61is articles of Apparel and so on. There are 96 chapters in Central Excise Tariff out of which Chapter 77 is blank. In customs Tariff, there are 99 chapters out of which chapter 77 is blank, which is kept reserved for future use. Some chapters are divided into sub-chapters e.g. chapter 72 (Iron and steel) is divided into I primary materials, II – Iron and Non-Alloy Steel, III – Stainless Steel and IV –Other Alloy steel. 7) Each chapter and sub-chapter is further divided into various headings depending on different types of goods belonging to same class of products. For instance, Chapter 50 relating to silk is further divided into 5 headings. 500 1 relates to silk worm cocoons, 5002 relates to raw silk, 50.03 relates to silk waste etc. The headings are sometimes divided into further sub-headings. For example 5003 10 means ‘silk waste not carded or combed’ while 5003 90 means ‘other silk waste’. These are preceded by single dash. 5003 90 is further classified as 5003 90 10 (Mulberry silk waste), 5003 90 20 (Tussar Waste) and 5003 90 90 (other). All goods are classified using 4 digit system. These are called ‘headings’. Further 2 digits are added for sub-classification, which are termed as ‘sub-headings’. Further 2 digits are added for sub-sub-classification, which is termed as ‘tariff item’ Rate of duty is indicated against each ‘Tariff item’ and against heading or sub-heading. Central Excise Tariff has four columns – (1) Tariff Item (2) Description of goods (3) Unit and (4) Rate of Duty in Customs Tariff, There are five columns – (1) Tariff Item (2) Description of goods (3) Unit (4) Standard Rate of Duty (5) Rate of duty for preferential Area. A Sample Chapter from Tariff Coffee, Tea & Spices 1. In heading No. 0901, ‘Coffee’ means the seed of the coffee tree (coffee), but does not include the seed while still attached to tree. This heading includes coffee in powder form. In case of tea or tea waste blending, sorting packing or re-packing into smaller containers shall amount to ‘manufacturer’

8)

9)

10)

2.

7

Tariff Item 0901 -

Description Coffee, whether or not roasted or decaffeinated: Coffee husks and skins: coffee substitutes containing coffee in any proportion Coffee Not roasted. Not decaffeinated Arabica plantation A Grade B Grade Arabica cherry AB Grade PB Grade Decaffeinated Coffee roasted Not decaffeinate In bulk packing Other Decaffeinated In bulk packing Other Other Coffee husks and skins Other

Unit

Basic Rate of Duty

0901 11 0901 11 11 0901 11 12 0901 11 21 0901 11 22 0901 12 00 0901 21 0901 21 10 0901 22 0901 21 10 0901 21 90 0901 90 0901 90 10 0901 90 00

---------------------------------

Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg.

16% 16% 16% 16% Nil 8% 16% 16% 16% 16%

It can be seen from the extract from tariff that ‘Coffee’ is classified under ‘0901’ It is further classified as (a) coffee, Not Roasted (b) Coffee Roasted and (c) Other. These are preceded by single dash (-) Coffee not roasted is further sub-classified as (a) not decaffeinated (b) Decaffeinated. These are preceded by two dashes (--) ‘Not decaffeinated’ is further classified as Arabica plantation and Arabic cherry. These are preceded by three dashes. Arabica plantation is classified as a grade and B grade. These are preceded by four dashes. Thus, 0901 90 00 ‘other’ covers all items covered in 0901, except those covered in roasted and not roasted coffee.

8 CHAPTER -3 VALUATIONS UNDER EXCISE Excise Duty is calculated with reference to value determined as per provisions of this Act. This value s known as assessable value (A.V.) Following are the methods to determine A.V. of any article: 1) • • Specific Duty

Payable on basis of certain unit like weight, length, volume etc. At present specific rates have been announced for : Cigarette (length basis) Matches (Per 100 boxes) Sugar (Per quintal) Marble slabs (Sq. meter) Colour T.V. (Screen size cm.) Cement (Per Ton) Molasses (Per Ton) 2) Tariff Value • Fixed by central Govt. • It is a notional value for calculating duty • Duty is payable as % of tariff value • At present tariff value is fixed for Pan Masala packed in retail packs of 10 gm or less Specified readymade garments. Tariff value fixed = 60% of M.R.P. 3) • • • • Compounded Levy Scheme Central Govt. can specify goods for which assessee has option to pay E.D. on basis of factors relevant to production of such goods & at specified rates. This is known as compounded levy scheme. Scheme is optional i.e. either normal rules or this method. At present applicable to stainless steel pattas /patties & aluminum circles. Manufacture has to pay prescribed duty for prescribed period. After making lump sum periodic payment manufacturer does not have to follow any excise procedure regarding storage & clearance of goods. Value Based on Retail Sale Price

4)

• Goods must be covered under provisions of standards of weights & measures Act. • Central Govt. notifies goods covered by this method and also notifies abatement of duty applicable to each goods M.R.P. is the price at which goods are sold to ultimately customer • If more than one retail sale price is primted on the same packing mixm. Price is considered.

9 • Example : For cosmetics abatement is 40% M.R.P. = 200 A.V. = 200 - 40% (200) = 120 Duty @ 16% = 19.20 + E.C. (3%) = 19.776% • So far 98 articles have been covered under this scheme Exs: Chocolates (35%), Biscuits (40%), Ice-Cream (45%), and Toothpaste (35%) • • • 5) Duty as % of A.V. fixed u/s 4 (Ad valorem duty) Majority of goods are covered by this method Duty is payable on basis of value known as A.V. A.V. is determined as per provisions u/s 4 of C.E. Act. • As per sec. 4 E.D. is payable on basis of “ transaction value” if following conditions are satisfied : Goods should be sold at time & place of removal Buyer & seller not be related Price should be the sole consideration for sale Each removal will be treated as a separate transaction & value for each removal will be separately fixed. Transaction Value is Price actually paid or payable Price is for goods Price includes any amount that the buyer is liable to pay to or on behalf of assessee. Payment should be by reason of or in connection with the sale Amount may be payable at time of sale, before sale or after sale Following items are included in transaction value Any amount charged by assessee to buyer or to make provision for following items by buyer: Advt. or publicity Marketing & selling organization expenses Storage Outward handling Servicing Warranty Commission Any other matter Above items are included only if Buyer is liable to pay assessee Buyer pays on behalf of assessee It is in connection with sale In addition following items are also included Packing charges Design & Engineering charges Consultancy charges relating to mfg.

10 • Loading & handling within factory Royalty charges to use brand name Advance license surrendered in favour of seller Free after sales service / warranty Pre-delivery inspection charges.

Following items are not included : Trade discount Cash discount if actually passed to buyer Installation & erection expenses incurred after the goods are removed from the factory Notional interest on security deposit or advance received by assessee form buyer Interest recovered on receivables Bank charges for collection of sale proceeds. • If A.V. cannot be determined u/s 4 then valuation rules are applied to determine A.V. following are the rules. Rule 4: This rule states that if goods are not sold at the time of removed, then value is basis on value of such goods sold by assessee at any other time nearest to the time of removal subject to reasonable adjustments This rule is applicable in following cases Removal of samples Free replacement under warranty claims. Rule 5: Sometimes goods may be sold at place other than place of removal. In such case actual cost of transportation from place of removal up to place of delivery of excisable goods is allowed as deduction. This rule is applied in case of F.O.R. delivery contract Rule 6: If Price is not the sole consideration for sale then A.V. = Price charged (+) Money value of addl. Consideration received Buyer may supply any of following free or at reduced cost I) ii) iii) iv) Materials, Components, Parts & Similar items Tools, Dies, moulds, Drawings, Blue prints, Technical maps & charts Material consumed including packing material Engineering design & development work. In above cases value of such additional consideration will be added to the price to arrive at transaction value.

11

Rule 7: When goods are sold through depot there is no sale at the time of removal from factory in such case price prevailing at depot is the basis of A.V. but time of removal from factory is relevant. Ex: Assessee transfers paper consignment from Delhi to Agra Depot on 5-7-2005& is sold to unrelated buyer for Rs. 15,000 / Ton. Then consignment will be assessed at mfg. point in Delhi for Rs. 15,000 / 7 ton. Rule 8: When excisable goods are not sold but used in manufacture of other articles it is known as captive consumption. In this case A.V. = (Cost of production) + 10% of C.O.P.) Rule 9: If assessee sells goods to related person, price relevant for valuation is a normal transaction value at which related buyer sales to unrelated buyer. If related person does not sell goods but uses or consumes then in production Or mfg. of articles, A.V. = C.O.P. + 10% (C.O.P.) Rule 10: When goods are sold through interconnected undertaking the A. Value is determined as per rule no. 9 Rule 11: If assessment is not possible under any of the foregoing rules value shall be determined using reasonable means consistent with principles and general provisions of these rules & provisions of Sec. 4

12

CHAPTER 4: CENVAT CREDIT SCHEME 1) CENVAT Credit It is the credit of duty paid on (a) Inputs & raw materials, capital goods (b) Services Used in or in relation to manufacture of excisable goods or in relation to receded services provided on which service tax is payable. How to avail this credit & how much credit can be availed by company is given in CENVAT credit rules – 2004.

Features of Scheme Following inputs are eligible for cenvat credit by both manufacturer as well as service provider. I) Goods used as inputs ii) Lubricating its iii) Grease iv) Cutting oil v) Coolants vi) Paints vii) Packing material viii) Accessories cleared along with final product ix) However following I/Ps are not eligible - Light diesel oil - High speed diesel - Petrol. Credit can be taken as soon as I/P are recd. in factory I/Ps must be used in or in relation to manufacture of excisable goods. It may or may not present in final product. & one to one correlation is not necessary B) CENVAT credit of input services is allowed. I/P service must be used for: i) Mfg. of excisable goods ii) For providing taxable O/P service Following Services are eligible: i) Setting up, modernization, renovation or repairs of factory / office ii) Advt. or sales promotion iii) Market research iv) Storage up to place of removal v) Procurement of inputs vi) Activities relating to business – Accounting, Auditing, Financing recruitment, Quality control, training, Computer networking, Credit rating, Share registration, Inward Transportation of I/Ps & Capital goods & O/W transportation up to place of removal.

2) A)

13 vii) D) If common inputs, inputs services are used then credit can be availed only to the extend of 20% of tax payable on taxable output service. CENVAT credit is allowed on capital goods which are used in factory. Purpose is not Imp. Following capital goods are eligible a) Tools falling u/ch. 82 b) Machinery u/ch. 84 c) Elec. Machinery u/ch. 85 d) Measuring testing equipments u/ch. 90 e) Grinding wheels & goods falling u/ch. 6801.10 f) Abrasive powder u/ch. 68.02 g) Pollution central equipment h) Spares & accessories of above (a to g) i) Moulds & dies j) Refractory material k) Tubes, Pipes, & fittings there of l) Storage tank. 50% credit this year balance in next year. Depreciation cannot be claimed on Excise Duty portion of value of capital goods Following are similar requirements for CENVAT on inputs & capital goods: I) Credit of BED, SED, CVD, NCCD, AED, E.C. is available ii) iii) Input or capital should be used in factory, but can be sent out for job work Credit can be used for Payment of any duty on final product Service tax on final service Payment of any duty on input or capital goods if they are removed without any processing E.C., N.C.C.D. AED (Tobacco) can be utilized for payment of corresponding duty on final products or inputs only & not for payment of any other duty BED, SED, AED (GSI) are interchangeable Inputs & capital goods can be sent outside as such or after processing to a job worker for further processing, repairs, reconditioning or any other purpose, but these should be brought back within 180 days. CENVAT credit not allowed if final product is exempted For taking credit following documents are essential Invoice Bill of entry Supplementary invoice

E)

iv)

v) vi)

vii) viii)

14 ix) In of credit in case of merger, Sale, Lease or transfer of whole factory is permissible

F)

Following are some peculiar requirements I) ii) iii) Credit of capital goods cannot be refunded if final product is exported but can be used for clearing other final products Credit of inputs can be refunded if final product is exported & no drawback is claimed Inputs can be sent directly to place of job worker from supplier. But capital goods have to be first brought in factory & then sent to job worker.

G)

Sometimes goods are purchased from Depot / Consignment agent of manufacturer or from wholesale or dealer who is retailer. 1st stage & 2nd stage declare can issue cenvatable invoice provide he is regd. Under C.E. Act Factory

Depot. Purchase From 1st stage dealer Purchase 2nd stage From dealer

Consignment Agent Premises from where goods sold on behalf of mfrer

Importer, his depot or agent

15

CHAPTER - 5 VARIOUS PROCEDURES UNDER EXCISE 1) Administrative Setup of Central Excise Department A) C.B.E. & C Board: (Central Board of Excise & Customs) I) H.Q. New Delhi ii) Consists of 6 to 7 members iii) Board appoints officers & exercise following powers: a) To issue instructions & direction to C.E. officers b) To ensure uniformity in classification of goods c) To ensure uniformity in levy of E.D. B) Chief commissioner of Central Excise Country is divided into 34 zones. Each zone is under supervision & control of chief commissioners & commissioners (Appeals) within his zone. C) Commissioner of Central Excise : Each zone covers various commission rates & he is In-charge of “the commissionorate” At present there are 92 commissioners & 71 commissioner (Appeals) they have unlimited powers of adjudication D) Additional commissioner of Central Excise There can be one or more & they report to commissioners. They have limited powers of adjudication E) Joint / Deputy / Assistant commissioner: They have same power Each commissioner ate is divided into divisions & he is in change of one division. F) Superintendent: (Gazetted) Each division is divided into several ranges & he is in-charge of one range. G) Inspector: (Non-gazetted) Lowest in rank. He reports to superintendent. Appeal against commissioner’s order lie with CESTAT. Appeal against order by officer up to rank additional commissioner – lie with commissioner (Appeals) 2) Registration:

16 i) ii) iii) Every person who- Produces, Manufactures, Carries on trade, holds private store room or warehouse must be registered under C.E. Act. Dealers or importers can issue excise invoice only if they having excise Regn. No. Following are prescribed forms for application: A1 - For manufacturer / Producer / Dealer / Warehouse A2 - Power loom weavers, Hand processors, Dealers of yarm & fabrics, manufacturers of readymade garments A3 - Manufacturers of hand rolled cheroots of tobaco. Application submitted to A.C. / D.C. 15 digit regn. No is allotted to assessee / Co. [E.C.C.] within 7 days Separate reg. for separate premises Regn. No. is non-transferable. It business is transferred, Nero regn. No. should be obtained by transferee. Reg. certificate is issued in prescribed form ‘RC’ In case of change in constitution of business no fresh registration is required but change should be intimated to A.C. / D.C. within 30 days. Reg. is cancelled if assessee does not follow provisions of C.E. Act. If Manufacturer stops his operations, he has to apply for de-registration Any changes regarding business its constitution etc. should be informed to deptt in form A1 only.

iv) v) vi) vii) viii) ix) x) xi) xii) 3)

Storage & Accounting of Goods: I)

iii) iv)

Goods cannot be removed from the place they are produced or manufactured without payment of duty ii) Finished goods can be stored in place of manufacture without payment of duty There is no time limit within which goods must be removed. Duty is payable only when goods are removed v) Goods stored without payment of duty must be recovered on daily basis. This is known as Daily Stock Amount. (DSA) vi) DSA should contain following details Opening balance Mfd. Quantity Quantity removed Closing balance A.V. Duty payable Duty Paid vii) viii) ix) For each product separate DSA is to be maintained. First & last paid of DSA should be authenticated by manufacturer or his agent DSA must be preserved for 5 years

17 x) xi) 4) If goods stored in stock room are damaged / destroyed duty can be waived off or remitted by deptt. If DSA is not maintained: Penalty is up to duty payable and goods can be confiscated.

Removal of Goods: I) ii) Excisable goods can be removed from factory only under an invoice. Excise invoice must contain following details: a) E.C.C. No. b) Name of consignee / customer c) Description & classification of goods d) Time & date of removal e) Mode of Transport & Vehicle reg. no. f) Rate of duty g) Quantity & value of goods h) Duty payable on goods. Invoices should be serially numbered. Sr. Nos. can be printed, Franked or type written but cannot be hand written. Serial no. should start from 1st April & continue for whole financial year. Invoice should be in triplicate Original marked in “original for buyer” Duplicate marked in “Duplicate for transporter” Triplicate market in “Triplicate for Assessee” Additional Copy market in “Not for CENVAT Purpose” Before making use of invoice book serial Nos. should be informed to range suptt. There should be only one invoice book in use at a time. However separate sets of invoices can be maintained with different serial nos. with permission of A.C. / D.C. General permission has been granted to use 2 different invoice books – one for home consumption one for export. Each foil of invoice shall be pre-authenticated by assessee or his duly authorized person. In case invoice is cancelled information should be sent to range supdt. On same day. Invoice must be prepared for captive consumption. Date of removal is date on which goods are issued for such use. Duty is payable at rate & valuation as applicable at the time of actual removal from factory or warehouse.

iii) iv)

v) vi)

vii) viii) ix) x) 5)

Manner & Payment of Duty I) ii) Duty is payable on monthly basis by 5th of following month Duty can be paid through PLA & or CENVAT credit

18 iii) iv) v) vi) vii) viii) ix) SSI units availing SSI exemption are required to pay duty by 15th of following month. For other SSI 5th is deadline. Only for March, duty payable for month to be paid by 31st of March. If 5th /15th is holiday then it is payable on next day of working. If duty is not paid on due date assessee is liable to pay outstanding amount along with interest @ 13% P.A. P.L.A. : Personal Ledger A/C When duty is paid by TR-6 challan in Bank PLA is credited. At end of month when duty is payable PLA is debited. PLA & CENVAT or can be used duty for duty payment & not for other payments like fines, penalties etc. TR-6 Challan: Payment of duty is made in designated bank for which this challan is used. It contains following details. Name of Co. E.C.C. No. Code no of commissioner rate / Division / Range / Bank Challans should be serially numbered from 1st April onwards. Proper A/C code should be used for different duties.

6)

Returns : Following returns are to be filed periodically Form No. Details who should file Time Limit 10th of following Month 10th of following Month 20th of following Quarter.

ER - 1 Monthly returns Mfrers. Who are not By large units eligible for SSI Concession ER – 2 Returns by EOU EOU units

ER - 3 Quarterly returns By SSI 7)

Assessee veiling SSI concessions

Exports Procedure A) Export incentives WTO stipulates free & fair global trade hence export incentives are not allowed under WTO B) Export Priority I) Movement of export consignment will not be interrupted & will not be withheld of any reason whatsoever by any agency of central /

19 state Govt. In case of any doubt deptt. Can ask undertaking from assessee that export is on sole responsibility of exporter No seizure shall be made by any agency which will disrupt manufacturing & schedule of exports In exceptional cases stock can be seized on prima facie evidence, but seizure should be lifted within 7 days.

ii) iii) C)

v)

Benefits to Exporter I) Exports of almost excisable goods except hides, Skin, leather & salt to all countries except Nepal & Bhutan are exempted from C.E. duties. ii) Even inputs can be exported without payment of duty. CENVAT credit availed on such inputs need not be reversed. This credit can be utilized for payment of duty on products cleared for home consumption iii) SEZ can import without payment of duty and finished goods can be exported. iv) Concession to EOU on similar basis. Refund of duty if CENVAT credit cannot be used vi) Schemes such as DBK Advance license, DEPB etc. 8) Show Cause Notice When duty is Not levied Not paid Short levied Short paid Erroneously refunded Notice is issued by C.E. officer demanding duty specified in notice This may happen due to : Classification / exemption notifications claimed by assessee not acceptable to Dept. A.V. not acceptable to assessee / Dept. Duty paid at concessional rate though concession was not available Clandestine removal of goods Non accounting of goods Clearance in name of dummy units Duty erroneously refunded Any other reason Notice demanding duty is known as “Show cause notice” (SCN) Following are Imp. Features of SCN Mandatory requirement To be served within one year from “Relevant Date” Period is extended to 5 years is short payment by reason of  Fraud  Collusion

20  Willful misstatement  Suppression of facts  Contravention of provisions of excise act or rules Relevant date is considered as under

-

Filing monthly returns – date of filing (10th of next months) (If returns filed on 4th August - It is relevant) If return filed on 18th August – it is relevant If return not filed - 10th of next month Provisional assessment of duty Date on which assessment is finalized and amount paid is adjusted Erroneous refund Date on which refund has been made SCN should be approved & signed by officer empowered to adjudicate cases Demand of Duty Adjudicating Officer Without limit commissioner > 20-50 lakhs. Addl. Commissioner > 5 – 20 lakhs Joint commissioner Up to 5 lakhs A.C. / D.C. Supdt. Cannot issue S.C.N. In case of fraud etc. S.C.N. must be issued by commissioner / Addl. Commissioner SCN must give following details  Essential Particulars  Nature of contravention  Provisions contravened  Charges  Grounds It should not be vague, confusing or self contradictory If SCN is given on one ground demand cannot be confirmed on other ground.

-

-

Adjudication a) Means to hear & decide judicially b) Departmental adjudication means various powers given to excise officers c) Uncontrolled authority may cause damage to assessee. Act has provided opportunity to appeal against order passed by an authority d) Following are original jurisdiction Authority Jurisdiction I) Supdt. Remission of duty up to Rs. 1,000 for loss of goods ii) AC/DC Remission up to Rs. 2,500 Duty / CENVAT credit - up to 5 laths Refund claims under valuation

21 iii) JT. Commission Duty / CENVAT Cr. 5 – 20 lakhs. Remission – upto Rs. 5,000 Export under bond Claim of rebate Loss of goods in transit to warehouse without limit Duty / CENVAT Cr. 20 -50 lakhs. Others (same as above) All above without limit Lies with Commissioner (appeals)

iv) v) vi)

Addl. Commission Commissioner Appeal against AC/DC/JT/Addl. Commissioner Supdt.

-

vii)

Appeal against Commissioner Commissioner (appeals)

Lies with CESTAT

viii) ix) 10)

In limited cases appeals can be made to HC/SC Writ petition can be filed in HC/SC irrespective of any provisions in the Act

11)

Interest I) If duty is not paid when it ought to have been paid, Interest payable at the rates. The actual rate of interest is of 13% for delayed no. of days ii) The date on which payment of duty is made is to be included for purpose of calculation of interest iii) Assesse may agree to abide by the order of board and pay duty voluntarily on his own. If he pays full amount of duty within 45 days from such order, without reserving right of appeal against such payment at any subsequent stage, he is exempted from payment of interest even if the duty was due earlier. However, if he makes payment under protest the interest is payable from the month following the month in which the duty ought to have been paid. v) This relaxation does not apply if assessee pays duty on receipt of a show cause notice to him vi) In many cases, Tribunal has held that interest is not payable if duty is paid before show cause notice Penalty a) Excise authorities are empowered to impose penalties like fines, confiscation of goods, etc. which are provided in Central Excise Rules. b) Excise officers can impose (a) penalty for violation of law (b) Confiscate the goods (c) Give option to pay fine in lieu of confiscation

c)

Court of low can impose fine, imprisonment as well as confiscation of goods.

22 d) Rule 25 of Central Excise Rules provide general provisions for breach of various rules e) Rule 25 is applicable only to manufacturer, producer, registered person of a warehouse or registered dealer f) Under rule 25(1) of Central Excise Rules, following are offences : i) Removing excisable goods in contravention of excise rules or notifications issued under the rules ii) Not accounting for excisable goods manufactured, produced or stored iii) Engaging in manufacture, production or storage of excisable goods without applying for registration certificate u/s 6 CE Act. iv) Contravening any provision of Central Excise Rules or notifications issued under these rules with intent to evade payment of duty g) (I) (ii) Penalty for violations prescribed in rule 25 is Confiscation of contravening goods Penalty up to duty payable on such contravening goods or Rs. 2,000 whichever is higher. The Central Excise Officer will follow principle of natural justice while issuing the order.

h) Rule 27 of Central Excise Rules is a residual penalty, which is that for breach of any excise rule, if no penalty has been prescribed, the penalty would be Rs. 5,000 plus confiscation of goods in respect of which offences has been committed. i) A mandatory penalty equal to the duty short paid or not paid or erroneously refunded is payable if such non-payment or short payment or suppression of facts etc. j) If the duty, interest and penalty is paid within 30 days from communication of order, mandatory penalty payable will be reduced to 25% k) If duty is paid within 30 days of confirmation, penalty is reduced to 25% l) Even in cases where notice alleges suppression of facts, fraud willful misstatement or collusion, if assessee pays duty and interest within 30 days, penalty will be reduced to 25% m) Principles in imposition of Penalty No penalty if show cause notice is held invalid or demand dropped Lenient view in case of bona fide belief or technical lapses No penalty if party had bona fide belief No penalty if appellant had nothing to gain by evading duty

23 n) No penalty for difference in interpretation Mere claiming benefit or classification is not an offence

Normally, penalty is imposed on the company/firm who has committed an offence. The penalty under rule 25(1) is on the company or firm. Though company is an independent legal person, it works through managing directors, directors and employees. In case of firms, it works through partners and employees. Hence, in addition to penalty that may be imposed on the company / firm, personal penalty can be imposed on the person who was actually involved in committing the offence. Personal penalty can be imposed only on persons who deal with goods by acquiring possession r dealing with them. Auditors, Legal advisers or auditors do not deal with excisable goods as contemplated u/s 9(1) (bbb) of CEA or rule 209A (now rule 26) and no penalty can be imposed on them. Any person who issues (I) an excise duty invoice without delivery or goods mentioned therein or abates in making such invoice or (ii) any other document or abates in making such has taken any ineligible benefit under the Act or the rules made there under like claiming of Cenvat credit or refund shall be liable to a penalty not exceeding the amount of such benefit or Rs. 5,000 whichever is greater.

o)

p)

12)

Confiscation & Seizure A) Seizure’ means goods are taken in custody by the department. ‘Confiscation’ means the goods become property of Government and Government can deal with it as it wants. On the other hand ‘seizure’ means goods are in custody of Government, but the property of goods remains with the owner. Under rule 25 of CE, following goods are liable to confiscation I) Excisable goods removed in contravention of Central Excise rules, ii) Excisable goods not accounted for iii) Excisable goods manufactured without registration of the factory. Following conveyances are liable to confiscation under section 115(1) of Customs Act, which is also made applicable to Central Excise. I) any conveyance from which goods are thrown overhead or destroyed to prevent seizure by officer of customs. ii) Conveyance which is required by Excise / Customs officer to land or stop for inspection but fails to do so. iii) Conveyance by which warehoused goods are cleared for export, but goods are unloaded without permission. iv) Conveyance carrying imported goods which has entered India and is afterwards found with the whole or substantial portion of such goods

b)

c)

24 missing, unless the master of vessel is able to account for the loss of or deficiency in goods. When the goods are liable for confiscation, the packages in which contravening excisable goods are packed, such packages are also liable for confiscation. e) Goods used for concealing contravening excisable goods are liable for confiscation. f) If the contravening goods are found to have been sold, sale proceeds of such sale are liable to confiscation g) If the goods are confiscated and are not redeemed, they become property of central Government. In that case, no duty liability arises on assessee whose goods are confiscated. h) Before confiscating goods, show cause notice must be issued to owner of goods giving grounds for confiscation and he should be given opportunity to make representation and being heard. 13) Duty of Payment under Protest a) b) When classification & A.V. not acceptable to assessee he can file appeal & in mean while can pay duty under protest Following procedure is required I) Write letter to AC / DC indicating. Intention to pay duty under protest ii) Obtain dated acknowledgement iii) Duty then can be paid under protest only till his appeal or revision is decided. iv) There must be endorsement “Duty paid under protest” on all invoice & monthly returns. v) No. of invoices on which duty is paid under protest must be indicated in monthly ER-1 returns.

d)

14) Refund a) Due to mistake or urgency manufacturer may pay higher duty than required. In such case he can file refund claim b) Refund can also be claimed when appeal has been decided in favour of an assessee. c) Refund claim should be Lodged within one year from relevant date In prescribed form Lodged by manufacturer (if not passed on to buyer ) Lodged with AC/DC d) Doctrine of “Unjust enrichment “

25 If manufacturer had charged E.D. to his buyer, it means he has recovered duty from buyer If refund is paid to manufacturer there will be excess & undeserved profit. To him – Once from customers & again from Govt. – This is called “Unjust Enrichment” Refund should be paid to customer however many times it is not possible to locate individual customer & refund him duty. Also duty illegally collected by Govt. cannot be retained by Deptt. Refund due is therefore transferred to “Consumer Welfare Fund” This fund is utilized for protection & benefit of consumers. 15) Excise Audit I) Audit Departmental ii) Central Revenue Audit (CERA) Features To cheek whether assessee is paying duty & Following requirements of Act/ Rules Carried out by Excise Deptt. Carried out by C. & Ag. Conduced under authority of constitution Report submitted to president & the laid Before parliament Ordered by chief commissioner To assess valuation and CENVAT credit Carried out by practicising cost accountant

iii)

Valuation / CENVAT Audit

16)

Concession for SSI Units. I) All industries irrespective of their investment or number of employees are eligible for concession. In fact, even a large industry will be eligible for the concession if its annual turnover is less than Rs. 4 crores. ii) A unit is entitled for exemption only if its turnover is previous year was less that Rs. 4 crores. Units whose turnover was over Rs. 4 crores in 2006-07 are not eligible to any SSI concession in 2007-08. They have to pay full normal duty from 1st April, 2007. iii) SSI units have been given two types of exemptiona) SSI unit can avail full exemption up to Rs. 150 lakhs and pay normal duty thereafter. Such units can avail CENVAT credit on inputs only after reaching turnover of Rs. 150 lakhs. In the financial year. b) SSI unit can also pay full 100% duty and avail CENVAT credit c) The first option, i.e. nil duty up to Rs. 150 lakhs. • The first option, i.e. nil duty up to Rs. 150 lakhs. And normal duty for subsequent clearance is automatic. However, if assessee wants to pay normal duty, he must inform option to department. He should inform in writing to assistant commissioner with a copy to superintendent of Central Excise, the following.

26 a) b) c) d) e) Name and address of manufacturer Location / locations of factory / factories Description of specified goods produced Date from which option under the SSI exemption notification has been exercised. Aggregate value of clearances of specified goods(excluding the value of clearances not covered under SSI exemption notification e.g. goods exempted under any other notification, goods with brand name of other, intermediate products and strips of plastics used for manufacturer of sacks or bags. The option of paying normal duty is available any time during the year, but the option once availed cannot be withdrawn during the financial year.

• Once assessee exercises option to pay full duty, he cannot withdraw during remaining part of financial year. • If the manufacturer has more than one factories (even at different places), the turnover of all factories (belonging to same manufacturer) have to be clubbed together for calculating the SSI exemption limits of Rs. 150 or 400 lakhs. • Sometimes, a manufacturer may use the factory for part of the year and then another manufacturer may use the same factory for remaining part of the year. In such cases, the turnover of different manufacturer has to be clubbed for calculating the SSI exemption limits of 150 or 400 lakhs, if it is from the same factory. • It is possible that more than one manufacturer may clear the same factory e.g. part of factory may be used by one manufacturer and another part of same factory may be used by another manufacturer. In such cases, all clearances from the factory has to be considered even if the clearance is of different manufacturer for calculating the SSI exemption limits of 150 or 400 lakhs • While calculating limit of Rs. 400 lakhs. Following is to be excluded. a) b) c) d) e) f) Export turnover except export to Nepal Bhutan. Export under bond through merchant exporter Deemed exports Turnover of non-excisable goods Goods manufactured with other’s brand name cleared on payment of duty Intermediate products when final product eligible for SSI exemption

27

g) h) I)

Job work amounting to manufacture done under specified notifications Job work or any process which does not amount to manufacture Clearance of strips of plastics used within factory of production for weaving of fabrics or manufacture of sacks or bags made of polymers of ethylene or propylene are exempt. There are not to be included for calculating exemption limit of Rs. 400 lakhs.

• While calculating limit of Rs. 150/400 lakhs, following is to be included – a) Turnover of goods exempted under other notification b) c) d) Goods manufactured in rural area with other’s brand name Captive consumption not exempt if used in manufacture of final product which is exempt under any other notification. Export to Nepal and Bhutan

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