Central Excise Act and Rules

Central Excise Act and Rules
What is tax ? Tax is nothing but money that people have to pay the Government, which is used to provide public services

Direct and indirect taxes

What are direct and indirect taxes?

If the taxpayer bears its incidence which can not be passed, such tax is direct tax. Example: - Income Tax, Wealth Tax, Gift Tax etc. If the tax-incidence is passed on till it finally reaches the consumer such tax is indirect tax. Example: - Excise Duty, Customs Duty, Sales Tax etc.

Powers of Central and the State Governments

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Article 265 of the Constitution of India provides that both levy and collection of taxes shall be under the authority of law. Article 246 indicates bifurcation of powers to make laws, between Union Government and State Governments Excise and Customs Duty, Income Tax is under Central purview. Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the State Government and is called "State Excise" duty. VAT, Sales Tax, Works Contract Tax, Stamp duty are also states matter

Central Excise - Major Contributor

Central excise is the biggest single source of revenue for the Government which tries to achieve different socio-economic objectives by making suitable adjustments in the scope and quantum of levy of Central Excise duty. Excise duty and Custom duties contribute nearly 50% of the total revenue collection of the Union Government. The Petroleum sector contributed Rs 60,298 crore or 48 per cent of total central excise duty collections of Rs 1,25,000 crore in 2007-08.

Central Excises and Salt Act,1944

Central Value Added Tax (CENVAT), commonly referred to as excise duty, is primarily levied on the manufacturer. CENVAT under the Central Excise Act. is payable on production of 'excisable goods' in India. The Charging section is Section 3 of the Central Excises and Salt Act,1944.

What is CENVAT

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Value Added Tax (VAT) concept allows tax credit for using taxed inputs for another taxable goods/services. This facilitates mitigation of the cascading effect of duty Subject to prescribed conditions, credit for CENVAT on inputs can be availed based on a duty paid invoice from the manufacturer/dealer and utilized for the payment of the excise duty on the goods manufactured.

Charging Section of the Act
Section 3 of the Central Excise Act,1944 provides that there shall be levied and collected in such manner as may be prescribed, duties of excise on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the schedule to the Central excise Tariff Act,1985

Liability of Central Excise Duty

The taxable event as per sec 3 is 'manufacture' and the liability of central excise duty arises as soon as the 'excisable goods' are manufactured. Rules 9 and 49 of the Central excise Rules,1944 provides for the collection of duty which becomes payable on 'removal' of goods which is necessarily not equated with sale.

‘Removal’ means
The removal may be for: Sale  Transfer to depot etc.  Captive consumption  Transfer to another unit  Free distribution Duty becomes payable irrespective of whether the removal is for sale or for some other purpose

Basic conditions
There are four basic conditions for levy of Central Excise duty. (1) The duty is on goods. (2) The goods must be excisable. (3) The goods must be manufactured for home consumption (4) Such manufacture or production must be in India. Unless all of these conditions are satisfied, Central Excise Duty cannot be levied.

Central Excise Tariff Act

The term "excisable goods" means the goods which are specified in the Central Excise Tariff Act, 1985 Thousands of varieties of manufactured goods are identified through groups and sub-groups to decide a rate of duty on each group/sub-group.

CLASSIFICATION OF GOODS

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‘Classification' of a product means determination of Tariff item under the Central Excise Tariff Act, 1985. It classifies all excisable goods under 90 and odd chapters Based on International convention of Harmonised System of Nomenclature (HSN), international nomenclature standard and coding system is adopted Countries to ensure uniformity in classification in International Trade. . Petroleum is covered under Chaper 25-27.

Broad grouping in CETA
Animal Products - Chapters 2 to 5 Vegetable Products - Chapters 7 to 14 Animal or vegetable fats - Chapter 15 Prepared foodstuffs, beverages - Chapters 16 to 24 Mineral Products - Chapters 25 to 27 Chemicals, Fertilisers, soap etc. - Chapters 28 to 38) Plastics and Rubber - Chapters 39 and 40) Leather and articles - Chapters 41 to 43) Wood, cork, straw - Chapters 44 and 46) Pulp, Paper, Paper-board - Chapters 47 to 49) Textile and Textile Products (Section XI - Chapters 50 to 63)

Broad grouping

Footwear, Headgear, Umbrellas, Articles of human hair (Section XII - Chapters 64 to 67). Articles of stone, plaster, ceramic, glass (Section XIII Chapters 68 to 70) Pearls, precious metals (Section XIV - Chapter 71) Base metals and articles of base metal (Iron, Steel, Copper, Nickel, Zinc, Tin etc.). (Section XV - Chapters 72 to 83) Machinery and mechanical appliances, electrical equipments, television etc. (Section XVI - Chapters 84 and 85) Vehicles, Aircrafts, vessels ( Section XVII - Chapters 86 to 89) Optical, photographic, medical, surgical instruments, clocks, musical instruments (Section XVIII - Chapters 90 to 92) Arms and Ammunition (Section XIX - Chapter 93)

Amount of duty payable
Once it is established that the goods are excisable next question is what is the amount of duty payable. The two step process is (a) Correctly classify the goods (b) Find its assessable value.

What is Assessable Value?
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Assessable Value (AV) is the 'Value' on which duty is payable as a percentage. Generally, the 'Value', is the price as mentioned in Bill or Invoice. However, if goods are not sold at Factory gate duty is even payable but not on such price. It is desirable to have uniform policy in fixing the AV so that chances of manipulation in such price should be minimum.

Transaction Value
In terms of sec 4(1)(a) of Central Excise Act Assessable value will be the value at which transaction takes place that is, the price at which goods are sold is 'transaction value‘. Provided the following conditions are satisfied   

The goods should be sold at the time and place of removal. Buyer and assessee should not be related. Price should be the sole consideration for the sale. .

Valuation Rules

If the 'transaction value', conditions are not satisfied, valuation will be done as per Valuation Rules under section 4(1)(b) of the Central Excise Act. Which states that if Assessable Value' cannot be determined u/s 4(1)(a), it shall be determined in such manner as may be prescribed by rules. Under these powers, Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 have been framed which amended fro time to time.

A V Rules Example

Sale at depot / consignment agent - When goods are sold through depot, there is no 'sale' at the time of removal from factory. In such cases, price prevailing at depot (but at the time of removal from factory) shall be the basis of Assessable Value. For example, if an assessee transfers a consignment to his depot from Delhi to Agra on 5.7.2008, and that variety and quality of goods is normally being sold at the Agra depot on 5.7.2008 at transaction value of Rs. 15,000 per tonne.

……A V Rules Example

the consignment cleared from the factory at Delhi on 5.7.2008 shall be assessed to duty on the basis of Rs. 15,000 per tonne as the assessable value. If assuming that on 5.7.2008 there were no sales of that variety from Agra depot but the sales were effected on 1.7.2008, then the normal transaction value on 1.7.2008 from the Agra depot shall be the basis of assessment

Warehousing

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Warehousing is a system that allows excise duty to be suspended while goods are held in premises approved by Excise & Customs This allowed in limited purpose where longer storage is necessary like Tea, Tobacco, petroleum products Duty is paid when finally removed for further processing, packing or for sale Till 6.9.2004 the warehousing facility of removal of petroleum products from the refineries to warehouses or from one warehouse to another warehouse without payment of duty existed

Petroleum Sector - Examples

Duty on LPG varies depending upon whether the sale is to the domestic consumers or to industrial consumers. W.e.f. 6.9.2004, the duty on LPG is to be paid by the refineries at the time of clearance of LPG from Refinery. It may not be ascertainable in all cases whether a particular consignment is to be ultimately sold to domestic consumers or to industrial consumers, the assessment of LPG at the time of removal from the refineries in such cases poses problem. Either duty is paid on provisional basis orvely, the refineries may pay the excise duty at the highest of the assessable values and claim refund later on.

A V. of Petroleum Products

The assessable value of petroleum products cleared from the refineries on or after 6.9.2004, is to be determined under section 4 of the Central Excise Act, 1944 read with the Valuation Rules. If the product is sold at the refinery gate, the assessable value would be the transaction value under section 4(1)(a). If a product is removed by the refinery but sold from the depot, the assessable value is to be determined as per the mode of valuation applicable to the sale of goods through depot.

Types of Excise Duties

Basic Excise Duty Charged under section 3 of the C. E. Act at the rates set forth in the schedule to the Central Excise tariff Act,1985.

Additional Duty of Excise

Section 3 of the Additional duties of Excise (goods of special importance) Act,1957 authorises the levy and collection in respect of the goods described in the Schedule to this Act.

Special Excise Duty

As per the Section 37 of the Finance Act,1978 Special excise Duty was attracted on all excisable goods on which there is a levy of Basic excise Duty under the Central Excises and Salt Act,1944. Since then each year the relevant provisions of the Finance Act specifies that the Special Excise Duty shall be or shall not be levied and collected during the relevant financial year.

SELF ASSESSMENT

Under the present assessment scheme, a manufacturer is required to assess himself the duty payable on the goods manufactured by him and deposit the same in authorized Banks. The details of goods manufactured exemption claimed, duty paid are required to be furnished in periodical returns

Registration
The following categories are required to get registered with the Central Excise department:
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Every manufacturer of dutiable excisable goods; First and second stage dealers or importers desiring to issue Cenvatable invoices; Entities holding bonded warehouses for storing non-duty paid goods; Entities who obtain excisable goods for availing end-use based exemption.

Central Board of Excise and Customs

Central Board of Excise and Customs (CBEC) under MOF implements law and procedures of Central Excise law by several regional units called Central Excise Commissionerates, each covering assessees spread over a specific geographic area.

DEMAND/SHOW CAUSE NOTICE, ADJUDICATION

In accordance with the principles of natural justice the central excise law provides that before any action is taken against an assessee he must be given reasonable opportunity of presenting his case..

DEMAND/SHOW CAUSE NOTICE

One such situation would be that relating to the demand of duty not paid, short paid or erroneously refunded. The Act provides that if excise duty has not been levied or short levied or not paid or short paid, a notice has to be issued demanding the differential duty.

ADJUDICATION

The law also provides for the adjudication of matters relating to the legal provisions. The adjudication is done by the departmental officers, and in this capacity they act as quasi-judicial officers

ADVANCE RULINGS

SECTION 23A Defines "advance ruling" means the determination, by the authority, of a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity which is proposed to be undertaken, by the applicant;

Appeals

The provisions for appeal are contained in Chapter VI A of the Central Excise Act,1944. The rules pertaining to Appeals i.e. Central Excise (Appeals) Rules, 2001 (hereinafter referred to as ‘Appeal Rules’) have been notified w.e.f. 1.7.2001.

Appellate Authorities
Order passed by

Appellate Authority
Commissioner (Appeals)

All officers upto & including Additional Commissioner Commissioner or Commissioner (Appeals)

CEGAT
High Court Supreme Court

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CEGAT High Court

THANKS

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