Presented By

CA Swatantra Singh,
B.Com , FCA, MBA

Email ID:
singh.swatantra@gmail.com
New Delhi , 9811322785,

www.caindelhiindia.com,
www.carajput.com
1

Basic of Central Excise

MANUFACTURE AND EXCISIBILITY

Section 3 of Central Excise Act, 1944.
Basis of Levy.
What is Manufacture?.
CE Law gives only a truncated definition for

manufacture Includes Deemed Manufacture.

Widest definition is available in Foreign Trade
Policy but that is not applicable to CE Law.
contd

The statutory definition of

manufacture in central excise act
Manufacture includes any process
(i) Incidental or ancillary to he

completion of a manufactured
product;
(ii) Which is specified in relation to any
goods in the section or chapter notes
of the First Schedule to the central
excise tariff as amounting to
manufacture

Continued..
(iii) Which in relation to the goods

specified in the Third Schedule

involves packing or repacking of such
goods in a unit container or labeling
or re-labeling of containers including
the declaration or alteration of retail
sale price on it or adoption of any
other treatment on the goods to
render the product marketable to the
consumer

Continued
And the word manufacturer shall be

construed accordingly and shall include

not only a person who employs hired
labor in the production or manufacture
of excisable goods, but also any person
who engages in their production or
manufacture on his own account.

contd

Leading cases Decisions of

Supreme Court.
- Formation of a new Article
Vide Hawkins Cookers Ltd Vs Collector [1997 (96) ELT 507 SC.
- A new distinct and commercial commodity.
Vide TISCO V.O.I[2004(164) ELT 372 SC.

The accepted wisdom about

manufacture in central excise
Manufacture implies a change; but not every

change is a manufacture. A new product

should emerge from the raw material stage
with a new name, new use and marketability.

2) Ingredients of
excisablity
Fact of Manufacture.
Entry availability in CE Tariff.
Marketability.

Manufacture in central
excise
Two concepts
Actual substantive manufacture & Deemed

manufacture
Actual substantive manufacture does it
include mere processing?
Deemed manufacture

What is deemed
manufacture?
Process or activity specified in section or
chapter notes for example:
Labeling or re labeling of containers
Repacking from bulk packs to retail packs
Adoption of any other treatment to render the
product marketable to the consumer

Continued.
Addition of chemicals and other

ingredients to certain products of tariff

heading 3808
In relation to products of heading no 3920
& 3921 process of metallization or
lamination or lacquering
In relation to some products of heading
7013 the process of printing , decorating
or ornamenting

Continued.
In relation to flat-rolled iron & steel products

under chapter 72 the process of hardening

or tempering
In relation to articles of iron and steel under
chapter 73 the process of galvanization

Continued.
In relation to motor vehicles under chapter no

87 building a body or fabrication or

mounting or fitting of structures or equipment
on the chassis falling under 8706

3) Select Decided cases in

Manufacture
Affixing Information stickers on goods

imported does not amount to Manufacture.

-CCE Vs Proctor & Gamble Home Products
2004 [167] ELT 173 [TRI D].
Erection of imported Power Plant does not
amount to manufacture.
-Spectrum Power Generating Co. Ltd VCCE
2004(177)ELT 968 [Tri-D].
Conversion of old, diesel operated Buses into
CNG Buses does not amount to Manufacture.

contd


contd
-Nugas Technologies India (P) Ltd. VCCE [-171

ELT 376 Tri-D].

Gold Plating of watch cases does not amount
to Manufacture.
-Commissioner Vs Divya cases
2004[169]ELT225[Tri-D]
Mixing of chocolate Powder with Sugar and
Skimmed Milk to form drinking chocolate does
not amount to Manufacture CCE Vs Fountain
Consumer Appliances Ltd 2004 [171] ELT 329
(Tri Chennai)

contd
Branding, polishing and affixing MRP on locks

acquired from artisans does not amount to

Manufacture.
Key locks (I) P Ltd Vs CCE 2004(165) ELT,74
(Tri-D).
Printing of date of Manufacture is a Legal
requirement and hence it is a Process of
manufacture.
- Surat Beverages (P) Ltd Vs
Commissioner 2004 (165) ELT313 [TriMumbai].
Rubber lining/ Painting/ Cutting/ Welding/of
Iron and Steel pipes and Tanks does not
amount to manufacture.- Tega (I) Ltd Vs CCE
2004(164)ELT390 [SC]

contd
Transformation of Catalyst into spent Catalyst does

not amount to Manufacture.

-CCE Vs Deepak Fertilizers & Petro Corp.Ltd.- 2004
(178)ELT 686 [Tri-M].
The Test of Marketability is a Burden of Revenue.
-FGP(I) Ltd Vs U.O.I 2004(168) ELT 289 [SC]
Testing/ Gardening/ Certification of Helium gas
cylinders before Sale is an activity amounting to
manufacture.
- Commissioner Vs Air liquide North (I) P. Ltd 2004[174]ELT 201 [Tri - Del].

4]Valuation The Crux of the matter

Tending to become more like an opinion poll.
Section 4 and 4A/ Valuation Rules 2000.
What is Transaction value?.

Requirements for acceptance of Transaction

Price
Sale of goods.
For Delivery, at the time and place of
removal
Seller and Buyer not related.
Price is the sole consideration for sale.
The legal fiction created by the definition of
time of removal let us note this

A tour of the valuation rules

2000
The official name for the rules is this

Central Excise Valuation ( Determination of

price of excisable goods) Rules, 2000
These rules apply when any of the
ingredients of transaction value is missing
The rules are used for ascertaining the
normal transaction value at which the
greatest aggregate quantity of goods are
sold

The valuation rules.

They are 11 rules in all
Rule 1 name & entry into force from 1-7-

2000
Rule 2 definitions
Rule 3 exhortation to decide the value
(when the transaction value is unavailable or
unacceptable)

The valuation rules.

Rule 4 ascertainable equivalent price of

such goods nearest in time to the time of

removal of goods from the factory margin
adjustment on account of differences in dates
of delivery allowed
Rule 5 cases when the delivery of goods is
at a place other than the factory

The valuation rules..

Rule 6 when there is additional

consideration to the sale not reflected in the

transaction price charged solution: monetize
the additional consideration and add it up to
the tax value
Rule 7 Depot / branch sales solution: adopt
the nearest prevailing depot price

Valuation rules.
Rule 8 captive /self consumption/use

solution: tax value is 110% of the cost of

production of the goods (as per CAS 4)
Rule 9 sales to related persons solution:
resale price of related person / 110% of the
cost where the related person does not resell
but consumes or uses for self

Valuation rules.
Rule 10 sales to inter-connected

undertakings /holding company /subsidiary

company solution:: do as per rule 9 above.
Rule 10A job work on behalf of a principal
manufacturer solution: resale price of the
principal manufacturer
Rule 11 residual method

5) Exclusions From Value

-By Statute
Excise Duty.
Sales Tax.
Other taxes such as Octroi, entry tax.
-By Court / Tribunal Decisions
Trade Discount.
Cash Discount/ Prompt Payment discount.
Turn over discount.
Quantity discount.
Year end/ Bonus discount.

contd

contd

Freight and Freight insurance, including equalised

Freight.
Bought out items [not integral/ critical to Product].
Carry bags for Laptops.
Syringe bought out and supplied with P & P
medicines.
Computer Software ( discuss with NCR case)
Third party Inspection charges at the instance of
and borne by the buyer.
Excess of Freight collected over actual expenditure
on freight.
Interest on receivables
contd

Erection, Commissioning charges if products

contd

emerge as immovable property.

Free items supplied with products.
Advertising charges borne by the client buyer on
his own account.
Additional warranty charges.
Notional interest on Advances/ deposits from
buyers not influencing the price.
Straw supplied with Juice.
Rental paid on durable and returnable container
Liquidated damages received for non- lifting of
molasses

6) Inclusions into Value

-By Statute
Advertising.
Publicity.
Marketing/ Sales Promotion.
Storage/ Outward handling.
Servicing.
Warranty.
Commission.
-By Tribunal/ Court Decisions
Dharmada.
Design/ Development/ Engineering.

contd

contd

Royalty.
Amortised Cost of tools/ dies/

moulds received from buyers.

Interest on inventory.
Value of waste retained by
Jobworker.
Packing.
Cost of material supplied by
Customer.

7) Valuation When goods are

assembled at site
Is it a Composite/ turnkey/ works

contract?
Excise duty is not leviable on
immovable property but on
Parts / Components/ goods
already manufactured.
Case Studies Lifts/ Boiler
Plants/ Industrial Furnaces.

8) Valuation in Jobwork
When does Jobwork amount to Manufacture?.
Labor/ Jobwork charges + Raw material costs are

includible in assessable value.

Ujjagar Prints etc Vs U.O.I.
Empire Industries Vs U.O.I.
Pawan Biscuits Co. Vs CCE.
Is buyers profit margin includible in Assessable
Value in the hands of Jobworker?.
Food Specialities Ltd Vs U.O.I.

Continued.
The impact of new valuation rule 10A
The Central Board of Excise & Customs

circular no 902/22/2009 dated 20-10-09 in the

case of vehicle body builders
Job work exemption under notification no
214/86

9) MRP based Valuation

Section 4A/ weights & Measurements Act.
MRP minus prescribed abatement is the

assessable value.
Region wise MRP accepted
If different MRPs are printed, the maximum
MRP will be taken as the basis.
Sale of phones with MRP fixed, to customer,
by phone companies U/S 4A only.
Multi Piece Packages.

10) Refunds & Rebates

Section 11B/ Rule 18/ cenvat Rule 5/ Section

11BB.
One year time limit / Provision for Interest.
Theory of unjust enrichment.
Refund claim thro credit notes what
happens?
Mafatlal Industries Vs U.O.I.
L&T Sargent Lundy Ltd Vs CCE

11)SSI Exemption

Notification no: 8/ 2003 as

amended.
Basic ceiling Rs.1.5 Cr.
Outer ceiling Rs. 4 Cr.
Only listed goods benefit.
Use of Trademark/ symbol/ brand
of another person disentitles.

contd

Perennial issues Clubbing of

Clearances and use of Brand

name.
Use of Foreign owned Trade
mark/ Brand name by Indian SSI
Units.
Clearances Excluded / included
for Computing Rs.1.5 Cr and Rs 4
Cr. Value Caps.

Valuation of Depot Sales

(Stock Transfer)
Where the excisable goods are transferred to :a depot/premises of consignment
agent/branch/any other place ,
from where those excisable goods are to be sold, in
that case,
the Assessable Value shall be
The price at which maximum no. of goods are sold,
At the branch,
At the time of removal from factory.

Example of Stock
Transfer
Factory

Branch

Sent to Branch on
01/01/07

Received on
10/01/07

Ex-factory Price = Rs. 500

Price on 10/01/07 = Rs. 800

Ex-Depot Price = Rs. 700

Sale on 15/01/07

Price on 15/01/07
= Rs.900

A.V. shall be Rs. 700 on which E.D. will be charged.

Valuation of Captive
Consumption
A.V shall be :-

(Cost of Production)*110%

even if the same or

identical or,
comparable goods
are manufactured & sold by the same assesee.

Manner of Payment
Last Day :- 5th day of the following month

(Exception :- in case of goods removed

during the march :- 31st March)
Explanation :- The date of presentation

of the cheque shall be the

date on which duty is paid,
subject to realization of that
cheque

Excise Invoice

The Invoice shall be serially numbered & shall contain:-

(a). Registration Number

(b). Description of goods
(C). Classification
(d). Time & Date of Removal
(e). Mode of Transport & Vehicle Registration No.
(f). Rate of duty
(g). Qty. & Value of goods
(h). Amt. of duty
(i). Address of concerned Central excise Division.
It shall be prepared in Triplicate (Buyer/Transporter/Assesee).
Before using Invoice book, the serial no. should be intimated to

Superintendent.

Return & AFIR

Return submission :-

(a). Monthly
(b).Form ER-1
within 10 days from
the close of month.

Annual Financial Information Statement (AFIR) :-

paid

* Annually
* Form ER-4
* 30th November of succeeding year
* filing only if duty of Rs. 1 crore or mor has been
through PLA

Records Required To Be
Maintained
RG-23A- Part I (Stock Account of Input

Goods)
RG-23A- Part II (Credit on Input Goods)
RG-23C- Part II (Credit on Capital Goods)
RG-1 (Daily Stock Account)
PLA
(Personal Ledger Account)

RG-23A (Part I)
Register
The Receipt,
Disposal,
Consumption,
Inventory of Inputs & Capital Goods.

RG-23A (Part II)

Register

The Assessable Value,

Duty Paid,
Cenvat Credit taken or utilized,
Persons from whom Input/Capital Goods are procured.

Conditions for allowing Cenvat Credit on Input Goods : 100% credit immediately on receipt of Input goods
Credit shall be taken on Process Losses

but not on Storage & Transit Losses

Input does not includes LDO, HSD, Petrol.

RG-23C (Part II)

Register

The Assessable Value,

Duty Paid,
Cenvat Credit taken or utilized,
Persons from whom Input/Capital Goods are procured.

Conditions for claiming Cenvat Credit on Capital Goods : 50% in the year of receipt.
Remaining 50% in subsequent year (if in possession)

but possession not necessary for components, spares& accessories,

refractory & refractory material, moulds & dies.
Exception :- 100% allowed if capital goods cleared in the year of

receipt itself.
Credit on non-specified machine is not allowed.

Daily Stock Account

Maintain Proper Records on a daily basis regarding :-

(a). Description of goods manufactured

(b). Opening Balance
. Goods manufactured
(d). Goods removed
(e). Inventory
(f). A.V of goods
(g). Duty payable
(h). Actual duty paid
The first & last page of account shall be duly authenticated.
Preserve Records for 5 years after the end of F.Y. to which

records pertains.

Personal Ledger
Account
The Credit in taken when duty is deposited
through TR-6 Challans.
The Debit is passed when duty is required

to be paid.
2 copies of PLA & TR-6

---- To be filed with ER-1.

Job Work
If Input/Capital goods not received back within

180 days, then Cenvat Credit taken on those

goods has to be reversed.
Exception :- Jigs, Fixtures, Moulds.

Returns Raj in central

excise
ER 1 monthly due by the 10 of the
th

following month
ER 2 monthly, for EOU due by the 10 th of
the following month
ER 3 quarterly for SSI units due by the10th
of the following quarter

Continued.
ER 4 Annual financial statement for units

paying INR I crore in excise due by the 30 th

of April of the following year
ER 5 CENVAT Annual Return of information
relating to principal inputs due by 30th April
of the following year some class of
manufacturers given exemption

Continued
ER 6 monthly return of principal cenvat

inputs due by the 10th of the following month

some class of manufacturers given exemption
ER 7 Annual Installed capacity statement
due by the 30th April of the following year

Important procedures in central

excise
Issue of invoice under Rule 11 of central

excise rules 2002

Provisional assessment under Rule 7 &
finalization
Time and manner of payment of duty
under Rule 8
Remission of duty under Rule 21 for
damaged/defective/unfit/unmarketable
goods

Important procedures in central

excise
Credit of duty paid on sales returns under

Rule 16
Rule 16-A removal of any inputs as such or
partially worked outside the factory for
testing, repair etc
Rule 16-B removal of semi-finished products
for further work / finishing and return

Important procedures in central

excise
Rule -16C removal of finished goods outside

for test etc & return

Export without payment of duty as well under
claim for rebate of duty LUT (UT1), Bond,
ARE
Removal of excisable goods without duty for
export warehousing under Rule 20

Penal provisions in central excise

simply draconian & colonial
Prosecution for select offenses under section

9 of the Act
Demand of duty under section 11A with
normal time limit of one year and 5 years for
cases where suppression of facts by the
assesses is alleged
Time limit for adjudication of SCN

Penal provisions in central

excise
Interest for delayed payment under section

11AB
Penalty equal to duty under section 11AC in
cases involving suppression of facts.
Penalty under Rule 25 maximum upto duty
or Rs 2000/-whichever is greater, with
confiscation of the goods

Penal provisions in central

excise
Rule 26 penalty for abettors , transporters,

issuers of false invoices max upto duty or Rs

2000/- whichever is greater
Rule 27 general penalty where no penalty is
specified for any offense in the rules, max of
Rs 5,000/- with possible confiscation of the
goods

Penal provisions in central

excise
Tax default penalty under rule 8 daily

clearance on payment of duty in cash, plus

prohibition of using cenvat credit, till dues are
paid up.
Rule 12CC blanket powers given to the
department to impose restrictions on
Manufacturers and Dealers involved in tax
evasion

Penal provisions in central

excise
Section 11DDA power to order provisional

attachment of property to protect Revenue

during he pendency of proceedings
Section 14 power to issue summons
Section 13 power to arrest

CENVAT CREDIT
The foundation of the value-added tax system
Avoids cascading effect of tax on tax on tax
Integrates goods and services
Cenvat credit Rules 2004 apply to

Manufacturers & Service providers

Cenvat credit rules what is the

gain?
Input stage duty relief in the form of tax credit

to
Capital goods
Inputs
Input services

Cenvat credit Capital

goods
All goods falling under the following chapters

Chapter 82 tools etc

Chapter 83 miscellaneous articles of base
metals
Chapter 84 machinery, equipment etc

Capital goods..
Chapter 85 electrical / Electronic

machinery & equipment etc

Chapter 90 optical, photographic,
medical , checking, measuring equipment
etc
Abrasives under heading no 6805
Grinding wheels & the like under heading
6904

Capital goods
Pollution control equipment
Components, spares & accessories of the

goods for the above two categories

Moulds, dies , jigs and fixtures
Refractories, and Refractory materials
Tubes, pipes and fittings thereof
Storage tank

Capital goods
Used in the factory of the manufacturer of

final products, but does not include any

equipment or appliance used in the office
Or, used for providing output service
Motor vehicles registered in the name of the
following service providers are allowed
courier agency, GTA, Rent a cab operator ,
tour operator, outdoor caterer

Capital goods.
Ownership of capital goods is not required for

a manufacturer or service provider except for

the motor vehicle credit
Credit to be taken for 50% of the duty in the
first year and the rest in any subsequent year
Depreciation under Income tax prohibited

Capital goods..
The 50% restriction does not apply to

special CVD of 4% paid on imported capital

goods
Removal of capital goods requires reversal
of credit 2.5% depreciation on credit for
every quarter of use
Removal on scrapping of capital goods
requires payment of duty on transaction
value

Capital goods.
Provision for removal of capital goods for test,

repair etc
Moulds, dies , jigs and fixtures can be
deployed at the premises of the job worker
Capital goods can be produced and used in
the factory of production for manufacture of
excisable goods duty exempt

Capital goods.
Capital goods on which credit is taken should

not be solely used in the manufacture of

exempted goods
Capital goods which are not defined in the
CCR but used in the factory of production will
qualify for credit as Inputs. Benco Products
Vs CCE CESTAT larger bench decision

INPUTS
Wide definition in the CCR
Inputs means all goods except light

diesel oil, high speed diesel and petrol

Used in or in relation to the manufacture
of final products
Whether directly or indirectly
Whether contained in the final product or
not

Inputs.
Inputs include --Lubricating oils
Greases
Cutting oils
Coolants
Accessories of the final products

Inputs
Goods used as
Paint or packaging material or as fuel or for

generation of electricity or steam

Used in or in relation to the manufacture of
final products or for any other purpose
Within the factory of production

Inputs
For service providers:
All goods except light diesel oil, high speed

diesel , petrol and motor vehicles

And used for providing output service
Inputs will not include cement, angles and
channels, CTD / TMT bars & other items
used for construction in the factory /
building or in laying of foundation or
structural support of capital goods

Input services
For manufacturers:
Any service used by a manufacturer
Whether directly or indirectly
In or in relation to the manufacture of final

products
And clearance of final products upto the place
of removal

Input services..
For service providers:
Any input service used by a provider of output

service for providing an output service

Input services allowed to both

manufacturers to service providers
Services used in relation to
Setting up
Modernization
Renovation
Repairs
Of a factory or the premises of the service

provider

Common services.
Or an office relating to such factory or the

premises
Advertisement
Sales promotion
Market research
Storage upto the place of removal
Procurement of inputs

Common services.
Activities relating to Business such as
Accounting
Auditing
Financing
Recruitment and quality control
Coaching and training

Common services.
Computer networking
Credit rating
Share Registry
Security
Inward transportation of inputs & capital

goods
Outward transportation upto the place of
removal

Important features of cenvat

credit
Input credit can be availed immediately on

receipt of the goods accompanied by the

relevant invoice
No one-to-one correlation between input and
output
Cenvat credit is a legal and vested right

Important features of cenvat

credit
Input service tax credit should be taken only

after settling the service supplier invoice with

value and tax
Transfer of credit on transfer of business
allowed
Transitional credit

Important features of cenvat

credit
Importance of new rule 6 in CCR 2004
Options there under
Maintain separate accounts
Or pay 5% on the value of exempted goods

and six % on the value of exempted services

Important features of cenvat

credit
Or take credit proportionate to the taxable

turnover as per formula prescribed

Inputs & capital goods & input services should
not be exclusively utilized in the
manufacture / provision of exempted goods or
exempted services
Clearances to EOU/SEZ/BTP/STP/EHTP &
exports will not require reversal of credit

Important features of cenvat

credit
Storage of inputs outside the factory allowed

subject to applying for the same

Significance of tax invoice in CENVAT credit
system
First stage dealer/second stage dealer/input
service distributor

Adjudication
Proceedings
under Service
Tax

Provisions at a Glance
Section 14 of CEA, 1944 - Power to summon

persons to give evidence and produce documents in

inquiries under this Act
Section 73 of FA, 1994 - Recovery of service tax not
levied or paid or short-levied or short-paid or
erroneously refunded
Section 73A of FA, 1994 - Service Tax Collected
from any person to be deposited with Central
Government
Section 73B of FA, 1994 - Interest on amount
collected in excess
Section 73C of FA, 1994 - Provisional attachment to
protect revenue in certain cases
88

..Provisions at a Glance
Section 73D of FA, 1994 - Publication of

information in respect of persons in certain cases

Section 74 of FA, 1994 - Rectification of
mistake
Section 75 of FA, 1994 - Interest on delayed
payment of service tax
Section 83A of FA, 1994 Power of
Adjudication
Section 87 of FA, 1994 - Recovery of any
amount due to Central Government
89

Power to summon persons to give

evidence and produce documents in
inquiries
Sub section (1) of Section 14 of CEA, 1944
Any Central Excise Officer duly empowered by the

Central Government in this behalf, shall have

power to summon any person whose attendance
he considers necessary either to give evidence or
to produce a document or any other thing in any
inquiry which such officer is making for any of the
purposes of this Act. A summons to produce
documents or other things may be for the
production of certain specified documents or
things or for the production of all documents or
things of a certain description in the possession or
under the control of the persons summoned.
90

Inquiry before Show Cause

Notice
At
first
instance:
For
calling

F.No 137/39/2007-CX-4 dated 26-2-2007 and F.No. 137/39/2007-CX-4 dated 21-1-

2008

for
information/documents normally the mode of
communication should be either in the form of a
telephone call or by way of sending a simple letter.

Second instance:

Issuance of summons should

be resorted to, only when the above mentioned
modes of communications are found to be
ineffective or are likely to jeopardize revenue
interest or when it is essential to ensure personal
presence of the person concerned to tender
evidence or record statement in connection with a
service tax evasion case;
91

.Inquiry
Simple Notices are not summons
Simple notices are not summons but, it should
be an endeavor that no notice should left
unattended / unreplied.
Even if some notices are wrong, must be replied
politely.
Precautions during inquiry proceedings
Inquiry before issuance of show cause notice is

very critical stage and therefore, must be

handled carefully.
92

..Inquiry
Making statement in the course of inquiry
Statement must be given carefully. It is difficult
to rebut the statement later.
Statement can be used against the person
making such statement.
Where statement is to be retracted, it should be
retracted as soon as possible.
Collected cheques under force during inquiry:
There is power with the department to collect /

recover amount during inquiry.

93

Forced recovery during

investigation
In NARESH KUMAR & COMPANY Versus UOI

[2010 -TMI - 77634 CALCUTTA - HC] has held

that, The authority concerned has no jurisdiction
or authority to collect any amount at the time of
raid simply it is not empowered legally to do so.
Also see: ABHISHEK FASHIONS PVT. LTD. versus
UOI [2006 -TMI - 701 - HIGH COURT OF GUJARAT]
- In absence of any statutory provision on the
basis of which any such recovery can be made,
the action of the respondent authorities in
collecting the cheques from the petitioner
cannot be sustained in law
94

Power of Adjudication S.
83A
Not. 30/2005 dt. 10/8/2005 and 48/2010 dt. 8/9/2010
Superintendent of Central Excise
Not exceeding Rs. one lakh (excluding the cases

relating to taxability of services or valuation of

services and cases involving extended period of
limitation.)
Assistant Commissioner of Central Excise or
Deputy Commissioner of Central Excise
Not exceeding Rs. five lakhs (except cases
where Superintendents are empowered to
adjudicate.)

95

Power of Adjudication S.
83A
Joint Commissioner of Central Excise

Above Rs. five lakhs but not exceeding Rs. fifty

lakhs

Additional Commissioner of Central Excise

Above Rs. twenty lakhs but not exceeding Rs.

fifty lakhs

Commissioner of Central Excise

Without limit

96

Show Cause Notice

Section
73
Normal Period
of Limitation
(1) Where any service tax has not been levied

or paid or has been short-levied or short-paid or

erroneously refunded, the2[Central Excise
Officer] may, within one year from the relevant
date, serve notice on the person chargeable
with the service tax which has not been levied
or paid or which has been short-levied or shortpaid or the person to whom such tax refund has
erroneously been made, requiring him to show
cause why he should not pay the amount
specified in the notice:
97

.SCN -

Section 73

Extended Period of Limitation

PROVIDED that where any service tax has not been

levied or paid or has been short-levied or short-paid or

erroneously refunded by reason of
(a) fraud; or
(b) collusion; or
(c) wilful misstatement; or (d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter
or of the rules made thereunder with intent to evade
payment of service tax,
by the person chargeable with the service tax or his
agent, the provisions of this sub-section shall have
effect, as if, for the words "one year", the words "five
years" had been substituted.
98

SCN Period of limitation

Explanation: Where the service of the

notice is stayed by an order of a court, the

period of such stay shall be excluded in
computing the aforesaid period of one year
or five years, as the case may be.

99

SCN Relevant Date

(6) For the purposes of this section, "relevant date" means,

(i) in the case of taxable service in respect of which service tax has
not been levied or paid or has been short-levied or short-paid
(a) where under the rules made under this Chapter, a periodical
return, showing particulars of service tax paid during the period
to which the said return relates, is to be filed by an assessee, the
date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date
on which such return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to be
paid under this Chapter or the rules made thereunder;
(ii) in a case where the service tax is provisionally assessed under
this Chapter or the rules made thereunder, the date of
adjustment of the service tax after the final assessment thereof;
(iii) in a case where any sum, relating to service tax, has
erroneously been refunded, the date of such refund.

100

Contents of SCN
SCN should not be vague or ambiguous
SCN must be specific
RUD should be supplied with SCN
Corrigendum to SCN may be issued but no

new ground be raised

No corrigendum after submission of reply to
SCN

101

Serving of SCN Section

37C
of
CEA,
1944
(1) Any decision or order passed or any summons or

notices issued under this Act or the rules made

thereunder, shall be served,
(a) by tendering the decision, order, summons or
notice, or sending it by registered post with
acknowledgement due, to the person for whom it
is intended or his authorised agent, if any;
(b) if the decision, order, summons or notice
cannot be served in the manner provided in clause
(a), by affixing a copy thereof to some conspicuous
part of the factory or warehouse or other place of
business or usual place of residence of the person
for whom such decision, order, summons or notice,
as the case may be, is intended;
.
102

Serving of SCN Section

37C
of
CEA,
1944
(c) if the decision, order, summons or notice cannot

be served in the manner provided in clauses (a) and

(b), by affixing a copy thereof on the notice board of
the officer or authority who or which passed such
decision or order or issued such summons or notice.

(2) Every decision or order passed or any summons or

notice issued under this Act or the rules made
thereunder, shall be deemed to have been served on
the date on which the decision, order, summons or
notice is tendered or delivered by post or a copy
thereof is affixed in the manner provided in subsection (1).
103

Serving of SCN
Mere issue of SCN is not sufficient, it has to

be served on the person

Refusal to accept notice is due service of
notice
In case of partnership firm, SCN can be
issued to any partner
In case of company, SCN can be issued to
any of director, secretary or principal officer
Notice to agent is valid.
104

Reply to SCN
Submission of Reply to SCN with 30 days or

extended period as sought.

Assessee can take inconsistent and contrary stands
Assessee can raise dispute to demand on different
grounds
If the statement of a third person relied upon by the
department, assessee can demand crossexamination of such person and have statement by
such person.
Personal hearing may be opted. In case the officer is
changed, new officer should give personal hearing.
105

Challenge to invoking of
extended
period
of
Where extended period of limitation has been
invoke, carefully examine the SCN to see:
limitation

Whether, allegation for invoking extended period is

specific or general.
Which of the allegation has been invoked.
Calculate period before knowledge of facts to the
department and after knowledge of facts to the
department.
What evidences have been adduced by the
department to prove its allegation.
Whether department has discharged its initial burden
to prove the allegation.
106

Challenge to invoking of
extended
period
of
Mere non declaration is not sufficient but a
limitation
positive mis declaration is necessary

See: circular no. 5/92 dated 13/10/192 CE

PADMINI

PRODUCTS Versus CCE [2008 -TMI

42519 SC = mere failure or negligence on the
part of the producer or manufacturer either not to
take out a licence in case where there was scope
for doubt as to whether licence was required to
be taken out or where there was scope for doubt
whether goods were dutiable or not, would not
attract Section 11-A of the Act.
107

. Challenge to extended
period
of
limitation
Suppression, miss declaration must be willful
Intention to evade duty is not mere failure to pay

duty. It must be something more.

Mere inaction is not suppression
Mere ommission to give correct information is not
supression it is willfull
No suppression if assessee was ignorant about legal
provisions
No suppression if assessee had a bonafide belief.
If there is a confusion prevailing in field, no
suppression
108

. Challenge to extended
period
of
limitation
If there is a clarificatory circular, it is a ground of
banafide belief.
Contradictory judgments on of the tribuanl or courts
are valid ground of no suppression.
No suppression if department is aware of facts
No suppression if SCN were issued on the same
subject
If demand is based on return, no suppression
No suppression in case of PSU / govt. undertakings
No suppression if figures were disclosed in published
balance sheets.
109

. Challenge to extended
period
of
limitation

Revenue neutral position

Where assessee is able to take the cenvat

credit of tax paid, suppression can not be held

But, mere availability of cenvat credit is no

conclusive that there was no suppression of

facts.
Suppression of facts is a question of facts and
must be challenged accordingly.

110

Others aspects of SCN and

demand
Demand based on third partys records without
considering other parameters are not sustainable.
Demand based on mere presumption is not
sustainable.
In case of normal period of limitation, if service tax
with interest is deposited before issuance of SCN,
no notice would be served and penalty be imposed.
In case of extended period of limitation, where
service tax with interest and 25% penalty is
deposited, no notice would be issued and penalty
be imposed.
111

Forced Recovery ST from

third
person

Section
87(b)

Section 87(b) empowered the central excise

officers to recover the amount from the third
person.
O.N.G.C. LTD. Versus DC. OF CCE [2010 -TMI 77636 - ANDHRA PRADESH HIGH COURT]
recovery can not made from the third parties
merely by issuing notice in the absence of
assessment order.
.
112

Swami Vivekananda
said..
The lamp is constantly burning out, and that is
its life. If you want to have life, you have to die
every moment for it. Life and death are only
different expressions of the same thing looked
at from different standpoints; they are the
falling and the rising of the same wave, and
the two form one whole. One looks at the "fall"
side and becomes a pessimist another looks at
the "rise" side and becomes an optimist.
(KARMA-YOGA Chapter VIII)

113

EXCISE AUDIT

TYPES OF AUDIT IN
CENTRAL EXCISE DEPT
INTERNAL AUDIT
SPECIAL AUDIT U/S

14A &14AA
STATUTORY AUDIT BY
C&AG

PROCEDURES IN EXCISE
AUDIT
ANNUAL & MONTHLY PROGRAMME
SELECTION OF ASSESSEE
PRELIMINARY DESK REVIEW
TOUR OF THE PLANT
INTERVIEW OF KEY PERSONNEL
EVALUATION OF INTERNAL CONTL
PREPARATION OF AUDIT PLAN
CONDUCT OF AUDIT
PREPARATION OF AUDIT REPORT

REQUIREMENT ON THE PART

OF CA
WELL VERSED WITH THE ACCOUNTING

SYSTEM ADOPTED BY VARIOUS UNITS

SHOULD NOT BE A COST AUDITOR FOR
THE SAME UNIT
CAS-4 CERTIFICATIONS NOT ISSUED FOR
THE SAME UNIT
SOUND WORKING KNOWLEDGE OF
CENTRAL EXCISE LAWS ESPECIALLY EXCISE
AUDIT, CENVAT & VALUATION

WHAT IS EXPECTED OF
COST ACCTS

TO SCRUTINISE ER-5 & ER-6 RETURNS

TO VALIDATE, INTERPRET & ANALISE DATA

AS PER THESE RETURNS

TO IDENTIFY VALUATION ISSUES IN CASE
OF RELATED UNITS
TO VALIDATE & INTERPRET CAS-4
CERTIFICATE

SCOPE OF THE WORK

SUCH ASSIGNMENTS ARE SELECTIVE IN

NATURE
SERVICES OF CA ARE ONLY ADVISORY IN
NATURE
ONLY FOR DESK REVIEW
REPORT OF CWA FORM PART OF WORKING
PAPERS OF DEPT.

LIMITATIONS OF WORK
CWA NOT ALLOWED TO VISIT UNITS
CONFLICT OF INTEREST
PART OF AUDIT TEAM & NOT INDEPENDENT

COMPLETELY
ONLY EMPANELLED CWA ARE CONSIDERED
ONE/TWO DAYS ONLY

DOCUMENTS TO BE
SCRUTINISED

MONTHLY RETURNS
ER-5 & ER-6 RETURNS
ANNUAL REPORT W.R.T. QUANTITATIVE
DETAILS
COST AUDIT REPORT
CAS-4 CERTIFICATE

REPORTING
FORMAT TO BE DESIGNED BY INSTITUTE
IT IS IN THE NATURE OF ADVISE NOTE
TO BE SUBMITTED TO SUPT. INCHARGE OF

TEAM
TO BE COMPLETED BEFORE AUDIT SCHEDULE

POINTS TO PONDER
TREND ANALYSIS OF CENVAT/DUTY
RISK LOSS ANALYSIS
INPUT/OUTPUT RATIO
VALUE ADDITION
RECONCILIATION OF DUTY
OTHER RATIOS

WHAT TO KNOW FROM

P&L
SALE VALUE AND ED PAID
PURCHASE AND CENVAT
LOSS BY FIRE/THEFT
WRITING OFF OF OBSOLETE ITEMS
DISCOUNT RECEIVED/PAID
OTHER INCOMES
DEPRECIATION

WHAT TO KNOW FROM

P&L
ROYALTY/TECH KNOW HOW
DESIGN & DEVT. CHARES
INSURANCE CLAIMS
ERRECTION CHARGES ST ANGLE
EXCISE DUTY PAID

STATISTICAL
TECHNIQUES
RISK ASSESSMENT
RIST LOSS ANALYSIS
TREND ANALYSIS
ABC ANALYSIS
INPUT-OUTPUT RATIO

RISK LOSS ANALYSIS

IN RESPECT OF
EXCISE DUTY PAID OF FINISHED

GOODS

CENVAT ON INPUT vs PURCHASES

SALES REVENUE WITH INCOME TAX
SALES TAX RETURNS

AND

RLA ED PAID STEP 1

NOTE DOWN DUTY PAID AS PER RT12
DEDUCT ED RELATING TO PREVIOUS PERIODS,
EXPORT GOODS, INPUTS CLEARED AS SUCH,
WASTE, MISC HEAD OF PLA, ETC.
NET DUTY PAYABLE ON FINISHED GOODS

RLA- STEP 2
TOTAL SALE VALUE AS PER P&L a/c
DEDUCT SALES TAX (as per sales tax returns)
DEDUCT EXPORT VALUE, SCRAP SALE VALUE,
VALUE OF EXEMPTED GOODS, TRADING
GOODS, ETC.
GET SALE VALUE OF DUTIABLE GOODS

RLA STEP 3
IF NET SALE VALUE IS INCLUSIVE OF ED,
CALCULATE ED PAYABLE AS
NET SALE VALUE x16
116
IF NET SALE VALUE IS EXCLUDING ED,
ED PAYABLE IS
SALE VALUE x 16/100

RLA STEP 4
COMPARE THE ED AS PER RT12 (step 1)
With
ED PAYABLE AS PER P&L a/c (step3)
If the difference is very negligible, ignore
Otherwise, we have to ask for reconciliation by
the assessee.

RATIO ANALYSIS
SALES
SALES
SALES
SALES
SALES
SALES
SALES

TO
TO
TO
TO
TO
TO
TO

RAW MATERIALS
OTHER INCOME
DISCOUNT
SCRAP SALES
EXPORTS
DEBTORS
EXCISE DUTY

CONTENT OF COST AUDIT REPORT

1

REPORT BY COST AUDITOR

DETAILS OF ASSESSEE

COST ACCOUNTING SYSTEM

FINANCIAL POSITION

EXPENSES TO BE SPECIFIED

RATIOS

RAW MATERIALS

POWER AND FUEL

WAGES AND SALARIES

10

STORES AND SPARES

11

DEPRECIATION

12

OVERHEADS

13

ROYALTY/TECH KNOW-HOW

14

SALES

15

ABNORMAL COSTS

16

OTHER ITEMS

17

AUDITORS OBERVATIONS

EXPENSES/INCOMES
TO BE SPECIFIED

Expenses to be specified
Expenditure on spl exhibitions
j) Expdr.-abonormal or non-recurring
Incomes to be specified
c) Abnormal or non-recurring incomes

RATIOS & RAW MAT

Cost of production on Cap Employed
Actual production vs Installed capacity
Cost of major RM consumed
Specify Significant transport cost
Analysis of variances
Comment of Inventory accounting

STORES AND SALES

COMMENT ON THE METHOD
OF STORES ACCOUNTING
NON-MOVING ITEMS OVER 2 YRS
PRODUCT-WISE SALES REALISATION
EXPORT REALISATION-PROFIT?

AUDITORS OBSERVATION
PRINCIPLE DEVIATIONS
NEGLIGENCE & NON-COMPLIANCE
SCOPE OF INTERNAL AUDIT
AGREEMENTS OF SALE/PURCHASE
SEPARATE ANNEX FOR DIFF
UNITS

Presented By

CA Swatantra Singh, B.Com , FCA, MBA

Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785,
www.caindelhiindia.com,
139