Central Excise - Basic concepts

Central Excise - Basic conceptsWhat is excise duty Levied on a manufacturer or producer, in respect of the commodities manufactured or produced by him. It is a tax on manufactureIt is not a tax on sale / sale proceeds of goods

Started as pure duty on manufacturing activity Over a period of time - deemed manufactureIt has become a value added tax Changed name CENVAT (Central Value Added Tax)

Four pillars of central excise Duty liability

Classification of goods

Valuation of goods

CENVAT

Constitutional provisions Entry 84 of Union List of Seventh Schedule to the Constitution: Duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, opium, Indian hemp and other narcotics, but including medical and toilet preparations containing alcohol, opium or narcotics.

Excise duty on alcoholic liquors for human consumption, opium, Indian hemp, and other narcotic drugs - State subject. The State Government levies excise duty of such products. Rate of excise dutyBasic excise duty and special excise duty are levied u/s 3Rate specified in First Schedule and Second Schedule to Central Excise Tariff Act, 1985.

Basic excise duty, i.e. CENVAT, levied u/s 3(1)(a)Rates specified in First Schedule of CETA Current general rate of excise on non petroleum products is 12%.

Special excise duty levied u/s 3(1)(b)Commodities under Second Schedule (pan masala, cars etc)W.e.f. 1.3.06, all goods falling in Second Schedule are exempted from SED. Rate of excise dutyAdditional duty of excise (Textile and textile articles) u/s 3W.e.f. 2004 exempted

Additional duty of excise (goods of special importance)On specified goods mentioned in First ScheduleLevied in lieu of sales tax Shared between Central / State governments W.e.f. 2006 exempted National Calamity Contingent Duty

u/s 136 of Finance Act, 2001Specified products pan masala, branded chewing tobacco, cigarettes, crude oil, mobile phones.

Rate of excise dutyAdditional duty of exciseU/s 85 of the Finance Act, 2005Surcharge on pan masala and certain specified tobacco products

Education Cess2% of aggregate duties

Secondary and Higher Education Cess 1% of the aggregate duties

Sources of central excise lawCentral Excise Act, 1944 Contains basic provisions regarding levy of excise duty

Central Excise Tariff Act, 1985Based on the international product coding system called Harmonised System of Nomenclature (HSN). Enlist all the excisable goods Provide for the corresponding rates of excise duty chargeable

Annual Union Finance ActsPart B of budget speech detailed tax proposals Also contains any amendments to Central Tax Acts.

Sources of central excise lawRules framed by the Central Government for carrying out the provisions of the Act. NOTE Rules cannot override provisions

Central excise rules, 2002 Assessment and collection of duty Procedures like registration, invoicing, payment of duty etcCentral excise valuation (determination of price of excisable goods) rules, 2000To prescribe valuation methodsWhen valuation cannot be determined u/s 4CENVAT credit rules, 2004Credit of excise duty and service tax across goods and services

Sources of central excise lawNotifications Issued by Central Govt. or CBECRules relating to excisy duty, amendments, exemptions

Circulars / NotificationsIssued by CBECTo ensure uniformity in classification of excisable goods / levy of excise duty Binding on the department

Trade notifications / Clarifications Binding on the departmental officers concerned

Case Laws Facilitate in interpreting provisions of the Act

Application of Central Excise LawApplies to the whole of IndiaExtended to the state of J&K vide enactment of Taxation laws (Extension to K&K) Act, 1954

Designated areas in the Continental Shelf, and Exclusive Economic Zone of India (EEZ)EEZ extends upto 200 nautical miles inside the sea

Goods manufactured in Indian landmass and designated areas in Continental Shelf and EEZTaxable eventEvent or transactions that results in a tax consequence for the party who executes the event:

Excise - Levied on manufacture of goodsAll manufacturing processes do not attract excise duty

Excise duty is not concerned with ownership or sale

Liability is event based i.e. manufacture

NOTE: Duty is collected on removal of goods from the factory

Charging section Sec 3: There shall be levied and collected in such manner as may be prescribed, duties on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India

Basic conditions There must be manufacture or production

Such manufacture of production must be in India Except - in Special Economic Zone (SEZ )

Duty is on goods

Goods must be excisable goods

Charge of duty Government goods also liable to excise duty

Excise payable on ALL excisable goods Other than saltManufactured in IndiaBy or behalf of the Government (both Central and State)

Charge of duty Goods manufactured by 100% EOU brought to DTALiable to excise duty

Duty = Total customs duty leviable under the Customs Act / other applicable law on like goods produced / manufactured outside India, if imported into India

Valuation as per Customs Act, 1962, if duty is based on value

In case of like goods, where customs is leviable at different rates Highest rate to be taken

Goods and Excisable GoodsSec 2(d) Goods include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.

1. Article 366(12) of the Constitution of India:Goods include all materials, commodities and articles

Goods and Excisable Goods2. Sale of goods act, 1930: Sec. 2(7) defines goods asEvery kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass, and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale

Hence, immovable property cannot be goods.

Any movable propertyWhether visible, tangible (machinery, pen etc), intangible (drawings, designs, software stored on a media).

Goods 3. Judicial View - UOI v. DCM

The Supreme Court has held that in order to be goods, the articles must be capable of coming to the market to be bought and sold

Two fundamental aspects of goods:Movable Marketable Movable goodsThe articles must be something, which can ordinarily come or can be brought to the market to be bought and sold

Immovable property cannot be brought to the market to be bought and sold Eg. Land, benefits to arise out of land, things attached to the earth

Hence, excise duty cannot be levied on immovable propertyEg. Construction of roads is not liable to excise duty roads are not goods. 20Marketable goodsFor a product to be marketable it should be capable of being put into the market for sale.

Note:Actual sale is not necessary Goods need not be generally available in the marketOne purchaser enough Burden of proof on department Goods of short shelf life Marketable if capable of being brought and sold during that period (1-2 days)Excisable goodsSec 2(d) defines excisable goods:

Goods that are specified in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985

As being subject to a duty of excise, and

Includes salt. Other pointsNil rate is a rate of duty Goods specified in the Tariff as being subject to NIL rate of duty, are also excisable goodsEg. Common salt, rock salt, bamboos

Non excisable goodsGoods not specified in the Tariff, or Goods against which no rate (blank) has been specified in the Tariff Eg. Live animals, live trees, newspaper though covered in the Tariff, are not excisable goods as the rate column is blank

Other points Not dutiable goods Excisable goods, but not liable to duty either on account of rate of duty being NIL in the Tariff, or 100% exemption granted by any exemption notification

Exempted goodsExempted from duty - exemption notificationExcisable goods, but no duty is payable in view of 100% exemption