Excise Duty

Excise Duty Made for DBIT By Satish T Sawnani B.Com; FCA;ACS;CMA;CAIIB;CTM;DISA & IFRS (ICAI) 1)Central Excise Act,1944(CEA) : The basic Act which providing for charging of duty, valuation , powers of officers, provisions of arrests, penalty , etc.

2)Central Excise Tariff Act,1985 (CETA): This classifies the goods under 96 chapters with specific codes assigned.

3)Central Excise Rules,2002: The procedural aspects are laid herein. Implemented after issue of notification.

4)Central Excise Valuation(Determination of Price of Excisable Goods) Rules,2000: The provisions regarding thevaluation of excisable goods are laid down in this rule.

5) Cenvat Credit Rules,2004: The provisions relating to Cenvat Credit available and its utilisation is mentioned.

Laws related to Central Excise 2For DBIT - Mar 2013 The duty of Central Excise is levied if the following conditions are satisfied :(1) The duty is on goods.(2) The goods must be excisable.(3) The goods must be manufactured or produced(4) Such manufacture or production must be in India.Note: All Conditions must be satisfied Ownership of raw material is not relevant for duty liability When Excise is chargeable ?3For DBIT - Mar 2013 Note : Goods manufactured or produced in SEZ are excluded excisable goods. Goods should be Moveable Goods should be marketable

Machinery /Petrol Pump permanently embedded to Earth is NOT GOODSTake Note 4For DBIT - Mar 2013 Defn: Goods specified in the Schedule to Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt

Explanation to section 2(d),: goods includes 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. Thus, unless the item isspecified in the Central Excise Tariff Act as subject to duty, no duty is leviable.

Goods Defn 5For DBIT - Mar 2013 . Manufacture includes any process :-(i) incidental or ancillary to the completion of a manufactured product; and(ii) which is specified in relation to any goods in the Section or Chapter Notes of the Schedule to the CentralExcise Tariff Act, 1985, as amounting to manufacture or,(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of suchgoods in a unit container or labeling or re-labelling of containers including the declaration or alterationof retail sale price on it or adoption of any other treatment on the goods to render the product marketableto the consumer.

Goods Manufacture Sec 2(f)6For DBIT - Mar 2013 Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result oftreatment, labour and manipulations. But something more is necessary and there must be transformation; a new and differentarticle must emerge having a distinctive name and character or use.

Goods Manufacture Sec 2(f)7For DBIT - Mar 2013 The word produced is broaderthan manufacture and covers articles produced naturally, live products, waste, scrap etc. Manufacture meansto make, to inset, to fabricate, or to produce an article by hand, by machinery or by other agency. To manufacture is to produce something new, out of existing materials.

Manufacture contd 8For DBIT - Mar 2013 Is Assembling Manufacture ????SC says Yes if it brings into existence of a new commercially known different product, however minor the consequent change be, it would amount to manufacture.

Manufacture contd 9For DBIT - Mar 2013 (a) CETA specifies some processes as amounting to manufacture. If any of these processes are carriedout, goods will be said to be manufactured, even if as per Court decisions, the process may not amount to manufacture, [Section 2(f)(ii)].(b) In respect of goods specified in Third Schedule to Central Excise Act, repacking, re-labelling, puttingor altering retail sale price etc. will be manufacture. Eg: Goods on which excise duty is payable u/s 4A on basis of MRP printed on thepackage. [Section 2(f)(iii) w.e.f. 14-5-2003].

Deemed Manufacture 10For DBIT - Mar 2013 Basic Excise Duty Education Cess @ 2% of excise duty Secondary and Higher Education Cess (S&H Education Cess) @ 1% of the Excise dutyNational Calamity Contingent Duty imposed on some products. NCCD of 1% has been imposed on mobile phones

In addition, cesses and duties have been imposed on some specified products.

Duties Leviable are ????11For DBIT - Mar 2013 (i) A person, who produces or manufactures any excisable goods,(ii) A person, who stores excisable goods in a warehouse,(iii) In case of molasses, the person who procures such molasses,(iv) In case goods are produced or manufactured on job work, (a) the person on whose account goods are produced or manufactured by the job work, or(b) the job worker, where such person authorizes the job worker to pay the duty leviable on suchgoods.

Persons who are liable to pay excise duty 12For DBIT - Mar 2013 Excise duty is leviable on all excisable goods,which are produced or manufactured in India. Thus, manufacture or production in India of an excisable goods is a taxable event . It becomes immaterial that duty is levied and collected at a later stage i.e. at the time of removal of goods. Therefore, removal from factory is not the taxable event.Captive consumpeiton? Should we pay Ans YesLiability to pay excise duty crystallises when ? 13For DBIT - Mar 2013 A) Physical removal procedure CigarrettesClearance takes place under supervision of Excise officers

B) Self Removal procedure: The assesee himself determines the duty liability on the goods and clears the goods( On all other goods applicable) Collection of Central excise procedure 14For DBIT - Mar 2013 ((a) Natural activity, e.g. drying yarn in sun;(b) Processing of duty paid goods;(c) Purchasing various item and putting into a container and selling them;(d) Obtaining of natural products;(e) Testing/quality control of items mfgby others;(f) Cutting /polishing of diamond;(g) Upgradation of computer system;(h) Printing on glass bottles;(i) Affixing brand name;(j) Crushing of boulders into smaller stones.

What is NOT Manufacture15For DBIT - Mar 2013 Manufacturer as per StatuteNot a Manufacturer(a) Person manufacturing for own consumption,(b) Person hiring labour or employees for manufacturing,(c) A job-order worker,(d) A contractor(a) `Where an activity is not a manufacture;(b) Brand Owners, if their relation with the manufaturer is Principal to Principal basis.(c) Labour Contractors, who supply labor;(d) Loan licensee.(e) Raw material supplier is not manufacturer

For DBIT - Mar 2013 16Detailed & ComprehensiveBased on Harmonised system of Nomencleture- GATTGrouping of goods of same classClarification notes-for each section/chapterAll the section notes, chapter notes and rules for interpretation are legal notes - serve as statutory guidelines in classification of goods.All goods relating to industry in 1 chapterMain features of CETA 198517For DBIT - Mar 2013 1.Duty based on production capacity : On products prone to duty evasion (pan Masala, rolled steel products)2.Specific duty basis ( on specified unit like weight, length, volume, thickness etc3.Tariff value / Notional value fixed by govt4Duty based on basis of M.R.P. printed on carton after allowing certain deductions 5.Ad valorem (as per assessable value)6.Compunded levy schemeDuty payable on what basis 18For DBIT - Mar 2013 (a) The goods are sold at the time of removal from the factory or warehouse.(b) The transaction is between unrelated parties, (c) Price is the sole consideration for the sale(i) The goods are sold by an assessee for delivery at the time of place of removalTransaction value method 19For DBIT - Mar 2013 Transaction value would include any amount which is paid or payable by the buyer to or on behalf of the assessee, on account of the factum of sale of goods. Transaction Value includes receipts/ recoveries or charges incurred or expenses provided for in connection with the manufacturing, marketing, selling of the excisable goods to be part of the price payable for the goods sold.What is Transaction Value 20For DBIT - Mar 2013 (i) Packing charges :ii) Design and Engineering charges(iii) Consultancy charges relating to manufacturing/ production (iv) Loading and handling charges in the factory (v) Royalty charged in franchise agreement Price increase, variation, escalation after removal of goods from the factory is not relevant, IFthe price is final at the time of removal.Free After Sales Service/Warranty charges Advertisement and sales promotion expenses incurred by the buyerAfter-sales service and pre delivery inspection (PDI) charges provided free

Inclusions in Assessable Value:21For DBIT - Mar 2013 (i) Taxes and duties (ii) Erection, installation and commissioning charges (iii) Freight( Expenses after place of removal/ factory gate are not considered) (iv)Advertising/Publicity expenditure by brand name/copyright owner as not done by manufacturer assessee. v) Notional interest on security deposit/ advances

Exclusions from T.V. (Transaction Value) 22For DBIT - Mar 2013 (vi) Interest on ReceivablesTrade Discounts Deemed export incentives earned on goods supplied:Price of accessories and optional bought out ) Subsidy/rebate obtained by assesseeNot a part of T.V. (transaction value) 23For DBIT - Mar 2013 (a) Should be under provisions of Standards of Weights and Measures Act or Rules(b) Notification by Central Govt in Official Gazette specifying the commodities to which the provision is applicable and the abatements (Deductions)permissible. ( (d) The retail sale price should be the maximum price at which goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc. If undercertain law, MRP is required to be without taxes and duties, that price can be the retail sale price. If more than 1 retail price then consider higher one

Value based on Retail Sale PRice24For DBIT - Mar 2013 (i) Value nearest to time of removal if goods not sold ( say free samples ) Cost of prodn +10% if other modes of calculation not there(ii) Goods sold at different place . (- transport cost )iii) Valuation when the price is not the sole consideration Where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of (a) such transaction value, and(b) the amount of money value of any additional consideration flowing directly or indirectly from thebuyer to the assessee.

Valuation rules if A.V. cannot be determined25For DBIT - Mar 2013 ) Sale at depot/consignment agent Section 4(3)(c)(iii) provides that in case of sale at depot/consignment agent, the depot/place of consignment agent will be the place of removaltime of removal shall be deemed to be the time at which the goods are cleared from factory.So price @ date when cleared from factory26For DBIT - Mar 2013 (v) Captive consumption : E.D is payable valuation shall be done on basis of cost of production plus 10% Inter connected undertakings: Buyer and seller are related if they are inter-connected undertakings, asdefined in S.2(g) of (MRTP). The essence of the definition under MRTP is that the inter-connection could be through ownership,control or management. Just 25% of total controlling power in both undertakings is enough to establishinter-connection.

27For DBIT - Mar 2013 (As per section 4(3)(b) of Central Excise Act, persons shall be deemed to be related if (a) They are inter-connected undertakings(b) They are relativesBuyer is a relative and a distributor of assessee, or a sub-distributor of such distributor or (d) They are so associated that they interest, directly or indirectly, in the business of each other. Note: It is not enough if only buyer has interest in seller or seller has interest in buyer. Both must have interestRelated person 28For DBIT - Mar 2013 (As per section 4(3)(b) of Central Excise Act, persons shall be deemed to be related if (a) They are inter-connected undertakings(b) They are relativesBuyer is a relative and a distributor of assessee, or a sub-distributor of such distributor or (d) They are so associated that they interest, directly or indirectly, in the business of each other. Note: It is not enough if only buyer has interest in seller or seller has interest in buyer. Both must have interestRelated person 29For DBIT - Mar 2013 (If assessment is not possible under any of the earlier rules, assessmentwill be done by best judgement. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules

Best judgement assessment 30For DBIT - Mar 2013 Job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other personauthorised by him.The price at which principal manufacturer sells is T.Value. From factory gate of job worker

Some critical issues in Central excise31For DBIT - Mar 2013 Assembly at site is not manufacture, if immovable product emerges Article can be goods if marketable before erection or becoming immovableBetel Nut to supari powder is not manufacture Upgradation of computer system is not manufacture Same product partly sold in retail and partly in wholesale (adopt different rules of valuation) Valuation of free samples based on similar goods Valuation in case of stock transfer @date of clearance from factoryPart sale and part consumption then of price at which goods are sold to other independent buyers a few important issues 32For DBIT - Mar 2013 (i) Rebate of duty on export goods and material used in manufacture of such goods (ii) Export of goods without payment of excise duty under Bond Rule 19(iii) Cenvat credit of input excise duty provided drawback for the same is not taken (iv) Setting up of units in FTZ/EPZ/ETP and Jewellery Complexes and 100% EOU/SEZ ( No Customs duty on capex & inputs,can sell within FTZ, amongst EOU(v) Drawback of Customs and Central Excise Duties in respect of inputs, both indigenous and imported : Export Benefits & incentives33For DBIT - Mar 2013 (vi) Drawback of 98% customs duty (including anti-dumping duty). (vii) Duty free Replenishment Scheme (Post export replenishment possible of duty free imports with certain additions as per norms)(viii) DEEC Scheme - Duty EntitlementExport Certificate - Not trf but duty free imports possible for value stipulated (ix) DEPB Scheme : Duty entitlement pass book scheme Export incentives & benefits 34For DBIT - Mar 2013 Exporters are granted duty credits, on the basis of pre-notified entitlement rates, which willallow them to import inputs duty free. The exporter can export any product under the DEPB Scheme provided the same is covered by the Standard Input-Output Norms. The importer has the option to forego exemption from C.V.D. and pay the C.V.D. in cash so that he or the customer can claim Cenvat credit. Goods in the Negative List of EXIM Policy cannot be exported.

DEPB Scheme 35For DBIT - Mar 2013 (x) Imports for repair, jobbing, etc. free of duties (both basic and additional) : (xi) Import of capital goods at 5% concessional rate under EPCG Scheme ( All sectors, No limit, Service sectors opened too)(xii) Duty Free Entitlement Credit Certificate to Status holders (xiii) Duty Free Entitlement Credit Certificate to Service Providers xiv) Special Economic Zones (Treat as outside India the zones) Export incentives & Benefits contd36For DBIT - Mar 2013 Pay Duty by 5th of following month except March when pay on 31 March Buyers claim credit ASAP after manufacturers have cleared goods from factoryE-payment compulsory for assessees paying 50 lakhs or more . Optional for others. Manner of payment of Excise Duty( Rule 8) 37For DBIT - Mar 2013 Producer/ manufacturer should get registeredMaintain Daily Stock A/c goods mfg,cleared & in Stock Goods clrd by Owner or rep. under invoice Pay duty on monthly basis File Mthly return-10th of month.SSI units qtrlyFile Annual info Reportby 30 nov if taxes > 1 crore Specified assessees file Info relating to Principal Inputs every year by 30th April in form ER-5, to Superintendent of Central Excise and monthly consumption records Basic Procedures in Central Excise 38For DBIT - Mar 2013 Inform change in boundary of premises, address, name of authorised person, change in name of partners, directors or Managing Director in form A-1.List in duplicate of records kept for receipt, purchase, sales or delivery of goods including inputs and capital goods, input services and financial records and statements including trial balance Specified assessees file Info relating to Principal Inputs every year by 30th April in form ER-5, to Superintendent of Central Excise and monthly consumption records

Basic Procedures Contd 39For DBIT - Mar 2013 39Remission of duty can be granted in following cases (a) Goods have been lost or destroyed by natural causes(b) Goods have been lost or destroyed by unavoidable accident(c) Goods are claimed by manufacturer as unfit for consumption or for marketing.

Remission of duty 40For DBIT - Mar 2013 A system of granting credit of duty paid on inputs and input services.A manufacturer or service provider has to pay excise duty and service tax as per normal procedure on the basis of Assessable Value (which is mainly based on selling price). However, he gets credit of duty paid on inputs and service tax paid on input services. Thus, he actually pays amount equal to duty/ service tax as shownin invoice less the Cenvat credit available to him CENVAT Credit 41For DBIT - Mar 2013 Capital goods (machinery, plant, spare parts of machinery, tools, dies, etc.) as defined in rule 2(a), used for manufacture of final product and/or used for providing taxable output service will be available. Capital goodsshould be used in the factory. 50% credit is available in current year and balance in subsequent financial year/(s). Assessee should not claim depreciation on duty portion on which he has availed Cenvat credit. A service provider can take out capital goods from his premises, provided that he brings them back within 180 days. (Extendable) Credit on Capital Goods 42For DBIT - Mar 2013 Credit on basis of specified documents( B/L, Invoice, BoE, supplemental invoice)Credit available instantly in case of inputs Cenvat to manufacturer available only if there is manufacture (ELSE NOT) One-to-one correlation not required for credits and debits etc. No input credit if final product/output service exempt from duty/ service tax

Some points in CENVAT Credit43For DBIT - Mar 2013 (a) Maintain separate inventory and accounts of receipt and use of inputs and input services used for exempted goods/exempted output services Rule 6(2) of Cenvat Credit Rules.(b) Pay amount equal to 5% of value of exempted goods (if he is manufacturer) and/or 6% of value of exempted services (if he is service provider) if he does not maintain separate inventory and records,(c) Pay an amount equal to proportionate Cenvat credit attributable to exempted final product/ exempted output services Rule 6(3)(ii) w.e.f. 1-4-2008.

CENVAT Cr. If partly exempt and partly unexempt finished goods Options available are44For DBIT - Mar 2013 45For DBIT - Mar 2013 46For DBIT - Mar 2013 47For DBIT - Mar 2013 48For DBIT - Mar 2013 49For DBIT - Mar 2013 50For DBIT - Mar 2013 51For DBIT - Mar 2013