CENTRAL EXCISE TARIFF ACT(CETA) AND CUSTOMS TARIFF ACT (CTA)

Excise is a duty on excisable goods manufactured or produced in India Two steps process isa) Correctly classify the goods, to find out rate of excise /custom 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 it its appropriate heading under CET/custom tariff. CETA classifies all the goods under 96 chapters and specified code is assigned to each item. There are over 1000 tariff headings and 200 sub-headings . This classification forms basis for classifying the goods under particular chapter head and sub-head to prescribe duty to be charged on that product.

LINKING OF TARIFF ACT AND MAIN ACTCEA and CETA are linked together as follows

a) CETA states that rate at which duties of excise shall he levied under CEA are as specified in schedule to CETA.

b) CEA specifies that duty shall be levied and collected on all excisable goods which are manufactured in India and at the rates, set forth in the schedule to CETA.

Both Acts are linked to each other

Similar linking has been made in customs vide sec.2 of Customs Tariff Act and sec. 12 of Custom Act.

BACKGROUND OF TARIFF International convention of Harmonized System Of Nomenclature (HSN) called harmonized commodity Description and coding system was developed by World Customs Organization. This is an International Nomenclature Standard adopted by most of the countries to ensure uniformity in classification in international trade. HSN is a multipurpose 6 digit nomenclature classifying goods in 5019 groups of goods. If contains 241 headings at 4 digit level and 5019 at 6 digit level.Indian customs adopted this nomenclature w.e.f. 28/2/1986. Later , Custom Tariff and CET have added 2 more digit for further precision . Thus, Customs And Central Excise Tariff uses 8 digits nomenclature.

Customs tariff is fully aligned with HSN, CET is also based on HSN.

TARIFF CONTAINS SCHEDULES

Both Excise And Custom Tariff contain schedules : CETA includes 3 schedules: 1st schedule gives Basic Excise Duties (BED ) (i.e. CENVAT Duty) 2nd schedule gives list of items on which Special Excise Duty (SED) is payable. Now, it is not applicable as goods in this schedule are exempt from SED. 3rd schedule contains items covered under MRP. Valuation provisions.

(i.e. Deemed Manufacture Provision).

EXPORT TARIFF UNDER CUSTOM ACT:

Custom Tariff Act has 2 schedules :1st schedule is in respect of Import Tariff

2nd schedule is Export Tariff showing Export Duties payable. Most of exports are exempt from export duty, the schedule contains only 26 items , out of which 24 items are exempt.

GROUP OF DIFFERENT GOODS.

CETA

Section

Chapter

Group

Sub-group

SECTIONS, CHAPTERS &HEADINGS IN TARIFF:CET is divided in 20 sections while there are 21

sections in Customs TariffA section is a grouping of number of chapters which codify a particular class of goods.Each of the sections is related to broader class of goods.Each of the section is divided into various chapters and each chapter contains goods of one class for. E.g. section XI- Textile and textile Articles

Chapter 50-silkChapter 51-woolChapter 52-cottonChapter 61-articles of ApparelThere are 96 chapters in CET 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.

SECTIONS, CHAPTERS & HEADINGS IN TARIFF:

Some chapter are divided into sub-chapters.Eg 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.Chapter notes- chapter notes are given at the beginning of each

chapter which governs entries in that chapter.

Headings and sub

Each chapter and sub-chapter is further divided into various headings.

For e.g. chapter 50 -silk Heading 5001 -silk worm cocoons 5002 - raw silk 5003 -silk waste The heading are sometimes divided into further sub-

heading for e.g. heading 5003 -silk waste. Sub-head 5003 10 - silk waste carded/combed 5003 90 - other silk waste. 5003 90 is further classified as ; 5003 90 10 – mulberry silk waste 5003 90 20 – tussar waste 5003 90 90 – other waste.

GROUP OF GOODS

Tariff is designed to group all goods relating to same industry and all the goods obtained from same raw-material under one chapter.

Goods are classified beginning with raw material and ending finished products within same chapter

EIGHT DIGIT CLASSIFICATION

First 4 digit - heading

Next 2 digit - sub-heading

Next 2 digit – sub-sub- heading (tariff item) Rate of duty is indicated against each tariff items and not against heading/ sub heading In case of customs , 8 digit classification code was adopted w.e.f. 1/2/2003 and In Excise w.e.f. 28 /2/2005.

CODING OF DASHES Single dash (-) indicates a group.

(primary classification) Two dashes (--) indicates sub-group

(sub classification) Triple dash (---)indicates thrift item

(sub- sub-classification)

 

Eg readymade garments A Readymade garments AA - Men’s wear AA-1 -- Suits AA-2 -- Shirts

AB - Ladies wear AB-1 -- Salwars AB-2 -- Sarees

OVERVIEW OF TARIFF

CENTRAL EXCISE TARIFFTariff items description Unit Rate of

duty0901 - coffee

decaffeinated-- - Arabica plantation

0901 11 11 - - - - a grade kg 16%0901 11 12 - - - - B grade kg

16%- - Arabica cherry

0901 11 21 - - - - AB kg16%

0901 11 22 - - - - PB kg 16%

CUSTOM TARIFF

Tariff items description Unit STD. Rate of duty

PREFERENTIAL

AREAS

0901 - coffee

decaffeinated

-- - Arabica plantation

0901 11 11 - - - - a grade kg 16%

0901 11 12 - - - - B grade kg 16%

- - Arabica cherry

0901 11 21 - - - - AB kg 16%

0901 11 22 - - - - PB kg 16%

Comparison can be done only among sub-group.Items of 2 different sub-groups cannot be

comparedFor e.g. Garments AA- menswear AA1 - - - shirt AA2 - - - suit AA3 - - -jeans AB - - ladieswear AB1 - - - saree AB2 - - -skirt AB3 - - - maxi

Rule of Interpretation These rules are used when goods cannot

be categorized and these rules have to be followed in sequence.

Rules for interpretation of schedule to tariff are termed as ‘’General Interpretative Rules’’ (GIR).

These rules are required to be applied only if classified is not possible on basis of tariff entry read with chapter notes and section notes.

Steps in Classification1. Read the heading + sub-heading , read corresponding

section notes and chapter notes . if there is no ambiguity or confusion , the classification is final. (rule 1) if classification is not possible then only more to GIR. Rules are to he applied sequentially.

2. If meaning of word is not clear , refer to trade practice. If trade understanding of product cannot be established find technical or dictionary meaning, or other standard may be referred but trade balance is most important .

3. It goods are incomplete or unfinished but classification of finished product is known , find if un-finished item has essential characteristics of finished goods, if so, classify the same heading – (rule 2(a).

4. If ambiguity persists , find out which heading is specific and which heading is specific and which heading is more general refer specific heading (rule 3(a))

5. If problem is not resolved by rule 3(a) , find which material or component is giving ‘’Essential Character’’ to the goods (rule 3(b))

6. If both are equally specific , final which comes last in the tariff and take it –rule 3(c) )

7. If unable to find any entry which matches the goods, final good which are most akin(similar) rule 4.

8. In case of mixture or sets , procedure is more or less same except that each ingredient of mixture or set has to be seen.

9. Provision for classification of packing materials and packing.-rule 5.

10. Only sub- heading of the same level are comparable – rule 6.

Grouping in CETAI. Animal Products (chapter 1 to 5)II. Vegetable products (chapter 7 to 14)III. Animal or vegetable Fats. (Chapter 15)IV. Prepared food stuffs, Beverages (chapter 16 to 24)V. Mineral product (chapter 25 to 27)VI. Chemicals, fertilizers, soap, etc (chapter 28 to 38)VII. Plastic & rubber & their article (chapter 39& 40)VIII. Leather and article (chapter 41 to 43)IX. Wood work and their article (chapter 44 to 46) X. Pulp paper, paperboard and articles (chapter 47 to 49)

Grouping in CETAXI Textile and textile products (chapter 50 to 63)XII. Footwear,headgear,umbrellas,article (chapt. 64 to 67)XIII. Article of stone, plaster ceramic, glass (chapt. 68 to 70)XIV. Pearl and precious metal (chapter 71)XV. Base metal and article (chapter 72 to 83)XVI. Machinery, mechanical appliances, electrical equipments,

television, etc (chapter 84 to 85)XVII. Vehicles, aircrafts, vessels (chapter 86 to 89)XVIII Optical photographic,medical, surgical instruments,

clocks,musical instruments (chapter 90 to 92)XIX Arms and ammunitions (chapter 93)XX Miscellaneous manufactured articles like furniture, toys

etc. (chapter 94 to 96)

APPLICATION OF GIR IN TARIFF

1. GIR rules to be applied sequentially

2. Titles are for reference

3. Section notes and chapter notes have overriding effect.

Trade Parlance Theory• If meaning of word is not clear then understand the meaning

of product in a natural meaning.• Since the primary objective of excise Act is to raise revenue

for purpose of classification , stress should not be had to the scientific and technical meaning but to their popular meaning i.e. meaning attached to that by those using the product.

• As per basic principle of classification, a word in statute should be construed in its popular sense and not in strict or technical sense. Popular sense means that which people conversant with subject matter with which statute is dealing, which attribute to it.

• Legislature does not suppose our merchants to be naturalists, geologists or humanist.

• For e.g. Coconut is not a fruit as per trade understanding; botanically it

may be a fruit.

Trade Parlance Theory• Glass mirror is not classified as glass wear and glass’’

as glass loses its character after mirror is made, mirror can be made from other material also.

• Natural and ordinary meaning to be considered• Heading and sub-heading to be understood not in

strict technical sense function i.e. identity of a product is associated in mind of consumer with primary function.

• Trade parlance is important in commodity classification.

• Example:- Paper is understood as something used for writing,

printing drawing, decorating , etc.. Carbon paper is not understood as paper and hence cannot be classified as ‘’paper’’.

Ammonia paper and Ferro paper not described as paper’. Car- windscreen of motor vehicle (front glass) is

Automobile part and article of glass. In trade , it is understood as Automobile part.

Trade Parlance Theory• This principle (trade parlance) will not apply

if wording in tariff or chapter /section notes is clear and specifies that word has to be understood in particular sense only.

• Trade parlance is relevant only when statute does not define the words i.e. statutory definition over rides’ trade parlance.

• HSN and Rules Of Interpretation overrides trade parlance.

• Technical and scientific term must be understood in technical sense only. Technical meaning prevails in certain cases.

HSN and Classification• Custom tariff and CET are based on HSN but tariff no where states

that notes in HSN will be applicable for interpreting the tariff.• As per CET bill 1985, new tariff is introduced, based on HSN to

reduce classification disputes.

• In case of doubt, HSN is a safeguide for ascertaining true meaning of any expression unless there is express different intention indicated in tariff itself.

• HSN explanatory notes have persuasive value but do not have statutory authority.

• HSN information, though not binding in nature, provide a useful guideline for classifying the goods.

• If exemption notification does not use, HSN cannot be relied upon.

• If Tariff is not alligned to HSN then HSN notes not relevant & binding.

Valuation under Central Excise Identify Duty Liability

Classification

Calculate Excise Duty on assessable value

Method Of Levying Excise Duty 1. SPECIFIC DUTY:• Duty is based on unit of measurement i.e. weight, length, • (e.g. T.V. is measured in terms of inches) volume, size, tones,

quintals, thickness, etc.• First this was used on almost all commodities but as govt. was

losing revenue they tried to have specific duty on only certain commodity e.g. cigarette.

• If duty is levied on length , the length will remain same. So duty remains same but if it is levied on selling price as selling price increases, duty increases. This is beneficial to govt. to increase Revenue.

• E.g. cigarette ( length basis) Matches (per 100 boxes) Sugar (per quintal) Colour TV (screen size) where MRP not fixed Marble slabs and tiles (square meter basis) Cement clinkers (per tones) Molasis result from extraction of sugar(per tone)

Method of levying excise duty

2 DUTY AS A % OF TARIFF VALUE U/S 3 (2):

Tariff value is fixed by govt. from time to time. it will be the final value to impose duty

This is notional value for calculating duty payable .

Once tariff value is fixed, duty payable as % of tariff value and not assessable value fixed u/s 4.

Method of levying excise duty3 DUTY BASED ON ANNUAL PRODUCTION

CAPACITY:• Asstt. Commissioner of C.E. will determine the

annual production capacity and based on that , duty will be levied .

• It does not apply to Expert Oriented Units.• Central govt. issue notification in case of such

products. For E.G. Panmasala, Gutka-duty levied on annual production capacity.

• Annual capacity fixed will be deemed to be annual production.

• If factory not working full year, annual production will be calculated on proportionate basis.

• CVD on imported goods payable as per CET.

4. COMPOUNDED LEVY SCHEME: This is related to annual production capacity Central govt. by notification may specify the goods in respect of

which an assesses shall have an option to pay duty on the basis of specified factors relevant to production of such goods and at specified rates .

This is compounded levy scheme. E.g. Production capacity size of equipment no. of employees, related

scheme to manufacture is optional to the manufacture . he can pay duty as per normal rules and procedure also.

If the assesses opts for compounded excise duty. The rate of excise duty per month.

Scheme applicable to stainless steel paltis/paltas or aluminum These articles are not eligible for SSI exemption and circles. Duty as a % based on Assemble value which is This scheme extended to pan masala and gutkha from 19/12/2007.

Scheme was optional. Duty payable on number of packing machine and MRP per pouch. CENVAT Credit not available

Now Panmasala & Guthka brought under ‘’ Scheme of payment of duty based on production capacity u/s 3 A w.e.f 1/7/2008 . provision is compulsory and not optional.’’

5. DUTY BASED ON MAXIMUM RETAIL PRICE(MRP). SEC 4A.

6. DUTY AS A % ON ASSESSABLE VALUE (ADVALOREM DUTY).

DUTY BASED ON M.R.P.- SEC 4 A (value based on retail sale price) See 4 A of CEA employees central Govt. to

specify goods on which duty will be payable based on retail sale price.

Provision for Valuation on MRP basis:1. Goods should be covered under provision of

Standards of Weights and Measures Act or Rules [sec 4A (1)]

2. Central Govt. has to issue notification specifying commodities to which this provision applicable and abatement permissible [see 4A(2)]

3. While allowing abatement , Central Govt. should consider excise duty , sales Tax and other taxes payable on goods [see 4A(3)]

4. Retail sale price ‘’is maximum price of which goods in packaged forms are sold to ultimate consumers. It include all Taxes , freight , transport charges, commission payable to dealers and all charges toward advt. delivery , packing, to warding charges , etc.

5. If more than one retail sale price is printed on same packing , maximum of such retail price is considered.

6. Tampering altering or removing MRP is an offence and goods are liable to confiscation. It price is altered, such increase price (highest price)will be retail sale price for purpose of valuation.