Paricipant's Notes CERA

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Special course material on Central Excise Receipt Audit Chapter I This session provides an overview of Central Excise Act and the provisions relating to levy and collection of Central Excise duty 1. Brief history and developments 1.1 Central Excise duty is an indirect tax levied on goods manufactured in India. The tax is administered by the Central Government under the authority of Entry 84 of the Union List (List 1) under Seventh Schedule read with Article 246 of the Constitution of India. 1.2 The Central Excise duty is levied in terms of the Central Excise Act, 1944 and the rates of duty, ad valorem or specific, are prescribed under the Schedule I and II of the Central Excise Tariff Act, 1985. The taxable event under the Central Excise law is ‘manufacture’ and the liability of Central Excise duty arises as soon as the goods are manufactured. The Central Excise Officers are also entrusted to collect other types of duties levied under Additional Duties (Goods of Special Importance) Act, Additional Duties (Textiles and Textiles Articles) Act, Cess etc. 1.3 Till 1969, there was physical control system wherein each clearance of manufactured goods from the factory was done under the supervision of the Central Excise Officers. Introduction of Self-Removal procedure was a watershed in the excise procedures. Now, the assessees were allowed to quantify the duty on the basis of approved classification list and the price list and clear the goods on payment of appropriate duty. 1.4 In 1994, the gate pass system gave way to the invoice-based system, and all clearances are now effected on manufacturer’s own invoice. Another major change was brought about in 1996, when the Self-Assessment system was introduced. This system is continuing today also. The assessee himself assesses his Tax Return and the Department scrutinises it or conducts selective audit to ascertain correctness of the duty payment. Even the classification and value of the goods have to be merely declared by the assessee instead of obtaining approval of the same from the Department. 1.5 In 2000, the fortnightly payment of duty system was introduced for all commodities, an extension of the monthly payment of duty system introduced the previous year for Small Scale Industries. From 1.4.2003, monthly payment of Duty by 5 th of next month was allowed. 1.6 In 2001, new Central Excise (No.2) Rules, 2001 have replaced the Central Excise Rules, 1944 with effect from 1st July, 2001. Other rules have also been notified namely, CENVAT Credit Rules, 2001, Central Excise Appeal Rules, 2001etc. With the introduction of the new rules several changes have been effected in the procedures. The new procedures are simplified. There are less numbers of rules, only 32 as compared to 234 earlier. Classification declaration and Price declarations have also been dispensed with, the CENVAT Declaration having been earlier dispensed with in 2000 itself. These rules have, however, again been replaced by a new set of Rules known as Central Excise Rules, 2002 brining out certain changes in the existing Rules. An Overview of Central Excise

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Transcript of Paricipant's Notes CERA

  • Special course material on Central Excise Receipt Audit

    Chapter I This session provides an overview of Central Excise Act and the provisions relating to levy and collection of Central Excise duty 1. Brief history and developments 1.1 Central Excise duty is an indirect tax levied on goods manufactured in India. The tax is administered by the Central Government under the authority of Entry 84 of the Union List (List 1) under Seventh Schedule read with Article 246 of the Constitution of India. 1.2 The Central Excise duty is levied in terms of the Central Excise Act, 1944 and the rates of duty, ad valorem or specific, are prescribed under the Schedule I and II of the Central Excise Tariff Act, 1985. The taxable event under the Central Excise law is manufacture and the liability of Central Excise duty arises as soon as the goods are manufactured. The Central Excise Officers are also entrusted to collect other types of duties levied under Additional Duties (Goods of Special Importance) Act, Additional Duties (Textiles and Textiles Articles) Act, Cess etc. 1.3 Till 1969, there was physical control system wherein each clearance of manufactured goods from the factory was done under the supervision of the Central Excise Officers. Introduction of Self-Removal procedure was a watershed in the excise procedures. Now, the assessees were allowed to quantify the duty on the basis of approved classification list and the price list and clear the goods on payment of appropriate duty. 1.4 In 1994, the gate pass system gave way to the invoice-based system, and all clearances are now effected on manufacturers own invoice. Another major change was brought about in 1996, when the Self-Assessment system was introduced. This system is continuing today also. The assessee himself assesses his Tax Return and the Department scrutinises it or conducts selective audit to ascertain correctness of the duty payment. Even the classification and value of the goods have to be merely declared by the assessee instead of obtaining approval of the same from the Department. 1.5 In 2000, the fortnightly payment of duty system was introduced for all commodities, an extension of the monthly payment of duty system introduced the previous year for Small Scale Industries. From 1.4.2003, monthly payment of Duty by 5th of next month was allowed. 1.6 In 2001, new Central Excise (No.2) Rules, 2001 have replaced the Central Excise Rules, 1944 with effect from 1st July, 2001. Other rules have also been notified namely, CENVAT Credit Rules, 2001, Central Excise Appeal Rules, 2001etc. With the introduction of the new rules several changes have been effected in the procedures. The new procedures are simplified. There are less numbers of rules, only 32 as compared to 234 earlier. Classification declaration and Price declarations have also been dispensed with, the CENVAT Declaration having been earlier dispensed with in 2000 itself. These rules have, however, again been replaced by a new set of Rules known as Central Excise Rules, 2002 brining out certain changes in the existing Rules.

    An Overview of Central Excise

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    2. Administration of Central Excise 2.1 The Central Excise law is administered by the Central Board of Excise and Customs (CBEC or Board) through its field offices, the Central Excise Commissionerates. For this purpose, the country is divided into 10 Zones and a Chief Commissioner of Central Excise heads each Zone. There are, in total, 61 Commissionerates in these Zones headed by Commissioner of Central Excise. Divisions and Ranges are the subsequent formations, headed by Deputy/Assistant Commissioners of Central Excise and Superintendents of Central Excise, respectively. 2.2 For enforcing the central excise law and collection of Central Excise duty the following types of procedures are being followed by the Central Excise Department: a) Physical Control Applicable to cigarettes only. Here assessment precedes clearance which takes place under the supervision of Central Excise officers; b) Self-Removal Procedure Applicable to all other goods produced or manufactured within the country. Under this system, the assessee himself determines the duty liability on the goods and clears the goods. 3. Tax payers' assistance and responsiveness 3.1 The CBEC have issued instructions from time to time for rendering assistance to the taxpayers in the Commissionerates of Central Excise and Divisional Offices. These offices are duty bound to provide necessary guidance to the public in all matters concerning Central Excise Law, procedure, tariff and exemptions etc. 3.2 The Commissioners of Central Excise are required to post knowledgeable officers of appropriate rank, senior Inspector or Superintendent to be in-charge of "Tax-payers' Assistance Unit" in each Commissionerate and Divisional headquarter. The officer will have easy access to the Deputy/Assistant Commissioners, Additional/Joint Commissioners and Commissioner to seek their advice and guidance on the spot in case of genuine doubts. 3.3 The Tax-payers' Assistance Unit" in addition to rendering advice to the assessees, should also help them in meeting the officer concerned for necessary guidance, and clarification, where required. 3.4 In order to have a responsive tax administration, the Board has decided that all intimations, declarations and queries received from the Members of trade and industry should be replied to in a time bound manner and with a sense of responsibility and accountability. In order to achieve this, the following directions have been issued to the Central Excise field formations: (1) All declarations, intimations, etc. when send by FAX, e-mail, by post or by Courier shall be accepted by the field formations. (2) Appointments should be given on e-mail on request from the trade (3) All queries by e-mail should be accepted and the replies sent by e-mail (4) Any query received from the trade must be answered within a maximum of four weeks from the date of receipt (5) To make e-mail an effective mode of communication between the Department and the public, e-mail connectivity should be provided to all offices in the field formations and properly maintained and wide publicity of the e-mail address should also be given. .

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    Provisions of the CE Act relating to incidence of duty

    Section 3 (1) of CE Act provides that There shall be levied and collected in such manner as may be prescribed, duties of excise on all excisable goods, which are produced or manufactured in India and at the rates set forth in the schedule to the Central Excise Tariff Act, 1985. Levy includes imposition and assessment of tax (Vijaya Prints - 1989 - SC) collection follows. Thus Section 3 deals with the following:- 1. Creation of duty 2. Naming the duty 3. Fixing authority for levy and collection 4. Scope of duty 5. Tariff rates Conditions for levy of ED :- 1. It must be goods 2. The goods must be excisable 3. There must be manufacture/production 4. The manufacture/production must be in India Who is to pay ED? ED shall be paid by the person in whose hands the taxable event occurs. The said event is manufacture/production. Hence, the duty liability is on the manufacturer / producer only. Taxable event occurs at the very moment of manufacture. Tax liability accrues simultaneously. Duty accrues neither earlier nor later. (Good year case-1990-SC). But collection of duty is postponed to the time of clearance At present, duty for a particular month is payable by 5th of next month (except during the month of March where it is payable by 31st March). Incidence of ED is directly relatable to manufacture; collection is deferred as a measure of convenience (Mcdowell-1985-SC). When ED is NOT payable by the person 1. If what is manufactured is not goods. 2. Goods have been manufactured; but they are not excisable goods/being exempted. 3. They are excisable goods; but they have not been manufactured. 4. There was manufacture of excisable goods; but the person is not the manufacturer. 5. Manufacture is not in India How are these four concepts defined? 1. Goods - Not defined in CE Act. 2. Excisable Goods - specifically defined. 3. Manufacture - No specific definition. Inclusive definition only 4. Manufacturer - -do-

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    Why not defined? CE Act is a fiscal law relating to industry, which is fast developing. Evidently, the legislature does not want the CE law to be fettered by rigid straight jacket definitions. Production Vs. Manufacture:- Tobacco, Tea, Coal, Ore, Salt etc. are all produced. Other goods made in the factory are manufactured. ED is attracted on both. What shall be done when a concept has not been defined in a law? 1. Look for some other law, defining the concept 2. Rely on Trade parlance theory 3. Go in for dictionary meaning 4. Go by the meaning spelt out by the Courts (III stage)

    Goods

    - Not defined in CE Act! But defined differently in different statutes:- 1. Art. 366 (12) of Constitution:- Goods includes all materials, commodities and articles. 2. Sn. 2(22) of Customs Act:- Goods means every kind of moveable property other than auctionable claim and money and includes stocks, shares, growing crops and things attached to and forming part of land which are agreed to be severed before sale or under the contract of sale. - Websters dictionary:- Goods includes, inter alia, the following:- Wares, merchandise and commodities bought and sold by merchants and traders.

    Vendibility Test The levy of ED is at the stage of manufacture. Manufacture is for sale. And hence saleability is the criterion for the levy of ED. This was the line of thinking of the Apex Court. Further the SC was inspired by the definition of websters dictionary. Hence, the prescription of vendibility test. In other words, things that are bought and sold are goods. DCM Case (1963-SC) Raw Material Intermediate product Final product Groundnut Hyderogenation Refined oil Deodorisation Vanaspathy Oil and process process Til Oil ED was leviable on Refined oil. Sale took place after deodorisation. In the market, the product is known as Refined oil: after deodorisation only. Applying the marketability test, the Supreme Court held that Refined oil which is not deodorised is NOT goods. This test of marketability was applied in Bihar Sugar Mills case, Union Carbide case, Bhor Industries case, Moti Laminates case etc. To sum up, no duty is levied on the intermediate product, provided it is used in the manufacture of dutiable final products.

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    Bhor Industries (1989 - SC) Sn. 2 (d) :- Excisable Goods are the goods that find a place in the CE Tariff. - For a commodity to attract ED, is it enough if it finds a place in the CE Tariff? - Or should it pass the vendibility test also? - Simply because an article fall in the tariff, it would not ipso-facto, attract duty. In addition, it should be known as Goods in the market. In other words, it should pass the Vendibility test also. Ambalal Sarabhai case (1989 - SC) Transient Goods or Goods having short shelf-life being not marketable. Hence not excisable. Further the department should prove that the goods are marketable. CCE vs. Bansal Indus Gases 2003(151) ELT.4(SC 3 member bench) Carbide sludge arising in the manufacture of acetylene gas is not marketable and hence not liable to duty.

    Marketability Vs Saleability - Marketable does not mean being actually marketed, it means capability of being brought to market and sold. - Can anything saleable be treated as marketable? No! Even rubbish can be sold. - Dross and skimmings sold by M/s. Aluminium Company are merely refuse or ashes given out in the process of removing impurities in the raw materials. - Because some metal can be retrieved out of dross and skimmings, they are sold!!

    Excisable Vs Dutiable

    SL. No.

    Position in tariff

    Excisable

    Dutiable

    1. Found in Tariff with X% Yes

    Yes

    2. Found in Tariff with X%; But covered by Sn.5AExemption

    Yes No

    3. Found in Tariff with Nil%

    Yes No

    4. Not found in tariff

    No No

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    Manufacture Test DCM & others (1977 - SC) - Judgement on manufacture:- Manufacture implies a change; but every change is not manufacture; and yet every change is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation. A new and different article must emerge having a distinctive name, character or use. In other words, unless there is metamorphosis as a result of some process, there is no manufacture at all. - Groundnut/Til oil is purified by the process of hydrogenation. It is now called VNE oil (vegetable non-essential oil). VNE oil is not marketed as such. It is deodorised and the vanaspathy thus obtained is marketed. - Market recognises vanaspathy as Refined oil and not VNE oil (preodorised stage). - In the circumstances, hydrogenation does not lead to any manufacture and hence VNE oil does not attract duty as refined oil. - No manufacture. Therefore no duty. In State of Karnataka Vs. Raghurama Shetty(1981) 47 STC 369 (SC) it was held that de-husking of paddy into rice is a manufacturing process as rice is distinct commercially different commodity from paddy. Intention to manufacture - Should there be an intention to manufacture? - No, not necessarily. - (Example):- Bagasse and molasses coming out as waste in sugar industry are goods manufactured and hence assessable to duty. Value addition - Will mere value addition through a process, amount to manufacture? - No. - The result should be emanation of a new article, to call the process a manufacture. Section 2(f) read with Chapter notes to the Central Excise Tariff Act, 1985 define some of the processes amounting to manufacture. In such cases there is no need to test whether the process(s) amount to manufacture.

    Mobility test Site based activities - NarneTulamans case - 1988 - sc - Load cells, Platforms and Indicating systems were assembled at site in the ground as weigh bridge. - This was held to be manufacture. - But the judgement did not decide that duty can be levied on immovable articles. - This aspect was not at all considered by the Apex Court.

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    - The Verdict is sub silentio on the mobility aspect of end product. - CBECs orders - In this connection, the CBEC has, inter alia, clarified that if the piece by piece erection or installation of parts or components results in an immovable property at site, then no duty will be levied on such property. - But duty will be chargeable, if the assembly results in a different recognisable marketable product before installation in an immovable manner.Thus excisability depends upon the mobility of the final product at the time of manufacture. - Sirpur Paper Mills case - 1998 - SC Paper making machine was assembled and erected at site from bought out components and own made components. - The resultant product is not immovable property like a building. - Embedding in concrete base has been done to ensure wobble free operation only. - It could be dismantled from the base and re-erected elsewhere. - There was manufacture (from components to machine). - The machine made was moveable (answered mobility test). - Held there was manufacture of excisable goods. -Therefore ED was attracted.

    - Boards Circular Taking cue from the Sirpur judgement the CBEC in exercise of the power conferred under Section 37B of the Central Excise Act issued orders (No.53/2/98 cx dated 2.4.1998) 1998 (76) ECR 41c, clarifying that the ratio of Sirpur judgement should be followed scrupulously in deciding the excisability of plant and machinery assembled at site after considering the broad criteria (i) final product is distinct (ii) it is specified in Tariff; (iii) it is movable goods and saleable in market.

    - Triveni Engineering & Industries Ltd.(2000-(120) ELT 273 (SC)

    However, Supreme Court in Triveni case has held that installation or erection of Turbo alternator on platform specially constructed on land cannot be treated as common base, such alternator would be immovable property, hence not taxable. - Each case had therefore to be decided on merit after considering the broad criteria as specified in Sirpur case. The present legal provision is as decided in Triveni Engineering, ie. The marketability test requires that the goods are as such should be in a position to be taken to market and sold. If they have to be separated, the test is not satisfied. Thus, if machinery has to be dismantled before removal, it will not be goods. It, therefore, follows: (a) duty cannot be levied on immovable property, (b) if plant is so embedded to earth that it is not possible to move it without dismantling, no duty can be levied, (c) if machinery superficially attached to earth for operational efficiency and can be easily removed without dismantling, duty is leviable, (d) Turnkey projects are not dutiable but individual component/machinery will be dutiable if marketable.

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    Chapter II

    This session deals with the concepts of classification of goods under the Central Excise Act for the purpose of levy of duty.

    The actual amount of Excise duty payable is dependent upon the value of goods and rate of duty. In turn, the rate of duty is determinable on the basis of classification of goods. The classification of goods is nothing but determination under which heading or sub-heading a particular product would be covered. Even for the purposes of determining eligibility to exemption, the classification of goods is to be first decided because most of the exemption are with reference to the Tariff heading to sub-headings. Thus, the classification of goods assumes greater importance in the field of Central Excise and is one of the main field of litigation.

    From 28.2.1986, the tariff schedule was taken out of Central Excise Act 1944 and a new

    tariff schedule based on HSN (Harmonised System of Nomenclature) was enforced under an independent enactment of Central Excise Tariff Act 1985. The new Central Excise Tariff schedule in all contains 96 chapters grouped in twenty sections. Each of these twenty sections relates to a broader class of goods such as Section I relates to Animal and Dairy products. Section VI relates to all products of Chemical and allied industries while Section XI relates to Textiles and Textile articles. Each of these Sections has been further divided into various chapters and each chapter contains goods of one class. Each chapter has been further divided into various headings depending upon different types of goods belonging to the same class or products. These headings have further been divided into sub-headings. The excisable goods under new Central Excise Tariff have been classified basically using four digit system, with two more digits added for further sub classification wherever needed. The first two digits refer to chapter in the schedule and the next two digits have been added for further sub classification wherever needed. Eight digit excise classification has been introduced with effect from 28.2.2005. Thus, a 4 digit code is called as heading, next 2 digits indicate sub-heading and last two digits indicate tariff item. The system of numbering of headings and the sub classifications adopted in the new Central Excise Tariff follows the scheme as in the Harmonised System of Nomenclature. As may be observed from the schedule, besides the headings numbers and sub-heading numbers, a system of dashes has also been adopted for classification. As indicated in Note 1 of the General Explanatory Notes given in the 1st schedule.

    Classification of excisable goods

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    (i) Where the description of an article or group of articles under a heading is preceded by -, the said article or group of articles shall be taken to be such classification of the article or group of articles covered by the said heading. (ii) Where, however, the description of an article or group of articles is preceded by - -, the said article or group of articles shall be taken to be a sub classification of the immediately preceding description of article or group of articles which has -. (iii) where the description of an article or group of articles is preceded by --- or ----,t he said article or group of articles shall be taken to be sub-classification of the immediately preceding description of the article or group of articles which has - or . There are three principles underlying the system of numbering: (1) Where there is no classification of goods. (2) Where there is classification of goods under a heading, but there is no further sub classification, it may be observed that maximum of nine sub classification of main headings are possible. (3) Where there is sub classification of the goods under a heading, as also a further sub classification of the sub classified goods, a maximum of nine sub classifications of each of the sub classification of the main heading are possible. As regards residuary classification, there are two possibilities, viz. (a) Residuary classification under a heading. (b) Residuary classification under a sub classification in a heading. Classification of parts under new Excise Tariff Act, 1985 The classification of parts of items covered by chapters 82 to 96 is governed by individual chapter notes or in some cases by Section Notes. (For example, Chapter Note 2 in respect of Chapter 82, Chapter 2 in respect of Section XVI covering Chapters 84 and 85; Section Notes 2,3 & 5 in Section XVIII covering Chapters 86 to 89; Chapter Note 2 in respect of Chapter 90 etc.). By and large, subject to certain exclusions mentioned in respective Section Note or Chapter Note, parts or parts and accessories in respect of certain Chapters, are generally classified in the same Heading number in which the main item falls provided there is no separate heading number covering such parts or parts and accessories. In case there is a sub-heading number under a Heading number in the Tariff covering parts, then all parts of items covered under that heading number fall only under the sub heading number. On perusal of Chapter Note or Section Note in respect of Chapters 82 to 96, it would be seen that parts of general use are excluded from these Chapters. Parts of general use has been defined in Section Note 2 of Section XV. Parts of general use are not to be regarded as parts of individual items falling under these Chapters and in all cases such parts of general use are classified in Section XV C base metals and articles or base metals only. The classification of parts or parts and accessories or Section XVI (Chapters 84 & 85) is explained in detail as follows:

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    (a) Section XVI covers Chapters 84 & 85, which cover machinery and mechanical appliances; electrical equipment, electronic items etc. Parts and accessories of these articles are also covered by these Chapters. (b) The important aspect is to make note of certain exclusions which are described in Section Note 1 of this Section (such as transmission or conveyor belts or plastics, vulcanised rubber, spools, bobbins, transmission or conveyor belts or textile materials, interchangeable tools of heading No.82.02 or brushes of heading No.96.03, parts of general use etc.) (c) Note 2 of Section deals with classification of parts of machinery. In general, parts which are suitable for use solely or principally with particular machines or with the group of machines or apparatus falling under the same heading, are classified under the same heading as those machines or apparatus subject to exclusions mentioned earlier in Section Notes. In some cases separate headings are, however, provided for:

    (A) Parts of engines of heading 84.07 or 84.08 (heading 84.09). (B) Parts of the machinery of headings 84.25 to 84.30 (heading 84.31) and so on.

    (d) The above principles of classification do not apply to parts; which in themselves constitute an article covered by a heading of this Section (other than headings 84.85 and 85.48) these are in all cases classified in their own appropriate heading even if specially designed to work as part of a specific machine, for example, (1) Pumps and compressors (headings 84.13 and 84.14) (2) Taps, cocks, valves etc. (heading 84.81) (3) Electric motors of heading 85.01. (4) Transmission shafts, cranks, bearing housing, fly wheels (heading 84.83) (5) Other parts which are recognisable as such, but are not suitable for use solely or principally with a particular machine or class of machines (i.e., which may be common to a number of machines falling in different headings), are classified in heading 84.85 (if not electrical) or in heading 85.48 (if electrical), unless they are excluded by the provisions set out above. Rules for interpretation of the Central Excise Tariff The Central Excise Tariff Act, 1985, which is by and large, based upon the Harmonised System Nomenclature (HSN) has adopted the very same principles and these are now prescribed as rules for interpretation of the tariff schedule. However, as against six rules prescribed for the HSN, the Central Excise Tariff Act has incorporated (as part of the statute) only 5 rules, omitting one rule of HSN relating to classification of packing material. Rule-1: It is first established that the Section and Chapter titles are provided in the tariff only for facilitating reference. The text of Section/Chapter headings do not have any legal bearing. While it is only the titles which have no bearing on classification, the actual Sections/Chapters do have a legal status to the extent that they represent particular groups of headings. The rule states that classification should be determined first and foremost by reference to the text of the headings (4 digits) and any relative Section/Chapter Notes.

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    Rule 2 (a): This rule has the effect of broadening the scope of various headings, beyond the terms of their texts, since it provides for classification in a heading of an article referred to therein, even if that article is incomplete or unfinished or is removed in assembled or disassembled. Two separate principles are embodied in this rule. First, an incomplete or unfinished article is to be treated as a complete or finished article. Secondly an un-assembled or disassembled article must be classified as if it were assembled. Regarding classification of an incomplete or unfinished article as if it is complete or finished, there is an important proviso incorporated in this rule. It is that in the incomplete/unfinished state, the article must have the essential character of the complete/finished article. The scope to the phrase essential character must be clearly understood. For an article to have achieved the essential character as stated in this rule, it would suffice if in the incomplete/unfinished condition, it has got the character identifying the article and the stage is one, where it can not, in any manner, be converted into any article other than the one the essential character of which it has assumed. The second part or the rule refers to articles removed in unassembled/disassembled condition. They should be classified under the heading appropriate to the assembled article, though in the condition in which they are removed, they are actually unassembled /disassembled. Rule 2(b):- This rule specifies that headings in which there is a reference to material/substance also cover such material/substance mixed to combine with other materials/substances. Utilising Rule 2(b), one should not broaden the scope of a heading so that the heading actually covers articles which can not be regarded (as required by rule 1) as answering the description in heading.

    Rule 3: This rule provides three methods to classify goods which prima-facie appear to attract several different headings, either by utilising 2(b) or for any other reason. These methods are to be operated in the same sequential order in which they are set out in this rule. Thus rule 3(b) will apply only if 3(a) fails and 3(c) should be invoked only after ruling out 3(a) & (b). The order of priority is therefore as below: (a) Most specific description (b) Essential character (c) Heading which occurs last in the numerical order

    Generally it could be said that a description by name is more specific than a description by class. Again, a description which identifies the goods clearly and precisely is more specific than the one which is less complete. Rule 3(b) points to the essential character as the determining factor. This has to be determined by taking into consideration various criteria such as the nature of the material or component, its bulk quantity, weight or value or the role of each constituent material in relation to the use of the goods. Rule 3(b) also covers goods put up in sets. A set does not mean a number of the same article grouped together. To utilise rule 3(b), it should be determined as to which among the constituents confers the essential character of the set. Rule 3(c) simply says that among the alternative headings, the one which occurs last in the schedule should be preferred to the earlier ones.

    Rule 4:- Classification should be made under the heading to which the product in question is most akin. Kinship can depend upon many factors such as description, character or even use.

    Rule 5: This rule is the equivalent of Rule 6 of HSN Rules since in the C.E.T. Rule 5 of H.S.N has been omitted. This rule clearly specifies a classification principle that identifying an appropriated sub heading is to be contemplated only after the product concerned has first been

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    properly classified under the correct four digit heading. This rule further specifies that for classification among sub headings, the same rules as are applicable to the heading themselves (Rules 1 to 4) are to be applied. Within the context of a single heading, the choice of one dash sub heading may be made only on the basis of the one dash sub heading. Similarly two dash sub headings should be compared only with other two dash sub headings. In other words, one should not compare a two dash with a one dash sub heading or vice versa.

    Exemption from duty Central Excise Tariff Act prescribes the rate of duty for each Chapter head and Sub head. This rate is called Tariff

    Rate and the duty payable is Statutory Duty. Central Excise Act grants powers to Central Government to modify

    the rates as per requirements by issuing a notification. The duty actually payable as per notification is called

    effective rate of duty.

    If the goods are exempt by way of a notification, they are called exempt from duty. If the tariff itself

    specified duty as NIL, the goods are chargeable to NIL rate of duty. Under Central Excise exemption means

    exemption by notification under Section 5A of Central Excise Act.

    According to the Central Excise Rules, goods removed for export under Bond without

    payment of duty does not mean that goods are exempt from duty or chargeable at nil rate of duty

    but goods removed under new Central Excise (Removal of goods at concession rate of duty for

    manufacture of excise goods) Rules will be exempted goods. Based on various court decisions, it has been held that:

    (i) the inputs remain duty paid even when CENVAT credit is taken on them (ii) whenever an exemption notification is issued subject to condition that appropriate duty of excise has

    been paid on the inputs, the exemption will not be available if the inputs are exempted from excise

    duty or are subject to nil rate of excise duty.

    (iii) Exempted goods cannot be termed as goods which have suffered duty ie. Goods which have

    suffered duty means those goods on which duty actually has been paid.

    (iv) Exemption notification cannot be interpreted in a way so as to create a duty liability which is not there

    (Sakthi Sugars Ltd. v. Vol.I-1983(12) ELT)

    .2

    - 2 - A notification has to be published in Official Gazette, which is then made available to

    public. There may be time gap between issue of a notification and its publication in official Gazette. It has been provided that the Central Excise notification will be effective on the date it

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    is issued. Thus, an exemption notification will be valid on the day it is issued though it may be published in official Gazette later. However, when there is no specific provision in Act, a notification becomes effective on the day it is published in official Gazette.

    Under Section 5A(IA) inserted with effect from 13.5.2005, if a notification grants unconditional exemption to certain goods, assessee cannot pay Excise Duty on such goods. Earlier, it was consistently held by Tribunal that assessee has option to ignore exemption and pay Excise Duty, even in cases where exemption is unconditional. Now, these decisions are no longer valid. However, a conditional exemption is at the option of assessee. Similarly, when more than two benefits are available, assessee can avail either of the benefits.

    New units in backward area:

    In order to encourage development of back areas, excise duty exemption has been granted to goods manufactured by new units (or existing units undertaking substantial expansion) in the specified areas (a) North Eastern Region, (b) Kutch district of Gujarat, (c) State of Jammu & Kashmir, (d) State of Sikkim, (e) Himachal Pradesh and (f) Uttaranchal. In the case of NE region, the unit should pay excise duty. Duty paid through PLA is refunded next month or self credit is allowed. Buyer who purchases goods from such unit is entitled to avail full CENVAT credit of duty paid. In the case of units in Himachal and Uttaranchal, there is direct exemption.

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    Chapter III This session deals with the valuation of excisable commodities for levy of duty Valuation for the purpose of levy of Central Excise duty is dealt with under Sec.4 & 4A of the Central Excise Act. To supplement this, Central Excise Valuation (Determination of price of excisable goods) Rules 2000 is provided. When duty is leviable on advalorem basis, the assessable value will be the normal price which is otherwise called transaction value.(Sec 4) Normal price is the price at which such goods are ordinarily sold by the assessee to a buyer in wholesale trade for delivering at the time and place of removal, where the buyer is not a related person and where price is the sole consideration for the sale. Section 4A deals with value of excisable goods with reference to retail sale price. In this case, retail price is to be statutorily declared on the package. This is also called MRP. If more than one MRP is found, then the higher MRP is deemed to be retail sale price. The above provisions will not apply to goods for which tariff value is fixed by the Government u/s. 3(2). Section 3A empowers Central Government to charge Excise Duty on the basis of capacity of production in respect of certain notified goods. Duties specified in notifications are to be levied.

    TARIFF VALUE (Sec.3(A)

    NORMAL PRICE (Sec. 4)

    MAXIMUM RETAIL PRICE (Sec. 4A)

    Applies to notified Commodities; i. Cement ii.Sugar; iii.Pan Masala of specific weight

    Applies to all goods chargeable to duty on Adv.(excepting products covered under Sec.3(3)/Sec.4A

    Applies to notified Commodities

    Simple and specific Complex and covers various situations

    Simple and specific;

    No abatement Abatements permissible under law

    Fixed quantum of abatement

    Static and require constant monitoring

    Flexible Flexible

    Not encountered legal problems Most litigated provision Relatively new provision

    Not likely to be enlarged; ---------------- Likely to be enlarged to cover more commodities

    Not evasion prone Evasion prone Evasion minimal

    Valuation - certain important terms

    1.Value 9.Place of removal

    Valuation

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    2.Price 3.Advalorem 4.Assessee 5.Wholesale trade 6.Sale 7.Delivery 8.Time of removal

    10.Sole consideration 11.Favoured buyer 12.Class of buyer 13. Discounts 14. Durable and returnable 15. Packing

    Valuation - Section 4

    1. Transaction value - Section 4(1)(a) 2. Definiton of assessee - Section 4(3)(a) 3. Persons deemed as related - Section 4(3)(b) 4. Place of removal - Section 4(3)(c) 5. Definition of Transaction Value - Section 4(3)(d)

    1) Price at delivery or at any other time nearest to the time of removal -Rule 4 of Central Excise Valuation (Determination of Price of Excisable goods) Rules,2000

    2) Sale for delivery at a place other than place of removal - Rule 5 -do-

    3) Additional consideration - Rule 6 -do- 4) Transfer to a place from where goods

    are sold - Rule 7 -do- 5) Captive consumption - Rule - 8 -do- 6) Clearance to related persons - Rule - 9 -do- 7) Sale through Inter Connected Undertaking - Rule -10 -do- 8) Best judgment - Rule -11 -do-

    Implied Abatements 1. Interest on receivable - Not includible 2. Post delivery inspection/testing charges - Includible if mandatory 3. Third party optional testing charges - Includible 4. Actual Freight element exhibited in the invoice - Not includible 5. Loading charges outside the place of removal - Includible, if door delivery of goods 6. Optional accessories - Includible if cleared with main machinery 7. Erection charges ) - Not includible if not forming part 8. Installation and commissioning charges ) of Contract 9. Design/Layout sites - Includible 10. Training charges - Includible if relate to goods supplied

    Valuation (Includible elements) if recovered from customer

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    1. Packing charges 2. Excess freight collected 3. Warranty & after-sales service 4. Design & Development charges 5. Publicity/advertisement charges 6. Marketing/selling/distribution expenses 7. Depot expenses 8. Interest on inventories 9. Loading charges incurred within

    factory

    10. Know-how technical consultancy charges 11. Pre-delivery testing/inspection charges 12. Commission to agents 13. Over-riding commission to distributors 14. Cost of mould/die/pattern 15. Notional interest on advances 16. Discount on damages 17. Other additional consideration Value of prime accessories

    Bombay Tyre International 1983 (14) ELT 1896 SC 1. Constitutional validity of Section 4 upheld 2. Agreement that duty should be levied only on manufacturing profit/loss negatived 3. Design charges, warranty, after-sale service to be included 4. Publicity/advertising expenses to be included 5. Equalized freight/transit insurance abatable 6. Trade discount/turnover discount allowed 7. ED/Taxes excludible 8. Special secondary packing at the instance of the buyer excluded. 9. Validity of related person concept upheld 10. Competency of Excise officials to lift the corporate veil affirmed MRF judgment 1995 (77) ELT 433 SC 1. Depot expenses disallowed 2. Year ending discounts, bonus discounts allowed 3. Secondary packing ponds case affirmed 4. Interest on inventories disallowed 5. Interest on receivables allowed 6. Marketing, selling and marketing expenses to be included 7. From cum-duty price discount should be demanded first and then Excise Duty Metal Box Co. VS. CCE 1995 (75) ELT 449 1. Notional interest on advances made by customer added to price to arrive at value 2. Uniformity in trade discount not required - bulk buyer not to be treated as a favoured buyer 3. After loading notional interest on price, higher discount permissible 4. Nexus and deflation in price required to be proved. CCE, Pune VS. Daichi Karkaria Ltd. 1999(112) ELT 353 SC (3 member) 1. Cost not defined in Excise Act; Hence to be reckoned by accounting principle 2. As per guidance notes issued by C.A. Institute, duty credit is like rebate/set off. Hence cost

    of raw materials to be treated as net of Excise Duty 3. Under Rule 6(b)(ii) of Central Excise Rules, 1944 (since replaced with new Central Excise

    Rules, 2001)- for determination of landed cost of raw materials, Excise Duty element not to be included when working under Modvat Scheme

    M R P Assessment

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    I Introduction:

    When goods are chargeable to duty on ad valorem basis, the value thereof is determined based on the provisions contained is Section 4, which provides for adoption of wholesale price with certain adjustments on Assessable Value. However, in the Finance Act, 1997, a new concept of valuation based on Maximum Retail Price has been introduced by incorporation of new Section 4A. II Scope: 1. As per Section 4A, the Government is empowered to notify any goods, to which the provisions of Standards of Weight and Measures Act, 1976 (60 of 1976) or any other law apply and according to which the retail price of such goods shall have to be declared on the packages. In terms of Packed Commodities Rules framed under Weights and Measures Act, pre-packaged commodities are required to contain certain declarations on the package. In terms of Packed Commodities Rules, pre-packed commodity is defined as:- Pre-packed - commodity with its grammatical variations and cognate expressions, means a commodity which, without the purchaser being present, is placed in a package of whatever nature, so that the quantity of the product contained therein has a pre-determined value and such value cannot be altered without the package or its lid/cap, as the case may be being opened or undergoing a perceptible modifications, and the expression package wherever it occurs shall be construed as a package containing a pre-packed commodity. Explanation I: Where, by reasons merely of the opening of package, no alternation is caused to the value, quantity, nature or characteristics of the commodity contained therein, such commodity shall be deemed for the purposes of those rates to be a pre-packed commodity, for e.g., an electric bulb or fluorescent tube is a pre-packed commodity, even though the package containing it is required to be opened for testing the commodity. Explanation II: Where a commodity consists of a number of components and these components are packed in one, two or more units for sale as a single commodity, such commodity shall be deemed for the purpose of these rules, to be pre-packaged commodity. 2. From the above definition, it is clear that only when a commodity is sold in a pre-packed form, the provisions of Weights and Measures Act would apply. As on date only the provisions of Standards of Weights and Measures Act requires affixing of MRP on certain pre-packed commodity. Hence, as per the provisions of Section 4A of the Central Excise Act, 1944 the products covered under the ambit of Weights and Measures Act would fall within the frame work of MRP scheme. 3. The Provisions of Standards of Weights and Measures Act, 1976 are mainly intended to establish standards of weights and measures, to regulate interstate Trade or Commerce in weights, measures; and other goods which are sold or distributed by weight, measure or numbers and to provide for incidental matters connected with trade and commerce. Section 83 of the said Act empowers the Central Government to make Rules to provide for the manner of declaration of the contents of the package and specification of weight, measure and numbers in accordance with which the retail sale price shall be declared on the packages. Accordingly, the Central Government has framed the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. In the said Rules, the provisions contained in Chapter II would be relevant for the purpose of determination of MRP in terms of Section 4A of Central Excise Act, 1944.

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    4. The said Chapter II contains provisions which are applicable to packages intended for retail sale. The important terms such as Retail Sale and Retail Package as defined in the Packaged Commodities Rules, 1977 are extracted below: Retail Sale in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instruments for consumption by an individual or a group of individuals or any other consumer. Retail Package means a package containing any commodity which is produced, distributed, displayed, delivered or stored for sale through retail sales agencies or other instruments for consumption by an individual or a group of individuals. 5. In terms of Rule 4, sale, distribution or delivery of any pre-packed commodity is permissible only when the package in which the commodity is pre-packed bears thereon a required declaration. Rule 6 deals with declaration to be made on every package. In terms of the said rule every package shall bear thereon or on a label securely affixed thereto certain required information including the retail price of the said package. The other connected rules 15, 16 and 17 deals with declaring retail sale price on combination packages, group packages and multi piece packages, respectively. 6. Rule 23 deals with whole sale dealer as well as retail dealer, mandating that no whole sale dealer or retail dealer shall sell, distribute or deliver any packed commodity unless the said package complied with the provisions of the Act and the rules and in addition, no retail dealer including manufacturer shall sell the commodity exceeding the MRP. Thus the entire provisions of Chapter II of the said Act which deals with Rule 3 to Rule 28 speaks only about the retail package and only in this particular chapter there is a mandatory requirement of declaring/affixing MRP. 7. The provisions applicable to wholesale packages are dealt with in chapter III i.e., Rule 29. There is no mandatory requirement in the said Rule for affixing MRP or the retail price in the said packages. Hence it is felt that the commodities which are sold or removed in the course of wholesale trade in wholesale packing, there is no requirement of affixing MRP. Similarly, the commodities which are sold in bulk or in wholesale packages meant for industrial consumers also may not come in the purview of MRP concept. III Applicability: 1. When excisable goods chargeable to duty on advalorem basis are notified under Section 4A, then not withstanding anything contained in Section 4, such value shall be deemed to be the retail price declared on such goods less permissible abatements. In terms Section 4A, (2) Central Government is empowered to allow such abatements by notification in the official gazette. For the purpose of allowing abatements, the Central Government may take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods. For the purpose of Section 4A, the term retail sale price means the maximum price which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes local or otherwise, freight, transport charges, commission payable to dealers, that all charges towards advertisement, delivery, packing, forwarding and the like, and the price is sole consideration. Where any excisable goods have more than one retail price, then the maximum of such retail price shall be deemed to be retail price for the purpose of determination of MRP under section 4 A. 2. At present 83 commodities(covered under 99 tariff headings/sub headings) are covered under Section 4 A and the Government has provided different abatement for various commodities. The coverage of this scheme and the permissible abatements have been declared under Notification No. 5/2001- CE (NT) dt. 1.3.2001. One more important aspect about the MRP scheme is that the MRP declared in the packaged commodities should be the sole

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    consideration and if there is scope for receipt of additional consideration, as in the case of various exchange schemes offered by the manufacturers of consumer durable, the MRP declared will not be regarded as the sole consideration and such commodities shall be assessed duties based on the value determinable in terms of Section 4.

    IV Consequential Amendments (i) After the introduction of MRP scheme for certain notified products, notifications granting Small Scale exemption such as 8/2001 -CE and 9/2001-CE dt 01.03.01 have all been modified accordingly to determine the eligibility for exemption as well as the extent of exemption to be quantified in terms of MRP in respect of the product notified under Section 4A. (ii) Section 4A has been further amended to provide for a specific provision to confiscate the notified excisable goods, if any manufacturer removes from the place of manufacture such notified goods without declaring the retails sale price on such packages or declares a retail sale price which does not constitute the sole consideration for sale, or tampers with, obliterates or alters any such declaration made on the packages after removal. This provision is in addition to the other provisions existing in the Central Excise Rules for confiscation.

    V Conclusion: It is expected that with the introduction of Maximum Retail Price concept, the task of

    determination of value will become simpler and there may not be any scope for unnecessary and unwarranted litigation. The attitude of the assessee resorting to under-valuation through various means such as job work manufacture, purchase from SSI units with brand name, sale to/through related persons, sale to favoured buyers, off loading certain elements of value in the guise of discount, freight, after sale service, warranty charges etc., will be totally eliminated.

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    Chapter IV

    This session deals with the provisions of the Central Excise Act for admissibility of input credits to be adjusted towards payment of duty on goods produced Benefits 1. Reduces cascading effect. 2. No duty on duty. 3. Instant credit. 4. Proper accounting of materials and considerable reduction in evasion. 5. Step towards GST (Goods & Services Tax) 6. Increased productivity and higher revenue realisation. Cenvat Scheme (Effective from 1 July, 2001) Rule 1. Gazette notification of input and final products.

    Rule 2. Definition

    Rule3. Applicability

    Rule 4. Conditions for allowing credit

    Rule 5. Refund of CENVAT Credit

    Rule 6. Obligation of manufacturer of dutiable and exempted goods.

    Rule 7. Documents and accounts

    Rule 8. Transfer of CENVAT Credit

    Rule 9. Transitional provision

    Rule 10. Special dispensation in respect of inputs manufactured in factories located in specified areas of North Eastern Region

    Rule 11. Power of central government to notify goods for deemed CENVAT Credit

    Rule 12. Recovery of CENVAT Credit wrongly taken.

    Rule 13. Confiscation and penalty

    CENVAT Scheme Central Value Added Tax Scheme

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    CENVAT Admissibility and procedure: 1. Inputs may be used in or in relation to the manufacture of the final products. 2. Inputs may be removed as such for home consumption or for export. 3. In such cases amount equivalent to the duty on transaction value under Sec 4 of CE Act,

    1944, covered by an invoice under rule 52-A of Central Excise Rules, 1944. 4. Inputs as such or after partial processing may be removed for job work or for

    manufacture of intermediate goods to be returned within 180 days. 5. On return of the said goods, may be removed for home consumption, export, for use in

    the manufacture of any final products or to 100% EOU, EPZ units etc. 6. Waste also to be returned or else to produce proof of payment of duty at job workers

    end. 7. To be sent under challan duty authenticated as prescribed by CBEC. 8. If inputs not received within 180 days, differential duty will be charged. 9. Credit allowed can be used for payment of duty on any final products declared under

    Rule 57G, on inputs removed as such and on goods not charged to duty under Rule 57CC of 1944 rules.

    10. Credit on inputs used in the manufacture of final product and intermediate goods

    exported under bond will be allowed to be utilised for payment of duty on any final products cleared for home consumption. However, it cannot be utilised for any refunds. Cash refund is permissible subject to limitations and conditions as per rules and notifications issued thereunder.

    11. No cash refund, if drawback or benefit of Rule 12(1)(B) of Central Excise Rules, 1944

    availed. 12. For clearances to EPZ/100% EOU/STP/EHTP and under notification 108/95, utilization

    of input credit for payment of duty on other final products will be allowed, but no cash refund is allowed..

    13. Disposal of waste, either on payment of duty or by destruction. 14. Asst. Commissioner to permit transfer of modvat credit balance in case of shifting of the

    factory, merger, amalgamation or transfer subject to conditions and limitation particularly the liability and balance inputs should also taken over by the new unit and accounted for.

    Goods not eligible for credit: 1. Packing materials in respect of which exemption is available.

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    2. Packing materials/containers, the cost of which is not includible in terms of sec. 4 of the Act.

    3. Crates, glass bottles used for packing aerated waters. 4. Inputs which are used in the manufacture of Capital goods which are further used in the

    factory for manufacture. Amount of CENVAT Credit eligible under the scheme (i) In terms of the notification issued, a credit will be restricted only to the extent of C.V.D.

    paid by 100% E.O.U., E.P.Z., S.T.P. and E.H.T.P. units on their DTA (Domestic Traffic Area) clearances.

    (ii) A.E.D. paid under the various enactments to be used for payment of A.E.D. under the

    respective Act only. (iii) Goods falling under heading 2710.11/2710.12/ 2710.13/2710.19 (excluding natural

    gasoline liquids) and high speed diesel oil (HSD) falling under the heading 27.10 not eligible for the cenvat benefits.

    (iv) National Calamity Contingent duty leviable under Sec.136 of the Finance Act and the credit can be utilised only for payment of NCC duty. (v) No credit in respect of duty paid on the inputs used for manufacture of texturised yarn

    (including draw twisted or draw wound yarn) of polysters falling under heading No.5402. Rule 3: Applicability

    1. Removal of inputs for manufacture of intermediate goods by job-worker directly to his premises.

    2. Job worker should avail benefit of notification no.214/86.

    1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of - (i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act; (ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act; (iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978); (iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957); (v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); (vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004); (vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) and (vi);

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    (viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as substituted by clause 72 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of law: Provided that a provider of taxable service shall not be eligible to take credit of such additional duty; (viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); (ix) the service tax leviable under section 66 of the Finance Act; and (x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004), (xi) the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of law, paid on- (i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004, including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004.

    Explanation.- For the removal of doubts it is clarified that the manufacturer of the final products and the provider of output service shall be allowed CENVAT credit of additional duty leviable under section 3 of the Customs Tariff Act on goods falling under heading 9801 of the First Schedule to the Customs Tariff Act.

    (2) Notwithstanding anything contained in sub-rule (1), the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.

    (3) Notwithstanding anything contained in sub-rule (1), in relation to a service which ceases to be an exempted service, the provider of the output service shall be allowed to take CENVAT credit of the duty paid on the inputs received on and after the 10th day of September, 2004 and lying in stock on the date on which any service ceases to be an exempted service and used for providing such service.

    (4) The CENVAT credit may be utilized for payment of (a) any duty of excise on any final product; or (b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or (c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or

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    (d) an amount under sub rule (2) of rule 16 of Central Excise Rules, 2002; or (e) service tax on any output service: Provided that while paying duty of excise or service tax, as the case may be, the

    CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be:

    Provided further that the CENVAT credit of the duty, or service tax, paid on the inputs, or input services, used in the manufacture of final products cleared after availing of the exemption under the following notifications of Government of India in the Ministry of Finance (Department of Revenue),-

    (i) No. 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated 8th July, 1999]; (ii) No. 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated 8th July, 1999]; (iii) No. 39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565 (E), dated the 31st July, 2001]; (iv) No. 56/2002-Central Excise, dated the 14th November, 2002 [G.S.R. 764(E), dated the 14th November, 2002]; (v) No. 57/2002-Central Excise, dated 14th November, 2002 [G.S.R.. 765(E), dated the 14th November, 2002]; (vi) No. 56/2003-Central Excise, dated the 25th June, 2003 [G.S.R. 513 (E), dated the 25th June, 2003]; and (vii) No. 71/2003-Central Excise, dated the 9th September, 2003 [G.S.R. 717 (E), dated the 9th September, 2003],

    shall, respectively, be utilized only for payment of duty on final products, in respect of which exemption under the said respective notifications is availed of.

    Provided also that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as amended by clause 72 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, shall be utilised for payment of service tax on any output service: Provided also that the CENVAT credit of any duty mentioned in sub-rule (1), other than credit of additional duty of excise leviable under clause 85 of the said Finance Bill, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, shall not be utilised for payment of said additional duty of excise on final products. (5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:

    Provided that such payment shall not be required to be made where any inputs are removed outside the premises of the provider of output service for providing the output service:

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    Provided further that such payment shall not be required to be made when any capital goods are removed outside the premises of the provider of output service for providing the output service and the capital goods are brought back to the premises within 180 days, or such extended period not exceeding 180 days as may be permitted by the jurisdictional Deputy Commissioner of Central Excise, or Assistant Commissioner of Central Excise, as the case may be, of their removal.

    (6) The amount paid under sub-rule (5) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods under sub-rule (5).

    (7) Notwithstanding anything contained in sub-rule (1) and sub-rule (4),-

    (a) CENVAT credit in respect of inputs or capital goods produced or manufactured, by a hundred per cent. export-oriented undertaking or by a unit in an Electronic Hardware Technology Park or in a Software Technology Park other than a unit which pays excise duty levied under section 3 of the Excise Act read with serial numbers 3,5, 6 and 7 of notification No. 23/2003-Central Excise, dated the 31st March, 2003, [G.S.R. 266(E), dated the 31st March, 2003] and used in the manufacture of the final products or in providing an output service, in any other place in India, in case the unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the notification No. 23/2003-Central Excise, dated the 31st March, 2003, [G.S.R. 266(E), dated the 31st March, 2003], shall be admissible equivalent to the amount calculated in the following manner, namely:-

    Fifty per cent. of [X multiplied by {(1+BCD/100) multiplied by (CVD/100)}], where BCD and CVD denote ad valorem rates, in per cent., of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value.

    (b) CENVAT credit in respect of,- (i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); (iii) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004); (iv) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii) and (iii); (v) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); and (vi) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and (vii)the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law,

    shall be utilized only towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004, additional duty of excise leviable under section 157 of the

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    Finance Act, 2003, or the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No.2) Act, 2004, or the additional duty of excise leviable under clause 85 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931 (16 of 1931), the force of law, respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service: Provided that the credit of the education cess on excisable goods and education cess on taxable services can be utilised, either for payment of the education cess on excisable goods or for the payment of the education cess on taxable services. Explanation.-For the removal of doubts, it is hereby declared that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) paid on or after the 1st day of April, 2000, may be utilised towards payment of duty of excise leviable under the First Schedule or the Second Schedule to the Excise Tariff. (c)the CENVAT credit, in respect of additional duty leviable under section 3 of the Customs Tariff Act, paid on marble slabs or tiles falling under sub-heading No. 2504.21 or 2504.31 respectively of the First Schedule to the Excise Tariff Act shall be allowed to the extent of thirty rupees per square meter;

    Explanation.- Where the provisions of any other rule or notification provide for grant of whole or part exemption on condition of non-availability of credit of duty paid on any input or capital goods, or of service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of these rules.

    Rule 4 Conditions for availing CENVAT Credit

    (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service:

    Provided that in respect of final products, namely, articles of jewellery falling under heading 7113 of the First Schedule to the Excise Tariff Act, the CENVAT credit of duty paid on inputs may be taken immediately on receipt of such inputs in the registered premises of the person who get such final products manufactured on his behalf, on job work basis, subject to the condition that the inputs are used in the manufacture of such final product by the job worker. (2) (a) The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year:

    Provided that the CENVAT credit in respect of capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are cleared as such in the same financial year.

    Provided further that the CENVAT credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as amended by clause 72 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill under the Provisional Collection of Taxes Act, 1931, the force of law, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.

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    (b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.

    Illustration.- A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in subsequent years..

    (3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.

    (4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).

    (5)(a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service

    (b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to a job worker for the production of goods on his behalf and according to his specifications.

    (6) The Commissioner of Central Excise having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker.

    (7) The CENVAT credit in respect of input service shall be allowed, on or after the day which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in rule 9.

    Rule 5 Conditions for refund of Cenvat Credit

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    Where any input or input service is used in the final products which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

    (i) duty of excise on any final products cleared for home consumption or for export on payment of duty; or

    (ii) service tax on output service,

    and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:

    Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty. Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as amended by clause 72 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill, under the Provisional Collection of Taxes Act, 1931, the force of law, shall be utilised for payment of service tax on any output service.

    Explanation: For the purposes of this rule, the words output service which are exported means the output taxable services exported in accordance with the Export of Services Rules, 2005.

    Rule 6 Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services

    (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2). Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, except inputs intended to be used as fuel, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.

  • Courseware on Central Excise Receipt Audit

    (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:-

    (a) if the exempted goods are-

    (i) goods falling within heading No. 22.04 of the First Schedule to the Excise Tariff Act (hereinafter in this rule referred to as the said First Schedule);

    (ii) Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;

    (iii) Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;

    (iv) Naptha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity;

    (v) newsprint, in rolls or sheets, falling within heading No.48.01 of the said First Schedule;

    (vi) final products falling within Chapters 50 to 63 of the said First Schedule,

    (vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:-

    (1) No. 70/92-Central Excise, dated the 17th June, 1992, G.S.R. 595 (E), dated the 17th June, 1992;

    (2) No. 62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254 (E), dated the 16th March, 1995;

    (3) No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255 (E), dated the 16th March, 1995;

    (4) No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256 (E), dated the 16th March, 1995,

    the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or

    (b) if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to ten per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory;

    (c) the provider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent. of the amount of service tax payable on taxable output service.

    Explanation I.- The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise.

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    Explanation II.- If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 14, for recovery of CENVAT credit wrongly taken.

    (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.

    (5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.

    (6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-

    (i) cleared to a unit in a special economic zone; or

    (ii) cleared to a hundred per cent. export-oriented undertaking; or

    (iii)cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

    (iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95-Central Excise, dated the 28th August, 1995, number G. S R. 602 (E), dated the 28th August, 1995; or

    (v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

    (vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting.

    (vii) all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of notification No. 6/2002-Central Excise dated the 1st March, 2002. Rule 7 : Documents 1. An invoice issued by a manufacturer of inputs.

    2. An invoice issued by the manufacturer of inputs from his depots, premises of the consignment agents or any other place of business.

  • Courseware on Central Excise Receipt Audit

    3. Invoice issued by a manufacture for clearance of inputs or capital goods.

    4. Invoice issued by the first stage dealer or second stage dealer in terms of the provisions of CE(No.2), Rules 2001.

    5. An invoice issued by the second stage dealer of excisable goods registered and duly authenticated by the proper officer.

    6. Invoice issued by an importer registered.

    7. Invoice issued by an importer from his depot or from the premises of consignment agent of the said importer or premises as the case may be, is registered in terms of the provisions of CE(No.2), Rules 2001.

    8. An invoice issued by a registered first stage dealer of imported goods and duly authenticated by the proper officer.

    9. A Bill of entry. 10. A supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of CE(No.2) Rules 2001 from his factory, or from his depot or from the premises of consignment agent of the said manufacturing importer. Rule 9 - Transitional Provision: 1. Inputs lying in stock. 2. Duty paying documents. 3. To be used in the manufacture of final products. 4. Input and final products duly notified. 5. No credit earlier availed. 6. Final product not exempt or charged to nil rate of duty. 7. Opting out of cenvat, input duty on the stock available to be assessed and expunged from

    the credit account. Excess, if any would lapse. Short credit if any, would be recovered by cash payment.

    8. Unutilised balance of credit as on 1.7.2001. Rule 12 Recovery of credit wrongly taken 1. Credit if taken or utilised wrongly to be recovered along with interest applying the

    provisions of Sec 11A and Sec 11AB of CE Act, 1944.

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  • Courseware on Central Excise Receipt Audit

    Chapter V

    1. Introduction

    1.1 Refund of any duty of excise is governed by Section 11B of the Central Excise Act, 1944. By definition, refund includes rebate of duty paid on goods exported out of India or on materials used in the manufacture of goods exported out of India. The refund claim can be filed within one year from the relevant date in the specified Form-R by an assessee or even a person who has borne the duty incidence, to the Deputy/Assistant Commissioner of Central Excise having jurisdiction over the factory of manufacture.

    1.2 The "relevant date" has been defined in the said section and refund of duty paid can be sought provided the manufacturer has not passed on the burden of duty. In case the burden of duty has been passed on, the refund can be claimed by the buyer who has actually paid the duty if he has not passed the incidence of duty to any other person, or, in the alternative, the amount can be deposited in the Consumer Welfare Fund created by the statute.

    1.3 The Central Excise Act also provided for payment of interest on delayed payment of refund. As per Section 11BB, if any duty ordered to be refunded under Section 11B has not been refunded within three months from the date of receipt of the refund application in the prescribed manner and form along with the supporting documentary evidence as laid down in the relevant rules, interest at the rate notified by the Government shall have to be paid on such duty from the date immediately after the expiry of three months from the date of receipt of application till the date of refund of such duty.

    2. Presentation of refund claim

    2.1 Any person, who deems himself entitled to a refund of any duties of excise or other dues, or has been informed by the department that a refund is due to him shall present a claim in proper Form, along with all the relevant documents supporting his claim and also the copies of documents/records supporting his declaration that he has not passed on the duty incidence.

    2.2 The claim will be filed with the Deputy/Assistant Commissioner of Central Excise with a copy to the Range Officer.

    2.3 The claim shall be presented in duplicate and shall be duly signed by the claimant or by a duly authorised person on his behalf and shall be pre-receipted (with revenue stamp on original copy, where necessary).

    2.4 It may not be possible to scrutinise the claim without the accompanying documents and decide about its admissibility. If the claim is filed without requisite documents, it may lead to delay in sanction of the refund. Moreover, the claimant of refund is entitled for interest in case refund is not given within three months of the filing of claim. Incomplete claim will not be in the interest of the Department. Consequently, submission of refund claim without supporting documents will not be allowed. Even if post or similar mode files the same, the claim should be rejected or returned with Query Memo (depending upon the nature/importance of document not filed). The claim shall be taken as filed only when all relevant documents are available. In case of non-availability of any document due to reasons for which the Central Excise or Customs

    REFUNDS

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    Department is solely accountable, the claim may be admitted so that the claimant is not in disadvantageous position with respect to limitation period.

    3. Scrutiny of refund claim and sanction

    3.1 The Range Offic