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CENTRAL EXCISE
A BIRDS EYE-VIEW
------- By R.K.DEODHAR
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INTRODUCTIONWhat is tax
Lord Justice Holmes of U.S. Supreme Court has defined tax
as under Tax is the price which we pay for the civilied society!.!
Types of taxes
Taxes are "roadly classified into two cate#ories as
$irect Taxes.
%ndirect Taxes.
$irect taxes are paid and "orne "y the same person
whereas
%ndirect taxes are paid "y one person and "orne "y another
person. &xamples of $irect Tax' are %ncome Tax( )ealth Tax( *ift
Tax.
&xamples of %ndirect Tax' are &xcise( Customs( Sales Tax(
Service Tax.
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%n +,,-,+( share of %ndirect Taxes was a"out /-0 of the
total tax revenue whereas that of $irect Taxes was 1-0.
%n 1--/-,( share of %ndirect Taxes was 2/0 and the shareof $irect Taxes has increased to 310.
Share of Central &xcise duty alone was 140 and share of
Customs $uty was around 130.
Share of %ncome tax was 1-0 and that of Corporate Tax was1/0.
%n the financial year 1--4-/(first time the collection from
$irect Taxes exceeded %ndirect Tax collection.
Service tax has "een introduced from +,,2 and its share is
+-0 of the Total Tax 5evenue in the year 1--/-,.
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Constitutional Background Constitution of %ndia came into existence on 16th
January( +,3- and it is the Supreme Law in the country.
7ll the laws and rules are su"ordinate to theConstitution. %ndia is a union of states. Central*overnments has certain powers and State *overnments8Union Territories have certain powers.
7rticle 126 of the Constitution indicates the "ifurcation of
these powers and the details are listed in three lists of theSeventh Schedule of the Constitution.
List I.( Union List.)contains the matters which can "edealt with "y Central *overnment. e.#. $efence. 9orei#n
7ffairs( :an;in# etc.
List II (State List)Contains the matters which can "edealt with "y State *overnment. e.#
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&xcise $uty and Sales Tax appear in Union List as well asState List. &xcise duty levied under Union List is called
Central &xcise duty and the excise duty levied under State
List is called State &xcise duty. Similarly( Sales Tax is alsodivided into two types vi.( Central Sales Tax and State
Sales Tax.
State &xcise duty is levied only on three #oods vi.(
lcoholic Li!uor" #piu$ and %arcotics and on all other#oods manufactured in %ndia( Central &xcise $uty is levied.
Central sales tax is collected on the sale of #oods which
ta;es place in the course of %nterstate trade whereas state
sales tax is collected if the #oods are sold within the state.
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Land$ark changes in Central &xcise La''
%n %ndia( &xcise $uty was first levied on cotton yarn in
+/,2( and then #radually on other products li;e =otorSpirits >+,+4?( @erosene >+,11?( Silver >+,A-?( Su#ar and
=atches >+,A2?. =any more #oods #ot covered under the
net of &xcise duty after +,2A.
%n +,22( a consolidated 7ct was passed( vi.( Central
&xcises B Salt 7ct( +,22 which is still in force with the
chan#ed name as Central &xcise 7ct( +,22.
&arlier each commodity was covered under the Tariff
item "ut with the enactment of Central &xcise Tariff 7ct(
+,/3( the #oods are classified under various Chapter
Headin#s "ased on the classification under ar$onised
Syste$ of %o$enclature (S%).
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To avoid cascadin# effect >i.e. tax on tax? of taxation(=$D7T >=odified Dalue 7dded Tax? scheme was
introduced with effect from +.A.+,/6 which is now ;nown as
C&ED7T >Central Dalue 7dded Tax? scheme with effect from+.2.1---.
=$D7T was introduced only for certain inputs in +,/6
"ut was extended to Capital *oods also with effect from
+,,2.Today(practically all the inputs are covered underCenvat Credit scheme with maFor types of Capital *oods.
%n +,,1( &xcise licensin# >on annual "asis? was
scrapped and was replaced "y one time re#istration.
%n +,,2( system of &xcise *atepass and su"mission of
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%n the same year( $ealerGs 5e#istration was introducedcoverin# 9irst Sta#e and Second Sta#e $ealers.
%n +,,3( su"mission of Classification List wasa"andoned. Self assessment procedure was introducedw.e.f. +,,6.
%n +,,, the rates of Central &xcise $uty were reducedfrom 11 to only three( i.e( /0( +60 and 120 and since
1---( most of the #oods attract +60 duty. %n 1---( all statutory records were a"olished and a new
Section 2 and Daluation 5ules were introduced for thepurpose of valuation of #oods
Central &xcise 5ules( +,22 were scrapped w.e.f.+.2.1--+ and new set of rules was introduced.
%n 1--2( new Cenvat Credit 5ules( 1--2 wereintroduced in which the &xcise $uty as well as Service Taxwere included for the first time.
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Legal Frame!r" !# Ce$%ral E&'()e La
a? Central &xcise 7ct( +,22'This is the "asic 7ct providin#char#in# of duty( valuation( offences and penalties( powers
and duties of officers( adFudication and appeals etc.
"?Central &xcise 5ules( 1--1' These deal with the detailed
procedures of Central &xcise Law.
c?Cenvat Credit 5ules( 1--2' These cover the provisionsrelatin# to Cenvat credit on inputs and capital #oods as
well as on Service Tax..
d?Central &xcise >7ppeals? 5ules( 1--+' These rules cover
the appellate procedure.e?Central &xcise Daluation > $etermination of
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f? Central &xcise >Settlement of Cases? 5ules( 1--+'
These contain the provisions where assessee wants to
settle the dispute with the *overnment.
#? Central &xcise >5emoval of #oods at concessional rateof duty for manufacture of &xcisa"le *oods? 5ules 1--+'
These relate to the procedure for removin# the #oods
under special circumstances.
h? Central &xcise Tariff 7ct(+,/3'This 7ct classifies all the#oods into various Sections(Chapters B ChapterHeadin#s
B rates of duties.
i? C&*7T>
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Eotifications are issued prescri"in# the chan#es in the Central
&xcise 5ules B
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A*m($()%ra%(+e Se%-U, !# E&'()e De,ar%me$%
=inistry of 9inance
Central :oard of &xcise B Customs
Chief Commissioner
Commissioner
7dditional Commissioner
Joint Commissioner
$eputy Commissioner
7ssistant Commissioner
Superintendent
%nspector
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NATURE OF EXCISE DUTYConstitution #f India
&ntry nu$er *+ of List I (Union list) of Se,enthSchedule to the Constitution of %ndia reads as follows'
$uties of &xcise on to"acco and other #oods manufactured
or produced in %ndia( except alcoholic liIuors for human
consumption( opium( narcotics( "ut includin# medical and
toilet preparations containin# alcohol( opium and narcotics.!
Central &xcise ct" -++
Section A>a? of the Central &xcise 7ct( +,22 states that
there shall "e levied and collected in such manner as may
"e prescri"ed duties on all &xcisa"le #oods >excludin##oods produced or manufactured in Special &conomic one
which are produced or manufactured in %ndia and at the
rates( set forth in the 9irst Schedule to the Central &xcise
Tariff 7ct( +,/3?.!
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Ba)(' C!$*(%(!$) +K The duty is on #oods.
1K The #oods must "e excisa"le. AK The #oods must "e manufactured or produced in
%ndia.
!!*) a$/#a'%/re* I$ S.E.0 are $!%1E&em,%e*!!*)2 3/% 1e&'l/*e* g!!*).2Ta&a3le E+e$%
Taxa"le &vent is that event( which on its occurrence(
creates or attracts the lia"ility Supreme Court
*ood ear %ndia Ltd. Ds. State f Haryana >+,,-? 46 STC 4+. =anufacture or production in %ndia of an &xcisa"le
article is a taxa"le event for Central &xcise( thou#h duty
can "e levied and collected at a later sta#e for
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administrative convenience S.C. Shree Synthetics Ltd.
Ds. U% +,,, >++A? < 442.
5emoval from factory is not a taxa"le event.
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/erson Liale To /ay &xcise 0uty
&very person who produces or manufactures any
&xcisa"le #oods or who stores such #oods in a
warehouse( shall pay the duty. M5ule 2 >+?K.
%n case of molasses manufactured in @handsari Su#ar9actory( the duty is paya"le "y the person who procures it
5ule 2 >1?.
Eormally( the person who actually manufactures the#oods is lia"le to pay the duty. %n case of Fo" wor;( if theconditions under Eot. Eo. 1+28/6 dated 13.-A./6 aresatisfied( the Fo" wor;er is exempted form payin# the dutyas the raw material supplier underta;es the duty payment.Similarly( if the #oods are fallin# under CH. Eo 6+ or 61>i.e( 5eadymade #arments?( the raw material supplier islia"le to pay the duty 5ule 2 >A?.
$uty is paya"le even if not collected from the customer.
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Ra%e O# D/%y Thou#h the taxa"le event is NmanufactureG( duty "ecomes
paya"le on the removal of #oods from the factory and the rateof duty will "e the rate which is applica"le on the date of
removal of #oods 5ule 3.
%n case of molasses( the rate will "e the rate applica"le on
the date of receipt of molasses in the factory of the procurer.Ty,e) !# E&'()e D/%yBasic &xcise 0uty (also kno'n as Cen,at)is levied on all
manufactured #oods mentioned in 9irst Schedule to Central
&xcise Tariff 7ct( +,/3.
d 1 2alore$ 3ate of dutyis the duty which is "ased on thevalue of #oods.
Specific rates of dutyis the duty which is fixed per unit of
measurement of the #oods e.#( per num"er( per =.Ton etc.
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O%4er D/%(e)
%n addition to Central &xcise duty( followin# duties arealso levied on certain #oods
a? &xcise duty in case of clearances "y &U89T8S&'
>&Iual to Customs $uty?
"? Eational Calamity Contin#ent $uty. c? 7dditional duty on #oods of special importance.
d? 7dditional duty on textile articles.
e? $uty on medical and toilet preparation.
f? Cess' Cesses are of various types but followingtwo types are very common-
i) Education Cess 2% on Central Excise Duty. ii) econdary ! "ig#er Education Cess $% on
Central Excise Duty.
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a$/#a'%/re5 !!*) a$* E&'()a3le!!*).0efinition #f 4anufacture5
There is no definition of NmanufactureG under Central &xcise
Law.Section 1>f? of the Central &xcise 7ct( +,22 states as under
=anufacture includes any process
a? incidental or ancillary to the completion of manufactured
product and"? which is specified in relation to any #oods in Section or
Chapter Eotes of the 9irst Schedule to the Central &xcise Tariff
7ct( +,/3 as amountin# to manufacture( or
c? which in relation to the #oods specified in the Third
Schedule( involves pac;in# or repac;in# of such #oods in a
unit container( or la"elin# or rela"ellin# of containers includin#
the declaration or alteration of retail sale price on it or adoption
of any other treatment on the #oods to render the product
mar;eta"le to the consumer.
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4anufacture and /roduction
The word production is used to cover items li;e to"acco(tea( coal( ores( etc i.e( "asically which is made availa"lefrom earth or "y plantation. The word NmanufactureG is usedto denote the #oods which are "rou#ht into existence "yhuman efforts and with the help of machines etc i.e("asically in the factories.
=ost of the items which are NproducedG are either notexcisa"le at all or are exempt from duty.
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C!$'e,% !# 6a$/#a'%/re a) ,er C!/r%)Since there is no exhaustive definition of NmanufactureG
in &xcise Law( the definition has "een emer#ed out of decided
Case laws "y the courts and the tri"unals. The mostimportant Case re#ardin# NmanufactureG is Union f %ndia Ds.
$elhi
Cloth =ills Co. Ltd. 7%5 +,6ASC 4,+ O +,44>+? &.L.T +,,.
Supreme Court has ruled out in this case that6$anufacture i$plies a change ut e,ery change is not
a $anufacture. 7ro$ $anufacturing process" a ne' and
different article $ust e$erge ha,ing a distincti,e
na$e"use and character.8 This view has "een ta;en "y Hon. Supreme Court B
Hi#h Courts in many other cases and hence this has "een
accepted "y trade as well as the $epartment.
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99 Trade /arlance Test
Trade
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De'(*e* Ca)e La) !$ a$/#a'%/re +K 5ecordin# of sound on duty paid ma#netic cassette tapes.
1K =a;in#
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Deeme* a$/#a'%/re
The processes explained in ii? and iii? in Section 1 >f? are
considered as processes resultin# into N$eemed =anufacture.G%t means that applyin# the principles of court cases( the
processes are not actually Nmanufacturin# processesG "ut
those are considered as manufacturin# processes "ecause
law says so. &xamples of $eemed =anufacture'
La"ellin#( 5ela"ellin#(
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4anufacturer5
Sec 1 >f? states that
the word NmanufacturerG shall "e understood accordin#lyand shall include not only a person who employs hired
la"our in the production or manufacture of excisa"le
#oods "ut also any person who en#a#es in their
production or manufacture on his own account.! The a"ove definition covers two cate#ories'
a?
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5aw material supplier is not to "e considered as
=anufacturer unless he underta;es to pay the duty
under Eot Eo.1+28/6.
%ndependent contractor is a manufacturer even if hemanufactures the #oods in the premises of the raw
material supplier.
:rand name owner is not the manufacturer( even if he
supplies the material. Loan Licensee is not the manufacturer.
La"our Contractor( supplyin# only la"our( is not the
manufacturer.
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!!*)0efinition5There is no definition of #oods in Central &xcise
Law.
Sale f *oods 7ct( +,A- defines #oods as follows'
*oods means any ;ind mova"le property other than
actiona"le claims and money and includes stoc; and
shares( #rowin# crops(#rass and thin#s attached to andformin# part of the land which are a#reed to "e severed
"efore sale or under the contract of sale.!
:oods $ust e $o,ale5
%mmova"le
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S!me E&am,le) !# 6!!*) &lectricity( *as and Steam()aste and Scrap.
$rawin#s and $esi#ns.
%ntermediate #oods( if those are mar;eta"le. W4a% are $!% 6!!*)7 %mmova"les are not #oods.
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&xcisale :oods ne of the essential conditions is that the *oods must
"e Nexcisa"leG.
Section 1 >d? of the Central &xcise 7ct( +,22 defines
&xcisa"le #oods as *oods specified in the 9irst and the
Second schedule to the Central &xcise Tariff 7ct( +,/3 as
"ein# su"Fect to a duty of excise and includes salt!.
&xplanation to Section 1>d? has "een added which
states that &xcisa"le #oods includes any article( material
or su"stance which is capa"le of "ein# "ou#ht B sold for a
consideration B such #oods shall "e deemed to "e
mar;eta"le.
&xcisa"le "ut exempt #oods are those #oods which are
mentioned in the schedules to C&T7( +,/3 "ut exempt
"y a notification.
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Eon &xcisa"le *oods are those #oods which are notmentioned in the schedules.
*oods with NEilG rate of duty are those #oods which arementioned in the Schedules with a rate of dutymentioned as NEilG a#ainst them.
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CLASSIFICATIONIntroduction5
&xcise $uty is levied on all the &xcisa"le *oods
manufactured in %ndia and hence thousands of #oods attract the duty. 9or the purpose of proper identification
and differentiation of the #oods( it "ecomes necessary to
#roup them in some lo#ical method. This is called the
;classification< ofgoods.Background of Classification5
The need for classification was felt all over the world
and hence )orld Customs r#anisation developed a codin#
structure which is ;nown Harmonied System f
Eomenclature >HSE?. This was not followed in %ndia till +,/6.
Till that time( we were havin# our own classification which was
different for Central &xcise and for Customs. This was
creatin# lot of pro"lems in our international trade and hence in
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order to have uniformity( we also adopted HSE for the
purpose ofclassification of #oods for Central &xcise as well
as Customs purpose.
&arlier each #roup of #oods used to "e called Tariff
%tem whereas now( it is ;nown as Chapter Headin#. %n
+,/3( Central &xcise Tariff 7ct was passed which "ecame
effective from 1/.-1.+,/6.
Central &xcise Tariff ct" -*=
This 7ct is one of the smallest 7cts in our country which
contains only 2 sections. There are two schedules to this
7ct which are as follows
7irst Schedule' This contains a list of #oods on which
:asic &xcise $uty >C&ED7T? is levied. This is divided
into 1- Sections and ,6 Chapters.
Second Schedulehas "een a"olished.
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Third Schedule' This contains a list of #oods which are
covered under 43/ ased ,aluationas per Section +of
the Central &xcise 7ct( +,22.
Sections Under C&T5
9irst Schedule covers almost all the #oods. %t is divided
into 1- Sections and each Section contains various Chapters.
7 Section is a "road #roup of #oods whereas Chapters containfurther su" #roups of the #oods.ollowing is t#e list ofections along wit# t#e broad groupings
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Section %o. Section eading Chapter %o.
% ni$al products > to =
II 2egetale products ? to -+
III ni$al or ,egetale fats -=
I2 /repared food stuff" e,erages -@ to >+2 4ineral products >= to >?
2I Che$icals fertiliAers soaps etc. >* to *
2II /lastics and ruer and articles to +
2III Leather and articles +- to +
ID Wood" cork" stra' and their articles ++ to +@
D /ulp" paper" paperoard and articles +? to + DI Textile and textile products = to @
DII 7oot'ear" head gear" u$rellas etc. @+ to @?
DIII rticles of stone" plaster" cera$ic glass @* to ?
DI2 /earls and precious $etals ?-
D2 Base $etals and articles of ase $etals ?> to *
D2I 4achinery and $echanical appliances etc. *+ E *=D2II 2ehicles" aircraft" ,essels etc. *@ to *
DIII #ptical" photographic" $edical" clocks etc. to >
DID r$s and a$$unitions
D 4iscellaneous $anufactured articles + to @
F %ote 5 9 Chapter nu$ers -"@"-"-> and ?? are lank G
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Chaptersunder C&T5
&ach Section is su"divided into Chapters. 7s mentioned
earlier( there are ,6 Chapters out of which 3 Chapters are
;ept "lan; for future purpose. Section contains a "road#roupin# where as Chapter contains further classification
of #oods in that "road #roup. e.#. Section QD contains N
:ase =etals and 7rticles of :ase =etalsG. %t contains the
followin# Chapters
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CH7
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Chapter eading and Su9eading nu$er5
&ach Chapter is further divided into Chapter Headin#s
and Chapter Su"headin#s. Chapter Headin# denotes aparticular class of #oods within the Chapter whereas Chapter
Su"Headin# denotes further classification of #oods within
that Chapter Headin#. 7 sample of Chapter 4/ is shown
"elow for "etter understandin# '
Chapter ?*
Lead and rticles thereofHea*($g) N!. S/3-Hea*($g N!. De)'r(,%(!$ !# g!!*) U$(% Ra%e !# */%y
&$) &2) &') &()*.+$ ,nwroug#t ead
*+$$+ ++ - efined ead /g. *%
-0t#er *+$ 1$ ++ -- Containing by weig#t
antimony as t#e principleot#er element /g. *%
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Significance of 0ashes59
Sin#le $ash > ? at the "e#innin# of the description
indicates a #roup( whereas $ou"le $ashes > ? indicates a
su" #roup .Triple $ashes > ? B
9our $ashes > ? indicate su"classification of the product
immediately precedin# the triple or four dashes.
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Tariff 3ates #f 0uty E &ffecti,e 3ates of 0uty5
Column Eo. 2 in the schedule indicates the rate of duty
applica"le on the #oods. These rates are su##ested "y the
rulin# *overnment and are approved "y the "arrin#
emer#ency situations?. These rates need not "e effective rates of duty. %f the
#overnment decides to #ive partial or full exemption to the
#oods( *overnment issues notifications prescri"in# such
exemptions and then such rates "ecome the effective ratesat which the duty "ecomes paya"le "y the assesses.
R/le) #!r I$%er,re%a%(!$
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/ # r $ r,r $C.&.T.7. +,/3 contains five rules for interpretation
summary of these rules are as under
3ule -' The titles of Sections and Chapters are provided for
ease of reference only. 9or le#al purpose classification shall"e determined accordin# to the terms of headin#s and relative
Section or Chapter notes.
3ule > >a? ' %f incomplete or unfinished #oods have attained
the essential character of complete or finished #oods( then
any reference in a headin# shall apply to such incomplete or
unfinished #oods.e.#. =otor vehicle not fitted with tyres or
"attery( "icycles without saddles and tyres. Chapter headin#
will also apply to the #oods complete or finished removed
unassem"led or disassem"led.e.#. S@$ or C@$ conditions.>"? ' 7ny reference in a headin# to a material or su"stance
shall "e ta;en to include a reference to mixtures or
com"inations of that material( or su"stance with other
materials or su"stances e.#. 7rticles of #old will also includean article which is made artl of *old.
3ule >a?' The headin# which provides the most specific
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> ? # p pdescription shall "e preferred to a headin# providin# a more
#eneral headin#. D%< "a# is a NCh.Eo.A,? in
#eneral paralance "ut there is specific entry for
Suitcase8:riefcase under Chapter Headin# Eo. 21-+.+- andhence it should "e classified under this headin# only.
>"?' =ixtures( composite #oods consistin# of different
materials( components etc. ( which cannot "e classified "y
reference to >a? a"ove shall "e classified as they consisted of
material which #ives them their essential character( e.#. N
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3ule + 59*oods which cannot "e classified in accordance with
the a"ove rules shall "e classified under the headin#appropriate to the #oods to which they are most a;in >similar?.
3ule =59Su"headin#s can "e compared only at the same
level i.e. if one headin# contains 3 6 Su"headin#s( these
Su"headin#s can "e compared with each other. Similarly this
rule states that Section Eotes and Chapter Eotes also will
apply( unless the context otherwise reIuires.
*eneral &xplanatory Eotes '
The interpretation rules are also followed "y two
explanatory notes vi.+? These relates to dashes B
1? This states that N0G indicates 0 to value of the #oods.
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+.- /rinciples of Classification ' +K Trade
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2K &nd Use B Classification '
*enerally end use is not an important criteria for
classification unless classification is related to function of#oods. e.#. Laminated Safety *lass will "e classifia"le asNLaminated Safety *lassG only even if it is used a part of=otor Dehicle. However
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6K Classification of N
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d?
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VALUATION.Basis #f Calculation #f 0uty5
i? 7ssessa"le value under section 2 >7d Dalorem duty? ii? =aximum 5etail
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Section + (-)reads as under
)here under this 7ct( the duty of &xcise is char#ea"le
on any excisa"le #oods with reference to their values( then( on
each removal of the #oods( such value shall
%n a case of where the #oods are sold "y the assessee( fordelivery at the time and place of the removal( the assessee
and the "uyer of the #oods are not related and the price is the
sole consideration for the sale( "e the transaction value;
%n any other case( includin# the case where the #oods arenot sold( "e the value determined in such manner as may "e
prescri"ed.
&ssential Conditions Under Section + (-)(a)
+K *oods must "e sold
1K $elivery at the time and place of removal is important.
AK 7ssessee and "uyer should not "e related to each
other.
2K
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/lace #f 3e$o,al5
%t means a? a factory or any other place or premises
of production or manufacture of the excisa"le #oodsP "? a warehouse or any other place or premises wherein
the excisa"le #oods have "een permitted to "e deposited
without payment of duty from where such #oods are removed.!
3elated person5
The person shall "e deemed to "e NrelatedG if
a? they are interconnected underta;in#sP
"? they are relativesP
c? amon#st them( the "uyer is a relative and a
distri"utor of the assessee( or a su"distri"utor ofsuch distri"utor( or(
d? they are so associated that they have interest(
directly or indirectly( in the "usiness of each other.
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Transactional 2alue5
%t means the price actually paid or paya"le for the
#oods( when sold( and includes in addition to the amountchar#ed as price( any amount that the "uyer is lia"le to pay to(
or on "ehalf of the assessee( "y reason of or in connection
with the sale( whether paya"le at the time of the sale or at any
other time( includin#( "ut not limited to any amount char#edfor( or to ma;e provision for( advertisin# and pu"licity(
mar;etin# and sellin# or#aniation( expenses( stora#e(
outward handlin#( servicin#( warranty( commission or any
other matterP "ut does not include the amount of duty of
excise( Sales Tax and other taxes( if any( actually paid or
actually paya"le on such #oods.!
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5.2.7. Essentials of Valid Sale:
Section 2 (h) of The Central excise Act,1944,denes Sale as
Sale and Purchase ithin their !ra""atical#ariations and co!nate ex$ressions, "eans an%transfer of !oods &% one $erson to another in theordinar% course of trade or &usiness for cash ordeferred $a%"ent or other #alua&le consideration'
Sale* under Central +xcise is dierent than Sale*under Sale of -oods Act,19./' 0nder Sale of -oodsAct, 19./, the $ro$ert% i'e' onershi$ "ust &etransferred to the &u%er here as under Central+xcise,Sale* includes hire $urchase and lease also'ut the folloin! are not Sale* under Central +xcise
a) Stoc transfer i'e' transfer to de$ot3&ranch' &) o& or3 $rocessin!'
c) 5ree sa"$les' d) 6%$othecation'
)
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a) /rice $ust e sole consideration 59
This means that apart from price( no other "enefitshould flow from the "uyer to the seller. %f there is anyadditional consideration other than price( then TransactionDalue will not "e the "asis for the valuation of *oods.&xamples of additional consideration
a? "uyer supplies material.
"? "uyer supplies moulds( dies( tools etc.
) /rice ctually paid or payale 59
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Inclusions in Transaction 2alue 59
+K except
dura"le and returna"le containers?
1K Cost of drawin#s( desi#ns etc. AK Compulsory after sales service char#es.
2K 5oyalties char#e
&xclusions fro$ Transactional 2alue59
+K Trade $iscount
1K Cash $iscount
AK %nterests on advances if there is no nexus> relation?
"etween advance and the price
2K 7ctual Transportation Cost 3K Transport Cost on &Iualised :asis
6K %nstallation and &rection &xpenses
?G%nterest on receiva"le.
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Ce$%ral E&'()e Val/a%(!$ 8De%erm($a%(!$ !# ,r('e
!# E&'()a3le !!*)9 R/le) :;;;
3ule no -' Short Title and Commencement.
3ule no >' $efinitions
3ule no 'Dalue of #oods under clause >6? of su" section>+?
of section 2 of the act should "e determined as per these
rules.
3ule no +5%f the #oods are not sold( then the value should "e
ta;en on the "asis of value of Nsuch #oodsG sold "y the
assessee at any other time nearest to the time of removal(su"Fect to reasona"le adFustment. >e.#. 9ree samples( #oods
supplied under warranty?
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3ule no =' if the #oods are sold at a different place other than
the factory #ate( then the value should "e ta;en as TransactionDalue( excludin# the cost of transportation from that place of
removal up to the place of delivery. %t is clarified that the cost of
transportation means either the actual cost of transportation or
the eIualised cost of Transportation. %t is also clarified that cost
of transportation from the factory and the place of removal is
not excludi"le.
3ule no @' %f the price is not the sole consideration( the value
of the #oods shall "e determined as the a##re#ate of such
transaction value and the amount the money value of anyadditional consideration flowin# directly or indirectly from the
"uyer to the assessee.
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&xamples '
+K Dalue of materials( components( parts and similaritems related to such #oods.
1K Dalue of tools( dies( moulds( drawin#s( "lue prints(
technical maps and charts and similar items.
AK Dalue of material consumed( includin# pac;a#in#materials( in the production of such #oods.
2K Dalue of en#ineerin#( development( art wor;( desi#n
wor; and plans and s;etches underta;en elsewhere than in
the factory of production and necessary for production of
such #oods.
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3ule no ?'%f the #oods are sold from $epot( premises of
consi#nment a#ent or any other place from where the #oods
are sold and where the seller and "uyer are not related( then
the value shall "e normal transaction value of such #oods soldfrom such other place at8 or a"out the same time or at the time
nearest to the time of removal.
3ule no *')here the #oods are consumed captively( then the
value shall "e cost of production8 manufacture R +-03ule no ' )here the #oods are sold to or throu#h related
person( the value shall "e normal transaction value at which
the #oods are sold "y such related person to the "uyer or if the
#oods are not sold( then the retail price of such #oods. if the
related person does not sell the #oods "ut consumes them
captively( then the value shall "e determined accordin# to 5ule
/.
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3ule no -' )here the #oods are sold to or throu#h
interconnected underta;in# who is also a related person or
a holdin# company or su"sidiary company( then the valueshall "e determined in accordance with 5ule ,. in any other
case( the value shall "e determined as if they are not
related persons.
R/le
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"? in a case where the #oods are not sold "y the
principal manufacturer "ut are transferred to some other
place from where the said #oods are sold( the value shall
"e the normal transaction value of such #oods sold from
such other place at or a"out the same time or at the time
nearest to the time of removal of the said #oods from the
factory of the Fo" wor;er(
c? in any other case( the provisions of these rules shallapply.
3ule no --'%f the value of the #oods can not "e
determined under any of the rules( then the value shall"e determined usin# reasona"le means consistent with
the principles and #eneral provisions of these rules and
section 2 .
2LU& BS&0 #% 4DI4U4 3&TIL /3IC&
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Section 27 of the Central &xcise 7ct( +,22'
This section specifies the circumstances and the conditions
under which the value of the #oods should "e determined
"ased on the =aximum 5etail
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So far ,1 items are covered under this scheme. Some of
the examples are as follows'
%T&= 7:7T&=&ET +? Chocolates A-0
1? :iscuits A30
A? %ceCream A-0
2? )hite Cement A-0
3? Tooth
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Certain clarifications issued y C.B.&. E C59 +? %f the provisions of Standards of )ei#hts B =easures 7ct(
+,46 do not apply( duty is paya"le on the "asis of section 2. 1? %f the #oods are sold in wholesale( valuation should "e as
per Section 2. hence( it is possi"le that the same commoditywould "e sometimes assessed under Section 2 Bsometimes under section 27.
0ee$ed 4anufacture59 7s per Section 1>f?>iii?( pac;in# or repac;in# of the #oods
covered under Third Schedule in a unit container orla"elllin# or rela"ellin# of containers includin# thedeclaration or alteration of retail sale price on it or adoption
of any other treatment on the #oods to render the productmar;eta"le to the consumer amounts to manufacture.
Confiscation of goods 5 Section +()5
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Confiscation of goods 5 Section +()5
%f the assessee removes the #oods without declarin#the 5etail
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S=ECIFIC DUTY %f the duty is paya"le on the "asis of certain
measurement unit li;e wei#ht( len#th( nos. etc.( it is called
as specific duty. %n such case value of #oods has no
relevance. &xamples'
+? Ci#arettes other than filtered ci#arettes of len#th5s.
4/ per Thousand not exceedin# 6- mm.
1? Su#ar( other than ;handsari su#ar5s. A2 per Iuintal
.TARIFF VALUE%n some cases( tariff values are fixed "y Central
*overnment. This is Eotional Dalue! for the calculation of
the duty paya"le. This is fixed under section A>1? of the
Central excise 7ct( +,22.
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/3CTICL &D4/L&S #% 2LUTI#% 59
+K :. Ltd. manufactures two products vi. &ye inment B S;ininment. S;in inment is a specified product under Section
27 of The Central &xcise 7ct( +,22. The sales prices are 5s.2A8 B 5s.AA8 respectively. Sales
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1K 7n assessee sells the #oods to 7:C Co. Ltd for 5s. +-(---8on +3th $ec. 1--2.The "uyer is a related person! as
defined under Section 2>A? > "? of The Central &xcise7ct(+,22. n that date( the net price > excludin# exciseduty? of related person to an unrelated "uyer was5s.+1(---8. )hat will "e the assessa"le value in each ofthe followin# cases
a? The related person sells the #oods to an unrelated
"uyer on 3th 9e". 1--2 at 5s. +1(3-- exclusive of exciseduty.
"? The related person sells the #oods to unrelated "uyeron +-th 9e".1--2 at 5s. ++(---( exclusive of excise duty.
c? The "uyer is treated as related person! as it is aninterconnected underta;in# in relation to manufacturer.However the "uyer is not a holdin# company or su"sidiarycompany of the assessee. :uyer B seller do not haveinterest in each other.
AK 7n assessee has a factory at @ol;ata 7s a sales policy he
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AK 7n assessee has a factory at @ol;ata. 7s a sales policy( hehas fixed uniform price of 5s. 1---8 per piece > excludin#taxes? for sale anywhere in %ndia. 9rei#ht is not shownseparately in his %nvoice. $urin# 9inancial year 1--2-3( hemade followin# sales
a? Sale at factory #ate at @ol;ata +1-- pieces Eo
transport char#es.
"? Sale to "uyers in *uFarath 6-- pieces . 7ctual
transport char#es incurred 5s. 1/(---8.
c? Sale to "uyer in :ihar 2-- pieces 7ctual transport
char#es incurred 5s. +/(---.
d? Sale to "uyers in @erala +--- pieces 7ctual
Transport char#es 5s. 32(---8.
9ind assessa"le value.
2K $etermine the assessa"le value in each of the followin#
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2K $etermine the assessa"le value in each of the followin#circumstances .
uote relevant Section8 5ule under Central &xcise Law.
a? 7 Ltd. sold the #oods to : Ltd. at a value of 5s. +-- perunit B : Ltd. sold the #oods to C Ltd. at a value of 5s. ++-8per unit. 7 ltd. B : Ltd. are related whereas : Ltd. B C Ltd.are unrelated.
" ?7 Ltd. B : Ltd. interconnected underta;in#s under
=5T< 7ct. 7 sells the #oods to : Ltd. at a value of 5s. +--per unit B to C Ltd. at 5s. ++-8 per unit( who is anindependent "uyer.
c? 7 ltd. sells the #oods to : Ltd. at 5s. +-- per unit. Thesaid #oods are captively consumed "y : Ltd. in its factory. 7Ltd. B : Ltd. are unrelated. The cost of production of #oodsto 7 Ltd. is 5s. +1- per unit.
d? 7 Ltd. sells motor spirit to : Ltd.at 5s. A+8 per Ltr. :ut=otor spirit has administered price of 5s. A-8 per Ltr. fixed"y *ovt.
REISTRATION
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REISTRATIONS&CTI#% @ 3UL& 59
&very person who produces( manufactures( carries on trade(
holds private store room or warehouse or otherwise usesexcisa"le #oods( shall #et re#istered.
%#T. %# =>- (%.T.) 0T. >@.@.>-5
G pplication for 3egistration5
&very person who wants to #et re#istered shall apply in the
prescri"ed 7or$ 9-. :road Contents of the form are as under' +K Eame and address of the applicant.
1K
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K F p
Headin# nos.
,K =aFor inputs used in the manufacture with Chapter
Headin# Eos.
:K Separate 5e#istration should "e o"tained for each
premises.
CK 5e#istration Certificate in the prescri"ed form 5C containin#
5e#istration Eo. shall "e #ranted within seven days of the
receipt of the application.$K )here the re#istered person transfers his "usiness to
another person( the transferee shall #et himself re#istered
afresh.
&K )here a re#istered person is a firm or a company or an7
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*K 7 re#istration certificate shall "e revo;ed or suspended if
the holder is found to have committed "reach of any
provisions of 7ct or 5ules.
HK 7 5e#istration Certificate or a copy of thereof shall "eexhi"ited in a conspicuous part of the re#istered premises.
%K 5e#istration is permanent.
JK &ach re#istered person is #iven &xcise Control Code. This is
+3di#it code "ased on for dealer?. Last three di#its are numeric
codes representin# the num"erP assessee must mention &CC
Eo. in his %nvoice( T56 Challans( &5+ etc.
EXE=TION FRO REISTRATION7
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Eot. Eo. A681--+ >E.T.? dated 16.-6.1--+ #rants the
exemption under the followin# circumstances'
aK %f the #oods are completely and unconditionally exempt
from the duty.
"K %f the #oods are exempt "ased on the value of annual
turnover of 5s. +3- la;hs su"Fect to certain conditions.
>7 simple declaration should "e filed when the turnover
reaches 5s. ,-.-- la;hs.? cK %f the #oods #ot manufactured from others.
dK %f the #oods are manufactured in the Customs :onded
)arehouse >i.e. &U( 9T( ST
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+? >c? can "e levied up to
5s.1(---8 or the amount of duty of contravenin# #oods
whichever is hi#her. %n addition( the #oods can "econfiscated. %mprisonment of minimum 6 months and
maximum 4 years also can "e imposed.
STORAE > ACCOUNTIN OF OODS
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STORAE > ACCOUNTIN OF OODS4&%I%: #7 ;7CT#3Je?'
9actory means any premises( includin# the precinctsthereof( wherein or in any part of which excisa"le #oods other
than salt are manufactured( or wherein or in any part of which
any manufacturin# process connected with the production of
these #oods is "ein# carried on or is ordinarily carried on.!ST#3:& #7 :##0S5
+K =anufactured #oods can "e stored in a factory without
payment of duty.
1K The duty is paya"le only when the #oods are removed
from the factory. AK There is no separate place reIuired to "e earmar;ed
>earlier called as :S5? where the #oods can "e stored.
2K There is no time limit within which the #oods should "e
removed from the factory.
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DAILY STOCK ACCOUNT
a? Under 5ule +- >+?( a $aily Stoc; 7ccount should "emaintained "y every assessee.
"? There is no prescri"ed form of $aily Stoc; 7ccount.
c? $aily Stoc; 7ccount must contain the followin#
particulars
+K $escription of #oods manufactured or produced.
1K penin# "alance
AK uantity manufactured or produced.
2K uantity removed >on payment of duty or without
payment of duty.? 3K 7ssessa"le value of #oods removed
6K $uty 7mount
4K Closin# :alance.
d? $aily Stoc; 7ccount must "e maintained on a daily "asis.
Th ti t " l t d ft th d f th hift >i
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The postin#s must "e completed after the end of the shift >in
case factory is runnin# only in one shift? or "efore the end of
the first shift of the next day >if the factory is runnin# in three
shifts.? e? )hen entry is reIuired to "e made'
7s soon as the #oods are completely manufactured( duly
tested and pac;ed( the entry should "e made in the $S7.
Hence( unless the #oods are in the mar;eta"le sta#e( entryneed not "e made in $S7.
STORAE FOR TRADINThere is no specific 5ule restrictin# the tradin# activity from
the factory. :ut it is advisa"le to inform the &xcise 7uthoritiesa"out the same. $epartment has clarified that tradin# of
identical #oods should not "e done from the factory without
the prior permission of the Commissioner..
STORAE OUTSIDE THE FACTORY7
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STORAE OUTSIDE THE FACTORY75ule 2 >2? of The Central &xcise 5ules(1--1 states that The
Commissioner may allow any assessee to store the
#oods outside the factory without payment of duty su"Fectto certain conditions.
REISSION OF DUTY nce the #oods are manufactured( the duty lia"ility
arises. However( duty can "e waived on the #oods in thefollowin# circumstances
aK %f the #oods are destroyed or dama#ed in the factory
"y natural causes( or "y accident.
"K %f the #oods "ecome unfit for consumption for
mar;etin#(
The remission can "e #iven "y The Superintendent if
the duty is less than 5s.+-(---8( "y the 7ssistant $eputy
Commissioner.
%f the duty is less than 5s.+(--(---8( "y Joint
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Commissioner 8 $eputy Commissioner if the duty is less
than 5s.3(--(---8 and "y the Commissioner if the duty is
more than 5s.3(--(---8
0I77&3&%C& I% 0S %0 /JSICL ST#CK5
%f the #oods are found short as compared to $S7 stoc;(
the duty can "e demanded and if the #oods are found in
excess( the #oods can "e confiscated. %n "oth the cases( the
penalty also can "e levied./&%LTJ 7#3 %#T 4I%TI%I%: 0S5
Under 5ule 13 >+? >"?( the penalty can "e imposed up to
the amount of duty payableon the #oods and the #oods can
"e confiscated.
CLEARANCE OF OODS
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CLEARANCE OF OODS I%2#IC&5
Clearance means removal of #oods from the
factory. 5ule ++ of the Central &xcise 5ules( 1--1 ma;es itcompulsory to prepare an %nvoice when the #oods are to "e
removed from the factory. %t reads as under'
Eo excisa"le #oods shall "e removed from a
factory or a warehouse except under an invoice si#ned "y
the owner of the factory or his authoried a#ent.!
C#%T&%TS #7 T& I%2#IC&5
+K Serial Eum"er
1K 5e#istration Eum"er
AK $escription and Classification of #oods. 2K Time and $ate of 5emoval.
3K uantity and Dalue of the #oods.
6K 5ate of $uty.
4K $uty paya"le on the #oods.
T3&& C#/I&S #7 I%2#IC&5
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T3&& C#/I&S #7 I%2#IC&5
7ccordin# to 5ule ++( three copies of the %nvoice
should "e prepared as follows'
ri#inal Copy "ein# mar;ed as 6#3I:I%L 7#3BUJ&3.!
$uplicate Copy "ein# mar;ed as 60U/LICT& 7#3
T3%S/#3T&3.8
Triplicate Copy "ein# mar;ed as 6T3I/LICT& 7#3
SS&SS&&.8
#%LJ #%& I%2#IC& B##K5
7t any time( only one %nvoice :oo; should "e in use(
unless specially permitted "y the 7ssistant Commissioner.
/3&UT&%TICTI#% #7 I%2#IC&5The owner or the )or;in#
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are exempt from the preauthentication.
%n case of computer #enerated %nvoices( authentication can
"e done after those are printed.
I%TI4TI#% #7 T& S&3IL %U4B&35
:efore ma;in# use of the %nvoice :oo;( the Serial
Eum"ers of the same shall "e intimated to the
Superintendent.
0&L&3
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S&L7 3&4#2L %0 /JSICL C#%T3#L5
7ll #oods( except Ci#arettes( can "e removed "y the
assessee himself. This is ;nown as Self 5emoval
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time of printin# is permitted.
3K 7uthentication can also "e done after the %nvoice is printed
C%C&LLTI#% #7 I%2#IC&5
+K %ntimation of a cancelled %nvoice should "e sent to the
Superintendent on the same date.
1K 7lon# with the intimation( the ori#inal copy of the cancelled
%nvoice also should "e sent to The Superintendent.
AKTriplicate copy of the invoice should "e retained "y theassessee in the %nvoice :oo;.
/3&/3TI#% #7 I%2#IC& W&% :##0S 3&
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0IS/TC&0 T3#U: 4#3& T% #%& 2&ICL&.
a? %n such a case the assessee has to inform to 7ssistant
Commissioner 8 $eputy Commissioner at least 2/ hoursprior to removal of #oods.
"? 7ssistant Commissioner 8 $eputy Commissioner should
verify the details.
c? 7 separate invoice should "e made in case of eachvehicle.
d? =anufacturer will pay the entire duty on the first such
%nvoice >
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f?
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d? 7 pre printed serially num"ered challan duly
authenticated "y the Superintendent should "e used.
e? 7 record of outward and inward movement should "e
maintained.
f? )ei#hment should "e done at the nearest
wei#h"rid#e.
#? Challan Eum"er should "e Iuoted on %nvoice.
I%2#IC& 7#3 C/TI2& C#%SU4/TI#%5 3UL& = (>)
%f the #oods are used within the factory( the date of removal
will "e the date on which the #oods are issued for such use.nly one invoice per day can "e prepared.
SU==LEENTARY INVOICE7
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6ccording to ule &$) &b) of Cenvat Credit ules52++(5 a supplementary invoice s#ould be prepared for t#e
differential duty to be paid in addition to t#e original dutyamount. 0n t#e basis of suc# supplementary invoice5 t#econsignee can avail t#e Cenvat credit.
%t is also provided that in case of fraud( suppression of
facts or willful misstatement( supplementary invoice cannot
"e prepared.
C/T&3 %I%& 5/J4&%T #7 0UTJ
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.- /&3I#0 7#3 /J4&%T #7 0UTJ 59 7ssessees who are not enFoyin# any exemption8
concession have to pay the duty "y 3th of the next month.
7ssessees who are enFoyin# any exemption8concession
have to pay the duty "y +3th of the next month.
.> /J4&%T #7 0UTJ T3#U: C&%2T
C3&0IT'
$uty can "e paid "y utilisin# Cenvat credit "alanceavaila"le with the assessee as on the last date of the
month.Credit on %nputs(Capital *oods as well as %nput
Services can "e utilied to#ether for this purpose.
./J4&%T #7 0UTJ T3#U: /. L.. 59
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+K
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$epartment alon#with the return B one copy has to "e
retained "y the assessee.
6K 9orm of
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9inancial ear.
2K 7ccount Head code has to "e mentioned in *754
Challan e.#.--A/ is the code for Central &xcise
$uty(--22 is the code for Service Tax etc.
3K
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if the cheIue #ets "ounced(then it will "e considered as
nonpayment of duty B penalty B interest will also "e
paya"le.
.= I%T&3&ST 7#3 %#%9/J4&%T #3 0&LJ&0/J4&%T #7 0UTJ 59
5ule />A?of The Central &xcise 5ules( 1--1 provides
that in case the duty is not paid in time ( interest will "e
levied at the prescri"ed rate > at present the rate is +A0p.a.?
5ule/>A7? of the said 5ules provides that if the delay is
more than A- days( then the assessee loses the "enefit of
monthly payment of duty as well as of utilisation of Cenvat
Credit till the date he pays the outstandin# duty includin#interest.%t means he will have to
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E E ED E-.- '/&3I#0IC 3&TU3%S59
5ule +1 of The Central &xcise 5ules( 1--1 provides that
every assessee has to su"mit a monthly return called &5+ "y+-th of the next month.
S.S.% units have to file a Iuarterly return called &5A "y
1-th of the month succeedin# the Iuarter.
5eturns should "e su"mitted to The 5an#e Superintendent 5eturns should "e su"mitted in Iuintuplicate >3 copies?.
There is a prescri"ed form of &5+. The contents are
follows'
7K $etails of the manufacture( clearance B duty paya"le
+? Chapter Headin# Eo. 1? Unit of uantity
A? uantity =anufactured
2? uantity cleared
3? 7ssessa"le Dalue
6? $uty
4? Eotification availed
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4? Eotification availed
/? 5ate of duty
,? $uty
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+? 7rrears of duty
1? %nterest
A? =iscellaneous
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RETURNS
+K 7ny record8return can "e maintained8prepared on
computer.
1K Eo specific permission is reIuired.
AK 5ecords can "e ;ept on any electronic media e.#.
floppies( hard discs( C$Gs( etc.
2K The print outs of records B documents must "e ta;enout at the end of the month B ;ept in "ound "oo;s( folders.
3K
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7K There are two procedures of &xport' +? &xport without payment of duty.
1? &xport under 5e"ate >refund?.
:K The #oods have to "e cleared under an %nvoice. %n addition
to %nvoice( a prescri"ed form 7.5.&+ has to "e prepared "y
the &xporter.
CK Copies of 7.5.&+ are as follows'
+? ri#inal )hite 1? $uplicate :uff
A? Triplicate ptional?
$K $istri"ution of 75&+ 9orms'
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%f the consi#nment is cleared under the supervision of
&xcise Superintendent( he will ma;e endorsement on all the
copies of 75&+. He will return the ori#inal B duplicatecopies to the exporter. Third copy will "e sent to the officer
with whom the letter of underta;in#8:ond is su"mitted.
uadruplicate copy will "e retained "y the Superintendent.
7t the time of export( ori#inal( duplicateB Iuadruplicate
>optional? copy will "e su"mitted to the Customs fficer
alon# with the #oods. These will "e examined B the export
will "e allowed. He will ma;e endorsement on all copies of
7.5.&+. The duplicate copy will "e returned to the exporter.
%n case of selfcertification( ori#inal( duplicate BIuintuplicate copies of 7.5.&+ will "e directly sent to the
customs authorities alon# with the #oods.
Triplicate B Iuadruplicate copies will "e su"mitted to theS 1 f f
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Superintendent within 12 Hours after clearance of #oods.
He will endorse "oth the copies B hard cover triplicate
copy to the exporter in a sealed cover to "e su"mitted tothe customs authorities.
&K CT+ Certificate '
This is reIuired only when :ond is executed "y=erchant &xporter. He can o"tain CT+ certificate in lot of13.
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The manufacturerexporter can furnish a letter of
underta;in# in 9orm UT+.H& need not execute any
"ond.UT+ is valid for a period of +1 calendar months. Themanufacturer exporter is reIuired to su"mit the proof of
export. The merchant exporter has to execute :+ :ond
eIuivalent to the duty amount B he has to furnish a :an;
*uarantee eIuivalent to 130 of the :ond amount.
*K&xport must ta;e place within six months from the dateof removal of #oods from the factory.
HK &xport under re"ate claim'
7s mentioned earlier( the #oods can "e exported first onpayment of duty B then claimin# the re"ate of duty paid. The
re"ate is not availa"le for the export made to Eepal B
:hutan. The re"ate claim can "e filed with the =aritimeCommissioner or with The 7ssistant Commissioner with
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Commissioner or with The 7ssistant Commissioner withwhom the Letter of Underta;in#8:ond is su"mitted. Theclaim has to "e filed within one year from the date of export.
7lon# with re"ate claim( all the documents li;e 75&+(%nvoice(:ill of Ladin#( Shippin# :ill etc. are to "e enclosed.5e"ate is also availa"le of the duty paid on inputs used inmanufacture of export #oods.
-.+ 59 3&TU3% #7 0UTJ /I0 :##0S T# 7CT#3J'
+K $uty paid #oods can "e "rou#ht "ac; to the factory asper the provisions of 5ule +6 of The Central &xcise 5ules(1--1.
1K The #oods can "e received for repairs( reconditionin#(rema;in#( testin# or for any other purpose.
AK 7s soon as the #oods are received( the entry should "emade in a separate re#ister recordin# the details li;e thedescription of #oods( Iuantity( from whom the #oods arereceived etc.
2K The #oods must accompany the duty payin# document
li;e %nvoice on the "asis of which the assessee can avail
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li;e %nvoice on the "asis of which the assessee can avail
Cenvat credit as if they are inputs.
3K %f the process is only repairin#( reconditionin#( testin#etc.( the Cenvat credit has to "e reversed at the time of
removin# the #oods from the factory after processin#.
6K %f the process amounts to manufacture( the assessee
has to pay the duty on the value of the #oods as per theprovisions of Section 2.
4K )hen the #oods are removed from the factory( the
suita"le entries are to "e made in the re#ister.
/K %f the a"ove procedure cannot "e followed( then a specialpermission is reIuired from the Commissioner of Central
&xcise B Customs.
-.= 59 H#B9W#3K 59
+K $ fi iti f J " ; E t E 1+28/6 dt 13 A +,/6
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+K $efinition of Jo"wor;''Eot.Eo.1+28/6 dt.13A+,/6defines Fo"wor; as processin# or wor;in# upon of rawmaterial or semifinished #oods supplied to Fo"wor;er soas to complete a part or whole of the process resultin# inthe manufacture or finishin# of an article or any operationwhich is essential for the aforesaid process.
1K Jo" wor;er will "e exempt from the payment of duty only
when the conditions under Eot.Eo.1+28/6 are followed.therwise Fo"wor;er will "e considered as a manufacturerB will "e lia"le to pay the duty.
AK Under Eot.Eo.1+28/6( followin# procedure is to followed
aK 5aw material supplier has to #ive an underta;in# to
the &xcise $epartment that he will "e responsi"le for
any duty lia"ility re#ardin# the #oods manufactured on
Fo"wor;.
"K He has to send the material on a separate Challan.
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Challan should "e in triplicate. Two copies should "e
sent alon# with the material. Jo"wor;er will have to
return the #oods after Fo"wor; is complete on the
duplicate copy of the Challan.
cK 7 separate 5e#ister should "e maintained "y "oth i.e.
the supplier of the material B the Fo"wor;er in which the entries are to "e made a"out the movement of
material.
2K The #oods must "e returned within +/- days from the
date of removal of material. 3K %n case the supplier of the material has ta;en any Cenvat
Credit on the material( there is no need of reversin# the
credit provided the #oods are returned within +/- days. %f
the #oods are not returned( then he has to reverse the credit.He is entitled to ta;e credit a#ain when the #oods are
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He is entitled to ta;e credit a#ain when the #oods arereceived in the factory.
6K %f the procedure under Eot.Eo.1+28/6 is not followed(
then the Fo" wor;er is considered as a manufacturer B hewill have to pay the duty on the assessa"le value which will"e calculated on the "asis of Transaction Dalue i.e.the priceat which the #oods are sold "y the principal manufacturer tohis customer.
4K nly "y supplyin# the material( the supplier does not"ecome a manufacturer. His lia"ility arises only when theunderta;in# is #iven "y him under Eot.Eo.1+28/6.
/K Use of own material "y the Fo"wor;er is no "ar under
Central &xcise Law. ,K =aterial can "e directly sent to Fo"wor;er from the
supplier of the manufacturer B the #oods after Fo"wor; alsocan "e directly sent to the customer from the Fo"wor;erGspremises.
C/T&3 -- C&%2T
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C/T&3 -- 5 C&%2T
--.- 5 Background of C&%2T
C&ED7T >Central Dalue 7dded Tax? has its
ori#in in D7T >Dalue 7dded Tax? which is common in other
parts of the world for a lon# time. %n %ndia( it was firstintroduced with the name of =$D7T >=odified Dalue 7dded
Tax? in +,/6. %n the modern production methodolo#y( raw
material passes throu#h various processes till it reaches
finally to the ultimate user. 7t every sta#e( a new commodityemer#es which attracts various taxes li;e Central &xcise
$uty( Sales Tax etc. This results in tax on tax which is called
Ncascadin# effectG.
ne of the "asic principles of taxation is that tax should not
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"e char#ed on tax and to avoid this cascadin# effect(
=$D7T Scheme >now ;nown as Cenvat Scheme? was
introduced. Cenvat Credit 5ules were introduced for the firsttime on -+.-A.1--- which were revised in 1--+ and 1--1.7t
present Cenvat Credit 5ules( 1--2 are in force. :roadly(
under this scheme( duty paid on inputs B capital #oods B
service tax paid on input service can "e utilied for payment
of &xcise $uty on finished products or for payment of
Service Tax on output service.
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--.>5 3ule %o. -5 Short Title" &xtent nd
Co$$ence$ent59 7K These 5ules are called as Cenvat Credit 5ules(1--2.
:K These are applica"le to the whole of %ndia "ut
nothin# contained in these 5ules relatin# to
availment B utiliation of credit of Service
Tax apply to the State of Jammu B @ashmir.
CK These 5ules came into force with effect from +-th day of Sept. 1--2.
--.5 3ule %o. >5 0efinitions59a) Capital :oods $eans
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a) Capital :oods $eans9
7K The followin# #oods namely
+K 7ll #oods fallin# under Chapter /1( /2(/3( ,-( Headin# Eo. 6/-3(#rindin# wheels B
the li;e B parts thereof fallin# under
C.H.Eo.6/-2.
1K i? B >ii? a"ove.
2K =oulds and $ies( Fi#s B fixtures.
3K 5efractories and refractory material. 6K Tu"es and pipes and fittin#s thereof B
4K Stora#e tan;.
used
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i? in the factory of the manufacturer of the final
products( "ut does not include any eIuipment or appliance
used in an office or
ii? for providin# output service.
:K =otor vehicles re#istered in the name of the provider of
output service for providin# specified taxa"le services.
) 7inal /roducts 59
9inal products means excisa"le #oodsmanufactured or produced from inputs or usin#
input services.
c) 7irst Stage 0ealer9
9irst Sta#e $ealer means a dealer who purchases the
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9irst Sta#e $ealer means a dealer who purchases the
#oods directly from the manufacturer or from the depot of
the manufacturer or from the consi#nment a#ent of the
manufacturer under cover of an %nvoice or from an importer
or from the consi#nment a#ent of the importer under cover
of an %nvoice.
d) Second Stage 0ealer 9
Second Stora#e $ealer means a dealer who purchases
the #oods from the 9irst Stora#e $ealer.
e) Inputs 9
i? N%nputsG means all #oods except li#ht diesel oil Hi#h
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i? %nputs means all #oods( except li#ht diesel oil( Hi#hSpeed $iesel il B motor spirit >petrol?( used in or in relationto the manufacture of the final products whether directly or
indirectly B whether contained in the final product or not andincludes lu"ricatin# oils( #reases( cuttin# oils( coolants(accessories of the final product cleared alon# with the finalproduct( #oods used as paints( pac;in# material or as fuelsor for #eneration of electricity or steam used formanufacture of final products or for any other purpose(within the factory of production.
%i? 7ll #oods except L$( HS$( =otor spirit B motorvehicles used for providin# any output service.
&xplanation'%nputs include #oods used in the manufacture of capital
#oods which are further used in the factory of production.
f) Input Ser,ice 59
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%t means any service a? used "y a provider of taxa"le service
for providin# an output service.
"? used "y the manufacturer( whether
directly or indirectly( in or in relation to
the manufacture of final products B clearance of final products upto the place
of removal(
and includes services used in relation to
settin# up( moderniation( renovation or repairs of a factory( premises of the
provider of the output services or an
office relatin# to such factory or premises(
ad ertisement or sales promotion mar;et research
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advertisement or sales promotion( mar;et research(
stora#e upto the place of removal( procurement of inputs(
activities relatin# to "usiness( such as accountin#( auditin#(financin#( recruitment B Iuality control( coachin# Btrainin#(
computer networ;in#( credit ratin#( share re#istry( and
security( inward transportation of inputs or capital #oods B
outward transportation upto the place of removal.g) Input Ser,ice 0istriutor 59
%t means an office of the manufacturer or producer of thefinal products or provider of output service( which receives
invoices issued under 5ule 2 7 of Service Tax 5ules( +,,2towards purchases of input services B issues invoice
"ill or as the case may "e a challan for the purposes of
distri"utin# the credit of service tax paid on the said
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distri"utin# the credit of service tax paid on the said
services to such manufacturer or producer or provider of(
as the case may "e.
h) #utput Ser,ice 59
%t means any taxa"le service provided "y the provider of
taxa"le service to a customer( client( su"scri"er( policy
holder or any other person( as the case may "e.
I) Ho 'ork 59
%t means processin# or wor;in# upon of raw material or
semifinished #oods supplied to the Fo" wor;er( so as to
complete a part or whole of the process resultin# in the
manufacture or finishin# of an article or any operation which
is essential for aforesaid process.
--.+5 3ule %o. 5 C&%2T C3&0IT59
7 f t f th fi l d t i id h ll
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7 manufacturer of the final products or service provider shall
"e allowed to ta;e credit of
a? :asic &xcise $uty as specified in 9irst Schedule. "? 7dditional $uty of Customs >C.D.$.?
c? 7dditional $uty of &xcise levia"le under 7dditional
$uties of &xcise >*oods f Special %mportance ?7ct(
+,34 B 7dditional $uties of &xcise> Textile B Textile
7rticles? 7ct(+,4/.
d?7dditional duty of Customs levia"le under su"section
>3? of Section A of Customs Tariff 7cte? Eational Calamity Contin#ent $uty.
f? Service Tax.
#? &ducation Cess on &xcisa"le *oods B Taxa"le
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#? &ducation Cess on &xcisa"le *oods B Taxa"leServices
h? Secondary B Hi#her &ducation Cess on &xcise $utyB Service Tax
paid on i? any input or capital #oods received in thefactory of the manufacturer of the final products orpremises of the provider of output Services(
ii? any input service received "y themanufacturer of final products or "y the provider ofoutput services
1? Cenvat credit shall "e availa"le to the manufacturer
of the final products or to the service provider( on theinputs lyin# in stoc; or in process or contained in thefinished #oods stoc; on the date on which the finalproducts "ecome excisa"le or output services"ecome taxa"le.
A? Cenvat credit can "e utilied for payment of
a? Central &xcise $uty on any final product(
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a? Central &xcise $uty on any final product(
"? Service tax on any output service(
c? 7ny amount eIual to Cenvat Credit ta;en on %nputsor Capital *oods themselves if such inputs are
removed as such or after "ein# partially processed
or such Capital *oods are removed as such.
d? 7ny amount paya"le under 5ule +6>1? of Central
&xcise 5ules( 1--1.
2? Cenvat Credit shall "e utilied only to the extent such
credit is availa"le on the last day of the month8Iuarter
for payment of duty or tax in relation to that
month8Iuarter.
3?)hen the inputs or Capital *oods( on which CenvatCredit has "een ta;en are removed as such from the
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Credit has "een ta;en( are removed as such from thefactory( the manufacturer shall pay an amount eIual tothe credit availed on such inputs or capital #oods andsuch removal shall "e made under cover of an %nvoice.Such payment shall not "e reIuired to "e made whereany inputs are removed outside the premises of theservice provider for providin# output service. Suchpayment shall also not to "e made in case of Capital*oods are removed from the premises of the serviceprovider.
6? %f the Capital *oods on which Cenvat Credit has "eenta;en( are removed after "ein# used( the manufacturer or
the service provider shall pay an amount eIual to theCenvat Credit ta;en on the said Capital *oods reduced"y 1.30 of each Iuarter of a year or part thereof from thedate of ta;in# Cenvat Credit.
4? %f the Capital *oods are cleared as waste B scrap( the
manufacturer shall pay an amount eIual to the duty
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manufacturer shall pay an amount eIual to the duty
levia"le on transaction value.
/? The amount paid as mentioned a"ove shall "e eli#i"le
for ta;in# Cenvat credit as if the person payin# such
amount has paid the duty.
,? %f the value of any input or capital #oods "efore "ein#
put to use on which Cenvat Credit has "een ta;en is
written off or where any provision to write off fully has "een made in the "oo;s of account( then the
manufacturer shall pay an amount eIuivalent to
Cenvat Credit ta;en in respect of said inputs or capital
#oods. :ut if said inputs or capital #oods are su"seIuently used in the manufacture of final products(
the manufacturer shall "e entitled to ta;e the credit paid
earlier.
+-? )here on any #oods ( the payment of duty is ordered
to "e remitted under 5ule 1+ of Central &xcise 5ules(
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to "e remitted under 5ule 1+ of Central &xcise 5ules(
1--1( the Cenvat Credit ta;en on the inputs used in
the manufacture of such #oods should "e reversed.++? Cenvat Credit on the %nputs or Capital *oods
manufactured in +--0 &U( HT< B ST< can "e
ta;en as per the formula prescri"ed in the 5ules.
+1? Cenvat Credit in respect of 7dditional $uties of &xcise B Eational Calamity Contin#ent $uty can "e
utilied only towards payment of 7dditional $uty of
&xcise or Eational Calamity Contin#ent $uty.
+A? Credit of &ducation Cess B Secondary B Hi#her &ducation Cess can "e utilied only for the payment
of &ducation Cess B Secondary B Hi#her &ducation
Cess respectively.
3ule %o.+ 59Conditions 7or llo'ing Cen,at
Credit59
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Credit5 +K Cenvat Credit in respect of %nputs may "e ta;en
immediately on receipt of the inputs in the factory. 1K Cenvat Credit in respect of Capital *oods may "e ta;en
to the extent of 3-0 in the financial year in which the
Capital *oods are received.:ut credit of 7dditional $uty
levied under su"section>3? of Section A of Customs Tariff 7ct in respect of Capital *oods can "e ta;en in full
immediately after the receipt of Capital *oods in the
factory.
AK The "alance amount of credit may "e ta;en in any financial year provided the capital #oods are in the
possession and use of the manufacturer.
This condition is not applica"le to components( spares(
accessories( refractories and refractory materials( tools B
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( y (
dies.
2K )hole amount of Cenvat Credit on Capital *oods isavaila"le if the Capital *oods are removed in the same
financial year in which they are received in the factory.
3K Cenvat Credit in respect of Capital *oods shall "e
allowed even if the Capital *oods are acIuired on lease(hire purchase or loan a#reement from a financin#
company. 6K Cenvat Credit in respect of Capital *oods shall not "e
allowed to the extent of amount claimed as depreciationunder Section A1 of the %ncome Tax 7ct( +,6+.
4K %nputs or Capital *oods can "e sent outside to a Fo"wor;er for processin#( testin#( repairin#( reconditionin# or
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p # # p # #for any other purpose. Such inputs or Capital *oods must"e returned within +/- days from the date of removal from
the factory. %f they are not received "ac; within +/- days(manufacturer has to de"it the amount eIuivalent to theCenvat Credit on such inputs or Capital *oods. He canavail the credit when the inputs or the capital #oods arereceived in the factory.
/K Ji#s( 9ixtures( =oulds and $ies can "e sent out for ta;in#out production of #oods from a Fo"wor;er.
,K9inal products can "e cleared directly from the premisesof the Fo"wor;er provided a prior permission is ta;en fromThe Commissioner of Central &xcise B Customs.Suchpermission shall "e valid for a period of one year.
+-K Cenvat credit in respect of input service shall "e allowed
on after the day on which payment is made of the value ofthe input service B he service tax as indicated in %nvoice("ill or challan.
--.@59 3ule = 5 3&7U%0 #7 C&%2T C3&0IT5
+K Cenvat credit availed on inputs used in the manufacture of
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+K Cenvat credit availed on inputs used in the manufacture of
#oods which are cleared for export under :ond or a letter
of underta;in# can "e utilied towards payment of duty onthe #oods cleared for the home consumption or towards
payment of service tax on output service.
1K Cenvat credit availed on inputs used in the intermediate
products cleared for exports also can "e utilied towards
payment of duty on the #oods cleared for the home
consumption or towards payment of Service Tax on output
service.
AK %n case such adFustment is not possi"le( the manufacturer
can claim refund of such Cenvat credit.
2K Eo such refund is permissi"le in case the manufacturer
avails duty draw"ac; "enefit or claims re"ate of duty or
service tax.
--.? 59 3ule @5 C#44#% I%/UTSI%/UT
S&32IC&S59
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S&32IC&S59 +K Cenvat credit shall not "e allowed on such inputs which
are used in the manufacture of exempted #oods or forprovision of exempted output services( except in thefollowin# circumstances.
1K )here the manufacturer avails Cenvat Credit on inputsor input services which are used in the manufacture of
dutia"le as well as exempted final #oods or exemptedoutput services( then the receipt( consumption and inventoryof inputs or input services meant for use in the in themanufacture of dutia"le final products8taxa"le outputservices and the exempted #oods8output services and shallta;e Cenvat credit only on the Iuantity of inputs 8inputservices which are intended for use in the manufacture ofdutia"le #oods or taxa"le output services.
AK The manufacturer( optin# not to maintain separate
account shall follow either of the followin# options
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account shall follow either of the followin# options
a? the manufacturer shall pay an amount eIual to 30
of the total value of exempted #oods B the provider ofoutput service shall pay an amount eIual to 60 of
value of the exempted service or
"? the manufacturer of #oods or provider of service
shall pay an amount eIuivalent to the Cenvat Creditattri"uta"le to inputs B input services used in( or in
relation to ( the manufacture of exempted #oods or for
provision of exempted services su"Fect to the
conditions B procedure specified in Su" 5ule A>7? of
this 5ule.
2K Eo Cenvat Credit shall "e allowed on the Capital *oodswhich are exclusively used in the manufacture of
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exempted #oods or for providin# exempted service( otherthan those #oods which are exempted "ased on the value
or Iuantity of the clearances made in a financial year. 3K The a"ove provisions are not applica"le to the
exempted #oods if they are a?Cleared to a unit in +--0 &..U( S&( ST
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0IST3IBUT#3 59
The %nput Service $istri"utor may distri"ute the CenvatCredit su"Fect to the followin# conditions
a? the credit distri"uted a#ainst a document does not
exceed the amount of service tax paid thereon(
"? credit of service tax attri"uta"le to service used in a
unit exclusively en#a#ed in manufacture of exempted #oods or providin# exempted service
shall not "e distri"uted.
--. 59 3ule ? 590IST3IBUTI#% #7 C3&0IT #% I%/UTS
BJ T& #77IC& #3 %J #T&3 /3&4IS&S #7
#UT/UT S&32IC& /3#2I0&3 597 service provider shall "e allowed to ta;e credit on
inputs B capital #oods received ( on the "asis of an invoiceor a "ill or a challan issued "y an office or premises of thesaid provider.
--.-593ule *59 ST#3:& #7 I%/UTS #UTSI0&T& 7CT#3J5
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T& 7CT#3J5
The $eputy Commissioner87ssistant Commissioner may( in
exceptional circumstances( allow the manufacturer to storethe inputs on which Cenvat Credit has "een ta;en( outside
the factory premises if there is shorta#e of space.
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+K Cenvat Credit can "e ta;en on the "asis of any of the
followin# documents
a? 7n %nvoice issued "y i? 7 manufacturer from his factory or from his depotor from the place of his consi#nment a#ent.
ii? 7n importer from his depot or his consi#nment
a#ent. iii? 7 first sta#e dealer or a second sta#e dealer.
"? 7 supplementary invoice issued "y a manufacturer
or importer( in case additional duty has to "e paid
except in cases where the duty is paya"le on account of fraud( collusion or misstatement or
suppression of facts or contraventions of any
provisions of 7cts or 5ules.
c? 7 "ill of entry.
d? 7 certificate issued "y an appraiser of customs in
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? y pp
respect of #oods imported throu#h a 9orei#n
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all the particulars reIuired to "e contained if such
documents contains details of payments of duty(
description of the #oods( assessa"le value and address
of the factory or warehouse.
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and capital #oods containin# the information re#ardin#
the value( duty paid( the person from whom the inputs or
Capital *oods have "een procured and the "urden of
proof re#ardin# the admissi"ility of Cenvat Credit shall lie
upon the manufacturer ta;in# such credit.
3K The manufacturer or service provider shall maintain
proper records containin# the a"ovementionedinformation in case of input services also on which credit
has "een availed.
6K The manufacturer shall su"mit within ten days from the
close of each month to the Superintendent a monthlyreturn in the prescri"ed form. SS% unit shall file a Iuarterly
return within 1- days from the close of the Iuarter.
4K 9irst Sta#e 8Second Sta#e $ealer shall su"mit a return inthe specified form within +3 days from the end of theI arter
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Iuarter.
/? Service provider shall su"mit a return in the specified
form within 13 days from the end of the half year.
,? %nput Service $istri"utor shall su"mit a half yearlystatement #ivin# the details of credit received Bdistri"uted durin# the half year within 13 days from the
end of half year.--.-> 59 3ule 59 I%7#34TI#% 3<I%: T#
/3I%CI/L I%/UTS
7 manufacturer shall furnish to the Superintendent(
annually "y A-th 7pril of each financial year( a declarationin the prescri"ed form(in respect of each of the excisa"le#oods manufactured ( the information a"out Iuantity ofprincipal inputs reIuired for use in the manufacture of unit
Iuantity of each final product.
He shall also su"mit the information within +- days of each
month( a"out the receipt B consumption of each principal
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input. 7t present( the manufacturers who are payin# the
duty more than 5s.+ Crore p.a. from
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are also transferred alon# with the factory to the new siteor ownership.
AK Similarly( the credit of Service Tax also shall "etransferred in the a"ovementioned circumstances.
--.-+ 593UL& --5 T3%SITI#%L /3#2ISI#%59 7 manufacturer who opts for SS% exemption and who has
"een ta;in# Cenvat Credit on inputs "efore such option isexercised( shall pay an amount eIuivalent to the CenvatCredit allowed to him in respect of inputs lyin# in stoc; orin process or contained in final products lyin# in stoc; onthe date when such option is exercised and if any "alance
is left shall lapse. Similar provisions apply to the service provider.
--.-= 59 3ule -> 59 S/&CIL 0IS/&%STI#% I% 3&S/&CT
#7 I%/UTS 4%U7CU3&0 I% 7CT#3I&S L#CT&0
I% S/&CIL 3&S #7 %#3T &ST 3&:I#%S KUTC
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