CHAPTER I

AN OVERVIEW OF CENTRAL EXCISE

Brief history and developments 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
(No.1)underSeventhschedulereadwithArticle246oftheConstitutionofIndia.
TheCentralExcisedutyisleviedintermsofCentralExciseAct,1944andtheratesofduty,
advaloremorspecific,areprescribedundertheScheduleIandIIoftheCentralExciseTariff
Act, 1985. The taxable even 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
OfficersarealsoentrustedtocollectothertypesofdutiesleviedunderAdditionalDutiesof
Excise(GoodsofSpecialImportant)Act,AdditionalDutiesofExcise(TextilesandTextile
Articles)Act,Cessetc.
Till1969,therewasphysicalcontrolsystemwhereineachclearanceofmanufacturedgoods
fromthefactorywasdoneunderthesupervisionoftheCentralExciseOfficers.Introduction
ofSelf-Removalprocedurewasawatershedintheexciseprocedures.In1969,theassessees
wereallowedtoquantifythedutyonthebasisofapprovedclassificationlistandthepricelist
andclearthegoodsonpaymentofappropriateduty.
In1994,thegatepasssystemgavewaytotheinvoice-basedsystem,andallclearancesare
effected on manufacturer's own invoice. Another major change was brought about in 1996,
whentheSelf-Assessmentsystemwasintroduced.Thissystemiscontinuingtodayalso.The
assesseehimselfassesseshisTaxReturnandtheDepartmentscrutinizesitorconductsaudit
toascertaincorrectnessofthedutypayment.Eventheclassificationandvalueofthegoods

weretobemerelydeclaredbytheassesseeinsteadofobtainingapprovalofthesamefromthe
Department.
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
ScaleIndustries.
In 2001, new Central Excise (No.23) Rules, 2001 have replaced the Central Excise Rules,
1944witheffectfrom1stJuly,2001.Otherruleshavealsobeennotifiednamely,CENVAT
Credit Rules, 2001, Central Excise Appeals rules, 2001 etc. With the introduction of the
new rules several changes have been effected in the procedures. The new procedures are
simplified.Therearelessnumbersofrules,only33ascomparedto234earlier.Classification
declarationandPricedeclarationshavealsobeendispensedwith,theCENVATdeclaration
havingbeenearlierdispensedwithin2000itself.
Administration of Central Excise TheCentralExciselawisadministeredbytheCentralBoardofExciseandCustoms(CBEC
or Board) through its field offices, the Central Excise Commissionerates. For this purpose,
the country is divided into 23 Zones and a Chief Commissioner of Central Excise heads
each Zone. There are total 92 Commissionerates in these Zones headed by Commissioners
ofCentralExcise.DivisionsandRangesarethesubsequentformations,headedbyDeputy/
Assistant Commissioners of Central Excise and Superintendents of Central Excise,
respectively.
For enforcing the Central Excise law and collection of Central Excise duty the following
typesofproceduresarebeingfollowedbytheCentralExciseDepartmenta)PhysicalControl-Applicabletocigarettesonly.Hereassessmentprecedesclearance
whichtakesplaceunderthesupervisionofCentralExciseofficers;

b)Self-RemovalProcedure-Applicabletoallothergoodsproducedormanufactured
within the country. Under this system, the assessee himself determines the duty
liabilityonthegoodsandclearsthegoods.

CHAPTER II

1.

CONSTITUTIONAL BACKGROUND

Central Excise is a duty on excisable goods manufactured or produced in India, other than
alcoholic liquor. But liability is principally on manufacturer, except in a few cases. In
majorityofcases,dutyratew.e.f.24.2.09is10%pluseducationcessof2%andSecondary
and Higher Education Cess of 1%. Thus, generally, duty is 10.30%. There are some
exclusions,partialorfullexemptionsandhigherdutiesinsomecases.AsperAppendixIV
ofCETA,therateofadditionaldutyonGoodsofspecialImportanceis8%inmajorityofthe
cases.(Section3(1)ofTheAdditionalDutiesofExcise(GoodsofSpecialImportance)Act,
1957.
PowerofTaxationunderConstitutionofIndiaisasfollows:

(a) The Central Government gets tax revenue from Income-tax (except on Agricultural
Income),Excise(exceptonalcoholicdrinks)andCustoms.
(b)TheStateGovernmentsgettaxrevenuefromsalestax,excisefromliquorandalcoholic
drinks,taxonagriculturalincome.
(c)TheLocalSelfGovernmentse.g.municipalities,etc.gettaxrevenuefromentrytaxand
housepropertytax.
Article265providesthatnotaxshallbeleviedorcollectedexceptbyauthorityofLaw.The
authorityforlevyofvarioustaxes,asdiscussedabove,hasbeenprovidedforunderArticle
246andthesubjectmattersenumeratedunderthethreelistssetoutintheSchedule-VIItothe
Constitution.
CentralGovernmentandStateGovernmentcanmakelaws.
LawsRelatingtoCentralExcise
CentralExciseAct,1944(CEA):ThebasicActwhichprovidestheconstitutionalpowerfor
chargingofduty,valuation,powersofofficers,provisionsofarrests,penalty,etc.
Central Excise Tariff Act, 1985 (CETA) : This classifies the goods under 96 chapters with
specificcodesassigned.
Central Excise Rules, 2002 : The procedural aspects are laid herein. The rules are
implementedafterissueofnotification.
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 : The
provisionsregardingthevaluationofexcisablegoodsarelaiddowninthisrule.
Cenvat Credit Rules, 2004 : The provisions relating to Cenvat Credit available and its
utilisationismentioned.
2.

Nature of Excise Duty

PowertolevyexcisedutyisderivedfromConstitution.Exciseisadutyonexcisablegoods
manufactured or produced in India. Each word of this definition is vitally important to fix
liabilityofCentralExciseDuty.
Indian Constitution has given powers to Central Govt. and State Govt. to levy various
taxesandduties.PowersofCentralandStateGovt.areenlistedinSeventhScheduletoour
Constitution.EntryNo.84oflistIofSeventhScheduletotheConstitutionreadsasfollows:
Duties of excise on tobacco and other goods manufactured or produced in India, except
alcoholicliquorsforhumanconsumption,opium,narcotics,butincludingmedicalandtoilet
preparationscontainingalcohol,opiumornarcotics.
In addition, in some cases, duty is imposed on 'deemed manufacture' also. Hence, central
excisedutyispresentlyleviedunderentry84and97.
Powertoimposeexciseonalcoholicliquors,opiumandnarcoticsisgrantedtoStatesunder
entryNo.51oflistIIofSeventhScheduletotheConstitutionanditiscalledStateExcise.
TheAct,RulesandratesforexciseonliquoraredifferentforeachState(thisisthereason
whypriceofliquorvarieswidelyfromGoatoMPtoPunjab.InsomeStates,itisofficially
notavailable.).
BASIC CONDITIONS OF EXCISE LIABILITY - Section 3 of Central Excise Act (
oftencalledtheChargingSection)statesthatThereshallbeleviedandcollectedinsuch
manner as may be prescribed duties on all excisable goods (excluding goods produced or
manufacturedinspecialeconomiczones)whichareproducedormanufacturedinIndia-
Basicexcisedutyisleviedundersec3ofcentralexciseactatratesspecifiedinfirstschedule
tocentralexcisetariffact,1985.
ThisdefinitionofchargingsectionofCentralExciseisvital,becauseitclearlysignifiesthat
therearefourbasicconditionsforlevyofCentralExciseduty.

(1)Thedutyisongoods.
(2)Thegoodsmustbeexcisable.
(3)Thegoodsmustbemanufacturedorproduced
(4)SuchmanufactureorproductionmustbeinIndia.
Unless all of these conditions are satisfied, Central Excise Duty cannot be levied.
Manufactureofexcisablegoodsinindiaisataxableevent
Goods manufactured in SEZ are excluded excisable goods A per section 3(1) of CE Act,

dutyisleviableonallexcisablegoods(excludinggoodsmanufacturedorproducedinSpecial
Economic Zones). Thus, goods manufactured or produced in SEZ are excisable goods
but no duty is leviable, as charging section 3(1) excludes those goods. Thus, the goods
manufacturedinSEZarenotexemptedgoods.Theycanbetermedasexcludedexcisable
goods
Ownership of raw material is not relevant for duty liability sales tax is leviable on sales,
whether actual or deemed, while excise duty is a levy on taxable event of manufacture.
Liability under excise law is event based and irrespective if whther the goods are sold or
captivelyconsumed.excisedutyisnotconcernedwithownershiporsale.
No exemptionto goods manufactured in J&K- services provided in J&K are exempt from
servicetax.However,excisedutyispayableongoodsmanufacturedinJ&Kasprovisionsof
exciselawhavebeenextendedtoJ&K.
Person liable to pay excise duty -Oncedutyliabilityisfixed,thedutycanbecollectedfrom
apersonatthetimeandplacefoundadministrativelymostconvenientforcollection.
The Duty liability in case of manufactured goods -Rule4(1)ofCentralExciseRulesmakes

it clear that excise duty is payable by the manufacturer or producer of excisable goods. In

casewheregoodsareallowedtobestoredinawarehousewithoutpaymentofduty,theduty
liability is of the person who stores the goods. Rule 4(1) makes it clear that goods can be
removed from the place where they are manufactured or produced or warehoused, only on
paymentofduty.
Ownership of raw material is not relevant for duty liability. Duty demand is payable by
manufacturer,evenifitcannotberecoveredfromcustomer.
Duty liability in case of goods stored in warehouse-Rule20ofCERulespermitwarehousing

ofcertaingoodsinwarehouseswithoutpaymentofduty.Thesegoodsarecoffee,petroleum
products,benzene,toluneetc.Insuchcases,thedutyliabilityisonthepersonwhostoresthe
goods.
Duty liability in case of molasses produced in khandsari sugar factory-Theotherexceptionis

incaseofmolassesproducedinakhandsarisugarfactory,thedutyliabilityisoftheprocurer
(i.e.purchaser)ofsuchmolasses.Thedutyispayableonthedateofreceiptofsuchmolasses
in the factory of procurer. The duty on molasses produced in khandsari sugar factory is
payable only when the procurer procures the molasses for use in the manufacture of any
commodity.Suchcommoditymayormaynotbeexcisable.
Duty liability in case of job work - Even in case of job work, the duty liability is of actual

manufacturer and not of the raw material supplier. However, a job worker manufacturing
goodsundernotificationNo214/86isexemptfromexciseduty,astherawmaterialsupplier
undertakes that he will use these goods further to manufacture final product or clear for
exportorpaydutyonsuchgoods.[Theonlyexceptionisincaseoftextilearticles].
RATE OF DUTY AS APPLICABLE ON DATE OF REMOVAL RELEVANT-Though
taxableeventis'manufacture',dutypayableisasapplicableondateofremovali.e.clearance
fromfactory.

STATE OF GOODS AT THE TIME OF REMOVAL IS RELEVANT - Goods have

to be classified and valued in the state in which goods are removed from the factory. Any
furtherprocessingdoneafterremovalisnotrelevant.
DUTY PAYABLE EVEN WHEN NOT COLLECTED-Anassesseeisliabletopaysales
taxandthequestionwhetherhehascollecteditfromconsumerornotisofnoconsequence.
HisliabilityisbyvirtueofbeinganassesseeundertheAct
DUTY IS A MANUFACTURING EXPENSE FROM ACCOUNTING POINT OF
VIEW - Excise duty should be considered as a manufacturing expense and should be
consideredasanelementofcostforinventoryvaluation,likeothermanufacturingexpenses.
Excisedutycannotbetreatedasaperiodcost.
3.

Types of excise duties - Excisedutiesareoffollowingtypes

Duties under Central Excise Act-BasicdutyisleviedunderCentralExciseAct.

Basic excise duty to be termed as Cenvat - Basic excise duty (also termed as Cenvat as per

section2AofCEAaddedw.e.f.12-5-2000)isleviedattheratesspecifiedinFirstSchedule
toCentralExciseTariffAct,readwithexemptionnotification,ifany.
Educationcessispayable@2%ofthebasicdutyandSecondaryandHighEducationCessis
1%ofbasicexciseduty.
Education Cess and SAH EDUCATION CESS on excise duty - If excise duty rate is 8%,

educationcesswillbe0.16%andSAHEducationcesswillbe0.08%.AprovisionsofCentral
Excise Act, including those relating to refunds, exemptions and penalties will apply to
educationcessandSAHcess.
Excise duty in case of clearances by EOU The EOU units are expected to export all their

production.However,iftheycleartheirfinalproductinDTA(domestictariffarea),therate
of excise duty will be equal to customs duty on like article if imported in India. [provison

to section 3(1)]. Note that even if rate of customs duty is considered for payment of duty,
actuallythedutypaidbythemisCentralExciseDuty.Therateofcustomsdutyistakenonly
asameasure.TheEOUunitcansalepartoftheirfinalproductsinIndiaat50%ofcustoms
dutyornormalexcisedutyincertaincases.
National Calamity contingent Duty A National Calamity Contingent Duty (NCCD) has

beenimposedvidesection136ofFinanceAct,2001[clause129ofFinanceBill,2001,w.e.f.
1.3.2001]. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies
from10%to45%.NCCDof1%wasimposedonPFY,motorcars,multiutilityvehiclesand
twowheelersandNCCDofRs50pertonwasimposedondomesticcrudeoil,videsection
169ofFinanceAct,2003.
Duties under other Acts - Some duties and cesses are levied on manufactured products

under other Acts. The administrative machinery of central excise is used to collect those
taxes. Provisions of Central Excise Act and Rules have been made applicable for levy and
collectionoftheseduties/cesses.
Duty on Medical and Toilet preparations - A duty of excise is imposed on medical

preparationsunderMedicalandToiletPreparations(ExciseDuties)Act,1955.
Additional duty on mineral products-Additionaldutyonmineralproducts(likemotorspirit,

kerosene, diesel and furnace oil) is payable under Mineral Products (Additional Duties of
ExciseandCustoms)Act,1958.
Duties Leviable
Basic Excise Duty is levied u/s 3(1) of Central Excise Act. The section is termed
as charging section. General rate of duty of central excise on non-petroleum products is
10% w.e.f. 27-02-2010. (The duty rate was 14% during 1-3-2008 to 6-12-2008, which was
reduced to 10% w.e.f. 7-12-2008 and to 8% w.e.f. 24-02-2009). This duty is applicable to

majorityofexcisablegoods.Thereispartialexemptiontoafewproducts.
EducationCess@2%ofexcisedutyundersection93ofFinance(No.2)Act(w.e.f.9-72004).
SecondaryandHigherEducationCess(S&HEducationCess)@1%ofthetotaldutiesof
excisevidesection136readwithsection138ofFinanceAct,2007w.e.f.1-3-2007.
Thus,totalexcisedutyis10.30%inmajorityofthecases.
NationalCalamityContingentDutyANationalCalamityContingentDuty(NCCD)has
been imposed vide section 136 of Finance Act, 2001 on some products. NCCD of 1% has
beenimposedonmobilephonesw.e.f.1-3-2008.
Inaddition,cessesanddutieshavebeenimposedonsomespecifiedproducts.1.1.4Goods
Itisobviousfromsection3(1)that,toattractexciseduty,thefollowingconditionsmustbe
fulfilled:
Thereshouldbegoods;
Thegoodsmustbeexcisable;
Thegoodsmustbemanufacturedorproduced;and
ThemanufactureorproductionmustbeinIndia.
Goods manufactured or produced in SEZ are excluded excisable goods. This means, that
thegoodsmanufacturedorproducedinSEZareexcisablegoodsbutnodutyisleviable,as
chargingsection3(1)excludesthesegoods.
Thus, the goods manufactured in SEZ are not Exempted goods. They can be termed as
excludedexcisablegoods.
Asperexplanationtosection2(d),goodsincludesanyarticle,materialorsubstancewhich
iscapableofbeingboughtandsoldforaconsiderationandsuchgoodsshallbedeemedtobe
marketable.
BasicIngredients

Fromtheabovedefinitionsofgoods,thetwoessentialelementsofgoodsareemanated:
(i)Theyshouldbemovable,and
(ii)Theyshouldbemarketable.
MEANING OF "MANUFACTURE"
2.1 The taxable event for Central Excise duty to be attracted is manufacture or production
in India of excisable goods. Section 2(f) of the Act defines the term "manufacture" in an
inclusivemannersoastoincludeanyprocess:
(i)Incidentalorancillarytothecompletionofamanufacturedproduct;and
(ii) Which is specified in relation to any goods in the Section or Chapter notes of the
ScheduletotheCentralExciseTariffAct,1985asamountingtomanufacture;and
(iii)WhichinrelationtogoodsspecifiedintheThirdScheduletotheCentralExciseTariff
Act,1985,involvespackingorrepackingofsuchgoodsinaunit,containerorlabellingorrelabellingofcontainersordeclarationoralterationofretailsalepriceoranyothertreatmentto
rendertheproductmarketabletoconsumer.
(The clauses (ii) and (iii) above are termed as deemed manufacture.) The aforesaid
definitiongivesawidercontenttotheexpression"manufacture"asseveralprocesseswhich
would not ordinarily be understood as amounting to manufacture are specifically included
therein. However, the most commonly used test for ascertaining "manufacture" for the
purposeofattractingCentralExcisedutyhastakenplacewasevolvedbytheSupremeCourt
inthecaseofDelhiClothandGeneralMills1977(1)ELT(J199).Intermsofthisdecision,
theactivityorprocessinordertoamountto"manufacture"mustleadtoemergenceofanew
commercial product, different from the one with which the process started. In other words,
it must be an article with different name, character or use. Thus, a process which simply
changestheformorsizeofthesamearticleorsubstancewould

not ordinarily amount to manufacture and no excise duty would be payable unless it is
deemedtobemanufactureasfollows:

InaparticularcasebyasectionorChapternoteoftheTariff;or

Inrelationtogoods,whicharespecifiedunderMRPbasedassessmentundersection
4A, packing or repacking of such goods, labelling or re-labelling of containers
includingdeclarationoralterationofretailsalespriceshallamounttomanufacture.

mEANING OF "GOODS"
Central Excise duty is levied on goods which are manufactured or produced. The
understanding of term goods is of vide importance in determining the leviability of Excise
Duty.TheActdoesnotdefinetheterm"goods".ThejudgmentoftheSupremeCourtinthe
case of Delhi Cloth and General Mills (supra) is considered to be the landmark judgment
inthisregard,whereitisheldthatananarticlecanbecalled"goods"ifitisknowntothe
marketassuchandcanordinarilycometothemarketforbeingboughtandsold.Actualsale
ofthearticleisnotimportantbutitmustbecapableofbeingboughtandsold.
ThemarketabilityelementofgoodswasenumeratedinUnionofIndiaandOthers,Appellants
vs. Sonic Electro Chem (P) Ltd. 2002 (52) RLT 878 (SC) where the Supreme Court held
thattheessenceofmarketabilityisneitherintheformnorintheshapeorconditioninwhich
themanufacturedarticlesaretobefound,itisthecommercialidentityofthearticlesknown
tothemarketforbeingboughtandsold.Whetherimmovablethingsaregoodsornot,was
clarified in the case of Triveni Engg. vs. CCE 2000 (120) ELT 273 by the Supreme Court
where it was observed that immovable property or articles embedded to earth, erections,
turnkeyprojectsarenotgenerallytermedas"goods"becausetheycannotordinarilycometo
themarkettobeboughtandsold.

The Explanation is added by Finance Act, 2008 under section 2(d) provides that goods
includes any article, material or substance which is capable of being sold for consideration
andsuchgoodsshallbedeemedtobemarketable.
MANUFACTURER DUTY LIABILITY
ThedefinitionofmanufacturerundertheActisaninclusiveoneandbroadlyspecifiestwo
categories of manufacturer; i.e., one who manufactures on his own account or one gets the
goods manufactured through hired labour. Thus we can construe the meaning of the word
manufacturer as understood in common terminology. Manufacturer may be understood as
anypersonwhoisthecreator,initiatorandarchitectoftheactivitiesandtheprocesses,which
bringinexistenceanewandidentifiableproduct/goodsinthemarket.Thusamanufacturer
istheonewhoundertakesmanufacturingactivityinreality.Apurchaserofgoodsdoesnot
becomemanufacturer,hecanonlybetermedasasupplierofrawmaterial,ifapplicableora
personwhogetsgoodsmanufacturedaccordingtohisspecificationsorwithhisbrandname.
Here,itisworthwhiletomentionthatsuchcontractsareonaprincipaltoprincipalbasis.A
personsupplyingtherawmaterialcannotbeconsideredashiringthejobworker if he does
notsuperviseandcontroltheactivitiesofthejobworker.Howeverifthemanufacturerisa
dummyorfakeunit,thentherawmaterialsupplierorthebrandnameownerisdeemedtobe
theactualmanufacturer.
Section3AincorporatedintheStatutebyFinanceAct,2008providespowertotheCentral
Governmenttochargeexcisedutyonthebasisofcapacitytomanufacturebymanufacturer
himself in respect of notified goods. Till today, the product under this sub-section has not
beennotified.Oncetheproducthasbeennotified,excisedutywillbepayableonthebasisof
capacity.
Importance of notification

Therateofdutyprescribedagainsteachofsub-headingspecifiedinscheduletotheCentral
Excise Tariff Act is known as tariff rate. The effective rate of duty must be ascertained by
consideringthevariousnotificationissuedfromtimetotime.Thetariffratereadwiththerate
prescribed in the notification determined the effective rate of duty payable on clearance of
goods.
Excisable Goods
Section 2(d) of Central Excise Act defines Excisable Goods as Goods specified in the
ScheduletoCentralExciseTariffAct,1985asbeingsubjecttoadutyofexciseandincludes
salt.Asperexplanationtosection
2(d),goodsincludesanyarticle,materialorsubstancewhichiscapableofbeingboughtand
soldforaconsiderationandsuchgoodsshallbedeemedtobemarketable.Thus,unlessthe
itemisspecifiedintheCentralExciseTariffActassubjecttoduty,nodutyisleviable.
In terms of the above definition of Excisable Goods, it may be held that all those goods,
whicharespecifiedintheTariffScheduleareexcisablegoods.However,questionarisesas
towhetherthosegoods,whichareexemptedfromdutybyanotification,butfindaplacein
thetariffscheduleareexcisablegoods.
Byanalyzingthedefinition,thefollowingtwoimportantingredientsofexcisablegoodsare
found:
(a)GoodsmustbespecifiedintheScheduletotheCentralExciseTariffAct,1985;
(b)Thegoodssospecifiedmustbesubjecttoduty.
Excisability of Plant & Machinery
InviewofEntryN.84ofList-ISeventhScheduletotheConstitutionofIndia,dutyofexcise
couldbeleviedonlyongoodsandnotonimmovableproperty.Thegoodsareclassifiedand
charged to duty according to the state and condition in which they are removed from the
factory.

AssemblyofPlant&MachineryatSite
Mere bringing together of parts of a plant and machinery at site cannot be termed to be
manufactureandhence,assembledplantcannotbetreatedtobegoods.
Where assembly of parts and components brings out a different recognizable marketable
product,beforeitsinstallationorerectionorattachmenttotheearth,itwouldbegoodsand
hencechargeabletoduty.
Excisability of Waste & Scrap
Section3imposesdutyonmanufactureofgoods.Wasteandscraparenotmanufactured,but
ariseasaresultofmanufactureofthefinalproduct.Therefore,generally,thereshouldnotbe
leviedanytaxonthewasteandscrap.
Thus,wasteandscrapcanbegoodsbutduitableonlyifmanufacturedandarementioned
inTariff.

CHAPTER III
1. VALUATION
The levy of duty requires the valuation of the goods under consideration after establishing
thedutyliabilityandtheclassificationofthegoods.Exceptincaseswherespecificdutyhas
been provided for on the basis of certain unit like weight, length, etc. as in case of goods
likecigarettes(lengthbasis),cementclinkers(pertonbasis),formostofthegoodstherates
arespecifiedonanad valorem basis;i.e.,expressedasapercentageofvalueofgoods.Thus

forcalculatingtheamountofdutypayable,firsttheassessablevalueofthegoodshastobe
determinedundertheprovisions.
ThemodesofvaluationofgoodsundertheExciseActare:
(A) Tariff value
TheCentralGovernmentisauthorizedundertheprovisionsofsection3(2)oftheAct,tofixthetariffvaluefor
anygoodswhichmaybedifferentfordifferentclassesofgoods.Thisisalsotermedasthenotionalvalue.The
dutyinsuchcasesisthe%ofsuchtariffvalueandnottheAssessableValue.

(B) M.R.P. value

The Central Government under section 4A of the Act can notify goods on which excise
dutywillbepayableontheMRPless%ofabatement.Suchvalueshallbedeemedtobethe
assessablevalueinsuchcases.Theprovisionsofthissectionareapplicabletoproductswhich
arestatutorilyrequiredtoputMRPundertheStandardsofWeightandMeasuresAct,1976,
oranyotherlawandinrespectofwhichspecificnotificationhasbeenissued.
(C) Transaction value
(i) In respect of all other goods which are not covered by the above-mentioned provisions, their

assessablevaluewouldbeintermsof"transactionvalue"asprovidedinsection4of
theAct.Theassessablevaluewouldbethetransactionvaluewhenthegoodsaresold
byanassesseefordeliveryatthetimeandplaceofremoval,wheretheassesseeand
thebuyerarenotrelatedandpriceisthesoleconsideration.Inallothercases,which
do not fulfil the aforesaid conditions, value shall be determined as per the Central
ExciseValuationRules,2000.Thedefinitionoftransactionvalueaspersection4(3)
(d)meansthepriceactuallypaidorpayableforthegoodswhensold,andincludesin
additiontotheamountchargedasprice,anyamountthatthebuyerisliabletopayto
oronbehalfof,theassesseebyreasonoforinconnectionwiththesale,whetherat

thetimeofsaleoranyothertime.Thedefinitiongivesaninclusivebutnotexhaustive
listofadditionsanddeductionsfromtheinvoicepriceinrespectofcertainamounts.
(ii) The valuation rules have to be followed when transaction value cannot be
determinedundersection4(1);whichareenumeratedbelow:
(a)Ifgoodsarenotsoldatthetimeofremoval,thevalueofexcisablegoods
shall be value of goods sold by the manufacturer for delivery at any other
timenearesttothetimeofremovalofgoodsexceptincasesofstock/branch
transfer,saletorelatedperson,jobworkwherespecificprovisionshavebeen
made.(Rule4)
(b)Incasegoodsaresoldfordeliveryatanyotherplaceotherthantheplace
of removal, the value will be the price less the actual cost of transportation
fromplaceofremovaltotheplaceofdelivery.(Rule5)
(c)Incasethepriceisnotthesoleconsiderationinrespectofanytransaction,
the value of goods shall be the aggregate of such transaction value and
the amount of money value of additional consideration flowing directly or
indirectlyfrombuyertotheassessee.(Rule6)
(d) In case where goods are cleared to depot, consignment agent etc.,
transaction value shall be the normal transaction value of such goods sold
fromsuchotherplaceatoraboutthesametime.Thenormaltransactionvalue
isthepriceatwhichthegreatestaggregatequantityofgoodsaresold.(Rule7)
(e)Incaseofconsumptionofgoodscaptively;i.e.,consumedbytheassessee
oronhisbehalf,thevalueshallbe110%ofthecostofproduction.(Rule8)
(f)Incaseofsaleofgoodstoarelatedperson,thevalueshallbethepriceat
which the related person has sold the goods to an unrelated person. In case

a related person does not sell the goods but uses or consumes the goods in
productionormanufactureofthearticle,thevalueshallbe115%ofthecostof
production.(Rule9)
(iii) The following deduction can be made from the transaction value for
determinationofvalueundersection4
(a)Tradediscount
TheBoardhasclarifiedasfollows:
"Discount of any type or description given on any normal price payable for
any transaction will not form part of the transaction value for the goods;
e.g., quantity discount for goods purchased or cash discount for the prompt
payment etc. will therefore not form part of the transaction value. However,
it is important to establish that the discount has actually been passed on
to the buyer of the goods. The different type of discounts extended as per
commercial considerations on different transactions to unrelated buyers if
extended is also permissible and different actual prices paid or payable for
varioustransactionsaretobeaccepted."
(b)Taxandduties
The definition of transaction value stipulate that excise duty, sales tax and
othertaxespaidorpayableshallbeexcludedfromthetransactionvalue.
(c)Freight
The cost of transportation can be excluded even when freight is averaged
andalsothereisnoconditionthatthecostoftransportationshouldbeshown
separately in the invoice. The cost of transportation will include the cost of
insuranceduringtransportationofgoods.

(d)Interestfordelayedpayment
Interestfordelayedpaymentsisanormalpracticeinindustry.Interestundera
financingarrangemententeredbetweentheassesseeandthebuyerrelatingto
thepurchaseofexcisablegoodsshallnotberegardedaspartoftheassessable
valueprovidedthat:
The interest charges are clearly distinguished from the price actually paid or
payableforthegoods.
Thefinancingarrangementismadeinwriting;andWhererequired,assessee
demonstrates that such goods are actually sold at the price declared as the
priceactuallypaidorpayable.
(e)Erection,installationandcommissioningcharges
If the product after erection, installation and commissioning is not excisable
thequestionofincludingthesechargesintheassessablevalueoftheproduct
doesnotarise.
(iv)Inclusionintheprice
Some of the expenditures like packing charges, designing and engineering charges,
handlingchargesincurredwithinthefactoryarerequiredtobeincludedinthepriceif
theyarenotalreadyincluded.
Basis of calculation of duty payable i.e. Valuation
Modes

of Duty can be payable on basis of specific duty (based on weight,

calculationofexcise length,volumeetc.),MRPbasedduty[section4A],compounded
duty

levy, tariff value [section 3(2)], production capacity [section 3A]

oronad valorembasis[section4].

MRP

based

valuation

[section

4A]
Products

covered Incaseofabout110products,dutyispayableu/s4AofCentralon

under

MRP basisofMRPprintedonthepackage,afterallowingabatementat

provisions

specifiedrates.MRPshouldbeinclusiveofalltaxesandduties.
Theprovisionappliesonlywhenproductispackageintendedfor
retailsaleandisspecifiedinanotificationissuedu/s4A.

MRP provisions are MRPprovisionsu/s4Aareoverridingprovisions.

overriding
Assessable
when

value Evenincaseofproductscoveredu/s4A,whereMRPprovisions

MRP

applicable

not arenotapplicable,valuationwillbeonbasisofvalueu/s4i.e.
AssessableValue.
MRP provisions do not apply to free samples, package less than
10gm/10ml,wholesalepackageorpackageabove25Kg(50Kg
insomecases)

Deemed
manufacture

Incaseofgoodscoveredundersection4A,packingorrepacking
of andre-labellingisdeemedmanufacture.

productsu/s4A
IncorrectMRP

DepartmentcanascertainMRPifMRPnotdeclaredorincorrectly
declaredorobliterated.Penaltycanbeimposed[section4A(4)(a)
ofCentralExciseAct].

Basic

requirement

of Assessable Value
[section4]
Transactionvalueas When duty is payable on ad valorem basis, it is payable on
assessablevalue

assessablevalueasdefinedinsection4ofCentralExciseAct.
TransactionValueistakenasAssessableValueonlyifgoodsare
soldatthetimeandplaceofremoval,buyerisunrelatedandprice
issoleconsideration[Section4(1)(a)ofCentralExciseAct].

What is transaction Transactionvalueisthepricepaidorpayableforthegoodsatthe

value

time and place of removal, by reason of, or in connection with

sale,inclusiveofallexpensesbutexcludingtaxes[section4(3)(d)
ofCentralExciseAct].
Transaction value does not include duty of excise, sales tax and
anyothertaxesongoods.Onlytaxesactuallypaidorpayableare
allowedasdeduction.

Price to be taken as If goods are cleared without payment of duty, the price is taken
inclusive of excise ascumdutypriceandexcisedutypayableshouldbecalculated
duty

by back calculations CCE v. Maruti Udyog 122 Taxman 105 =

(2002) 3 SCC 547 = 141 ELT 3 (SC 3 member bench). If there
is additional consideration, it will be added to invoice price and
then duty payable is calculated by making back calculations
[Explanationtosection4(1)ofCentralExciseAct]

Inclusions

and

exclusions
in

transaction

value
By reason of or in Any amount charged is includible in assessable value if it is by
connectionwithsale reasonoforinconnectionwithsaleofsuchgoods.
ofsuchgoods.
Packing and design Dutyispayableonpackingchargesanddesignchargesrelatedto
charges

manufacture.

Priceescalation

Dutyispayableincaseofpriceescalationafterclearance,butnot
whenpricewasfinalatthetimeofclearance.Ifthereispricerise
afterclearanceofgoodsfromfactory,differentialexcisedutyand
interest@13%ispayable.

Tradediscounts

Trade discount is allowable as deduction from assessable value.

Cashdiscountisallowable.Discountneednotbeuniform.

Notional interest on Notional interest on advances is includible only if there is

advances

evidencethatithasdepressedthesellingprice.

Warrantycharges

Compulsorychargesforaftersaleserviceduringwarrantyperiod
are includible. After sale service charges which are optional are
notincludible.

PDI and after sales Pre-delivery charges (PDI) and after sale service charges are not
service

includibleiftheseareincurredbydealeroutofhiscommission.

Outward
after

freight

place

of

removal

not

includible

in

assessablevalue
Placeofremoval

Transport charges upto place of removal are includible in

assessablevalue.

Ownership

If delivery is ex-works and property is transferred to buyer at

transferring

at factorygate,outwardfreightisnotincludibleinassessablevalue

factorygate

as factory gate is the place of removal. This will be so even if

transportisarrangedbymanufacturerandchargedtobuyer.

ContractFOR

EvenifcontractisF.O.R.destinationbasis,therecanbesaleat
factorygate,sinceaspersection39ofSaleofGoodsAct,delivery
ofgoodstocarrierisprima faciedeliverytobuyer.Ifcontractis
F.O.R.basisandsaletakesplaceonlywhengoodsaredeliveredto
buyer(i.e.propertyingoodspassestobuyeratdestinationonly),
transportchargesareincludibleinassessablevalue.

Profit on transport If assessee himself provides transport services, reasonable

activitypermissible

profit on the transport activity should be permissible i.e. it is not

includibleinassessablevalue.

Equalisedfreight

Equalisedfreightisalsoallowableasdeduction,ifthereissaleat
factorygate.

Bought out goods

and

accessories

when includible in
assessablevalue
Price of essential Price of Bought out goods supplied along with manufactured
boughtoutgoods

goods is includible, if these are essential parts of manufactured

goods.

Price of parts not Since goods are to be assessed in the condition in which cleared
fitted at time of fromfactory,valueofcomponentsnotfittedisnotrequiredtobe
removal

addedinassessablevalue,eveniftheyareessential

Price of accessories Priceofaccessoriesandoptionalboughtoutitemsisnotincludible

notincludible

inAssessableValue
Accessory means an object not essential in itself but adding to
beauty,convenienceoreffectivenessofsomethingelse.

Valuationrules
Transaction
notacceptable

value If transaction value is not acceptable, valuation is required to be

done as per Valuation Rules [Section 4(1)(b) of Central Excise
ActandValuationRule3]

Value of similar Valuation can be done on value of such goods (i.e. goods of
goods

sameclassofsamemanufacturer)[Rule4]

Transportuptoplace Cost of transport upto place of removal is includible in

ofremoval

Money

assessablevaluebutnotbeyondthat[Rule5]

value

of If price is not sole consideration, money value of other

other consideration consideration should be added e.g. cost of material, patterns,

includible

dies, designs etc. supplied by buyer is required to be added to

Assessable Value [rule 6]. Value of patterns, dies etc. should be
addedonpro-ratabasis.

Captive

Incaseofcaptiveconsumption,dutyispayableonbasisofcostof

consumption

productionplus10%.CostofProductionshouldbecalculatedon
basisofCAS-4[Rule8]

Jobwork

In case of job work, duty is payable by job worker. Valuation

is done on the basis of price at which raw material supplier
(Principal Manufacturer) sales the manufactured final product in
market [Rule 10A]. If goods are covered under MRP valuation
provisions,dutyispayableonMRPbasis.

Valuation in case
of sale from depot/
branch
Depot price at the In case of depot sale, duty is payable on basis of depot price
timeofremoval

prevailingatthetimeofremovaloffinalproductfromthefactory
[Rule7].

Subsequent

sale Price at which the goods are actually sold subsequently is not

pricenotrelevant

relevant. Differential duty is not payable even if goods are sold

laterathigherpricefromdepot.Similarly,refundisnotavailable
ifpricesaregoodsaresubsequentlyactuallysoldatlowerprice.

Transport

charges Transport charges upto depot and depot expenses are not

afterdepot

allowable as deduction (These are already included in depot

price).Transportchargesfromdepotonwardsarenotincludiblein
assessablevalue.

Value addition done Any value addition done at depot is not includible in assessable
atdepot

value,ifactivityisnotmanufacture(thereasonisthatgoodsare
to be assessed in the condition in which they are removed from
factory).

Deemed

In case of products covered under MRP provisions, if packing

manufacture in case in retail pack and labelling of MRP is done at depot/place of

ofMRP

consignment agent, it will be deemed manufacture and excise

dutywillbepayable.

Valuation when sale

through

related

person
Price to unrelated If goods are sold through related person, value for purpose of
buyerrelevant

excisewillbethepriceatwhichtherelatedbuyersalesgoodsto
unrelatedbuyer.

Inter

connected Aninter-connectedundertakingwillbetreatedasrelatedperson

undertaking

forexcisevaluationonlyifthereisholdingsubsidiaryrelationship

[Inter-connectedundertakingmeans25%commoncontrol]

Holding

and Aholdingandsubsidiaryarerelatedpersons,

subsidiary
Ratelegalentities

Ameredistributorisnotarelatedperson.
A company or firm is a separate legal entity and cannot be
arelatedpersonofothercompanyorfirm.

Piercing

corporate Even if the buyer does not fall within the definition of related

veil

person,salepricetohimcanberejectedbypiercingthecorporate
veil.Hissellingpricecanbeconsideredifitisfound,bypiercing
corporateveil,thatthetransactionisnotatarmslengthi.e.priceis
notthesoleconsideration.

Valuation in case of Ifgoodsaresoldsolelythroughrelatedperson(exceptincaseof

entire sale through inter connected undertaking, unless there is holding subsidiary
relatedperson

relationship), valuation will be normal transaction value at

whichtherelatedbuyersalestounrelatedbuyer[rules9and10of
ValuationRules]

Supply of goods to If goods are supplied to related person for captive consumption,
related person for valuationwillbeonbasisofcostofproductionplus10%.
captiveconsumption
Partial sale through If sale is partly to related person and partly to unrelated person,
relatedperson

valuation shall be done on reasonable basis by residual method

underrule11.

If related person is only one of the buyers and substantial sales

are made to unrelated persons at same price, that price can be
consideredforvaluationinrespectofsaletorelatedpersonalso.

Other

provisions

relatingtovaluation
Residuary rule of Ifvaluationisnotpossibleunderanyofaforesaidrules,valuation
valuation

willbeonbasisofbestjudgmentassessment,i.e.valueshallbe
determinedusingreasonablemeansconsistentwiththeprinciples
and general provisions of Valuation rules and section 4(1) of
section4oftheAct[Rule11]

Duty

based

on Section 3A of CEA provides for payment of duty on basis of

productioncapacity

production capacity, without any reference to actual production.

Production capacity will be determined as per Rules. Pan masala
andgutkhaarecoveredundertheseprovisions.

Compounded
scheme

levy Compounded levy scheme under rule 15 of Central Excise rules,

provides for payment of duty on basis of production capacity.
It is an optional scheme. The scheme is presently applicable to
stainlesssteelpattas/pattiesandAluminiumcircles.Thesearticles
arenoteligibleforSSIexemption.

Tariff value [section In some cases, tariff value is fixed by Government from time to
3(2)

of

ExciseAct]

Central time. This is a Notional Value for purpose of calculating the

dutypayable.Oncetariffvalueforacommodityisfixed,dutyis

payableaspercentageofthis'tariffvalue'andnottheAssessable
Valuefixedu/s4.

2. CENTRAL EXCISE (DETERMINATION OF RETAIL SALE PRICE OF

EXCISABLE GOODS) RULES, 2008
[NotificationNo.13/2008-C.E.(N.T.),dated01-03-2008]
In exercise of the powers conferred by section 37 read with sub-section (4) of section 4A

of the Central Excise Act, 1944 (1 of 1944), the Central Government hereby makes the
followingrules,namely:-
RULE 1. (1) These rules may be called the Central Excise (Determination of Retail Sale
PriceofExcisableGoods)Rules,2008.
(2)TheyshallcomeintoforceonthedateoftheirpublicationintheOfficialGazette.

RULE 2.Intheserules,unlessthecontextotherwiserequires,(a)ActmeanstheCentralExciseAct,1944(1of1944);
(b)retailsalepricemeanstheretailsalepriceasdefinedinsection4AoftheAct;and
(c)wordsandexpressionsusedintheserulesandnotdefinedbutdefinedintheActorany
otherrulesmadeundertheActshallhavethemeaningasassignedtherein.
RULE 3.Theretailsalepriceofanyexcisablegoodsundersub-section(4)ofsection4Aof
theAct,shallbedeterminedinaccordancewiththeserules.
RULE 4.Whereamanufacturerremovestheexcisablegoodsspecifiedundersub-section
(1)ofsection4AoftheAct,(a)withoutdeclaringtheretailsalepriceonthepackagesofsuchgoods;or

 (b) by declaring the retail sale price, which is not the retail sale price as required to be
declared under the provisions of the Standards of Weights and Measures Act, 1976 (60 of
1976)orrulesmadethereunderoranyotherlawforthetimebeinginforce;or

(c)bydeclaringtheretailsalepricebutobliteratesthesameaftertheirremovalfromthe
placeofmanufacture,
then,theretailsalepriceofsuchgoodsshallbeascertainedinthefollowingmanner,namely:

(i)

if the manufacturer has manufactured and removed identical goods, within a

periodofonemonth,beforeorafterremovalofsuchgoods,bydeclaringthe
retail sale price, then, the said declared retail sale price shall be taken as the
retailsalepriceofsuchgoods:

(ii)

if the retail sale price cannot be ascertained in terms of clause (i), the retail
salepriceofsuchgoodsshallbeascertainedbyconductingtheenquiriesinthe
retailmarketwheresuchgoodshavenormallybeensoldatoraboutthesame
timeoftheremovalofsuchgoodsfromtheplaceofmanufacture:

Providedthatifmorethanoneretailsalepriceisascertainedunderclause
(i)orclause(ii),then,thehighestoftheretailsaleprice,soascertained,shall
betakenastheretailsalepriceofallsuchgoods.

Explanation.-Forthepurposesofthisrule,whenretailsalepriceisrequired
tobeascertainedbasedonmarketinquiries,thesaidinquiriesshallbecarried
outonsamplebasis.

RULE 5.Whereamanufactureraltersortamperstheretailsalepricedeclaredonthe
packageofgoodsaftertheirremovalfromtheplaceofmanufacture,resultingintoincreasein
theretailsaleprice,thensuchincreasedretailsalepriceshallbetakenastheretailsaleprice
ofallgoodsremovedduringaperiodofonemonthbeforeandafterthedateofremovalof
suchgoods:
Providedthatwherethemanufactureraltersortampersthedeclaredretailsaleprice
resulting into more than one retail sale price available on such goods, then, the highest of
suchretailsalepriceshallbetakenastheretailsalepriceofallsuchgoods.
RULE 6.Iftheretailsalepriceofanyexcisablegoodscannotbeascertainedunderthese
rules, the retail sale price shall be ascertained in accordance with the principles and the
provisionsofsection4AoftheActandtherulesaforesaid.

3. CLASSIFICATION OF GOODS
Central Excise Duty is chargeable at the rates, which are manufactured in India and are
subjecttoexciseduty.
However,allgoodscannotbechargedwiththesamerateofduty.Therefore,thegoodsneed
tobegroupedintoseparatecategoriesandsub-categories,forwhichtherateofexciseduty
may be determined. This identification of goods through groups and sub-groups is called
classificationofgoods.
The rate of duty is found out by classifying the product in its appropriate heading under
Central Excise Tariff. The Central Excise Tariff Act, 1985 (CETA) classifies all the goods
under96chaptersandspecificcodeisassignedtoeachitem.CETAisbasedonInternational
convention of Harmonised System of Nomenclature (HSN), which is developed by World
CustomsOrganisation(WCO)(ThattimecalledasCustomsCooperationCouncil).Thisisan
InternationalNomenclaturestandardadoptedbymostoftheCountriestoensureuniformity

in classification in International Trade. HSN is a multi purpose 6 digit nomenclature

classifying goods in various groups. Central Excise Tariff is divided in 20 broad sections.
Section Notes are given at the beginning of each Section, which govern entries in that
Section. Each of the sections is divided into various Chapters and each Chapter contains
goodsofoneclass.ChapterNotesaregivenatthebeginningofeachChapter,whichgovern
entriesinthatChapter.Thereare96
chaptersinCentralExciseTariff.Eachchapterandsub-chapterisfurtherdividedintovarious
headingsandsubheadingsdependingondifferenttypesofgoodsbelongingtosameclassof
products.
TheCentralExciseTariffAct,1985(CETA)cameintoforcew.e.f.28thFebruary,1986.
ThemainfeaturesoftheExciseTariffare:
(a) The Central Excise Tariff has been made very detailed and comprehensive as all the
technicalandlegalaspectsinrelationtogoodshavebeenincorporatedinit.
(b) The Excise Tariff is based on the Harmonised System of Nomenclature, which is an
internationallyacceptedproductcodingsystemformulatedundertheGATT.
(c)Thegoodsofthesameclasshavebeengroupedtogethertobringaboutparityintreatment
andrestricttheinclassificationmatter.
(d)TheCentralExciseTariffprovideddetailedclarificatorynotesundereachsection/chapter.
(e)TheinterpretationoftheTariffhavebeenprovidedforatthebeginningoftheSchedule.
Allthesectionnotes,chapternotesandrulesforinterpretationarelegalnotesand/therefore
serveasstatutoryguidelinesinclassificationofgoods.
(f)TheTariffisdesignedtogroupallthegoodsrelatingtooneindustryunderonechapter
fromonerawmaterialinaprogressivemanner.
1.2.1HarmonisedSystemofNomenclature

Allgoodsareclassifiedusing4digitsystem.Thesearecalledheadings.Further2digitsare
added for subclassification,which are termed as sub-headings. Further 2 digits are added
forsub-sub-classification,whichistermedastariffitem.Rateofdutyisindicatedagainst
eachtariffitemandnotagainstheadingorsub-heading.
Harmonised System of Nomenclature (HSN) is an internationally accepted product coding
system, formulated to facilitate trade flow and analysis of trade statistics. The system was
developed by World Customs Organisation (WCO), which was earlier known as Customs
CooperativeCouncil.HSNwasadoptedbyInternationalConvention
ofHarmonisedSystemofNomeclature.
TheCETAisalsobasedontheHSNpattern,ofcourse,withsomedeviation.HSNhasgot
commercialaswellasjudicialrecognition.
Interpretative Rules of CETA
The Central Excise Tariff Act, 1985 incorporates FIVE Rules of interpretation, which
together provide necessary guidelines for classification of various products under the
schedule. Rules for Interpretation of Schedule to Tariff are given in the Tariff itself. These
aretermedasGeneralInterpretativeRules(GIR).GIR(GeneralInterpretativeRules)
are to be applied for interpretation of Tariff, if classification is not possible on the basis
of tariff entry and relevant chapter notes and section notes. Following are the steps of
classificationofaproduct.
(1) Refer the heading and sub-heading. Read corresponding Section Notes and Chapter
Notes.Ifthereisnoambiguityorconfusion,theclassificationisfinal(Rule1ofGIR).You
donothavetolooktoclassification
rules or trade practice or dictionary meaning. If classification is not possible, then only to
GIR.Therulesaretobeappliedsequentially.

(2)Ifmeaningofwordisnotclear,refertotradepractice.Iftradeunderstandingofaproduct
cannotbeestablished,findtechnicalordictionarymeaningofthetermusedinthetariff.You
mayalsorefertoBISorotherstandards,buttradeparlanceismostimportant.
(3) If goods are incomplete or un-finished, but classification of finished product is known,
find if the unfinished item has essential characteristics of finished goods. If so, classify in
sameheading-Rule2(a).
(4) If ambiguity persists, find out which heading is specific and which heading is more
general.Preferspecificheading.-Rule3(a).
(5) If problem is not resolved by Rule 3(a), find which material or component is giving
essentialcharactertothegoodsinquestion-Rule3(b).
(6)Ifbothareequallyspecific,findwhichcomeslastintheTariffandtakeit-Rule3(c).
(7)Ifyouareunabletofindanyentrywhichmatchesthegoodsinquestion,findgoodswhich
aremostakin-Rule4.
(8) Packing material is to be classified in the heading in which the goods packed are
classifiedRule5.
(9) In case of mixtures or sets too, the procedure is more or less same, except that each
ingredient of the mixture or set has to be seen in above sequence. As per rule 2(b), any
referencetoamaterialorsubstanceincludesareferencetomixturesorcombinationsofthat
materialorsubstancewithothermaterialorsubstance.
AsregardstheInterpretativeRules,theclassificationistobefirsttestedinthelightofRule
1.OnlywhenitisnotpossibletoresolvetheissuebyapplyingthisRule,recourseistakento
rules2,3and4inseriatim.
EXEMPTIONS FOR SMALL SCALE INDUSTRIES

This notification provides exemption from whole of duty leviable on goods specified in
annexuretothenotificationuptotheaggregatevalueofclearanceofRs.1,50,00,000/-.In
computing1,50,00,000/-thefollowingclearanceshallnotbetakeninaccount:
a)Clearances,whichareexemptfromthewholeoftheexcisedutyleviablethereon(other
thananexemptionbasedonquantityorvalueofclearances)underanyothernotificationor
onwhichnoexcisedutyispayableforanyotherreason;
b)Clearancesbearingthebrandnameortradenameofanotherperson,whichareineligible
forthegrantofthisexemption
c)Clearancesofthespecifiedgoodswhichareusedasinputsforfurthermanufactureofany
specifiedgoodswithinthefactoryofproductionofthespecifiedgoods;
Thebenefitisavailabletosmallscalemanufacturerwhere:
a) The value of clearance in the previous financial year shall not be exceeds Rs. 4
crore
b)Thegoodshavenotbeenaffixedwiththebrandsnameofotherperson.

In computing the value of clearance of Rs. 4 crores. The following clearance shall not be
considered:
a)Clearanceofexcisablegoodswithoutpaymentofduty
i)Toaunitinafreetradezoneor
ii)Toaunitinaspecialeconomiczone;or
iii)Toahundredpercentexportorientedundertaking;or
iv)ToaunitinanElectronicHardwareTechnologyParkorSoftwareTechnologyPark;or

v) 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
notificationNo.108/95.
b) Clearance bearing the brand name or trade name of another person, which are
ineligibleforthegrantofthisexemptionintermsofparagraph4ofthenotification.
c)Clearanceofthespecifiedgoodswhichareusedasinputsforfurthermanufacture
ofanyspecifiedgoodswithinthefactoryofproductionofthespecified
goods.
d) Clearance, which are exempt from the whole of the excise duty leviable thereon
under notification No. 214/86-Central Excise or No. 83/94-Central Excise or 84/94-
CentralExcise.
If a manufacturer clears the specified goods from one or more factory the exemption shall
applicabletotheaggregatevalueofclearanceofalltheproductsclearedbythemanufacturer
fromallthefactories.
Where the specified goods are cleared by one or more manufacturer from the facto the
exemption shall apply to aggregate value of clearance of specified goods by all the
manufacturers.Theexemptionwillnotavailableseparatelytoeachmanufacturer.