SIDDHARTH ACADEMY

INDIRECT TAX

CENTRAL EXCISE LAWS AND CUSTOM LAWS

CONTENTS

Particulars
Central Excise Act
CENVAT Credit Rules,2004
Customs Act,1962
Case Laws

Page Number
1
46
63
107

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The Central Excise Act 1944

Basic Concepts
Excise Duty: It is a tax levied on manufacture of excisable goods. The taxable event for
levy of excise is "manufacturing". Authority to state to collect tax is derived from Entry
no 84 of the Union list of the VII schedule of the constitution of India. This entry
empowers the central government to levy excise duty on all goods except on alcoholic
liquor for human consumption, opium, Indian hemp and narcotics.
State governments have been given the powers to levy duty on the above mentioned
exceptional goods ie on alcoholic liquor for human consumption, opium, narcotics etc.

eg:

On these products state excise will be levied

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In case of medicinal and toilet preparations, which contains alcohol, opium, narcotics
etc central excise duty will be levied.

Eg: A cough syrup contains alcohol however for the purpose of Excise it will be
charged under the Central excise and not under state excise , as one of its contents is
alcohol however alcohol is not the main product being sold.

Fig: Cough syrup containing alcohol

Body of Central Excise Laws

The Central
Excise Act
1944
The Central
Excise

The Central
Excise Appeals
Rules 2001

tariffAct1985

The Central Excise

(Removal of Goods
at concessional rate
of duty) Rules 2001

Body of Central
Cenvat Credit
Rules 2004

Excise Laws

The Central Excise

(Determination of
retail sales price
Rule) Rules 2008

The central
Excise Rules
2002
The Central Excise
Valuation
(Determination of price
of Excisable goods)
Rules 2000

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Levy of duty, scope of Excise Laws and

taxable events
" Section 3: Charging section
There shall be levied and collected in such manner as may be prescribed, a duty of
excise to be called as CENVAT ie (Central Value added tax ) , on all excisable goods
(other than those produced in SEZ) which are manufactured in India and the duty shall
be levied at such rates set forth in First schedule to Central Excise Tariff Act 1985.
" A special duty of excise in addition to the above mentioned on excisable goods specified
in the second schedule to the Central Excise Tariff Act 1985, which are manufactured in
India (other than those in SEZ ) at rates set forth in Second schedule.

"

" The basic conditions for levy of excise duty are as follows
There must be goods

There must be a production

or manufacture

Goods must be excisable

Manufacture must take place

in India

" The applicability of Central Excise Act is over whole of India including Jammu and
Kashmir.
" India includes Territorial waters of India (ie a distance upto 12 Nautical miles from
the baseline of Indian landmass).
" Designated areas of Continental Shelf (ie a distance upto 24 Nautical miles from the
baseline) or Exclusive Economic Zone (ie a distance upto 200 Nautical miles from the
baseline ) which are treated as part of India.
" Thus any manufacturing activity carried out in any of the above areas is liable to levy of
excise duty.
" Analysis :
" The excise duty is charged as per the provisions of Central Excise Act 1944 , however
the duty is collected as per the Central Excise Rules.

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Territorial waters of India

Taxable event for levy of excise duty

Sr Rate of Duty at the
N time of manufacture
o

Rate of duty at the time

of removal of goods

Duty payable or not and if

yes at what rate

Non Excisable goods ie there

is no levy of excise duty

New levy has been made @ 12%

No duty is payable at the time of

removal as when the taxable event
took place the goods were not
subject to duty of excise

The goods were excisable but

chargeable at NIL rate of duty

Nil rate is increased to 12 %

Yes duty is payable @ 12 % as the

goods were excisable when the
taxable event took place. Nil is also a
rate of duty

Goods wholly exempt from

duty of Excise by presence of
notification

Exemption notification being

withdrawn

Since the goods were excisable at the

time of taxable event they are liable to
duty at applicable rate.

Goods taxable at 10%

New rate enforced at 12 %

Duty is payable as per new rate in

force ie @ 12 %

Goods were not liable to

special levy

Goods made liable to special levy

No special duty will be payable as it is

a new duty levied all together and did
not exist at the time of taxable event

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Concept of Goods, Excisable goods, movability and marketability

Goods: Goods have not been defined under Central Excise Act 1944, however under
various legislatures the term goods has been defined .
Article 366(12) defines goods to include all materials, commodities and articles.
As per Section 2(7) of the Sale of goods Act 1930 Goods means " every kind of
movable property other than money and actionable claims and includes stock and
shares, growing crops, grass and things attached to and forming part of land .
- In the case of UOI v/s DCM 1977(1) ELT 199 (SC) , the supreme court has held that
in order to be goods the articles must be capable of being bought and sold.
Therefore to be called goods the items must be movable and marketable.
Point of Inference :
-

movable

Goods
marketable

Movability:
The goods should be such that in the ordinary course of trade they can be brought to
the market and should be capable of being bought or sold. Thus immovable properties
cannot be termed as goods for the purpose of levy of Excise duty.

" Marketability:
" It refers to the capability of being bought or sold in open market and also includes

products which are deemed to be marketable. The Supreme court in the case of
Bhor Industries v/s CCEx held that merely because a product is mentioned in the

tariff doesn't mean that it should be liable to excise unless it is proved that the
product is marketable .
" Actual sale is not necessary only the capability of a product to be sold is sufficient
enough to make the product marketable, thus liable to duty of excise.

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" Deemed marketable: Scrap generated in the process of manufacturing will also

be liable to duty of excise.

" Excisable goods:

"

Defined u/s 2(d) : Goods specified in the first and second schedule of the Central
Excise tariff Act 1985 as being subject to duty of excise and includes salt.
" Goods means any article material or substance which is capable of being bought or
sold for a consideration and such goods shall be deemed marketable.

: Goods which are not specified in the Central Excise tariff

Act 1985, or which are specified in but no rate of duty ie not even "nil" rate of
duty is mentioned such goods are known as non excisable goods.
Eg: Electricity

" Non Excisable goods

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Non Dutiable goods:

Non dutiable goods means goods which are either chargeable at "nil" rate of
duty or goods which are exempt from whole of the duty of excise under
section 5A of the Central Excise Act 1944.

Exempt goods:
Goods which have been exempt from whole of duty of excise by way of notification
issued. Section 5A of the Central Excise Act 1944 exempts certain products from
duty of excise.

Nil Rated goods:

Goods which are mentioned in the Central Excise tariff Act 1985 and which are
not liable to duty, against which a "nil" has been marked.

Concept of Manufacture:

As per provisions of Sec 2(f) of the Central Excise Act 1944, Manufacture
includes any process ,

1. incidental or ancillary to the completion of manufactured product.

2. Which is specified in relation to goods mentioned in the section notes and
chapter notes of the first schedule to the Central Excise tariff Act 1985,
amounting to manufacture and includes deemed manufacture, or.
3. Which in relation to goods mentioned in the third schedule involves packing repacking,
labeling re-labeling of containers including the declaration or alteration of retails sales
price on it or adoption of any other treatment on the goods to render the product
marketable to the consumer.
Analysis : In its decision in the case of UOI v/s Delhi Cloth and Gen Mills Co
Ltd, Hon'ble Supreme Court has elucidated that
" Manufacture implies a change, but every change does not necessarily mean
manufacture ". So it is clear that to say a particular activity to be called as
manufacture something more than mere change has to be undergone. A new
product having different name , character and use should come into existance.

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Classification
The Central Excise taiff Act 1985, contains the eight digit codes to be assigned to the
products which gives them the individual identity. Classification means, assigning a
appropriate chapter and tariff item for the goods being manufactured.
eg:
xxxxxxxx
All the goods have been assigned a 8 digit code for their classification in the
central excise tariff act. The 8 digit codes is split as follows.
The first two digits refers to "Chapter", first four digit refers to "Chapter heading",
first six digit refers to "Chapter sub heading" and last four digit refers to "Tariff
item number".
Interpretative rules have been provided for classification , these rules are mainly
useful in case for products which are being manufactured for the first time and so
far which are not mentioned anywhere in the tariff.

Harmonised system of nomenclature (HSN) :

It is an internationally accepted product coding system formulated on the lines
of general agreements on tariffs and trade ( GATT ) . The tariff has been
structured on the basis of HSN.
Explanatory notes to HSN have been issued :

1. These notes are issued by the Customs-Cooperation council, Brussels .

2. These notes explain the ambit of each heading of HSN and Central Excise
tariff act has been framed as per HSN.
3. However these notes can be resorted to only if there is an ambiguity over
classification of these goods.
Rules of Classification :
Rule 1 : The title of section and chapter are given for ease of reference only however
the classification will be determined as per the terms of heading of relative section or
chapter notes, provided such headings or notes do not otherwise require, according
to the provisions hereinafter contained .
Eg : The heading of Chapter 84 refers to Nuclear reactors, machinery&etc but even a
hand pump falls under chapter 84. Thus it can be observed that even though the
section and chapter note didnt specify the hand pump still it is classified under this
chapter .

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Rule 2 (a) : Classification of incomplete or unfinished articles shall be made with

that of the main product provided that the incomplete or unfinished article has
the essential characteristics of that of the main product .
Eg : A car without seats will still be known as a car as even though it is complete
in all sense it is still possesses the essential characteristics of a car.

Rule 2 (b) : Classification of Mixtures/Combinations of a Material/Substance with

other Material/Substances : Any reference to a material or substance shall be taken

to include a reference to mixtures or combinations of that material or substance
with other material or substance.
Eg : Natural rubber will cover a mixture of natural and synthetic rubber and rubber
sheet would cover a sheet made up of mixture of natural and synthetic rubber.

Rule 3: Classification when goods are classifiable under two or more headings.
If the classification of goods cannot be done under Rule 1 or 2 then they
shall be classified under rule 3
1. More specific description : A first recourse to be adopted is to take a heading
which gives more specific description over the one with a general description.

eg :

2. Essential character: Mixture, composite goods consisting of different materials

or made up of different components and goods put up in sets for retail sale which
cannot be classified by reference to (1) above.
eg:
3. Later the better maxim: When goods cannot be classified under 1 or 2 above
they shall be classified under the heading which appears last in the numerical order .

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" Rule 4 : Akin rule

" Goods which cannot be classified in any of the above rule shall be classified along with
the goods to which they are most like to.
" Eg : Plastic films used to restrict glare of sunlight which are pasted on car windows,
however if we look at the following tariff entry
" "39253000" Builders ware of plastics not elsewhere specified - shutters , blinds
(including venetian blinds ).
Now even though this car film is not a builders "ware of plastic" still it will be
classified under the above tariff entry.
" Rule 5 : Packing material
" In respect of packing materials following rules need to be followed.
" The packing materials such as specifically shaped boxes or containers which help in
appropriate storage of goods are to be classified along with the main product instead
of classifying it separately.
" Eg: A wrist watch box, jewellery box, camera case.

" Rule 6 : General Rules for interpretation

" For legal purpose the classification of the goods in the sub headings of a heading shall
be determined according to the terms of those sub headings and any related subheading notes and, like wise, to the above Rules in the understanding that only subheadings at the same level are comparable For the purpose of this rule relative section
and chapter notes also apply unless the context otherwise requires.
" Standard unit of quantity as referred in first schedule to the customs tariff act 1975
have been kept for collection, comparison and analysis of the trade statistical data.
Therefore in order to have a standardization of measuring the goods a standard unit
has been set for each goods.
" Eg : cement - Tonnes, chemical powders in- gm/mg
" Trade parlance theory suggests that if a product has not been specified in the schedule
or section notes or chapter notes of the Central excise tariff act 1985 then it should
be classified according to its popular meaning or meaning attached to it by those
dealing with it ie in commercial sense.

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Valuation

Like every product needs to be classified under a legitimate tariff head, also the
same needs to be valued correctly.
As in most of the cases the calculation of duty is ad-valorem ie based on the value and
therefore if the value is not calculated correctly the duty amount will not be correctly
determined. Therefore it is of utmost importance to arrive at a correct value.
There are a various basis for calculation of excise duty as mentioned below.

1. Specific duty:
The duty which is payable based on units such as length, area, volume etc.
2. Duty based on value:
It is a duty based on the value calculated ie either being a Tariff value under
section 3(2) or a Transaction value as defined under Section 4 or Retail sales price
as calculated under Section 4A of "The Central Excise Act 1944".

3. Duty based on production capacity : In respect of goods notified by Central

Government under Section 3A the duty has to be paid based on annual production
capacity. This section has a overriding effect over Section 3( charging section).
Considering the nature of goods, the extent to which evasion of duty can be done or
if the Central government considers it essential in its best interest it can notify all such
goods.
For the time being Pan Masala, Gutkha, Branded unmanufactured tobacco
etc are notified under this section.

4. Compounded Levy Scheme ( Rule 15 of the Central Excise Rules 2002)

This scheme is meant for small scale and disorganised sectors. Such assessees find
it difficult to have a adherence to procedural compliance due to lack of availability
of resources. Thus they prefer this scheme. Since the amount of duty is specified
based on the number and type of machines.
eg : In case of Stainless steel pattas/patties the duty is Rs 30,000 per machine per
month. Also this scheme is available in case of Alluminium circles produced on
cold rolling machines - The duty is Rs 12,000 per machine per month.

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>

Assessable Value : The value which will be adopted for the purpose of determining
the amount of duty payable ie the value on which duty at a specified percentage will
be calculated is known as the assessable value.

>

Transaction Value: As per provisions of Section 4(3)(d), Transaction value means

price actually paid or payable by he buyer to the seller for the delivery of the goods at
the time and place of removal. This also includes any sum payable by the buyer to
any person on behalf of the seller.

Sr No
Inclusions
Advertisement and
1
Publicity

Exclusions
Excise duty

2
3
4

Marketing and selling

Storage, handling
Servicing, Warranty

Sales tax, VAT

Any other local taxes

5
6

Commission
Any expenses in
connection with sale

As per section 4(1)(a) The assessable value will be equal to the transaction value only
if all the under mentioned conditions are satisfied.

I
I
I
I

There must be a sale of excisable goods by the assessee.

The delivery is at the time and place of removal.
Price is the sole consideration.
The assessee and the buyer of the goods should not be related persons.

Assessee as per section 4(3)(a) means a person who is liable to pay duty under this act and
includes his agent.
Related person section 4(3)(b) Persons shall be deemed to be related if
1. They are inter connected undertaking
2. They are relatives.
3. amongst them the buyer is a relative and a distributor of the assessee, or
a sub-distributor of such distributor.
4. They are so associated that they have interest , directly or indirectly, in business of
each other Relative shall have the meaning assigned to it in clause(41) of section 2 of
the Companies Act 1956

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Place of Removal : Section 4(3)(c) : Means

A factory or any other place or premises of production or manufacture of the
excisable goods . A warehouse or any other place or premise wherein excisable goods
have been permitted to be deposited without payment of duty. A depot, premises of
a consignment agent or any other place or premises from where excisable goods are
to be sold after their clearance from factory.
Explanation to Section 4(1) : "Cum-duty-price" means
The price actually received by the assessee (seller) for the goods sold plus the money
value of additional consideration flowing from the buyer to the assessee .
Assesable value in such cases shall be calculated using reverse calculation mechanism.
AV = Cum duty price (permissible dedctions) + (Additional consideration)
x 100 100+rate of duty
Eg : to be covered in class

"Normal transaction value" : Normal transaction value means the transation value
of the goods sold in greatest agreegate quantity.
As per a circular issued by CBEC for computing greatest agreegate quantity, the
time period should be taken as whole day. Greatest agreegate quantity means
the largest quantity of identical goods sold on a particular day irrespective of
the number of buyers.
The concept of normal transaction value is used for valuation in case of .
1.
2.
3.

depot transfer under Rule 7.

Sale to a related person under Rule 9.
Valuation in case of Jobworker under Rule 10A

( The Central Excise Valuation Rules 2000.

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" Rule 4 : Value of goods is not known at the time and place of removal .
" The value of excisable goods shall be based on the value of goods sold by the assessee for
the delivery at the time nearest to the time of removal of goods under assessment
subject to, if necessary, such adjustment on account of the difference in the dates of
delivery of such goods and of the excisable goods under assessment, as may appear
reasonable to the proper officer. The valuation of samples which are removed is also
done as per this rule. Also in case of warranty claims this rule shall be made applicable.
" In case the goods are notified under section 4A the value of such samples shall be
computed in accordance with the provisions of section 4A of the Central Excise Act
" In case one single value cannot be found nearest to the time of removal then the value
shall be determined as per Rule 11 read with Rule 4. ie the value shall be the Normal
Transaction Value. ( ie the greatest agreegate quantity rate per unit shall be considered)

" Rule 5 : .Where any excisable goods are sold in the circumstances specified in clause(a)
of sub-section (1) of section 4of the Act except the circumstances in which the excisable
goods are sold for delivery at a place other than the value of such excisable goods shall
be deemed to be the transaction value, excluding the cost of transportation from the
place of removal upto the place of such excisable goods.

" Sums to be solved in class.

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Rule 6: RULE 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub
section (1) of section 4 of the Act except the circumstance where the price is not the sole
consideration for sale, the value of such goods shall be deemed to be the aggregate of such
transaction value and not the amount of money value of any additional consideration flowing
directly or indirectly from the buyer to the assessee.

Sums to be solved in class

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Rule 7 : Where the excisable goods are not sold by the assessee at the time and the place of
removal but are transferred to a depot, premises of a consignment agent or any other place or
premises from where the excisable goods are to be sold after their clearance from the place of
removal and where the assessee and the buyer of the said goods are not related and the price is
the sole consideration for the sale, the value shall be the normal transaction value of such goods
sold from such other place of or about the same time and, where such goods are not to be sold
at or about the same time, the time nearest to the time of removal of goods under assessement.
Sums to be solved in class

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RULE 8 : Where the excisable goods are not sold by the assessee but are used for the consumption
by him or on his behalf in the production or manufacture of other articles, the value shall be 110% of
the cost of production or manufacture of such goods.
The cost of production shall be calculated using CAS-4 ( Format annexed )
Certain inclusions and exclusions to be made while determining the cost of productions are as under
mentioned.

Inclusions in cost : The amortized cost of moulds, tools, dyes and patterns etc received free of cost
shall be included in the cost

Exclusion from cost : interest and other financial charges, abnormal and non recurring costs,
abnormal scrap and wastages, and contingent obligations such as VRS, retrenchment compensation
etc shall form part of cost
Cost of materials to be considered should be always net of duty.

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Sums to be solved in class.

RULE 9 : When the assessee so arranges that the excisable goods are sold by the
assessee except to or through a person who is related in the manner specified in either
of sub-clauses,the value of goods shall be the normal transaction value at which these
are sold by the related person at the time of removal, or where such are not sold to
such buyers, to buyers, who sells such goods in retail.
In case the goods are consumed or used by the related person in the production
process then the cost of such goods shall be determined as per Rule 8 of the

Central Excise valuation rules.

Rule 10 :When the assessee so arranges the excisable goods are not sold by him except
to or through an inter-connected undertaking, the value of goods shall be the
transaction value.

In any other case the value shall be determined as per Rule 9 ie Normal
transaction value.

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" Rule 10A :

" Where the excisable goods are produced or manufactured by a job worker on behalf of a
person.
" In case the goods are sold by the principal manufacturer for delivery at the time of
removal of goods from the factory of the job worker, where the principal manufacturer
and the buyer are not related and price is the sole consideration for the sale, the value
of excisable goods shall be the transaction value of the excisable goods
" However if the goods are not sold by the pricipal manufacturer at the time of removal of
goods from the factory of the job worker but are transferred to some other place from
where the said goods are sold after their clearance from the factory of the job worker
and where the principal manufacturer and the buyer are not related and price is the
sole consideration , the value shall be the normal transaction value of such goods
from such place at or about the same time or nearest time when such goods were sold.

" Rule 11 : If the value of any excisable goods cannot be determined under the foregoing
rules, the value shall be determined using reasonable means consistent with the
principles and general provisions of these rules and sub-section (1) of section 4 of the
Act.

" The central Excise Rules :

" Rule 1. Short title, extent and commencement
" These rules may be called the Central Excise Rules, 2002. "
They extend to the whole of India.
" They shall come into force on the 1st day of March, 2002.
" Rule 2 : Definition
" Rule 3 : Appointment and jurisdiction of central excise officers..

" Rule 4: Duty payable on removal

" Every person who produces or manufactures any excisable goods, or who stores such goods in
a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or
under any other law, and no excisable goods, on which any duty is payable, shall be removed
without payment of duty from any place, where they are produced or manufactured, or from
a warehouse, unless otherwise provided.

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" Rule 5 : Date for determination of duty and tariff valuation. " The rate of duty or tariff value applicable to any excisable goods, other than khandsari
(molasses) shall be the rate in force on the date when such goods are "removed"
from a factory or a warehouse, as the case may be.

Refer the table given earlier.

" In case of molasses the rate of duty applicable will be of the date of procurement of
such molasses into the factory.
" The rate of duty in the cases of khandsari molasses, shall be the rate in force on the
date of receipt of such molasses in the factory of the procurer of such molasses.
" Rule 6 : The assessee shall himself assess the duty payable on any excisable

goods " Ie In Excise the self assessment mechanism is in force.

" Provided that in case of cigarettes, the Superintendent or Inspector of Central
Excise shall assess the duty payable before removal by the assessee,

" RULE 7. Provisional Assessement. - In the case where the assessee is not able to
determine the value of the goods or the rate of duty then in such cases the assessee
can resort to provisional assessment. A request is to be made to jurisdictional Assistant
commissioner or Deputy commissioner of Central Excise, considering the same the
commissioner may allow the payment of duty on provisional basis.
" Subsequently the assessment shall be finalized and if on finalization it is noticed that
the duty paid on provisional basis is less than the duty actually payable , then the
balance amount shall be paid along with interest at prescribed rates.
" The interest will be applicable from the first day of the succeeding month for which the
duty is determined till the date of completion of final assessment. If however the duty
paid is more than what was actually payable then the excess duty paid will be
refunded. If the refund is not granted within 3 months from the date of final
assessment order then interest is payable.
" RULE 8. Manner of payment
" In normal cases the duty payable on monthly basis by 6th of the subsequent month. If
however the payment is made electronically then the payment should be made by 5th
of the subsequent month. However in case of payments for the month of march the
payments should be made by 31st of March.

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In case of assessees who are availing value based exemptions as per E/N 8/2003 the

payment has to be made by 5/6 th of the subsequent month after conclusion of the
financial quarters. And for the quarter ending on march the payment has to be made by
31st of march.

Rule 9 : Registration
(1) Every person, who produces, who manufactures, carries on trade, holds private
store-room or warehouse or otherwise uses excisable goods, shall get registered :
Provided that a registration obtained under rule 174 of the Central Excise Rules,1944 or
rule 9 of the Central Excise Rules,2001 shall be deemed to be as valid as the registration
made under sub-rule for the purpose of these rules.
(2) The Board may be notification and subject to such conditions or limitatioins as may
be specified in such notification, specify person or class of persons who may not require
such registration.
The registration under sub-rule (1) shall be subject to such conditions, safeguards
and procedure as may be specified by notification by the Board

RULE 10. Daily stock account. Every assessee shall maintain proper records, on a daily basis, in a legible manner
indicating the particulars regarding description of the goods produced or manufactured,
opening balance, quantity produced or manufactured, inventory of goods, quantity
removed, assessable value, the amount of duty payable and particulars regarding
amount of duty actually paid.
The first page and the last page of each such account book shall be duly
authenticated by the producer or the manufacturer or his authorized agent.
All such records shall be preserved for a period of five years immediately after
the financial year to which such records pertain.
Rule 11 : No excisable goods shall be removed from a factory or warehouse , except
under an invoice signed by the owner of the factory or his authorized agent and in case
of cigarettes, each such invoice shall also be countersigned by the inspector of Central
Excise or the Superintendent of Central Excise before the cigarettes are removed from
the factory. The invoice should be serially numbered. The invoice books shall be used
one at a time. The invoice should consist the name of the assessee, registered office
address, date rate quantity amount and particulars, excise registration number vehicle
details in which consignment is despatched, name of the buyer and his details.
The invoice shall be prepared in triplicate original for the buyer, duplicate for
the transporter and triplicate for the assessee.

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RULE 12. Filing of r etur n. The monthly returns shall be filed by 10th of the subsequent month. In case of SSI unit
holders
RULE 12A. Filing of return in respect of specified goods on which excise duty has been
imposed on and from the 1st March,2002. Notwithstanding anything contained in rule 12, every assessee shall submit, in respect
of goods specified in the Annexure to rule 8A, to the Superintendent of Central Excise a
return for the months of March, April and May,2002, in the form specified by
notification by the Board, of production and removal of the said goods and other
relevant particulars, by the 10th day of Jun,2002.
RULE 12AA. A Job work in article of jewellery or others articles of precious metals. RULE 12BB. Procedure and facilities for large tax payer. RULE 12C. Maintenance of records and payment of duty by the independent weaver of
unprocessed fabrics. An independent weaver of unprocessed fabrics falling under Chapter 50, 51, 52, 53, 54,
55, 58 or 60 of the First Schedule to the Tariff Act, may, at his option, authorize another
person, on his behalf, to maintain accounts, pay duty, prepare invoice and comply with
any of the provisions of these rules expect that of rule 9

RULE 12CCC: Powers to impose restrictions in certain types of cases.

RULE 12D: Applications of the rules.
RULE 15. Special procedure for payment of duty.
RULE 16. Credit of duty on goods brought to the factory. RULE 16A. Removal of goods for job work, etc. - Any inputs received in a factory may
be removed as such or after being partially processed to a job worker for the future
processing, testing, repair, re-conditioning or any other purpose subject to the
fulfillment of conditions specified in this behalf by the Commissioner of Central
Excise having jurisdiction.

RULE 16B. Special procedure for removal of semi-finished goods for certain purposes.
RULE 16C. Special procedure for removal of excisable goods for carrying.

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out certain purposes.

RULE 17. Removal of goods by a Hundred per cent. Export-Oriented out
certain processes.
RULE 18. Rebate of duty.
Where any goods are exported, the Central Government may, by notification, grant
rebate of duty paid on such excisable goods or duty paid on materials used in the
manufacture or processing of such goods and the rebate shall be subject to such
conditions or limitations, if any, and fulfillment of such procedure, as may be
specified in the notification
RULE 19. Export without payment of duty.
Any excisable goods may be exported without payment of duty from a factory of
the procedure or the manufacturer or the warehouse or any other premises, as
may be approved by the Commissioner.
Any material may be removed without payment of duty from a factory of the
producer or the manufacturer or the warehouse or any other premises, for use in the
manufacture or processing of goods which are exported, as may be approved by the
Commisioner.

The export under sub-rule (1) or sub-rule (2) shall be subject to such conditions,
safeguards and procedure as may be specified by notification by the Board.
RULE 20. Warehousing Provisions.
RULE 21. Remission of duty.
Where it is shown to the satisfaction of the Commissioner that goods have been lost or
destroyed by natural causes or by unavoidable accident or are claimed by the
manufacturer as unfit for consumption or for marketing, at any time before removal, he
may remit the duty payable on such goods, subject to such conditions as may be
imposed by him by orderin writing.
RULE 22. Access to a registered premises.

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Export & Warehousing

EXPORT UNDER CLAIM OF REBATE

Rule 18 of Central Excise Rules, 2002 :
The Central Government may, by notification, grant rebate of(i) Duty paid on such excisable goods which are exported out of India, or
(ii) Duty paid on materials used in manufacture or processing of such goods.

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Conditions and Limitations for grant of Refund:

Rebate of whole of the duty paid on all excisable goods, falling under First Schedule
to Central Excise Tariff Act, 1985, exported to any country, other than Bhutan, is
granted subject to following conditions and limitations(a) The excisable goods shall be exported, after payment of duty, directly from a
factory/warehouse except as otherwise permitted by the CBEC by a general
order or special order;
(b) The excisable goods shall be exported within 6 months from the date on which
they were cleared for export from the factory of manufacture or warehouse or
within such extended period as the Commissioner of Central Excise may, in any
particular case, allow;
(c) The excisable goods supplied as ship's stores for consumption on board a vessel bound
for any foreign port are in such quantities as the Commissioner of Custom's at the port
of shipment may consider reasonable;
(d) The rebate claim by filing electronic declaration shall be allowed from such place
of export and such date, as may be specified by the Board in this behalf;
(e) The market price of the excisable goods at the time of exportation is not less
than the amount of rebate of duty claimed;
(f) The amount of rebate of duty admissible is not less than Rs. 500;
(g) The rebate of duty paid on those excisable goods, export of which is prohibited
under any law for the time being in force, shall not be made.
(h) In case of manufacturer is availing area-based exemption and exporting
goods therefrom, no rebate of duty shall be admissible.

Procedure for export of goods on payment of

duty under claim of rebate
(1)Goods to be exported under self sealing or sealing by Excise Officer :
The manufacturer exporters and merchant exporters, who procure and export the goods
directly from the factory or warehouse, can exercise the option of exporting the goods sealed at
the place of dispatch by a CEO or under self sealing
(2)Procedure at the place of dispatch:
(A) Sealing and examination at the place of dispatch by CEO:
> Goods to be presented for examination and sealing to CEO along with 4 copies
of ARE-1
> Verification & sealing of packages by the CEO
> Distribution of copies of application
Original and duplicate copies shall be returned to exporter,
Triplicate copy shall be sent to officer with whom rebate claim is to be filed or sent to
the Excise Rebate Audit Section at the place of export,
Quadruplicate copy may be prepared by exporter
for claiming any other export incentive. > Export
by Post

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(B) Self Sealing and certification:

> Manufacturer or owner of the export goods shall take responsibility of sealing
and certification
> Merchant-exporter not allowed self sealing facility
> Certification of sealing of packages by owner/partner/director authorized
person The Managing Director or Company Secretary of Manufacturing unit or
owner of warehouse shall Certify all copies of application that goods have been sealed in his presence, and
Shall send the original and duplicate copies of application along with the goods at
the place of export, and
Shall send triplicate and quadruplicate copies to Superintendents or Inspector of
Central Excise having jurisdiction over the factory or warehouse within 24 hours of
removal of goods;
> Verification of duty paid and endorsing the correctness of particulars by
Superitendent or Inspector of Central Excise, and shall send triplicate copy to To the officer with whom rebate claim is filed,
To Excise Rebate Audit Section at the place of export when rebate is claimed
by electronic declaration , and
The quadruplicate copy shall be returned to exporter for the purposes of
claiming any other export incentive.

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(3) Procedure at the place of Export:
> Presentation of goods along with application for export
> Verification by Custom Officer and Inspection of package by Custom
Officer > Return of copies by Custom Officer after due endorsement
(4) Presentation of claim for rebate to Central Excise:
> Person to whom claim of rebate to be made
Assistant or Deputy Commissioner of Central Excise having jurisdiction
over factory or
Maritime Commissioner, as the case may
be. > Sanction of Rebate
(5) Claim through electronic declaration
(6) Special procedure for store for consumption on board an aircraft on foreign run
(7) Cancellation of export documents if goods are not exported

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Documents required to be filed to claim the rebate of Central Excise duty

by an exporter:
> A request on letterhead of the exporter containing claim of rebate, ARE-1 numbers and
>
>
>
>
>

dates corresponding invoice numbers and dates on each ARE-1 and its calculations;
Invoice issued under Rule 11;
Self attested copy of Shipping Bill;
Self attested copy of Bill of Lading;
Disclaimer Certificate;
Original copy of the ARE-1

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REBATE OF DUTY PAID ON RAW MATERIALS

USED IN EXPORT GOODS
Conditions and limitations for claiming rebate of duty paid on excisable
materials used in goods manufactured, to be exported are as follows -

(a) Benefit of input stage rebate can be claimed on export of all

finished goods, whether excisable or not;
(b) Any process not amounting to manufacture will also be eligible
for the benefit of rebate
(c) Benefit of input stage rebate is allowed only to manufacture. It
is not available to merchant exporter.
(d) The expression 'material' shall mean all raw materials, consumables,
components, semi-finished goods, assemblies, sub-assemblies,
intermediate goods, accessories, parts and packing materials required
for manufacture or processing of export goods.
(e) Rebate of Central Excise duty paid on equipment and machinery, being
in the nature of capital goods used in relation to manufacture or
processing of finished goods to be exported, shall not be allowed.

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PROCEDURE FOR CLAIMING REBATE OF DUTY ON INPUTS USED
IN MANUFACTURE/PROCESSING OF EXPORT GOODS
>

Filing of declaration with Assistant or Deputy Commissioner of Central Excise with

required particulars

>
>
>
>

Verification of Input Output Ratio

Procurement of Material
Removal of Materials
Removal of materials or partially processed material for processing
For the purpose of test, repairs, refining, reconditioning or carrying out any other
necessary operation for manufacture of finished goods and return the same to
factory without payment of duty
For the purpose of manufacture of intermediate products necessary for
manufacture or processing of finished goods and return the same to factory without
payment of duty
Any waste arising from processing of materials may be removed on payment of duty
Procedure for export

>
>
>

Presentation of claim of rebate

Communication of deficiency in claim

EXPORT UNDER BOND WITHOUT PAYMENT OF DUTY

Rule 19 of Central Excise Rules, 2002:

>
>
>

Any excisable goods may be exported without payment of duty from a factory of
the producer/manufacturer /warehouse/any other premises , as approved by
Commissioner
Any material may be removed without payment of duty from a factory of producer/
manufacturer/ warehouse/any other premises for use in manufacture or processing of
goods which are exported, as approved by Commissioner
The export shall be subject to such conditions, safeguards and procedure as may
be specified by notification by the Board.

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Conditions and limitations for export to a place other than
Bhutan
> Exporter to furnish a bond of a sum equal to at least duty chargeable on the goods with
surety or sufficient security,

> Export within 6 months

> Export in original packed condition
> Exempted goods cannot be exported under bond

Procedure for clearance of goods for export without payment of

duty
> Furnishing letter of undertaking
> After furnishing a bond, a merchant exporter shall obtain certificates in Form
CT-1 > Procurement of excisable goods without payment of duty for export
> Such general bond or letter of undertaking shall not be discharged unless the

goods are duly exported, within the time allowed and until full duty due upon any
deficiency has been paid

(1) Procedure for export of finished goods:

(I) Sealing of goods and examination at the place of dispatch:
Exporter shall present goods along with 5 copies of application in the Form ARE-1,
Verification by SCE of identity of goods mentioned in the application,
The SCE shall return the original and duplicate copies of application to the
exporter and retain quadruplicate copy,
The triplicate copy of application shall be sent to the officer to whom bond has
been furnished,
The quadruplicate copy shall be retained by SCE for his own record,
The exporter may prepare quintuplicate copy for claiming another export incentives.
(II) Dispatch of goods by self-sealing and self certification:
Managing Director or Company Secretary shall certify all the copies application
that the goods have been sealed in his presence, and shall send original and
duplicate copies at the place of export and triplicate and quadruplicate copy to
SCE or Inspector
Verification by SCE of particulars of bond and endorsing correctness of
particulars in application
The exporter may prepare quintuplicate copy for claiming another export incentives.

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2) Examination of goods at the place of export:
On arrival at the place of export, goods shall be presented together with original,
duplicate and quintuplicate copies of application to Commissioner of Customs
The Commissioner of Customs or other duly appointed officer shall examine
the goods with the particulars as specified in the application and if finds that
same are correct and exportable, then he shall allow export thereof and certify
copies of application.
The Commissioner of Customs or other duly appointed officer shall return the
original and quintuplicate copies of application to the exporter and forward the
duplicate copy of application to the officer specified in application.
The exporter shall present original copy to Bond Sanctioning Authority who
shall crosscheck the same with duplicate and triplicate copies of ARE-1 and if
he is duly satisfied, shall discharge the bond.
The exporter shall use quintuplicate copy for the purposes of claiming any
other export incentive.
3) Cancellation of applications:
If excisable goods are not exported, the AC/DC of Central Excise or Maritime
Commissioner or any other officer, to whom bond has been furnished, shall , on
written request for cancellation of application, cancel the said application and
allow diversion of goods for consumption in India.
The exporter shall pay the duty as specified in the application along with interest at the
rate of 24% p.a. on such duty, from the date of removal for export to the date of
payment.

EXPORT WITHOUT PAYMENT OF DUTY TO NEPAL AND BHUTAN

Circumstances under which export of goods to Nepal and
Bhutan is permitted without payment of duty:
(i) Export under bond to Bhutan, where payment is in freely convertible currency
(ii) Export in bond of petroleum oil, liquified petroleum gas and lubricant
products to Nepal
(iii) Export in bond for supplies to Government of India aided projects in Nepal and
the Embassy Co-operative store and Embassy Petrol Pump located in Nepal for
the bonafide use of the officers and staff of the Embassy in Nepal
(iv) Export of all excisable goods without payment of duty to Kurichu Hydro Electric
Project, Tata Hydro Electric Project, Punatsangechhu-I Hydro Electric Project,
Punatsangechhu-II Hydro Electric Projectand Mangdechhu Hydro Electric Project
in Bhutan

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Provisions regarding export under Bond to Nepal where payment of
duty is in freely convertible currency:
1) The importer in Nepal before the export of goods takes place, shall:
Make full payment to exporter by furnishing Foreign Inward Remittance
Certificate (FIRC) from any authorized bank to deal in foreign exchange by RBI, or
Open an irrevocable letter of credit in favour of the exporter in India
2) This condition does not apply to excisable goods other than consumer goods
but excluding motor vehicles, are exported without payment of duty, as:
Supplies to projects financed by United Nations Agency, International Bank for
Reconstruction and Development Association, Asian Development Bank or any
other multilateral agency of like nature;
To all diplomatic missions in Nepal provided in Nepal provided Indian
Embassy or Ministry of External Affairs certifies that import is for personnel
of diplomatic community.
3) The exporter shall furnish bond before AC/DC of Central Excise having jurisdiction
over factory, warehouse, or approved premises or such other officer as authorized
by the Board on this behalf from where goods are removed, for export to Nepal.
4) Where export is against an irrevocable letter of credit, exporter shall furnish a
certificate from RBI, showing that full payment has been received in convertible
foreign currency.
5) On receipt of such certificate and on the satisfaction that the goods have been
exported in terms of bond, Bond Accepting Authority shall discharge the
exporter of his liabilities under the bond.

Procedure for export of goods to Nepal and Bhutan

without payment of duty:
(I) Procedure at the place of dispatch:
> Six copies of Invoice to be presented to SCE having jurisdiction over
factory, warehouse or any other premises along with export goods
> In case of export for supplies to Government of India aided projects in Nepal and
the Embassy Co-operative store and Embassy Petrol Pump located in Nepal for the
bonafide use of the officers and staff of the Embassy in Nepal, the order of Project
Implementation Authority shall also be presented;
> The SCE having jurisdiction over factory, warehouse or any other premises
shall verify identity of goods with reference to particulars of goods
> The goods shall be delivered to exporter or his agent, with original copy of the
invoice, duly completed and registered. He shall also give duplicate, triplicate
and quadruplicate copies to exporter for delivery to Customs Officer in charge of
Land Customs Station
> The exporter shall be then free to remove goods for export to Nepal
through Land Customs Station
> Quintuplicate copy shall be forwarded to AC/DC of Central Excise who has
accepted the bond
> The SCE shall retain six tuplicate copy of the invoice.

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(II) Procedure at Land Custom Station:

> The exporter or his agent shall present goods to the officer of customs-in-charge of
Land Custom Station along with original copy of invoice and sealed cover containing
duplicate, triplicate and quadruplicate copies and obtain acknowledgment
> Verification of identifying the contents of all copies of invoice by officer of
customsin-charge of Land Custom Station and shall make necessary entries in
register and allow goods to cross into territory of Nepal or Bhutan
> The officer of customs shall deliver the original copy of the invoice duly endorsed
to exporter along with goods for presentation of to the Customs Officer of Nepal or
Bhutan.
> The goods are then to be produced before Nepalese or Bhutanese Customs Officer
at the corresponding border check-post along with original copy of invoice.
> The officer of customs-in-charge of Land Custom Station shall forward duplicate
copy to CEO in charge of the factory or warehouse from which goods were
removed for export without payment of duty.

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(III) Procedure for discharge of bond or the duty liability:
> The exporter shall submit the quadruplicate copy to CEO in charge of factory
or warehouse, along with bank certificates evidencing receipt of payment in
freely convertible currency, within 6 months from date of removal of goods
> The CEO will verify the particulars of quintuplicate copy of invoice received from
CEO who has allowed clearance from factory or warehouse and will make
suitable entries in Board Account of exporter, giving provisional credit or
discharging the bond provisionally.
> In case of failure of export within 6 months from the date of removal or shortages
noticed, the exporter shall discharge the duty liability on the goods not so
exported or shortage noticed, along with 18% p.a. interest thereon.

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PROCUREMENT OF INPUTS WITHOUT PAYMENT OF DUTY FOR USE IN

EXPORT GOODS
Conditions and safeguards subject to which inputs can be procured without payment of
duty for purpose of manufacture of export goods under Rule 19:

>
>
>
>
>

The manufacturer or processor intending to avail benefit of this notification shall register
himself under Rule 9 of Central Excise Rules 2002
The provisions of Central Excise (Removal of goods at concessional rate of duty for manufacture of
excisable goods) Rules, 2001 shall be followed.
General bond with surety or security or letter of undertaking shall be furnished by manufacturer.
Manufacturer or processor shall declare input output ratio and rate of duty payable on excisable
goods to be procured without payment of duty.
AC/DC of Central Excise shall verify the input output ratio and other particulars furnished in
declaration. After satisfying with correctness of particulars, he shall countersign the application

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>

Removal of inputs for job work:

For the purpose of test, repairs, refining, reconditioning or carrying out any other
necessary operation for manufacture of finished goods and return the same to
factory without payment of duty
For the purpose of manufacture of intermediate products necessary for manufacture
or processing of finished goods and return the same to factory without payment of
duty
Any waste arising from processing of materials may be removed on payment of duty
> Manufactured goods to be exported on the application in Form - ARE-2 and
procedures prescribed shall be followed.

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PROCEDURE IN RESPECT OF EXPORTED GOODS SUBSEQUENTLY
RE-IMPORTED AND RETURNED TO FACTORY
Exported goods can be re-imported for carrying our repairs, reconditioning, refining,
remaking or subject to any other similar process, may be returned to factory for
carrying out said processes and subsequent re-export in following manner:

>

The manufacturer shall maintain separate account for return of such goods in Daily
Stock Account and shall make suitable entries in said account after said processes are
carried out

>
>

Such re-import or re-export shall be governed by provisions of Custom's Act, 1962.

Any waste or refuse arising out of said processes, shall be removed from the factory
after payment of appropriate duty or destroyed , after informing proper officer atleast
7 days in advance and after observing such conditions and procedure as may be
specified by CCE.
> Thereafter, duty is payable on such waste or refuse may be remitted by the
said Commissioner of Central Excise.

PROCEDURE FOR RE-ENTRY OF GOODS CLEARED FOR EXPORT

UNDER BOND BUT NOT ACTUALLY EXPORTED, IN FACTORY OF
MANUFACTURER
The excisable goods cleared for export under bond or undertaking but not actually
exported for any genuine reasons may be returned to same factory provided:

>
>
>

>

Such goods are returned to the factory within 6 months with original documents like
invoice and ARE-1.
The assessee shall give intimation of re-entry of each consignment in Form D-3
within 24 hours of such re-entry
Such goods are to be stored separately t least 48 hours from the time intimation is
furnished to the Range Office or shorter period, if verification is done by SCE, about
identity of goods with reference to invoice, ARE-1, Daily Stock Account i.r.o. 5%
intimations, within 24 hours of receipt of information.
The assessee shall record details of such goods in Daily Stock Account and taken in
the stock in the factory.

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WAREHOUSING PROVISIONS

44

Rule 20 of Central Excise Act, 1944 :

Removal of excisable goods from a factory to a warehouse or from
one warehouse to another warehouse
1)The Central Government may by notification, extend the facility of removal of any
excisable goods from the factory of production to a warehouse, or from one warehouse
to another warehouse, without payment of duty.
2) The said facility shall be available subject to such conditions, including penalty and
interest, limitations with respect to period for which goods may remain in
warehouse, and safeguards and procedure as may be specified by the Board.
3) The responsibility for payment of duty on the goods, that are removed from the
factory of production to a warehouse, shall be upon consignee.
4) If the goods dispatched for warehousing or re-warehousing are not received in
the warehouse, the responsibility for payment shall be upon consignor.

(1) Procedure in respect of excisable goods removed from a factory or

a warehouse:

>
>
>
>
>

>
>

The consignor shall prepare an application in quadruplicate in specified from for

removal of goods from a factory or a warehouse to another warehouse.
The consignor shall also prepare invoice i.r.o. goods proposed to be removed
from factory or warehouse.
The consignor shall send original, duplicate, triplicate application and duplicate
invoice along with the goods to the warehouse of destination.
The consignor shall send quadruplicate copy to Superitendent-in-charge of his
factory or warehouse within 24 hours of removal of consignment.
On arrival of the goods at warehouse, the consignee shall, within 24 hours of arrival
of goods, verify the same with all the three copies of the application. The consignee
shall send duplicate copy to Superitendent-in-charge of his warehouse, duplicate to
consignor and retain the triplicate for his record.
The Superitendent-in-charge of the consignee shall countersign the application
received by him and send it to the Superitendent-in-charge of the consignor.
The consignor shall retain the duplicate application duly endorsed by the consignee
for his record.

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(2) Failure to receive a warehousing certificate:

>

>

The consignor shall receive the duplicate copy of the warehousing certificate, duly
endorsed by the consignee, within 90 days of removal of goods. If warehousing
certificate is not received within 90 days of removal, or extended period, the consignor
shall pay appropriate duty leviable on such goods.
If Superitendent-in-charge of the consignor does not receive original certificate, duly
endorsed by the consignee and countersigned by Superitendent-in-charge of the
consignee, within 90 days of removal of goods, weekly reminders must be issue by him
to Superitendent-in-charge of the consignee. If still, original certificate is not received
within further 60 days, then Superitendent-in-charge of the consignor shall inform his
AC/DC who shall either secure a satisfactory proof of goods having been duly received
by consignee or ensure that the duty of excise due on the goods not received at
destination is recovered from the consignor.

(3) Accountal of goods in a warehouse:

>

>

The registered person of a warehouse shall maintain a register showing all

accounting entries into and removal of goods from his warehouse and shall indicate
the value, quantity of goods removed, their marks and numbers as well as the rate
of duty and amount of duty involved.
First and last pages of the register should be pre-authenticated by the owner of
the warehouse or his authorized agent.

(4) Responsibility of the registered person:

>
>

The registered person of a warehouse shall be responsible for due reception of

the goods into the warehouse and deliver therefrom, including their safety during
the period they are lodged in the warehouse.
The registered person shall be responsible for the payment of penalty or interest
leviable i.r.o goods which are warehoused as per provisions of Central Excise Act an
the Rules made thereunder.

(5) Period of warehousing:

>
>

Any goods warehoused may be left in the warehouse in which they are deposited, or in
any warehouse to which such goods have been removed, till the expiry of three
years from the date on which such goods were first warehoused.
If the registration of a warehouse is revoked or suspended, the excisable goods
lodged therein shall either be declared for home consumption on payment of duty or
shall be removed to another warehouse without payment of duty.

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(6) Warehouse to store goods belonging to the registered person:

>

>
>

A warehouse shall be used solely for storing excisable goods belonging to registered
person of warehouse alone. He shall not admit or retain in the warehouse any
excisable goods on which duty has been paid ordinarily, the warehouse shall be used
solely for storing excisable goods belonging to registered person of warehouse alone.
The Commissioner of Central Excise having jurisdiction over the warehouse may permit
storage of excisable goods along with the excisable goods belonging to another
manufacturer.
The Commissioner of Central Excise having jurisdiction over the warehouse may
permit registered person of the warehouse to store duty paid excisable goods.

(7) Registered person to deal with the warehoused goods:

>

The owner of the warehouse may sort, separate, pack, or re-pack the goods and make
such alterations therein as may be necessary for the preservation, sale or disposal of
goods.

EXPORT WAREHOUSING
The excisable goods are kept in a registered warehouse from where such goods
are exported, such warehousing of goods is known as Export warehousing.
(1) Conditions:
> Where goods are diverted to home consumption from the warehouse, interest shall
be charged at the rate of 24% p.a. on the duty payable, calculated from the date of
clearance from the factory of production, till the date of payment of duty and
clearances
> Exporter shall furnish a general bond (B-3) under Rule 19 of Central Excise Rules,
2002, backed by 25% security of the bond amount.
(2) Procedure :
> Registration - written request, along with application, to establish a export
warehouse, to Commissioner, who will accord the approval, within seven
working days of receipt of application
> Execution of bond - general bond in form B-3, by furnishing security equal to 25% of
the bond amount

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(3) Warehousing procedure:

> Central Excise Officer -in-charge of the warehouse will issue certificate in duplicate of
removal in the Form CT-2, indicating details of the general bond executed
by the exporter.
> The consignor will prepare an application for removal in ARE-3 Form and an
invoice and follow the procedure specified in Rule 20.
> The officer-in-charge will countersign the application and dispatch to the Range
Officer having jurisdiction over the factory, within one working day of
receipt of application.
> The assessee shall maintain private record containing information relating to
details of ARE-3 and invoice and other particulars warehoused goods.
(4) Receipt of goods in a warehouse:
> Receipt of goods will be governed by procedure specified under Rule 20.
(5) Packing , re-packing, labelling or re-labelling within the warehouse: >
These operations will be governed by procedure specified under Rule 20.
> The exporter may procure packing or labelling material and bring it
into the warehouse.
> When these processes amounts to manufacture, the goods permitted for
clearance for home consumption shall be determined and assessed accordingly.

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(6) Storage:
> Goods brought under the cover of each ARE-3 shall be stored separately or
proper accountal shall be maintained, till these are exported or diverted for
home consumption.
(7) Clearance of goods for export outside India:
> For the export of goods from the warehouse, the usual export procedure
relating to export shall be followed.

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Diversion of warehoused goods fro home consumption
>

With the permission of AC/DC of Central Excise, goods can be cleared for home
consumption on payment of duty, interest and other charges in GAR-7 challans

>

Credit will be permitted in the Running Bond Account equivalent to the duty involved in
the goods so diverted, which shall not exceed amount of duty debited on the basis
of ARE-3
Goods can also be diverted after clearance of goods from warehouse under ARE-1.
The documents will be cancelled as amended. Intimation of cancellation to be given to
AC/DC having jurisdiction over warehouse.
The exporter has to pay an interest at 24% p.a. on the amount of duty payable on
such goods from the day of clearance till the date of payment of duty.

>
>

PROCEDURE FOR REMOVAL OF GOODS AT CONCESSIONAL RATE

OF DUTY FOR MANUFACTURE OF EXCISABLE GOODS
(1) Application by manufacturer to obtain the benefit:
> A manufacturer who intends to receive subject goods for specified use at
concessional rate of duty, shall make an application in quadruplicate form to
jurisdictional AC/DC
> A manufacturer shall make separate application in respect of each supplier
of subject goods.

>
>
>
>
>

A manufacturer shall execute a general bond with surety and security.

The bond shall be for such amount as considered appropriate by the said AC/DC, to
cover the recovery of duty liability estimated to be involved at any pint of time.
The application shall be countersigned by said AC/DC, who shall certify that said
person has executed bond to his satisfaction i.r.o end use of subject goods and
indicate particulars of such bond.
Out of 4 copies, one copy shall be forwarded to jurisdictional Range Superitendent
of the manufacturer of the subject goods, two copies shall be handed over
to manufacturer and one copy shall be retained by the AC/DC.
One copy of the application received by the manufacturer, shall be forwarded by
said manufacturer to the manufacturer of subject goods.

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(2) Procedure to be adopted by manufacturer of subject goods:

> On the basis of the application received from the manufacturer, the manufacturer of subject
goods shall avail benefit of the exemption notification.
> The manufacturer of subject goods shall record on the application the removal details, such as
number, date of invoice, description, quantity and value of subject goods and amount of excise
duty paid at concessional rate.
(3) Procedure to be adopted by recipient of subject goods:
> The manufacturer receiving subject goods has to give information to the concerned authorities
and has to maintain proper records relating to such goods and submit a quarterly return to AC/DC
by 10the of the following month.

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CENVAT CREDIT RULES, 2004

RULE 1. Short title, extent and commencement.

RULE 2. DEFINITIONS
(1) inputs means
(a) All goods used in the factory by the manufacture of the final product; or
(b) Any goods including accessories, cleared along with the final product, the value of
which is included in the value of the final product and goods used for providing free
warranty for final products; or
(c) All goods used for generation of electricity or steam for captive use; or
(d) All goods used for providing any output service;
But excludes
(A) Light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
(B) Any goods used for
(a) Construction or execution of works contract of a building or a civil structure
or a par thereof; or
(b) Laying of foundation or making of structures for support of capital goods,
except for the provisions of service portion in the execution of a works
contract or construction service as listed under clause(b) of section 66E of the
Act.
(C) Capital goods except when used as parts or components in the manufacture of a
final product;
(D) Motor vehicles;
(E) Any goods, such as food items, goods used in guesthouse, residential colony, club
or a recreation facility and clinical establishment, when such goods are used
primarily for personal use or consumption of any employee; and

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(F) Any goods which have no relationship whatsoever with the manufacture of a
final product.

(2) input services means any service, -(a) Used by a provider of (output service) for providing an output service; or
(b) Used by a manufacturer, whether directly or indirectly, in or in relation to the
manufacture of final products and clearance of final products upto the place of
removal,
And includes services used in relation to modernisation, renovation or repairs of a
factory, premises of provider of output service or an office relating to such factory or
premises, advertising or sales promotion, market research, storage upto the place
remova, procurement of inputs, accounting, auditing, financing, recruitment and
quality control, coaching and training, computer networking, credit rating, share
registry, security, business exhibition, legal services, inward transportation of inputs
or capital goods and outward transportation upto the place of removal;

But excludes, -(A) Service portion in the execution of a works contract and construction services
including service listed under clause (b)of section 66E of the Finance Act(herein
referred as specified services) in so far as they used for
(a) Construction or execution of works contract of a building or a civil structure
or a part thereof; or
(b) Laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or

(B) Services provided by way of renting of a motor vehicle, in so far as they relate to
a motor vehicle which is not a capital goods; or

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(BA) service of general insurance business, servicing, repair and maintenance, in o

far as they relate to a motor vehicle which is not a capital goods, except when used by

(a) A manufacturer of a motor vehicle in respect of a motor vehicle manufactured by

such a person; or
(b) An insurance company in respect of a motor vehicle insured or reinsured by such
person; or

(C) Such as those provided in relation to outdoor catering, beauty treatment, health
services, cosmetic and plastic surgery, membership of a club, health and fitness
centre, life insurance, health insurance and travel benefits extended to employees
on vacation such as Leave or Home Travel Concession, when such services are
used primarily for personal use or consumption of any employee;

(3) capital goods means, -(A) The following goods names only:1. All goods falling under Chapter 82, Chapter 84, Chapter 85,Chapter 90, of the
first Schedule to the Excise Tariff Act;
2. Pollution control equipment;
3. Components, spares and accessories of the goods specified at (1) and (2);
4. Moulds and dies, jigs and fixtures;
5. Refractories and refractory material;
6. Tubes and pipes and fittings thereof;
7. Storage tank,
8. Motor

vehicles

other

than

those

falling

under

tariff

headings

8702,8703,8704,8711 and their chassis[but including dumpers and tippers], used

(1) In the factory of the manufacturer of the final products, but does not include
any equipment or appliance used in an office; or
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(1A) outside the factory of the manufacture of the final products for
generation of electricity for captive use within the factory; or
(2) For providing output service;
(B) Motor vehicle designed for transportation of goods including their chassis registered
in the name of the service provider. When used for
(1) Providing an output service of renting of such motor vehicle; or
(2) Transportation of inputs and capital goods used for providing an output service; or
(3) Providing an output service output service of courier agency;

(C) Motor vehicle designed to carry passengers including their chassis, registered in the
name of the provider of service, when used for providing output service of
(1) Transportation of passengers; or
(2) Renting of such motor vehicle; or
(3) Imparting motor driving skill;

(D) Components, spares and accessories of motor vehicles which are capital goods for the
assessee;

RULE 3 - CENVAT CREDIT

Rule 3(1) : A manufacturer of a final product, or a provider of output service shall be allowed to
take cenvat credit of duties paid on procurement of inputs, capital goods received in the factory
of manufacturer and input services taken by the manufacturer of final products or by the provider
of output service.

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Following are the various duties paid and the availment mechanism of credits there of

Customs

Basic Excise Duty (BED )

Service tax

Additional duty of Customs Service tax

u/s 3(1) of the Customs Act
1962 ie CVD

Special Excise Duty (SED)

Additional duty of customs u/s Education cess on Service tax

3(5) of the Customs Act 1962

Education cess (EC)

(EC)
Secondary

and

higher

education cess on service tax

(SHEC)
Secondary

and

higher

education cess (SHEC)

National calamity contingency

duty (NCCD)
Health cess
Clean energy cess
Additional duty of excise on
Goods

of

special

importance(ADD-GSI)

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Additional duty of excise on

textile

and

textile

articles

(ADD-T & TA)

The cenvat credit on BED, SED, Service tax, CVD and special CVD (SAD) can be
utilized to pay any duty other than clean energy cess.

The cenvat credit of SAD ie additional duty of customs levied under section 3(5) of the
Customs Act 1962 cannot be availed by an output service provider.

Out of the above table [NCCD, AED (T&TA),EC and SHEC and Health cess paid on
Excisable goods can be utilized to pay only respective duties ie the credit on such duties
can be specifically utilized for making payment of the same duties and not against any
other duty.

EC and SHEC on service tax can be utilized to pay EC and SHEC on service tax as well
as EC and SHEC on manufactured products.

ADD(GSI) can be utilized for paying ADD(GSI) and BED and SED.

The balance in the Cenvat credit A/c cannot be utilized to pay any duty on
products which are covered under Exemption notification 1/2011 CE.
The goods falling under this Exemption notification are liable to a nominal duty
of 1% and thus such duty has to be paid in cash only. These goods are also
covered under the definition of Exempt goods and thus no cenvat credit can be
claimed for payment of duty on such goods.
Also the balance in cenvat credit A/c cannot be utilized for making payment of
duty on goods mentioned under serial number 67 and 128 of Notification
12/2012 CE. Even the duty payable on these goods is at a nominal rate of 1%.

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Rule 3(2) : If at the time of removal the exemption on goods is withdrawn then credit is allowed
on Raw Material , and inventory which was in WIP stage or Inputs contained in final product.
Rule 3(4): The balance in the Cenvat credit account can be utilized to pay the following,

Any duty of Excise on any final product.

An amount equivalent to Cenvat credit taken on inputs which are removed as such or
after partial usage.

An amount equivalent to Cenvat credit taken on capital goods if such capital goods
are removed as such.

An amount payable under Rule 16(2) of the Central Excise Rules 2002.
Ie: if goods sold earlier are brought back in the factory cenvat credit is
availed on the same. When such goods are resold an amount equal to cenvat credit
availed on them shall be paid.

Payment of service tax on output service rendered.

However, if the service tax has to be paid on reverse charge mechanism then in such case
balance in Cenvat A/c cannot be utilized but the same has to be paid in cash.

Rule 3(5): If the inputs or capital goods on which cenvat credit has been taken, are removed as
such from the factory, or the premises of the service provider then an amount equivalent to
cenvat credit availed on such inputs or capital goods has to be paid. Such removal shall be made
under the cover of invoice.
However no amount equivalent to cenvat credit availed earlier is payable , if such inputs
or capital goods are removed by the service provider for providing output service. Also no
amount is payable if goods are removed for providing free warranty services.

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Eg : JCB machine is a capital good. But when such machine is removed by the service
provider for providing land leveling services, no amount equivalent to cenvat credit availed
earlier is required to be paid .
RULE 3(5A) : If the capital goods on which cenvat credit has been availed earlier are removed
after being used then an amount equal to {Cenvat credit availed as proportionately reduced
by % reduction per quarter or part thereof based on staraight line method} has to be paid at
the time of removal. Such reduction computation has to be made from the date of taking cenvat
credit.

For computer and computer peripherals

For each quarter in the first year

10%

per

quarter

For each quarter in the second year

8% per quarter

For each quarter in the third year

5% per quarter

For each quarter in the fourth year

1% per quarter

For each quarter in the fifth year

1% per quarter

For any capital goods other than computer and computer peripherals the reduction will
be made at 2.5% per quarter.

Thus if any capital goods are removed after being subject to usage then amount as
mentioned above has to be paid. It has to be kept in mind that the calculations have to
be made from the date of availing cenvat credit. Also we should see that the date

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belongs to which quarter ie April-June, July-September, October-December or

January to March.
The date even if falls in between any quarter still the entire quarter has to be
considered in which the date falls.

if the date of credit is say 15th September 2013, then we will consider first
quarter as July-September 2013 and the 1st year will get over in the quarter
ending June 2014.

One thing to be remembered in this rule is that the duty payable on removal of
capital goods after usage will be duty as calculated by applying above
reduction or duty payable on transaction value at the time of removal
whichever is higher.
Rule 3(5B)

When goods are written off fully before being put to use then an amount
equivalent to CCR availed has to be paid at the time of write off.

Rule 3(5C)

Wherever duty is ordered to be remitted under Rule 21 of the Central Excise

Rules on any final products then the Cenvat credit taken on the inputs used in
manufacture of such goods shall be reversed.
Reversal of cenvat credit :
Eg: In an accounting entry format.

1. Original entry at the time of purchase

Purchase A/c..Dr 1000
Input CCR A/c Dr

100

To Vendor A/c
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2. After duty on final product is remitted under Rule 21 if credit is to be

reversed , then either the credit amount will be charged of to P&L A/c or to
Purchase A/c..

Purchase/Profit and Loss A/c..Dr 100

To Input CCR A/c

100

RULE 4. CONDITIONS FOR ALLOWING CENVAT CREDIT.

Inputs should be received in the factory of the manufacturer. In case of a

service provider the inputs, if they have been sent to the location of provision
of service the service provider should possess a documentary evidence for
claiming the credit.

Cenvat credit on capital goods received in the factory or in the premises of

service provider or outside the factory to be used in generation of electricity
for captive use can be availed maximum upto 50% in the first year.

In case the assessee is a eligible SSI unit then he can claim the entire Cenvat
credit on the capital goods in the same financial year.

The amount recorded in as cenvat credit cannot be considered for claiming

depreciation under section 32 of the Income tax Act 1961.

Eg: If asset is purchased for Rs 1,00,000/- and Excise duty in addition is @ 10

% ie Rs 10,000/-. The invoice total becomes Rs 1,10,000 /-. However the
depreciation can be claimed only on Rs 1,00,000/-.

The capital goods even if are bought on Hire purchase, lease or any loan
arrangement still the buyer will be given the benefit of the credit of the same.

RULE 5. REFUND OF CENVAT CREDIT

Refund = (Export turnover goods+ Export turnover of services) / Total Turnover* Net CCR
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RULE 5A. Refund of CENVAT credit in specified areas.

RULE 5B. Refund of CENVAT credit to service providers providing services taxed on reverse
charge basis.
RULE 6. OBLIGATION OF A MANUFACTURER OR PRODUCER OF FINAL
PRODUCTS AND A PROVIDER OF OUTPUT SERVICE.
Rule 6(1): No cenvat credit on on inputs and input services will be allowed to the extent they are
used in the manufacture of exempt goods or consumed in rendering of exempt services.
Rule 6(2): Maintain separate Accounts for
1.

Inputs and input services used for manufacturing exempt products/rendering exempt
services and.

2.

Inputs and input services which are used for manufacturing taxable products/rendering
taxable services.

Rule 6(3): If the assessee does not wish to maintain separate accounts as mentioned in Rule 6(2)
then he can make a Adhoc payment of duty @ 6% has to be made on all exempted goods cleared
and on all exempt services rendered.
If any duty is paid on the exempt final product, the same shall be reduced from the above duty
being paid.
Rule 6(3A): Formula based reversal. Using this method the credit on inputs or input services
can be proportionately reversed . In the first month of any year or first month of adoption of this
method whichever is earlier a provisional reversal % is determined to reverse the credit of inputs
used in the manufacture of exempt goods/rendering of exempt services or for input services
consumed for manufacture of exempt goods/rendering exempt services. Such provisional
reversal is then carried for the entire year. And at the end of the year the provisionally paid tax is
reassessed. At the end of year again calculation is done considering actual data and any duty due
is paid off.
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1. Let us understand the formula based reversal.

Calculation of cenvat credit to be reversed on inputs used in rendering exempt

services.

A= Cenvat credit attributable to inputs used in or in relation to manufacture of exempt

goods during the month.
B = Value of exempt services rendered during preceding financial year.
C = [value of dutiable goods sold + value of exempt services rendered + value of taxable
services rendered] during preceding financial year.
D = [Total cenvat credit taken on inputs during the month A ]

Cenvat credit to be reversed on provisional basis on inputs used in rendering exempt

services.
=[B/C]* D

2. Formula based reversal

Calculation of cenvat credit to be reversed on provisional basis on input services

used in or in relation of manufacture of exempt goods or rendering exempt services.

E = [Value of exempted goods + Value of exempted services ] during preceding

financial year.
F= [Aggregate turnover of preceding financial year ie total of Exempt goods+
Exempt services+ taxable goods + taxable services]
G= Cenvat credit on input services during the month

Therefore amount cenvat credit to be reversed on input services used in or in

relation of manufacture of exempt goods or rendering exempt services.
= [E/F] * G
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3. At the end of the year the following calculations will be made.

H = Cenvat credit attributable to inputs used in or in relation to manufacture of

exempt goods during the year.
I = Value of exempt services rendered during current financial year.
J = [value of dutiable goods sold + value of exempt services rendered + value of taxable
services rendered] during current financial year.
K= [Total cenvat credit taken on inputs during the year H ]

Cenvat credit to be reversed on actual basis on inputs used in rendering exempt

services.
= [I/J]* K .

4. Calculation of cenvat credit to be reversed on input services used in or in relation of

manufacture of exempt goods or rendering exempt services.

M = [Value of exempted goods + Value of exempted services ] during current

financial year.
N = [Aggregate turnover of current financial year ie total of Exempt goods+
Exempt services+ taxable goods + taxable services]
O = Cenvat credit on input services during the current financial year.

5. Therefore, Therefore amount cenvat credit to be reversed on input services used in or

in relation of manufacture of exempt goods or rendering exempt services on actual
basis.

=[M/N] * O

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RULE 7. MANNER OF DISTRIBUTION OF CREDIT BY INPUT SERVICE

DISTRIBUTOR.
The input service distributor may distribute the CENVAT credit in respect of the service tax paid
on the input service to its manufacturing units or units providing output service, subject to
following conditions namely:a. The credit distributed against a document referred to in Rule 9 does not exceed the
amount of service tax paid thereon;
b. Credit of service tax, attributable to services used in a unit exclusively engaged in
manufacture of exempted goods or providing exempted services, shall not be distributed;
c. Credit of service tax, attributable to services used wholly in a unit, shall be distributed
only to that unit; and
d. Credit of service tax attributable to service used in more than one unit shall be distributed
pro rata on the basis of turnover during the relevant period of the concerned unit to the
sum total of the turnover of all the units to which the service relates during the same
period.
RULE 7A. Distribution of credit on inputs by the office or any other premises of output
service provider.
-where the provider of output service receives input/ capital goods in one premises;
-but purchase invoice is issued in the name of another premises of such service provider;
Then, the latter office can issue an invoice/bill/challan with respect to such inputs/ capital goods
on basis of which such provider of output service can avail the CENVAT credit.
The provisions of first stage dealer or second stage dealer shall apply to such office or premises
issuing such invoices.
RULE 8 STORAGE
MANUFACTURER

OF

INPUT

OUTSIDE

THE

FACTORY

OF

THE

The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise,
as the case may be, having jurisdiction over the factory of a manufacturer of the final products,
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may permit such manufacturer to store the input in respect of which CENVAT credit has been
taken, outside such factory.
a. Such permission shall be granted in exceptional circumstances having regard to nature of
goods and shortage of storage space at the premises of such manufacturer subject to such
conditions or limitations as may be specified by him.
b. Where such input is not used in the manner specified in these rules for any reason or
whatsoever, the manufacturer of the final products shall pay an amount equal to the credit
availed in respect of such input.
RULE 9 DOCUMENTS AND ACCOUNTS
a. Invoice : The invoice issued by the manufacturer for clearance of inputs, capital goods
from his factory, depot or a warehouse.
b. Importers Invoice issued
c. Invoice issued by first stage dealer and second stage dealer.
d. Supplementry invoice. :
In case of additional duty of excise or additional duty leviable under section 3 of the
Customs tariff act, has been paid by the manufacturer or importer of inputs or capital
goods.
e. Invoice issued by the service provider.
f. Bill of entry.
g. Challan received on payment of service tax under reverse charge mechanism.
h. Invoice issued by Inpur service distributor.
RULE 9A Information relating to principal inputs
a. Meaning of principal inputs: Principal inputs means any input which is used in
manufacture of final products, where the cost of such input constitutes not less than 10%
of the total cost of raw materials for the manufacture of unit quantity of a given final
products.

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b. Annual declaration to be furnished: A manufacturer of final products shall furnish to the

superintendent of Central Excise, annually by 30th April of each financial year, a
declaration in the ER 5 form in the respect of each of the excisable goods manufactured
or to be manufactured by him, the principal inputs and the quantity of such principal
inputs required for use in manufacture of unit quantity of such final products
c. Change in information: If a manufacturer of final products intends to make any alteration
in the information so furnished, he shall furnish information to the superintendent of
Central Excise, together with the reasons for such alteration, before the proposed change
or within 15 days of such change in the specified form.
d. Monthly return to be furnished: A manufacturer of final product shall submit, within 10
days from the close of each month, to the superintendent of Central Excise, a monthly
return in the ER-6 form, in respect of information regarding the receipt and consumption
of each principal inputs with reference to the quantity of final products manufactured by
him.
e. Exemption to certain manufacturers: The central government may, by notification and
subject to such conditions or limitations, as may be specified
RULE 10 TRANSFER OF CENVAT CREDIT
The balance in cenvat credit account will be transferred in following cases.
1. For manufacturer if he shifts the factory from one site to another.
2. Change in constitution of business.
In case of a service provider the credit will have to be transferred if the service provider
shifts his place of business or there is a change in business constitution.
RULE 10A. Transfer of CENVAT credit of additional duty leviable under sub-section (5) of
section 3 of the Customs Tariff Act.
The transfer can be made in case the manufacturer has more than one registered premises and has
a common PAN for all such premises. The transfer can be made using the documents mentioned
in Rule 9 above.
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However the above benefit shall not be available if the transferring and recipient units are
availing Area Based Exemptions
RULE 11 TRANSITIONAL PROVISIONS
A manufacturer who opts to go value based exemptions and has been taking credit on inputs
procured, will be required to reverse the cenvat credit on inputs and input services. Also the he
shall be required to pay an amount equal to cenvat credit taken on inputs lying in stock.
In case a manufacturer opts to avail exemption under Section 5A even then he shall be required
to pay an amount equal to the cenvat credit availed on inputs lying in stock.
In case a service provider availing 100% exemption shall be required to pay an amount equal to
the cenvat credit taken on inputs used for providing output services which are lying in stock.
RULE 12. Special dispensation in respect of inputs manufactured in factories located in specified
areas of North East region, Kutch of Gujarat, state of Jammu and Kashmir and state of Sikkim.
RULE 12A. Procedure and facilities for large tax payer.
A large tax payer is one who
1. Has more than one registered premises under the Central Excise or Service tax laws and
2. Is an assessee under income tax,who holds a PAN and
3. Manufacturer who has paid Excise duty more than Rs 5 crores or
4. Service tax more than Rs 5 crores or
5. Advance tax under income tax Act of more than Rs 10 crores.
BENEFITS OF LARGE TAX PAYER
Inter unit transfer of goods without payment of duties
RULE 12AAA. Power to impose restrictions in certain types of cases.
RULE 13. Power of Central Government to notify goods for deemed CENVAT credit.
RULE 14. Recovery of CENVAT credit wrongly taken or erroneously refunded.
RULE 15. Confiscation and penalty.
RULE 15A. General penalty.
RULE 16. Supplementary provisions.
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3. CUSTOMS ACT, 1962
CONSTITUTIONAL BACKGROUND OF CUSTOMS LAW:
Article 246 of the Constitution provides matters on which laws may be made by the
Central and the State Governments Entry 83 of List-I (Union List) reads as under:
83 - Duties of Customs including Export duties'

Section 12 of the Customs Act provides that duties of customs shall be levied at such
rates as may be specified under the Customs Tariff Act, 1975 or any other law for the
time-being in force on goods imported into or exported out of India.

India is defined in Sec. 2(27) to include the territorial waters of India'. Territorial waters
of India' means that portion of the sea that is adjacent to the land of the country.

As per section 3 of the Territorial Waters, Continental Shelf, Exclusive Economic Zones
and Maritime Zones Act, 1978, territorial water extends upto 12 nautical miles from the
baseline of the coast of India and includes any gulf, harbour, creek or tidal river.

1 nautical mile = 1.8 Kms.

Indian Customs Waters: Section 2 (28) defines it to mean the water extending into the
contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf,
Exclusive Economic Zones and Maritime Zones Act, 1978 and includes any gulf,
harbour, creek or tidal river.

Contiguous zone' of India come immediately after the territorial waters of India i.e. after
12 nautical miles from the baseline, and extends upto 24 nautical miles. Thus, Indian
Customs water extends upto 12 nautical miles beyond the territorial waters of India.

OBJECTS OF CUSTOMS ACT:

The customs duty is primarily levied for the purpose of raising revenue.

However it also serves as an important tool in regulating imports of foreign goods into
India with the view to conserve foreign exchange, regulate supply of goods into domestic
market and provide protection to domestic industry from foreign competition by
restricting import of selected goods and services.
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BASIC PURPOSE:
Prevention of illegal imports and exports of goods.

Imports are subject to duty so that indigenous industries are protected from international
competition.

Rates are specified under Customs Tariff Act, 1975

It has 2 schedules; Sch I known as Import Tariff' and Sch II aka Export Tariff'
Scl I consists of 98 Chapters and 21 sections.

Customs Co-operation Council (CCC) Nomenclature was adopted for international

classification.

A new system of classification was adopted called Harmonised Commodities

Description and Coding System (Harmonised System)' giving exhaustive description of
various goods.

Regulate supply of goods into domestic market.

Sec 156 empowers Central Government [CG] to make Rules subject to Act

Sec 157 empowers Central Board of Excise and Customs (CBEC) to make Regulations
subject to Act and Rules

Notifications can be issued by CG

Rules, regulations and notifications should be issued by way of Official Gazette

notification.

SOME BASIC CONCEPTS:

Import: Import within grammatical meaning and its cognate expression, means bringing into
India from a place outside India.

Imported Goods: Imported goods means, any goods brought into India from a place outside
India but does not include goods, which have been cleared for Home consumption.

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Export: Taking goods away from India to a place outside India.

Export Goods: Export goods means any goods which are to be taken out of India to a place
outside India.
Thus when goods intended for export when brought to the port and shipping bills for export of
the same filed, become export goods.

Entry: Entry in relation to any goods means an entry made in,

A bill of entry in case of imported goods
A shipping bill or bill of export in case of export goods and
A label affixed or declaration accompanying the parcel under Section 82 and 84, in case the
goods are imported or to be exported.

Foreign Going vessel or aircraft: FGV means.

Any vessel or aircraft for the time being engaged in the carriage of goods or
Passengers between any port or airport in India and any port or airport outside India,
whether touching any intermediate port or airport in India or not, and includes
.

Any naval vessel of a foreign Government taking part in any naval exercises.

Any vessel engaged in fishing pr any other operations outside the territorial
waters of India

Any vessel or aircraft proceeding to a place outside India for any purpose whats
so ever.
Significance of FGV/A: Any stores supplied to such FGV/A shall be eligible to
claim a duty drawback of duty paid on inputs and input services which are
consumed in the manufacture of such stores.

Customs Area: Customs area means

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The area of customs station and

Includes any area in which imported goods or export goods are ordinarily kept before
clearance by the customs authority.

Customs Port: Means

Any port appointed under clause (a) of section 7 to be a customs port and includes a place
appointed under clause (aa) of the section to be a Inland Container Depot.

Customs station: Customs station means any customs port, customs airport or land customs
station.

Coastal Goods: These goods are not imported in India. They are sent from one port to the other
port in India. Hence they should be stored separately and should not be mixed with imported
goods. These goods are not dutiable and therefore an Advice Book' is maintained for these
which should be presented to all the ports' customs officials en route the destined port.

Eg: In case the goods are loaded at port of Gujrat and have to be cleared at Mumbai Port then
such domestically transferred goods are known as costal goods.

Dutiable Goods:

Goods which are chargeable to duty and

On which duty is not paid so far

So in the case of Associated Cement Companies Ltd (ACC) V/s Commissioner of

Customs[2001] 128 ELT 21 (SC), it was clarified that once the goods are tagged as chargeable
to duty and duty is paid on them then they cease to be dutiable goods.

Also if the goods are not mentioned in the tariff or are exempt by notification then they will not
be regarded as dutiable.
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Goods:
They include

Vessels, aircrafts, vehicles

Stores

Baggage

Currency and negotiable instruments

Other movable property

Technical advice or information technology will become goods as soon as it is put on the media,
may be, paper, cassette or diskette etc.

Also, as decided in the cases of

.

Tata Consultancy Services v/s State of Andhra Pradesh (2005)

Bharat Sanchar Nigam Ltd v/s UOI (2006)

If the Software possesses following attributes it shall be regarded as goods.

a.Utility
b.If it is capable of being bought and sold
c.Capable of being transferred, delivered, stored and possessed.
Vessels purchased by Shipping Corporation of India are imported goods' and not mere
conveyances.

Continental Shelf: Sea bed and sub soils Upto 200 nautical miles from the baseline.

Exclusive Economic Zone: Upto 200 nautical miles from base line covering water as well as air
space above it.

SEC 11: RESTRICTIONS ON IMPORTS AND EXPORTS UNDER THE ACT

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CG may prohibit importation or exportation of goods of specified description, by notification in
the OG for certain purposes viz:
1)

Maintenance of security of India.

2)

Maintenance of public order and standards of decency and morality.

3)

Maintenance of standards of goods in international trade.

4)

Prevention of shortage of goods of any description.

5)

Prevention of contravention of any law for time being in force.

6)

Prevention of injury to economy of country by uncontrolled import or export of gold

and silver.

7)

Prevention of surplus agricultural product or product of fisheries.

8)

Prevention of smuggling.

9)

Prevention of injury to domestic production of goods.

10)

Prevention of deceptive practices.

11)

Prevention of obligation under charter of UN for maintenance of international peace

and security.

12)

Protection of national treasures of artistic, historic value.

13)

Protection of trade mark, patents and copyrights.

14)

Protection of human, animal or plant life or health.

15)

Implementation of treaty agreement or convention with any country.

16)

Conservation of foreign exchange and safeguarding of BOP.

PREVENTION OF ILLEGAL IMPORT OF GOODS [SECTION 11A TO 11G]

Section 11A: Illegal import is import of any goods in contravention of the provisions of this Act.
Section 11B: It empowers the Government to notify goods about which it is expedient in public
interest to take special measures to check illegal import.
Section 11 C: Every person possessing notified goods should intimate the place of storage.
Section 11 D: Precaution to be taken by person acquiring notified goods.
Section 11 E: A/c's in regards to notified goods must be maintained.
Section 11 F: Sale of notified goods is required to be evidenced by vouchers.
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Section 11 G: Nothing in above Sections applicable to notified goods in persona use.

PREVENTION OF ILLEGAL EXPORT OF GOODS [SECTION 11 H TO 11 M]:

Section 11 H: Illegal Exports means export of any goods in contravention of the provision of this
act.
Section 11 I: It empowers the Government to notify goods about which it is expedient in public
interest to take special measures to check illegal export.
Section 11 J: Every persons possessing specified goods, the market price of which exceeds Rs.
15,000 shall within 7 days from that date, deliver to the proper officer an intimation.
Section 11 K: Transport of specified goods cannot be made unless goods are accompanied by
transport voucher prepared by person possessing such goods.
Section 11 L: If market price of goods >15000 A/c's to be maintained in prescribed form.
Section 11 M: Sale must be made not to a fictitious person ,payment be received by cheque only
and take reasonable steps as specified in rules failure to take such steps goods will be
presumed to be smuggled.

LEVY AND EXEMPTION FROM CUSTOMS DUTIES: [SECTION 12]

Duties of customs shall be levied at such rate as maybe specified under the Customs Tariff
Act, 1975, on goods imported into or exported from India.
These provisions shall apply in respect of goods belonging to Government as they apply in
respect of goods not belonging to Government.

FEATURES OF LEVY AND EXEMPTION FROM CUSTOMS DUTY:

1) The liability to pay duty in dutiable goods will be attracted when the territorial waters are
crossed and import gets completed the moment the goods touch the landmass of India.
2) If goods are ordered to be confiscated, then penalty will be levied for avoiding
confiscation and duty liability will be separate, i.e. the liability to pay duty is not
discharged.
3) If import is unauthorized, other consequences will follow in addition to the liability to
pay duty.
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DATE OF DETERMINATION OF RATE OF DUTY AND TARIFF VALUATION
For imported goods (Sec. 15)

Rate as on

Home consumption u/s 46

BOE or EI whichever is later.

Cleared from warehouse u/s 68

Presentation of Ex-Bond BOE

Any other

Date of payment

For exported goods (Sec. 16)

Rate as on

Goods entered for exports u/s 50

Clearance by proper officer permitting loading

goods for exports u/s 51

Any other

Date of payment

EI: Entry Inwards

BOE: Bill of Entry

EXCHANGE RATE IS OF THE DAY ON WHICH BOE IS FILED

If the goods are released from DTA to SEZ then they are treated as deemed exports. However,
they are not chargeable for export duty.

ASSESSMENT, PROVISIONAL ASSESSMENT, LIABILITY FOR GOODS IMPORTED

IN SETS
Assessment of duty:

The term assessment means quantification of the amount of duty payable.

As per section 2(2) "Assessment" includes provisional assessment, self assessment and
reassessment and any order of assessment in which the duty assessed is nil."
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It consists of imposing, fixing and determination of duty.

Sec 18:- Provisional Assessment of Duty

i.

Where the proper officer is satisfied that an importer or exporter is unable to produce
any document or furnish any information necessary for the assessment of duty or the
imported goods or the export goods as the case may be OR

i.

Where the officer deems it necessary to subject any imported goods to any chemical
or other test for the purpose of assessment of duty thereon AND,

Where the importer or exporter has produced all the necessary documents and furnished full
information that the officer deems it necessary to make further enquiry for assessing the duty, he
may direct that duty leviable may, pending production of such document or furnishing such
information or completion of such test or enquiry, be assessed provisionally if importer furnishes
such security as deemed fit, for the payment of deficiency if any between the duty finally
assessed and duty provisionally assessed. When the final assessment is made the amount paid
has to be adjusted if it falls short or is in excess, the assessee pays the deficiency or gets refund
as the case may be, if the goods were declared for home consumption or exportation. Interest @
18% p.a. from 1st day of the month in which duty is provisionally assessed till the date of
payment.

If actual amount paid on provisional assessment is more than actual payment then duty should be
refunded. If the refund is not granted within 3 months from the date of final assessment, interest
@ 6% p.a. should be paid till the date of payment.

* Bill of entry is required for provisional assessment also.

Sec 19:- Determination of duty where goods consist of articles liable to different rates of duty
Where goods consist of a set of articles, duty shall be calculated as follows:i)

Articles liable to duty with reference to quantity shall be chargeable at that rate of
duty.
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Articles liable to duty with reference to value shall, if they're liable to duty at the
same rate, be chargeable to duty at that rate and if they are liable to duty at different
rates be chargeable to duty at the highest of such rates.

iii)

Articles not liable to duty shall be chargeable to duty, at the highest rate.

Eg a travelers kit consist of several things such as scissors, swiss knife, shaving kit,
deodorants , napkins , first aid box etc. Each of the article individually has different rate of duty,
however in case they are chageable based on the rate then the whole set will be charged at
highest rate of duty.

Proviso to Sec 19 lays down that:i)

Accessories of and spare parts of maintenance and repairing implements for any
article, which satisfy the conditions specified in the rules made in this behalf, shall be
chargeable at the same rate of duty as those articles.

ii)

If the importer produces evidence to the satisfaction of the proper officer regarding
the value of any article liable to different rates of duty, such article shall be chargeable
to duty separately at the rate applicable to it.

IMPORTATION AND EXPORTATION

Import Procedure

The assessment and clearance procedure involves, generally, the following steps:
a)The master of the vessel carrying the goods calls on the port, files the arrival report ie the
import general manifest (IGM).
b)Customs authorities check the documents, grant entry inwards (EI) to the vessel, assign IGM
number to the manifest and permit the master of the vessel to land and unload the cargo.
c)The vessel discharges the cargo into the custody of the port trust authorities.

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d)The importer of the goods delivers the negotiable bill of lading received from the supplier of
the goods to the master of the vessel and obtains the delivery order.
e)It is the right and responsibility of the importer to file an application for clearance of goods and
this application is called the bill of entry.
f)The customs authorities check the bill of entry with the IGM and note the bill of entry in the
IGM [called noting].

The importer, thereafter, presents a bill of entry electronically for either clearance of goods
for home consumption or deposit in warehouse with the import department of the Customs.
The bill of entry is assessed by the importer himself (self assessment) and the procedure u/s
17 is adopted.
g)If the bill of entry for home consumption is presented, then the customs duty is collected and
"pass out of customs charge" order is issued.
h)If the bill of entry for warehousing is presented, then the importer executes a warehousing
bond equal to twice the amount of duty assessed and then the goods are deposited into the
warehouse.
i)The importer on showing the "pass out of customs charge" to the port trust authorities takes
delivery of the goods.
j)In case the goods are warehoused, the importer files a bill of entry for ex-bond clearance for
home consumption at the time of clearance of goods from such warehouse.
k)The customs duty is then collected and the goods are allowed to be taken from the port.

Export Procedure:
a) Exporter files an application for goods known as shipping bill, electronically.
b)Exporter self assesses the export duty if any. Duty so assessed and the cess leviable thereon if
any is then paid.
c)Shipping bill along with the export cargo is presented to the customs officer in charge if the
supervision of the loading of cargo.
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d)After the customs officer is satisfied that all duties and charges are duly paid and all the
documents are verified he will endorse the shipping bill with "let export order" (LEO).
e)When the shipping bill is submitted to the master of vessel , the export cargo is permitted to be
loaded.

Sec 13: Pilfered Goods:

If any imported goods are pilfered,

after the unloading thereof

and before the proper officer has made,

an order for clearance for home consumption or deposit in a warehouse, the importer
shall not be liable to pay the duty leviable on such goods

except where such goods are restored to the importer after pilferage.

Section 21: Goods derelict, wreck, etc.

All goods derelict, jetsam, flotsam and wreck brought into India shall be dealt with as if they
were imported into India, unless it is shown to the satisfaction of the proper officer that they are
entitled to be admitted duty-free.
Derelict' is property, including vessel abandoned at sea without hoping them to be retrieved.
Jetsam is casting of goods into sea for reducing weight to prevent if from drowning. Flotsam is
separation of goods from a ship at sea due to some natural disaster. Wreck is the property cast
ashore after a ship wrecked.

Section 22: Abatement of duty:

(1): Abatement of duty on damaged or deteriorated goods.
If Assistant Collector of Customs (ACC) or Deputy Commissioner of Customs (DCC) is satisfied
that any imported goods had been;
i)

Damaged or had deteriorated before their unloading or,

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If goods are not warehoused and have been unloaded but are damaged before

i)

examination u/s. 17 due to accident without any willful act of negligence or default of
importer or,
i)

If warehoused goods are damaged before clearance of home consumption due to accident
without any willful act of negligence or default of importer, then such goods shall be
charged to duty in accordance with (2).

(2): Duty chargeable for the damaged or the deteriorated goods shall bear the same proportion as
that of duty chargeable for the original goods, which the value of the damaged or the deteriorated
goods bears, to the value of goods before the damage.
(3): Ascertainment of value of damaged goods can be done,
a) by proper officer or,
b) by sale by proper officer by public auction/tender with the consent of the owner.

Remission of Duty on Lost, Destroyed or Abandoned Goods [Section 23]

Section 23(1) provides that without prejudice to the provisions of section 13, where it is shown
to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of
Customs that any imported goods have been lost, otherwise than as a result of pilferage, or
destroyed, at any time before clearance for home consumption, the Assistant Commissioner of
Custom or Deputy Commissioner of Customs shall remit the duty on such goods.
The following ingredients may be noted with regard to remission of customs duty under section
23:
a)

Goods lost or destroyed:

The remission of duty is allowed only in case of total loss of goods. This means that the loss
is absolute and beyond recovery.
b)

Goods Abandoned by Importers

An importer may, sometimes, be unwilling or unable to take delivery of the imported goods;
for instance due to the following causes:
i)

the goods may not be according to the specifications;

ii)

the goods may have been damaged or deteriorated during voyage;

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iii)

there might have been breach of contract by the exporter, etc.

However, since the goods have been imported, the liability to customs duty is imposed. The
importer has, therefore, to relinquish his title to the goods unconditionally and abandon them.
If the importer does so, he will not be liable to pay the duty amount.

SECTION 24. Power to make rules for denaturing or mutilation of goods :- The CG may make
rules for permitting, at the request of the owner, the denaturing or mutilation of imported goods,
which are ordinarily used for more than one purpose so as to render them unfit for one or more
of such purposes; and where any goods are so denatured or mutilated, they shall be chargeable to
duty at such rate as would be applicable if the goods had been imported in the denatured or
mutilated form.

SECTION 20.

Re-importation of goods If goods are imported into India after exportation there

from, such goods shall be liable to duty and be subject to all the conditions and restrictions, if
any, to which goods of the like kind and value are liable or subject, on the importation thereof.

HIERARCHY OF CUSTOMS OFFICERS: As given under section 3

Chief Commissioner
Commissioner
Commissioner (Appeals)
Joint Commissioner
Deputy Commissioner
Assistant Commissioner
CUSTOMS TARIFF AND TYPES OF CUSTOMS DUTIES
CUSTOMS TARIFF ACT, 1975 (CTA)
For classification of goods

3
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DESCRIPTION

UNIT

OF GOODS

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STANDARD
PREFERENTIAL
RATE OF DUTY RATE OF DUTY

Rate of basic customs duty [BCD] is mentioned in the costoms tariff act.
Rate of duty on baggage is 35% (+3% EC, SHEC)

Sec. 4 of CTA provides that preferential duties will be charged in preferential areas.
Preferential rate can be applied (e.g. exemption u/s 25 of CA, 62 if the following conditions are
fulfilled:

the importer must claim preferential duty at the time of importation

the importer should also claim that the goods have been produced in the preferential area

it must have been notified as a preferential area by CG

origin must be determined as per the rules.

Sec. 5 of CTA provides an exception to the normal rates where CG enters into agreement with a
foreign country for special rates, then those will supersede the ordinary rates. CG has power to
discontinue, increase or decrease preferential area.

Additional Duty: Sec. 3 of CTA

3 (1) = Excise Duty, also known as CVD. No additional duty if no excise
Alcoholic liquor for human consumption, imported in India, CG may notify rate of additional
duty, in lieu of duty to be levied by the state governments

3 (5) = VAT Special Additional Duty (SAD), also known as Special CVD
AVBCD CVDEC, SHEC SAD TOTAL COST OF IMPORTS

AV = Assessable Value u/s 14(1) or (2)

BCD = ___% of A above (CARDINAL RATE = 10%)
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CVD = ___% of A + B above (CARDINAL RATE = 12%)
EC, SHEC = 2 + 1% of BCD + CVD above
SAD = ___% of (AV+BCD+CVD+EC)(TOTAL VALUE SO FAR) (CARDINAL RATE = 4%)

Sums related to calculation:

1.Calculate the basic customs duty payable if the value of the goods is Rs 120000,and the rate of
basic customs duty is12%.

2. Calculation of CVD ie additional duties of customs u/s 3 (1) under various situations.
A) Goods produced in India are subject to duty based on MRP based valuation.

1. ssessable value of goods is rs 11, 000/ , RSP of the goods is RS 12, 500/- Abatement on like
goods is 20%.Additonal duty of customs u/s 3 (1) is 16% , Ecess and Shec is 3 %.

Note: If cess is given on the excise duty then it has to be considered seperately. So in the above
example rate of CVD will be 16.48%.

B) Goods produced in india are subject to duty based on tariff value

1) Assessable value = 1,00,000/-, BCD = 10.30%, RSP= 2, 66, 667/-, Tariff value is 45% of RSP.

C ) Goods produced in India subject to Advolarum duty

AV= 100000, BCD= 10%, CVD= 8.24%, SPL CVD = 4% EC and SHEC 3 %

Protective Duty: Sec. 6 and 7

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Levied by CG on the recommendation of Tariff Commission of India to ensure protection to
domestic (indigenous) industry, from bulk imports. A bill has to be passed in the parliament and
in the 5th column a mention has to be made as protective'.
Anti dumping duty is leivied to cover up the injury margin caused to the domestic products due
to the imports.

Valuation For Purpose of Assessment:- (Sec 14)

Sec 14(1) where under a duty of customs on any goods with reference to their value, the value
of such goods shall be deemed to be the price at which such goods are ordinarily sold or offered
for sale, for delivery at time and place of importation or exportation, as the case may be in the
course of international trade where the seller and buyer have no interest in the business of each
other and price is the sole consideration for sale or offer for sale. However, such price shall be
calculated with reference to the rate of exchange, as in force on which a B.O.E / Shipping bill is
presented.
Sec 14(2) If CG satisfied that it is expedient to do so, it may be notification in OG, fix the
tariff rate for any class of imported goods or export goods.
Explanations:
a) Rate of exchange means the rate:a) determined by CG
a) ascertained in such manner as CG may direct for converting Indian currency into
foreign currency and vice-versa.
b) Foreign currency and Indian currency have the same meaning as assigned under FEMA.

GATT VALUATION:
GATT Valuation Code lays down certain internationally agreed principles for valuation of goods
in international trade by the member countries. GATT came into existence with a view to provide
an international forum for the discussion on customs and other related problems so that barriers
to world trade are progressively removed. As regards customs and other related problems so that

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barriers to world trade are progressively removed. As regards customs, a difficulty was being
faced by almost all the countries because of existence of different valuation system in different
countries. Because of this multiplicity of the valuation system by and large every country was
dissatisfied. It was in this connection that GATT provided some measures of control on custom
valuation procedures. "GATT Valuation Code" envisages Transaction Value' to be the principle
yardstick for determination of customs value and sets out an hierarchy of alternate methods
which are to be followed if transaction value cannot be determined. The basic rule of GATT code
is that the price actually paid i.e. the transaction value for goods when sold for export to the
country of importation is to be the basis of customs valuation.

NEW METHOD OF VALUATION OF IMPORTED GOODS

The new valuation rules consist of set of rules providing several independent method of
valuation to be adopted in hierarchical order. If method one cannot be applied then method two
comes into force and so on.

Rule 3: Determination of the method of valuation

For the purpose of these rulesi)

the value of imported goods shall be the transaction value;

ii)

if the value cannot be determined under the provisions of clause (i) above, the value
shall be determined by proceeding sequentially through rules 5 to 8 of these rules.

Rule 3:- Primary Method

It is also known as Transaction Value method. In this method transaction value shall be the basis
for custom valuation.
Transaction value' means price actually payable for the goods when sold for export to India for
delivery at time and place of importaion. Further adjusted in accordance with the provisions of
Rule 10. Rule 10 contains in itself value of some other cost and services incurred in the price
actually paid e.g. commission and brokerage, cost of containers, cost of packing etc, the elements
mentioned in Rule 10 are considered to form part of customs value and are required to be added
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or adjusted if these are not included in the price paid or payable. Transaction value' cannot be
used when actual sales do not take place and instead of it lease, hire, etc takes place. Goods
imported on this basis will be valued according to other methods as these do not amount to sale.
Transaction value of imported goods shall be accepted if the 4 conditions are satisfied:1)

there is no restriction in disposition or use of goods by the buyer.

2)

The sale or price is not subject to some conditions or consideration for which a value
cannot be determined.

3)

no part of proceedings of any subsequent resale, disposal or use of goods by the

buyer will accrue to the seller

4)

the buyer and seller are not related or if related, the relationship did not influence the
price.

Exception to the condition (4)

1. the relationship did not influence the price
1. the declared value of goods closely approximates to anyone of the following
values 1) the transaction value of identical goods in sale to unrelated person
1) the deductive value of identical goods
1. substitute value shall not be established.

ALTERNATE METHOD
Rule 4:- Transaction value of identical goods
Under this method custom value is established on basis of transaction value of Identical goods'
imported to India at or about the same time. Identical goods refer to those goods that are same in
all respect including physical characteristics, quality and not reputation as the goods being
valued. They should be produced in the country to which goods being valued belong to. They
should be produced by same person and if not so by some different person.

Rule 5:- Transaction value of similar goods

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Under this method custom value is established on the basis of transaction value of similar goods
imported to India at or about same time. "Similar goods" are goods, which are although not alike
in all respects, have like characteristics and like component material, which enable them to
prepare the same function and to be commercially interchangeable.
Basic requirement for determining the transaction value on the basis of value identical or similar
goods is the following:
1)

the transaction value of those identical goods or similar goods have to be customs
value already accepted u/rule 12.

2)

it should be a sale at the same commercial level.

3)

Where no such sale is found and there is sale at different level, adjustments must be
made for those differences.

Rule 7:- Deductive methodologies

If the imported or identical or similar goods are sold in India, the customs value of such goods
shall derived from the selling price of the goods or identical or similar imported goods.
Unit price at which imported goods or identical goods or similar RS X
goods are sold in greatest agreegate quantity at first commercial
level after importation.

Less :
1. Commission or selling expenses and selling profits made in
connection with sale of imported goods.
2. Transport insurance and other cost within india
3. Custom duties , sales tax and other tax leivied in india
4. Further per unit processing cost
l

Rule 8:- Computed method

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It sets out how to determine the customs value in cases where it cannot be determined under any
of the preceding method. available in India.
1.Production cost of the goods imported including processing cost
Add

Usual profit margin and general expenses

Cost and charges referred to in rule 10 (2)

Rule 9: Residual Method.

Under this method the value is determined using some reasonable basis.It says that value
shall be determined by using reasonable means consistent with the principles and general
provisions of these rules and on the basis of data available in india.

Rule 10:- Cost and Services

Provisions has been made for the additions of some costs and services in the price of imported
goods which are incurred by the buyer but not included in the price actually paid e.g.
commission(other than buying commission ), brokerage, cost of containers, cost of packing etc.

Rule 10(2):- Value of imported goods shall be the value of such goods at the time and place of
importation.
a)

cost of transportation to the place of importation.

b)

loading, unloading and handling charges of imported goods

c)

cost of insurance

However it is provided that:i)

where cost of transport is not ascertainable, it shall be 20% of the free on board
(FOB) value of goods

In case import by air in any case the cost should not exceed 20 % FOB

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the loading, unloading and handling charges shall be 1% of the [free on board (FOB)
value of goods + cost of transport + cost of insurance] also known as landing charges.

iii)

Where cost of insurance is not ascertainable it shall be 1.125% of free on board

(FOB) value of goods.

Rule 11:- Declaration by the importer

The importer or his agent has to furnish a declaration in prescribed form. In this declaration
Importer has to state if there is any relationship between the buyer and seller
i)

the basis of declared value

ii)

conditions or restrictions attached with the sale

iii)

valuation method applicable

iv)

cost of services not included in invoice value

v)

documents in support of price of similar or identical imported goods where necessary.

In case of goods imported from or through a person other than the manufacture, manufacturer's
invoice shall also be furnished together with any other document, as considered necessary by the
proper officer.

SETTLEMENT OF DISPUTE:
While determining the customs value' in accordance with the above methods, in case any
dispute arises between the importer and the proper officer of customs, it shall be resolved as per
the provisions of Sec 14(1) of the Customs Act, 1962.

Valuation of Export Goods for Assessment

Customs value of exports goods, whether liable to Ad-valorem duty or not is to determined u/s
14. Accordingly customs value of export goods shall be deemed to be the price at which such
goods are ordinarily sold for delivery at time and place of export in the course of international

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trade, where the seller and buyer have no interest in business of each other and price is the only
consideration for sale.

Sec 15: Date of determination of rate of duty and tariff valuation of imported goods:
Rate of duty, rate of exchange and valuation applicable to any imported goods shall be the rate
and valuation in force:
i)

in case of goods entered for home consumption, on the date on which B.o.E in respect
of such goods is presented.

ii)

in case of goods cleared from warehouse, on the date on which goods are actually
removed from the warehouse.

iii)

in case of any other goods, on the date of payment of duty.

If B.o.E has been presented before the date of entry inwards of the vessel by which goods are
imported, the B.o.E shall be deemed to have been presented as on date of such entry inward.

Sec 15(2): Provisions of section 15 shall not apply to baggage and goods imported by post.
MD Issack v Hajji Sultan Gani Held, where the import duty was raised in respect of certain
goods lying in a bonded warehouse after the date of contract for sale of the said goods it was
held that the seller was entitled to refuse to give delivery of the goods until proper price was
tendered by the purchaser price plus the increased duty.

Sec 16: Date of determination of rate of duty and tariff valuation of export goods
The rate of duty and tariff valuation applicable to any export goods shall be the rate and
valuation in force i)

In the case of goods entered for export, on the date on which the proper officer makes
an order permitting clearance and loading of the goods for exportation.

ii)

In the case of any other goods, on the date of payment of duty.

Sec 16(2):
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Provisions of this section shall not apply to baggage and goods exported by post.
It must also be noted that the export duty becomes leviable only when the goods are
exported and not on goods, which are not exported, or which could not be exported.
Therefore the amount of duty which has been deposited but not appropriated would
evidently be repayable to the person who has deposited it.

Sec 20:- Re-importation of goods: When goods are re-imported to India after exportation there
of, such goods are liable to duty and are subject to all conditions and restrictions, if any, to which
goods of the like kind are and value are liable on subject of the importation thereof.

Exemption from Customs Duty:

The CG is empowered to give such exemptions as it may deem fit in public interest on two
grounds;
a) Moral Grounds: Here the duty should not be levied at all. Some of the instances of the moral
grounds are given below:
Where the goods do not reach the Indian soil at all.
Where the goods have reached the Indian soil but are not available for consumption.
Where the goods get damaged or deteriorated in transit.
a) Discretionary provisions: Here the exemption is used for controlling the economy and
industrial growth of the country.

WAREHOUSING
Introduction
The goods imported into India are cleared on arrival, generally, for the following purpose:a) Clearance for Home Consumption;
b) Clearance for warehousing.

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Explain briefly in the procedure for assessment and clearance of imported goods though a
Customs Sea Port under the Customs Act, 1962
The broad procedure for assessment and clearance of imported goods are as follows:
Importer to submit Bill of Entry giving details of goods to be cleared from customs.
Bill of entry can be for home consumption (i.e. clearance after payment of duty) (while
colour) or for warehousing (keeping in warehouse without payment of duty and later
clearing on payment of duty when required) (yellow colour)
Importer to submit other documents like Invoices, contracts, product literature, packing
lists, import license etc. so that customs officer can assess the imported goods under
clearance.
Examination of goods and assessment by customs officer (if first appraisement system) or
assessment of goods on basis of documents (if second appraisement system)
Pre-audit by customs department.
Customs Officer to approve assessment (valuation of goods) on the Bill of Entry and return
to importer.
Importer to execute bond if clearance at concessional rate of duty subject to some
conditions or clearance is under provisional assessment.
Importer to pay duty, if clearance is for home consumption or execute bond, if clearance is
for warehousing.
Inspection of goods (if assessment was under second appraisement system)
Out of customs charge order by customs officer.
Pay dues of port trust, pay demurrage (if applicable), pay other dues
Transport the goods from customs.

Explain briefly the procedure for clearance of warehoused goods for home consumption under
Section 68 of the Customs Act, 1962

Under Section 68, goods stored in warehouse can be removed on payment of duty. Importer has
to submit bill of entry in prescribed form. Duty, penalties, rent and interest is payable as per
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rules. Goods are then allowed to be cleared by Customs Officer. Separate form of bill of entry
has been prescribed for this purpose. It may be remembered that as per Section 15 (1) (b), rate of
duty as prevalent on date of presentation of Bill of Entry for home consumption for clearance
from warehouse is applicable and not rate prevalent when goods were removed from customs
port - confirmed in UOI v. Apar P. Ltd. 1999 AIR SCW 2676 = 112 ELT 3 = AIR 1999 SC 2515
(SC 3 member bench).
Goods stored in a customs bonded warehouse can be cleared against advance license. These can
also be cleared by adjusting customs duty in a DEPB scrip. Clearance against DEPB scrip is
available only at ports where TRA (Telegraphic Release Advice) facility is available. CBEandC
circular No. 16/99-Cus dated 7-4-1999.

Importer has to submit bill of entry in prescribed form for removal of goods from warehouse for
home consumption. This Bill of Entry is printed on yellow paper and often called Yellow Bill of
Entry'. It is also called Into Bond Bill of Entry' as bond is executed for transfer of goods in
warehouse without payment of duty.

What is Warehousing'?

The warehousing is a trade practice involving trade off at a given point of time between:
a)

the economics of importation; and

b)

the requirement of the importer.

As soon as the goods are imported, the customs duty payable in respect of the dutiable goods is
assessed. An importer has option either to clear the whole consignment by paying the entire
amount of customs duty or to remove the goods into his possession or to clear the consignment
into convenient lots after paying proportionate duty on the lots cleared. He then would be entitled
to remove only that part of consignment, which is cleared after customs duty. During the
intervening period, the goods are held in custody of the Customs Department at a place called
warehouse'
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Appointment of public warehouses [Section 57]
At any warehousing station, the Assistant Commissioner of Customs or Deputy Commissioner of
Customs may appoint public warehouses, wherein dutiable goods may be deposited.

Licensing of private warehouses [Section 58]

1) At any warehousing station, the Assistant Commissioner of Customs or Deputy
Commissioner of Customs may license private warehouses, wherein dutiable goods
imported by or on behalf of the licensee or any other imported goods in respect of which
facilities for deposit in a public warehouse are not available, may be deposited.
2) The Assistant Commissioner of Customs or Deputy Commissioner of Customs may cancel
a licence 1) by giving one month's notice in writing to the licensee; or
1) if the licensee has contravened any provisions of this Act or the rules or regulations or
committed breach of any of the conditions of the licence:
3) Pending an enquiry whether a licence should be cancelled, the Assistant Commissioner of
Customs or Deputy Commissioner of Customs may suspend the licence.

Case Law:
In Shree Pipes Pvt. Ltd. v. Union of India, it was held that under section 58, grant of private
bonded warehouses is clearly debarred, where public bonded warehouses are there.

Types of Private Warehouses

The Private bonded warehouses are classified into two types, namely:
a)

Warehouse for storage of sensitive goods - i.e. liquor, consumable, etc.

b)

Warehouse for storage of other non-sensitive goods.

Warehousing Bond [Section 59]:

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(1)The importer of any goods specified in section 61(1), which have been entered for
warehousing and assessed to duty under section 17 or section 18 shall execute a bond binding
himself in a sum equal to twice the amount the duty assessed on such goods:a)

to observe all the provisions of this Act and the rules and regulations in respect of
such goods;

b)

to pay on or before a date specified in a notice of demand (i)all duties, and interest, if any, payable,
(ii)rent and charges claimable on account of such goods under this Act, together with
interest on the same from the date so specified at such rate not below 18 per cent per
annum and not exceeding 36 per cent per annum as is for the time being fixed by the
Central government by notification in the Official Gazette; and

c)

to discharge all penalties incurred for violation of the provisions of this Act
and the rules and regulations in respect of such goods.

Permission for deposit of goods in a warehouse [Section 60]

When the provisions of section 59 have seen complied with in respect of any goods, the proper
officer may make an order permitting the deposit of the goods in a warehouse.

Period for which goods may remain warehoused [Section 61]

1)Any warehoused goods may be left in the warehouse in which they are deposited or
in any warehouse to which they may be removed 1) in the case of capital goods intended for use in any hundred per cent export
oriented undertaking, till the expiry of five years;
(aa)in the case of goods other than capital goods intended for use in any 100% export
oriented undertaking till the expiry of five years; and
1) in the case of any other goods, till the expiry of one year, after the date on which
the proper officer has made an order under section 60 permitting the deposit of
the goods in a warehouse.

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Rate of Interest on Customs Duty in case of Bonded Goods:
In cases where the capital goods for 100% EOUs remain in a warehouse beyond a period of 5
years, interest at the rate of % per annum shall be charged on the customs duty payable at the
time of clearance of the goods for the period from the expiry of the said warehousing period till
the date of payment of duty on the warehoused goods.

Control Over Warehoused Goods [Section 62]

1)

All warehoused goods shall be subject to the control of the proper officer.

2)

No person shall enter a warehouse or remove any goods therefrom without the
permission of the proper officer.

3)

The proper officer may cause any warehouse to be locked with the lock of the
Customs Department and no person shall remove or bread such lock.

4)

The proper officer shall have access to every part of a warehouse and power to
examine the goods therein.

Payment of rent and warehouse charges [Section 63]

1)

The owner of any warehoused goods shall pay to the warehouse keeper rent and
warehouse charges at the rates fixed under any law for the time being in force or where
no rates are so fixed, at such rates as may be fixed by the Commissioner of Customs.

2)

If any rent or warehouse charges are not paid within ten days from the date, when
they became due, the warehouse-keeper may, after notice to the owner of the warehoused
goods and with the permission of the proper officer cause to be sold (any transfer of the
warehoused goods notwithstanding) such sufficient portion of the goods as the
warehouse-keeper may select:

Owner's right to deal with warehoused goods [Section 64]

With the sanction of the proper officer and on payment of the prescribed fees, the owner of any
goods may either before or after warehousing the same 1) inspect the goods;
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1) separate damaged or deteriorated goods from the rest;
1) sort the goods or change their containers for the purpose of preservation, sale,
export or disposal of the goods;
1) deal with the goods and their containers in such manner, as may be necessary to
prevent loss or deterioration or damage to the goods;
1) show the goods for sale; or
1) take samples of goods without entry for home consumption and if the proper
officer so permits, without payment of duty on such samples.

DUTY DRAWBACK:
The term drawback is applied to a certain amount of duties of Customs or Central Excise,
sometimes the whole, some times only a part remitted or paid by Government on the exportation
of the commodities, on which they were levied. To entitle goods to drawback, they must be
exported to a foreign port. The object is to enable the goods to be disposed off in the foreign
market, as if they have never been taxed at all. Thus for Customs, drawback of duty means the
refund of duty of customs and duty of Central Excise that are chargeable on imported and
indigenous materials used in the market.

Types of duty drawback:

1] u/s 74: Drawback of duty paid on re-exported goods
1] u/s 75: Drawback on imported materials used in the manufacture of goods, which are
exported.

Section 74: Drawback of duty paid on re-exported goods

1)

When any goods are capable of being easily identified, which have been imported
into India and upon which any duty has been paid on importation,-

(i)Are entered for export and the proper officer makes an order permitting clearance,

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(ii)Are to be exported as baggage and the owner of such baggage, for the purpose of clearing
it, makes a declaration of its contents and this declaration shall be deemed to be an entry for
export,
iv)

Are entered for export by post,

And the proper officer makes an order permitting clearance of the goods for exportation, 98% of
such duty, shall except as otherwise provided, be repaid on fulfillment of the following
conditions:
i)

the goods are identified to be the satisfaction of the Asst. Commissioner or

Deputy Commissioner of Customs as the goods which were imported;

i)

the goods are entered for export within two years from the date of payment of
duty on the importation thereof.

2)

The rate of duty drawback in the case of goods which have been used after the
importation thereof, shall be such as the CG, having regard to the duration of use,
depreciation in value and other relevant circumstances fix.

3)

The %-age of drawback would be Period of use

% of drawback

Not more than 03 months

95

03 - 06 months

85

06 - 09 months

75

09 - 12 months

70

12 - 15 months

65

15 - 18 months

60

More than 18 months

NIL

Section 75: Drawback on imported materials used in the manufacture of goods, which are
exported:
General manufacturerParticular manufacturer

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All Industry Rate

Brand Rate

(All industry rate not available)

Section 75 - Where it appears to CG that goods manufactured of processed in India and in
respect of which an order permitting clearance for exportation has been made, CG may by
way of notification in Official Gazette direct that drawback in respect of such goods shall be
allowed.
i. Rates fixed by Customs and Central Excise Drawback Rules, 1971
i. Export value is less than import value of goods whether the goods are
i)

finished goods or

i)

raw material

drawback is not allowed.

3.Sale proceed of such goods shall be received within time limit specified by FEMA (at present 6
months)

Brand rate is allowed if it is shown to the satisfaction of the officer that the drawback as per all
industrial rate is less than 80 % of actual duties paid. However if the drawback under all
industrial rate is more than 80% of actual duties paid then assessee is not eligible to claim
drawback under Brand rate fixation.

Section 75 (2): CG may make rules for the purposes of carrying out the provisions of subsection 1 providing fora.

Payment of drawback equal to amount of import duty paid specifying the goods on
which the drawback shall not be available, procedure for recovery of drawback allowed
and interest thereon.

b.

Production of certificates, documents for the claim

c.

Requiring the manufacturer to give access to the specially authorized officer of

customs for inspection and verification.

d.

Manner and time within which claim for payment of drawback should be made.

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Section 75A provides for payment of interest on delayed payment of drawback, if amount of
drawback not paid within two months from the date of filling of the claim.

Section 76(1): When is drawback not allowed?

No drawback allowed if
a)

market price of goods exported is less than the amount of drawback

b)

drawback in respect to any goods is less than Rs.50/-

Section 76(2): CG may be notification direct that drawback shall not be allowed or allow it only
subject to such conditions and restrictions if in its opinion the goods are likely to be smuggled
into India.

Provisions Regarding Baggage:

a)

Sec 77: Declaration by owner of baggage as regards its contents to proper officer.
Baggage means luggage of passengers. Accompanied or unaccompanied and comprises
trunk or bags and personal belongings. Baggage has to be given larger and ordinary
meaning.
UOI v Kohail Kecherim, 1970.

Annexure 1: 1.fire arms 2. Cartridge exceeding 50. 3. Cigarette exceeding 200 or cigars
exceeding 50. 4. Alcoholic liquor exceeding 2 ltrs. 5. Gold silver in any form other than
ornaments

While computing duty free allowance limits the above annexure has to be refered and
quantities mentioned in that will be kept as restrictions.
b)

Sec 78: Rate of duty as prevailing on date on which declaration of baggage is to be

made.

c)

Sec 79: Bona fide baggage exempt from duty: Article in baggage of passengers., crew
member may pass free of duty if said officer is satisfied as to:

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a. Use of article has been made for such minimum no. of days as may be specified in
rules Sec. 79(1)(a).
a. The use of article is for personal use of passengers, or his family or is bonafide
gift or souvenir
However total value of goods must not exceed specified limits u/s 79(1)(b)
Sec 79(3) Different rules for different class of person
Sec 80 Temporary detention of baggage declaration of dutiable article made by passengers
proper officer on request of such passengers shall detain goods which are to be returned to him
on his leaving India or to be sent to him through other passengers.
Sec 81 Board may take any regulation providing for:
a)

Custody, examination, assessment to duty and clearance of baggage.

b)

Transit or transshipment of baggage from one custom station to another custom

station or to place outside India.

Provisions relating to Coastal Goods and vessels carrying coastal goods

a)

Provisions do not apply to baggage and stores.

b)

Entry Of Coastal Goods Sec 92 consignor must present Bill of Coastal goods to
proper officer and make entry in prescribed form and must also at the foot thereof make a
declaration as to the truth of the contents

c)

Sec 93 master of vessel shall not permit loading of goods until a bill relating to
such goods passed by proper officer is delivered to him (master) by consignor.

d)

Sec 94 master of vessel carrying coastal goods shall carry on board the vessel all
bills relating to such goods delivered to him and shall on arrival of the vessel at any
customs/coastal port; deliver to the proper officer of the port all bills relating to the
goods to be unloaded.

e)

Sec 95 master of vessel carrying coastal goods shall be supplied with "Advice
book" in which proper officer at each port shall make inspection and such entries as he
deems fit regarding the goods loaded.

f)

Sec 96 goods loading unloading only at customs / coastal port.

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Sec 97 master of vessel shall not permit departure of vessel until a written order to

g)

that effect has been received from proper officer. Such order shall not be given until:a) Master of vessel has answered all the questions put to him u/s 38.
a) All charges and penalties have been paid or payment secured.
a) Master has satisfied proper officer that no duty is leviable u/s 11B or payment of
penalty has been secured by guarantee or deposit as directed by proper officer.
Sec 98A CG may exempt coastal goods or vessel carrying coastal goods from all or

h)

some provisions of this chapter if it is satisfied that it is necessary in public interest to do

so.
i)

Sec 99 CG may make rules for preventing:a) the taking out of India of any dutiable or prohibited coastal goods
a) in case of vessel carrying coastal goods as well as imported or export goods the
substitution of imported or export goods by coastal goods.

Provisions regarding stores:

a) Stores may be allowed to be warehoused without assessment to duty if goods are to be
supplied as stores to vessel or aircraft the proper officer may allow goods to be warehoused
without being assessed to duty.
a) Transit / transshipment of stores any stores imported in vessel or aircraft may remain on
board while it is in India or transferred to any vessel or aircraft as stores for consumption,
with the permission of proper officer and without payment of duty.
a) Imported stores may be consumed on Board a foreign going vessel or aircraft. no duty
payable
a) Sec 69 and Ch X shall apply to stores as they apply to other goods subject to modifications
that:
a)for the words " exported to any place outside India " the words " taken on
board any foreign going vessel or aircraft as stores " shall be substituted

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b)DBK on fuel and lubricating oil taken on board any foreign going aircraft as
stores Sec 74 shall have effect as if for the words "98%" the word " the
whole shall be substituted.
c)Stores to be free of export duty:- goods manufactures or produced in India
required as stores on any foreign going vessel or aircraft shall be free of
export duty in such qty as proper officer thinks fit having regards to size of
vessel/aircraft. no. of passengers or crew, length of journey etc.
a) Concession in respect of Imported stores for Navy: No payment of duty
a) Sec 69 and Ch X shall apply to stores as they apply to other goods subject_to modifications
that:
a)

For the words " exported to any place outside India " the words " taken on board any
foreign going vessel or aircraft as stores " shall be substituted

b)

Sec 74 shall have effect as if for the words " 98%" the word " the whole shall be
substituted.

Provisions of goods imported/exported by post:

a)Label or Declaration accompanying goods deemed to be an Entry for Import/Export Sec 82
b)Rate of Duty and Tariff Valuation
Rate of duty shall be prevailing on date on which postal authorities present to proper officer
list containing particulars of such goods.
If imported by vessel and list of goods containing particulars presented before date of arrival
of vessel deemed to have been presented on date of such arrival (of vessel)
c)Regulation regarding goods imported / exported by post Sec 84
a) Manner and Form in which an entry may be made in respect of any specified class of
goods imported/exported by post other than those accompanied by label
a) Examination, assessment to duty and clearance of goods imported/exported by post
a) Transit/transshipment of goods imported/exported by post from one custom station to
another or place outside India.
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Sec 100: Power to search suspected person:

The proper officer has power to search the following person if he has reasons to believe that they
have in their possession any goods liable to confiscation or any document relating thereto:
Any person who has landed from or is about to board or is on board vessel within the Indian
Custom Water.
Any person who has landed from or is about to board or is on board any foreign going aircraft.
Any person who has got out of, or is about to get into, or is in a vehicle which has arrived from
or is to proceed to any place outside India.
Any person who has entered or is about to leave India.
Any person in the customs area

Search can be conducted for any goods where the proper officer has reasons to believethat the
person has secreted any goods liable to confiscation or any documents relating thereto.

Section 101- under this section the proper officer can search any suspected person with no
restriction on the place and person to be searched.

Search can be conductef only in case of

1. Gold
2. Diamonds
3. Manufacturers of gold and diamond
4. Watches
5. Any other class of notified goods
Where there is a reason to believe that the person has secreted about his person any such goods
liable to confiscation or any documents thereto.

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Section 104 : Power to arrest
If the officer of customs empowered by general or special order of Commissioner has a reasons
to believe that any person in india or within indian customs water , has committed any
punishable offence ,he may arrest such person and inform him the grounds for such arrest. Such
arrested person should forthwith be taken to magistrate.

Section 105 : Power to search premises.

If the officer has reasons to believe anf such reasons exist before the search. If such reasons are
Recorded in writing either by the officer or his subordinate. Search cannot be conducted on basis
of general order. The search order should be person specific.

Section 106 : Power to stop and search conveyance

Where the proper officer has reason to believe that any vessel , vehicle , animal or aircraft is
being used or is about to be used for smuggling then the officer may stop and search such vessel,
vehicle or aircraft anywhere in india or within the ndian customs water. The vessels and aircraft
will be given a accepted international signal, if they still dont stop a gun will be fired jn air and
ultimately the vessel, vehicle or aircraft may be fired upon.

Seizure of goods documents and things section 110 :

If the proper officer has reasons to believe , any goods liable to confiscation under this act
can be seized. In the event if such goods cannot be seized an order of restraint may be issued jn
respect of such goods. Such goods will not be allowed to be removed without permission of
proper officer. The document of title of such goods may also be seized if possession is not taken.
Goods of perishable nature or whose value can deteriorate may be disposed off as soon as
possible. The seized goods will have to be inventorised and images should be taken of the same
and disposed in the presence of magistrate only.

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The seized goods will have to be returned if no notice is given within 6 months from the date of
seizure.

During the seized period, if the if the assessee wants he can get copies of the seized documents
and making available such copies cannot be denied by the officer.
Manish lalit kumar bavishi v/s addl director general (2011) 272, ELT 42.

Section 111 : Confiscation of improperly imported goods

1. Goods imported and unloaded at any place other than designated customs port will be liable
for confiscation.
2. Any prohibited goods being imported into india by any mode of transport.
3. Any goods found on board which were not mentioned in IGM.
4.Any goods found in a concealed manner.
5.Any goods being removed without the permission of proper officer.
6. Any goods found in possession of a person which he failed to declare in the baggage
declaration to be made.
Etc...

Penalty leivied section 112:

1. Prohibited goods = Amount not exceeding value of goods or Rs 5000, whichever is greater.
2. Goods other than prohibited goods : Duty sought to be evaded or Rs 5000 whichever is
greater.
3. In case of baggage if declared value is more than actual value
Then penalty will be diference between (declared value and actual value ) or Rs 5000 whichever
is greater.

If penalty is payable under section 114A thenno penalty wil be payable under this section..
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Section 28:
Demand/Recovery of duties short levied etc. Customs Dept. to claim duty short recovered.

In case where duty has not been leivied or not paid or has been short levied or short paid or has
been erroneously refunded. for any reason other than fraud, collision or wilful misstatements a
showcause notice may be issued upto a period of one year from the relevant date.
If however any duty along with interest is paid before issuance of showcause notice then then such
notice will not be isued..
However if the voluntary payment is in full no notice is issued , if partly paid then showcause will
be issued.

Demand/Recovery of duties short levied etc. Customs Dept. to claim duty short recovered.

In case where duty has not been leivied or not paid or has been short levied or short paid or has
been erroneously refunded. for reason of fraud, collision or wilful misstatements a showcause
notice may be issued upto a period of five years from the relevant date.
If however any duty along with interest is paid within 30 days of the notice then the penaltywill be
reduced to 25% of the duty.

Situations

Relevant date

Duty is not leivied

Date of passing of clearance order

Duty is provisionally assessed

Date of final assessment

Erroneous refund

The date of refund

In any other case date of payment of duty .

Section 28AA:
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Interest at the rate of 18% per annum fixed by CBEC- . The interest is leivied from 1st day of the
month succeeding the month for in which duty was to be paid.

Section 28AB:
Inserted by Finance Act1996. In case where fraud, collusion willful misstatement, suppression of
facts. Interest levied is from 1st month itself and Sec28AA has also been amended so as to exclude
the cases falling under sec 28 AB from its purview.
For the refund the application shall be made before the expiry of 1 year from the date of payment
of duty .
If the refund is not paid within 3 months from the date of apllication then interest will be paid @
6% pa from the day of expiry of 3 months till the date of payment of duties.

Insertion of sec 114A a mandatory penalty = the duty on interest not levied or short levied, not paid
or shortly paid or erroneously refunded by reason of collision, willful misstatement, suppression of
facts etc. will be payable by the person liable to pay the duty.
For recovery the duty time limit prescribed is as follows.

1. Charitable institutions, educational research, hospital, government etc. 6 months from the date
of determination of duty.

2. Others if willful misstatement, collision suppression of facts etc. 5 years from the date of
determination of duty.

3. Time limit is excluded cases 1 year.

A show-cause notice for demand may refuse claim in writing. If justified a demand order. A
confirmed demand may 90 is appeal. He does not do anything then sec142 the dept. can

a) deduct sum payable from anything payable to him; or

b) Detain and sell the gas which are within control of customs; or
c) Still no recovery then as land revenue get collected through district collector.
Transportation Of Imported and Exported Goods
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The following provision have to be made relating to conveyances carrying imported or exported
goods

a) Ctrl of conveyance carrying imported or exported goods:According to Sec 29 (1st check over illicit landing of goods ) the person incharge of a
vessel or aircraft entering India from any place outside shall not cause or permit the
vessel:

a) to call or land for the 1st time after arrival in India ; or

b) at any time while it is carrying passengers or cargo brought in that vessel or aircraft at
any place other than a customs port or custom airport as the case may be.
EXCEPTION:- this provision does not apply to:-

a) any vessel/aircraft which is compelled by accident, stress of weather or other unavoidable

cause to call or land at a place other than customs port/airport.

b) The person incharge of the vessel should immediately report the arrival of vessel /aircraft to
nearest custom officer or officer incharge of nearest police station and produce on demand
the log book of vessel/aircraft.

c) The person incharge of the vessel should not without the consent of any such officer permit
unloading of any goods or departure of any crew member from vicinity.

a) Ctrl of Goods earned by vessel/aircraft:Sec 30 the person incharge of a conveyance carrying imported goods should within
24hrs after arrival deliver to proper officer Import manifest including a declaration as to
the truth of its contents at the foot of manifest proper officer may allow amendments or
supplementation if he is satisfied that no intention of fraud was involved.

a) Sec 30(3) Check of IGM/IR by proper officer.

a) Sec 31(1) no unloading of goods until order been given by proper officer granting
inwards to such vessel.

a) Sec 31(2) order granting Inward shall not be given unless import manifest is recd.
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EXCEPTION:Reasons ( why Sec.31(2) not applicable
Particulars

1. Member of Crew

2. Mail Bags

To avoid Undue delay

3. Animals

To avoid undue hardship

4. Perishable goods

To avoid deterioration

5. Hazardous goods

To avoid deterioration

a) Sec 32 imported goods cannot be unloaded unless they are specified in import manifest.
a) Sec 33 -> loading /unloading to take place only at places approved u/s 8(a)
a) Sec 34 loading /unloading to take place only under supervision of proper officer unless
otherwise if Board by notification in OG by General permission and proper officer in
particular case by Sp. Permission allow .

a) Sec 35 Certain ports like Pondicherry, Tuticorn, Mangalore, Saurashtra where ship cannot
come to shore for loading/unloading -- then the cargo is ferried from ship anchored at mid
sea to port in a boat otherwise known as Lighters . Also berth is not immediately available at times ship have tight itinerary then import cargo is taken from ship and export cargo is
taken from ship to ship in boat -- checking, controling, regulating Boat note.

a) Sec 36 loading/unloading not to take place on:

a) any Sunday,
a) any holiday observed by Customs Deptt. Or
a) on any other day after working hours.
a) Sec 37 Proper officer can board such conveyance at anytime and remain onboard for such
period as he thinks necessary.

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a) Sec 38 Proper officer may demand any documents or ask any questions to person incharge
of such conveyance .

a) Sec 39 export goods not be loaded on vessel until Entry Outward recd from proper officer.
Exception mail bags and baggage .

a) Sec 40 export goods not be loaded of vessel until S/Bill or B.o.Ex passed by proper
officer is recd from exporter.

a) Sec 41 before departure the person incharge must either deliver:

a)Export manifest(if vessel or aircraft) / export report( if vehicle) in prescribed
form
b)security for providing within 7 days from date of departure the export
manifest/report

a) Sec 42 imported goods brought at custom station shall not be allowed to depart unless
proper officer permits so after:

a. having answers to all questions asked by him to person in charge u/s 38

a. provision of Sec 41 complied with
a. S/Bill or B.o.Ex or B.o. transshipment and such other documents required by
proper officer have been delivered

a. All duties(on stores consumed), penalties have been paid or payment has been
secured or guaranteed

a. No penalty u/s 116 is leviable or if levied has been paid or secured by guarantee
or deposit

a) Sec 43(1) prov of Sec 40,41,42 not applicable to vehicle carrying only luggage of its
occupants

a) Sec 43(2) CG may exempt following from ALL or ANY prov of this chapter:
a. conveyance belonging to govt. or any foreign govt.
a. vessels and aircraft temporarily entering India by reason of any
Emergency.

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4. RECENT CASE LAWS

PART-I : CENTRAL EXCISE
BASIC CONCEPTS

1) Manufacture of furniture at customer's site - liable to excise duty?

Citation: CCEx. Vs. Mehta & CO. [2011] 264 ELT 481 (SC)
Decision & conclusion:
The furniture manufactured at customer's site is movable and liable for excise duty, since it
refers to desk, table and chairs, etc. which are different from fixtures that are attached to
earth/ground/walls and cannot be treated as immovable property.
2) Citation: Wallance Flour Mills Co. Ltd. Vs. CCEx. [1989] 44 ELT 598 (SC)
Decision & conclusion :
If goods were wholly exempt by virtue of notification and exemption notification is withdrawn
then since goods are excisable at the time of manufacture, the same will be liable to excise duty
at the rate prevalent at the time of removal.
3) Citation: CCEx. Vazir Sultan Tobacco Co. Ltd. [1996] 83 ELT 3 (SC)
Decision & conclusion :
It was held that if at the time of manufacture, there was no levy of special excise duty, then, the
goods manufactured during such period cannot be liable to special excise duty at the time of
removal.
4) Are physician samples excisable goods in view of the facts that they are statutorily
prohibited from being sold?
Citation: Medley Pharmaceuticals Ltd. Vs. CCEx & C Daman [2011] 263ELT 641 (SC)
Facts:
The question which arose for consideration was whether physician samples of patent and
proprietary medicines intended for distribution to medical practitioner as free samples, satisfied
the test of marketability, are liable to excise duty?

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Appellant contended that since the sale of physician samples was prohibited under Drugs and
Cosmetics Act and rules made thereunder, the same could not be considered to be marketable.
Decision & conclusion :
Excise duty is an impost on manufacture. It is leviable on manufacture or production of
excisable goods whether or not such goods are sold.
Sale is not necessary condition for charging excise duty.
Marketability means essence of chargeability but marketability means suitable for sale and
goods need not in fact be marketed / sold.
Supreme Court observed that merely because a product was statutorily prohibited from
being sold, would not mean that the product was not capable of being sold. Physician
sample was capable of being sold in open market.
Moreover, restrictions imposed under Drugs Act could not lead to non-levy of excise duty
under Central Excise Act thereby causing revenue loss. Prohibition on sale of physician
samples under Drugs Act did not have any bearing or effect on levy of excise duty.
Hence, Court inferred that the physician samples were excisable goods and were liable to
excise duty.
5) Battery cells connected with clamps and metal connectors to function as a battery bank
does not amount to manufacture, since function and use of the batteries remains the
same and no new product can be said to have come into existence.
Citation: Delta Power Solutions India Pvt. Ltd. [2012] 280 ELT 567 (AAR)
Facts:
The applicant proposes to import VRLA battery cells of 2 volts each and warehouse them in
the customs bonded warehouse. After receiving orders from customers, same would be
cleared to a non-bounded warehouse, tested and recharged if required and subsequently 24
battery cells mechanically inserted in shelves to make a battery bank of 48 volts. Commercial
nomenclature 'Battery Bank' was given by dealer himself.
Ruling is sought whether the above activity of making battery bank from battery cells
amounts to manufacture?
Decision & conclusion :
A battery bank is number of batteries acting as one battery. The functions and use of batteries
whether in single units or in bank of multiple batteries remains the same. Process of putting
two or more batteries does not alter their basic character and functions and no new product
has come into existence and no manufacturing takes place.

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6) Mixing polymers and additives to heated bitumen, merely results in improvement in

quality, no change in characteristic of bitumen, hence no manufacture.
Citation: CCEx Vs. Osnar Chemical Pvt. Ltd. [2012] 276 ELT 162 (SC)
Facts:
Assessee is engaged in supply of Polymer Modified Bitumen (PMB) and Crumbled Rubber
Modified Bitumen (CRMB). For this, the assessee mixed certain dose of polymer and
additives to heated bitumen (duty paid) for improving its quality by increasing its softening
point and penetration. The said bitumen in its hot melted condition was mixed with stone
aggregates which was then used for road construction.
Revenue contended that PMB and CRMB are commercially known in the market for being
bought and sold and hence, satisfied the test of marketability which is one of the essential
conditions for the purpose of levy of excise duty. Therefore, this process amounted to
manufacture and demanded duty.
Hence, the point of dispute is, whether addition and mixing of polymers and additives to base
bitumen results in manufacturing of a new marketable commodity and as such liable to excise
duty?
Decision & conclusion :
The process of mixing polymers and additives with bitumen merely resulted in the
improvement of quality of bitumen. Though named as PMB or CRMB, bitumen remained
bitumen. There was no change in the characteristic and identity of bitumen. It was only when
the change or series of changes take the commodity to a point where commercially it could be
no longer be regarded as the original commodity but was instead recognized as a new and
distinct article that manufacture could be said to have taken place. Hence, the said process is
not manufacture.
7) Cutting, grooving, routing of aluminium sheet - Manufacture as new identifiable and
distinct product emerged - though classified under same tariff heading.
Citation: CCEx Vs. Pushpadeep Enterprises [2011] 27 ELT 377 (Kar.)
Facts:
Assessee purchased aluminium composite panels. After cutting and grooving, pre-coated them
with wealth resistant coating to withstand solar radiation and industrial pollution and then
fixed them to the main frame leaving uniform gap sealed with sealant.
Point of dispute is, whether the above activity amounts to manufacture, more so when both the
raw material and the end product were classified under the same tariff heading?
Decision & conclusion :
Since the panels were not sold as such, but certain processes like cutting, grooving and routing
of aluminium sheets were carried on their panels, the resultant product was commercially
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identifiable and distinct from the panels that were purchased. Thus, it resulted in manufacture,
though the resultant panel was also classifiable under the same tariff heading as the original
sheets/plates.
8) Iron plates transformed into cables trays by the process of bending, punching, cutting,
galvanizing amounts to manufacture.
Citation: Metallite Ind. Vs. CST [2012] 275 ELT 54 (Del.)
Facts:
Assessee is a dealer in iron and steel. By treating the iron and steel plates to certain processes,
assessee made 'Perforated Cable Trays' and 'Ladder type cable trays' and sold the cable trays
without sales tax from the purchasing dealer. The Department contended that 'Perforated
Cable Trays' and 'Ladder type cable trays' are goods distinct from iron and steel and therefore
the process of transforming the iron and steel plates into cable trays amounted to manufacture.
Decision & conclusion :
The cable trays - perforated as well as ladder types are manufactured out of mild sheets of 2
mm thickness. These are cut into required sizes, bent, punched and galvanized by the hot dip
process. These are used iron power projects for laying down of heavy cables instead of
cement trenches or pipes. The type of process involved brings an ultimate product which is
distinct and different and is sold in the market to meet different mechanical and engineering
needs as distinct from plain and chequered plates. The process therefore, amounts to
manufacture.
9) Fabrication of cutting edge, shuttering plates, vertical props and derricks from steel
angle, MS plates, sheets, and pipes - amounts to manufacture.
Citation: Orissa Bridge and Construction Corpn. Ltd. Vs. CCEx. [2011] 264 ELT 14 (SC)
Facts:
The question that arose here was whether fabrication of cutting edge, plain shuttering plates,
vertical props, Derricks etc. from steel angles, HR sheets and pipes amount to manufacture
and result in emergence of marketable product so as to become chargeable to duty?
Decision & conclusion :
The plates and sheets which are starting material get transformed into various products which
are having distinct name, identity, character and use. The sheets, plates or angle irons cannot
be used as cutting HS plates, shuttering or other items for which purpose they are specifically
transformed into a new product. Therefore, the activities carried out by the appellant amount
to manufacture and therefore liable to excise duty.

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10) Testing equipments for testing final products manufactured for captive use marketable and therefore liable to excise duty.
Citation: Usha Rectifier Corporation (I) Ltd. Vs. CCEx. [2011] 263 ELT 655 (SC)
Facts:
The assessee is a manufacturer of electronic transformers, semiconductor devices and other
electrical and electronic equipments. During the course of such manufacture, they assembled
certain bought out parts, items and components to form machines in the nature of testing
equipments to test their final products. A statement to this effect was made by assessee in the
Balance Sheet stating 'Additions to Plant and Machinery worth Rs. 31.26 lakhs fabricated in
the company'. The same was further corroborated by the Director's Report.
Based on these statements, the Department raised demand on manufacture of testing
equipments.
Asssessee's contention was that testing equipments were manufactured for captive use and the
goods were not taken out of the factory, hence no duty is leviable.
Decision & conclusion :
The testing equipments though made by assembling in the factory the bought out items,
parts and components etc., it amounted to manufacture. This was proved and established
by the admissions of the assessee in their Balance Sheet and Director's Report, which
cannot be rebutted.
Even if such equipments were used for captive consumption and within the factory
premises, their saleability and marketability has been confirmed by the appellants in their
reply to the show cause notice that they had undertaken such manufacturing process of
testing equipments to avoid importing of such equipments from developed countries with
a view to save foreign exchange.
As per Explanation to Rule 5 of Central Excise Rules 2002, the issue of excisable goods
for captive use amounts to 'removal' for the purposes of levy of excise duty.
Thus, testing equipments manufactured and captively consumed are liable to excise duty.
11)Vitamin A crude emerged at the intermediate stage of Vitamin A - used in the
manufacture of animal feed supplement - marketable - shelf life of 2-3 years sufficient
to be marketable - goods liable to excise duty.
Citation: Nicholas Piramal India Ltd. Vs. CCEx. [2010] 2601 ELT 8 (SC)
Facts:
The assessee is engaged in the manufacture of vitamin A in a finished and marketable form
and animal feed supplements. During the intermediate stage of manufacture of Vitamin A,
vitamin A in its crude form emerges. This crude Vitamin A was used in the manufacture of
animal feed supplements by the appellant. Department imposed duty on such 'crude vitamin
A' used for manufacture of animal supplements.
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The assessee contended that 'crude vitamin A' is an intermediary product incapable of being
marketed, particularly in view of the fact that the life of the item would not be more than 2
days.
Decision & conclusion :
Excise duty is leviable if the goods are manufactured and are marketable.
The intermediate products, even if, captively consumed and not actually sold, may be liable
to levy of excise duty if they satisfy the test of both manufacture and marketability.
The said goods, if not captively consumed, would have to be bought by the appellant from
the market for the manufacture of animal feed supplements, which shows emergence of
marketable product.
Short shelf life does not mean 'no shelf life'. Thus, shelf life of 2 days is sufficient for the
product to be commercially marketed.
Therefore, the intermediate product 'Crude Vitamin A' is goods and is liable to excise duty.
12) Waste and scrap arising from repairs or maintenance of plant and machinery - not
amounts to manufacture - not liable to duty.
Citation: Grasim Industries Ltd. Vs. UOI [2011] 273 ELT 10 (SC)
Facts:
Assessee is a manufacturer of white cement. It repaired its worn out machineries / parts of the
cement manufacturing plant at its workshop such as damaged roller, shafts, and coupling with
the help of welding electrodes, mild steel, cutting tools, MS angles, MS channels, MS beams
etc. In this process of repair, MS scrap and iron scrap were generated. The assessee cleared
this metal scrap and waste without paying any excise duty. The assessee cleared this metal
scrap and waste without paying any excise duty.
The Department issued show cause notice demanding duty on the said waste contending that
the process of generation of scrap and waste amounted to manufacture in terms of section2(f)
of the Central Excise Act.
Point of dispute is, whether the metal scrap or iron scrap generated during the course of
repairs and maintenance of the worn out machineries amounts to manufacture, and thereby
liable to duty?
Decision & conclusion :
Manufacture in terms of Section 2(f) includes any process incidental or ancillary to the
completion of the manufactured product.
This 'any process' can be
any process in manufacture , or
process in relation to manufacture of the end product;
which involves bringing some kind of change to the raw material at various stages by
different operations.
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The process in relation to manufacture means a process which is so integrally

connected to the manufacturing of the end product without which, the manufacture of
the end product would be impossible or commercially inexpedient.
Since, the process of repair and maintenance of the machinery of the cement
manufacturing plant, in which MS scrap arise, has no contribution or effect on the
process of manufacturing of the white cement (which is end product).
The repairing activity cannot be called as a part of manufacturing activity in relation to
the manufacture of end product.
Therefore, the MS scrap or iron scrap cannot be said to be the by-product of the final
product. At the best it is the by-product of the repairing process, hence not liable to
duty.

CLASSIFICATION

1) Classification - Parts of Television Sets which were assembled into Television Sets (to
see its proper functioning) and which were subsequently disassembled before
removal from factory cannot be classified as parts of Television Sets.
The same were classified as complete Television Set by invoking Rule 2(a) of Rules
for interpretation of Tariff.
Citation: Salora International Ltd. Vs. CCEx. [2012] 284 ELT 3 (SC)
Facts:
The appellant, a manufacturer of various components of TV sets, assembled them as TV sets
and after checking and confirming its working, they were disassembled with individual serial
numbers and sent to sister units of assessee. The appellants classified these as "Parts of
Television Receivers" under Tariff Heading 8529. The Department issued a SCN and sought
to classify these as 'Television Receivers' under Tariff Heading 8528.
The Department's contention was, as the assessee manufactured parts of TV components and
assembled the same to test its performance, the manufacture was complete at that time. The
goods were disassembled before transporting it to sister units in order to avail the benefit of
lower duty payable on such portion.
The issue under consideration is whether the goods manufactured by the appellant are liable to
be taxed as 'parts of Television receivers' falling under tariff heading 8529 or as 'television
receivers' under tariff heading 8528.
Decision & conclusion :
The Apex Court decided in favour of the Department. It based its decision on following
grounds:
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On the parts having been completely assembled or made completely finished goods,
manufacturing process was over.
Goods / Components transported from factory has essential characteristics of finished
television receiver and were to be classified as complete or finished goods by invoking
Rule 2(a) of Rules for interpretation of tariff. Thus, the same are to be classified as
complete TV sets and not as parts.
Tariff entries along with relevant section and chapter notes have to be resorted first to see
whether a clear picture emerges. Only in absence of such a picture emerging,
Interpretative Rules can be resorted to.
2) Classification and marketability of carbonless paper emerging at intermediate stage distinct from carbonless stationary - marketable and classifiable under separate
heading 48.16
Citation: CCEx. Vs. Soundstrand Forms Pvt. Ltd. [2011] 271 ELT 326 (SC)
Facts:
The assessee manufactured computer stationery, business forms etc (carbonless or with
carbon). Carbonless paper or self copy paper emerged at the intermediate stage. Carbonless
paper is a chemically treated paper used for producing impression of the writing or manuscript
of the original paper on the other paper sheet. This can be further used in the manufacture of
continuous stationery by passing through the process of perforation, punching and fan
folding.
Assessee's contention is that, product is classifiable either under heading 49.01 - printed books, newspaper, pictures and other products of printing industry;
manuscripts, typescripts and plan; or
48.20 - as computer stationery
The rate of duty being 'nil' in both the cases.
Department's contention was that, the end product though classifiable under heading 48.20,
but the intermediate product i.e. carbonless paper classified under heading 48.16- carbon
paper. self copy paper etc. - rate of duty being 20%
The question arose was, under which particular heading the intermediary product would fall,
or is it to be treated as end product?
Decision & conclusion :
The carbonless paper which invariably emerges during the course of manufacture of
computer stationery at the intermediary stage, has a distinct and very well identified market
and is capable of being marketed.
Rule 3 of the Interpretative rules states that when goods are classifiable under two or more
headings, the heading which provides the most specific classification shall be preferred to
headings providing a more general description.
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It cannot therefore, be classified as computer stationery but falls under sub-heading 4816
which includes within its extent carbon paper, self copying paper, other copying or transfer
papers.
3) Rockwool, slagwool (minwool) having more than 25% by weight blast furnace slag
classifiable under sub-heading 6807.10 of Central Excise Tariff which specifies goods
according to composition.
CBEC circular - not binding on the assessee, quasi judicial authority and courts.
Citation: CCEx. Vs. Minwool Rock Fibres Ltd. [2012] 278 ELT 581 (SC)
Facts:
The assessee, a manufacturer of rockwool / slagwool using more than 25% of blast furnace slag
by weight, classified the goods under Heading 6807 - Goods in which more than 25% by weight of red mud, blast furnace slag or one or more
of these materials has been used, rate of duty being 8%.
Revenue's contention was that the goods must be classified under heading 6803 - slag wool, rock
wool and similar min wools, the rate of duty being 18%. To substantiate its claim the Revenue
brought to notice the CBEC Circular which stated that the aforesaid goods are to be classified
under 6803 and not under 6807.10
Decision & conclusion :
The apex court upheld the contention of the assessee on the following grounds Though sub-heading 6803 is a specific entry which speaks of slagwool, rockwool, but there is
another entry under sub-heading 6807.10 which speaks of goods in which Rockwool,
slagwool and products thereof which are manufactured by use of more than 25% by weight of
blast furnace slag.
Thus, in such a classification dispute, an entry beneficial to assessee must be applied.
The CBEC circular is not binding on the assessee, quasi judicial authorities and courts.
4) Multifunctional machines performing functions of printer, fax and scanner - classifiable
under heading 84.71
Citation: Xerox India Ltd. Vs. CCEx. [2010] 260 ELT 161 (SC)
Facts:
Assessee imported Xerox Regal 5299, Xerox work centre XD100 and Xerox Work Centre XD
155df, multifunctional machines performing the functions of printer, fax, copier, or scanner.
Hence, they are classifiable them under Heading 84.71 - Automatic Data processing machine and units thereof,
8471.60 - Inputs or output units whether or not containing storage units in same housing.
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84.79 - Machines and mechanical appliances having individual functions and not specified or
included elsewhere in this chapter.
Department's Contention These are multifunctional machines based on digital technology and are not solely or principally
used in Automatic Data Processing Machine (ADPM). To qualify as unit of data processing
machine, it should be able to work only with computer, but the above mentioned machine is able
to perform independently. Machines in question are not printer simpliciter attached to computer.
Assessee's Contention Multifunctional machines. though not ADPM, but serve as input and output devices of an ADPM
(computer) and thus serve as unit thereof. About 85% of its total parts and components along
with manufacturing cost is allocated to printing, thus, printing function emerges as principal
function; printers are classifiable under heading 8471.60. It is to be used principally in ADPM, it
is connectable to CPU and is able to accept data in a form which can be used by the system.
Decision & conclusion :
The Apex Court upheld the assessee's contention - that based on the nature of functions they
perform, the machines are to be classified under 84.71 and allowed the appeal.
The decision was based on the following general rules of interpretation :
Rules 3(a) - heading providing specific description be preferred to one providing more
general description.
Rule 3(b) - classification of goods as if they consisted of material or components, which gives
them essential character (here, as about 85% of its parts is allocable to printing, it should be
classified as printer)
Note 3 of Section XVI (which includes Chapter 84) provides that "composite machines
consisting of two or more machines fitted together to form a whole and other machines,
designed for the purpose of performing two or more complementary or alternative functions,
are to be classified as if consisting only of that component or as being that machine which
performs the principal function".
5) Surgical cleansing solutions- used in places where practice of surgery and medicine is
being carried out - primarily prophylactic use - classification as medicament based on
common parlance or commercial usage.
Citation: CCEx. Vs. Wockhardt Life Sciences Ltd. [2012] 277 ELT 299 (SC)
Facts:
The assessee manufactured Povidone Iodine Cleansing Solution USP and Wokadine Surgical
Scrub and classified the same as medicament under Tariff Heading 3003 - 'Medicaments'. The
Department sought to classify the same as detergents under Tariff Heading 3402.90
Assessee's Contention -

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The product is not used as a general cleansing solution, but used only in places where practice of
surgery and medicine is being carried out. Purpose of use is primarily prophylactic and to
prevent infections or diseases.
Revenue's Contention:
The sai1d products are primarily used as detergents / cleansing preparation. Only 30 kgs. of
medicine is used in 1000 ltrs. of water.
Decision & conclusion :
The Apex Court upheld the contention of the assessee and classified the above products as
'Medicament'.
The decision of the Apex Court was based on the following lines while determining the classification of goods, the factors to be considered are product
composition, literature, label and user.
the quantity of medicament used in a particular product cannot be a relevant factor for
determining the classification, for normally, the extent of use of medicinal ingredient is very
low as larger use may be harmful for the human body.
Therefore, the classification must be based on common parlance and commercial usage.
Common Parlance - The tariff heading had to be decided on the basis of tangible material or
evidence to determine how such article is understood in common parlance. The product in
question is understood as a pharmaceutical product and therefore is a 'medicament'.
Functional utility - Apart from common parlance test, the functional utility and predominant
or primary usage of the commodity must be taken into account. The commodity in question is
used by the surgeons for cleaning or de-germing their handstand scrubbing the skin of patients
before operation. It therefore, 'medicament' classifiable under Tariff Heading 3003.
6) Palm Stearin - with PFAD - a non edible industrial grade oil - cannot be classified under
Chapter 15 meant for 'edible oils' - but is classifiable in Chapter 38 which provides more
specific description.
Citation : CC. Vs. Jocil Ltd. [2011] 26 ELT 9 (SC)
Facts:
The respondent assessee imported crude palm stearin and filed the bills of entry declaring the
goods as industrial grade crude palm stearin - falling under 1511 90 90 of CETA , chargeable to
BCD - 20% and nil CVD/SAD. The Department sought to classify it as RBD palm stearin under
heading 3823 chargeable to duty BCD 25%, CVD 16%, SAD 4%.
Department's ContentionThe title Chapter 15 reads Animal or vegetable fats, oils waxes etc. thus, covering only edible
oils. On chemically examining the goods it was found that the goods in question are RBD Palm
stearin with Palm Fatty Acid Distillate, which clearly indicates that the substance has been
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chemically modified. It should therefore classified under Heading 3823 (which covers industrial
carboxylic acids i.e. free fatty acids)
Assessee's ContentionOils were a combination of glycerides and fatty acids. Apart from fatty acids, content of 25%,
the rest was triglycerides, giving it the essential character and therefore, applying Rules3(b) of
the General Rules of Interpretation, it should be classified under Heading 1511. Replying upon
Customs and Central Revenue Control Laboratory opinion and the CBEC Circular no. 81/2002,
that Heading 1511 covers palm oil and its fractions which include the constituent elements like
triglycerides of fatty acids and point fractions obtained by the process of fractionation.
Decision & conclusion :
The Apex Court upheld the contention of the Department. It based its decision on the following
grounds The Tariff headings are of paramount importance, they are expected to cover the broad ambit
of classification since it is impossible to cover all the goods specifically in titles. The title of
Chapter 15 being "Animal or Vegetable fats, oils , waxes etc." and therefore for goods to fall
into chapter 15, there must be some of "edible oil". Non edible industrial grade oil cannot be
brought under the ambit of edible oil.
Rule 3(a) of General Rules of Interpretation stipulates that specific description be preferred to
general heading. Thus, when the goods in question are specifically identified in Chapter subheading 3823 11 as palm stearin and further differentiated as "Crude" and "RBD" under subheading nos 3823 11 11 and 3823 11 12 respectively, they are to be classified under heading
3823.
Rule 3(b) of the General Rules of Interpretation must be applied only when Rule 3(a) fails.
For all the above reasons the goods are to be classified under Chapter 38.
7) The pre-laminated panels of particle and medium density fiber boards - a distinct
marketable commodity different from the original one to be classified under the specific
heading 44.08
Citation: CCEx. Vs. Kiply Ind. Ltd. [2011] 272 ELT 3 (SC)
Decision & conclusion :
The Apex Court upheld the decision of the assessee, on the following grounds The products under consideration were pre-laminated woods as was evident from the process
undertaken.
Therefore, the 'particle boards' though specifically covered under Heading 44.06, the product
after lamination acquires a distinct characteristic making the product fall out of heading 44.06
and place it under Chapter heading 44.08 as words used therein is "similar laminated woods".

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Further, considering Rules 3(c) of the Rules for Interpretation of the Act which envisages that
if products are capable of classification under two Chapter Headings, then classification must
be under heading which occurs last in the numerical order.
Therefore, sub-heading 4408.90 would be appropriate for classification of the product.

Valuation
1) Royalty charges paid to the parent company for assistance in manufacture, sale,
installation and service of lifts, will be covered under direct expenses and required to be
added to the cost of production, costing when done as per CAS-4.
Citation: Otis Elevator Co. (I) Ltd. Vs. CCEx. [2012] 280 ELT 531 (Tri)
Facts:
Appellant manufacturer of lifts and elevators and parts thereof (excisable), entered into works
contract with customer for erection and installation of lifts and elevator. Contract cost
included various components like designing, manufacturing, erection etc.
Appellant entered into an agreement with its parent company to get engineering, technical and
parent assistance in connection with manufacturing, sales, installation and service of Otis
elevators. For this, they paid 3.5% (subject to Indian taxes) on net works billing price of
products less the landed cost of the imported components used in the manufacture of final
product.
Value of the components / parts manufactured by the appellants being used captively, value to
be determined under Valuation Rules on costing basis after adding profit element in cost - as
per CAS-4.
Question arise, whether royalty charges which is paid by the appellant to parent company is a
part of the cost and includible in the Assessable Value?
Decision & conclusion :
According to CAS-4, goods on the basis of costing principles, the royalty charges will be
covered under direct expenses and will be required to be added to the cost of product under
assessment.
2) Distributor companies, related persons - but as no extra commercial consideration is
there, the price charged from 'related persons' shall be acceptable for valuation.
Citation: CCEx. Vs. Xeroraphic Ltd. [2010] 257 ELT 11 (SC)
Facts:
The assessee was engaged in the manufacturing of plain paper copier machines - 'Rocoh Murphy'
. Assessee was selling its product through two other companies viz M/s Murphy (I) Ltd. and M/s
Mecotronics (P) Ltd. The Department alleged that the assessee evaded excise duty by
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undervaluing the goods. Though assessee's contention of unrelated persons was refused but
tribunal on facts, it held that the extra commercial consideration passed on by the assessee while
selling goods to above companies and therefore, the price charged by them would be 'normal
price'. Aggrieved by this, the Department filed this appeal.
Department's ContentionThe assessee and the two abovementioned companies were related persons. The price, at which
the photo copiers manufactured by the respondent were sold by the aforementioned two
companies in the market, would be 'normal price' for the purposes of arriving at the assessable
value of the goods in the hands of the assessee.
Assessee's contentionThe aforementioned two firms were unrelated persons and its sale to distributors were on retail
basis.
Decision & conclusion :
On the reading of Sec 4(3)(b), it is clear that conditions are to be fulfilled to treat it as goods sold
to related persons :
there should be mutuality of interest
the person should be related to assessee as per the definition u/s 4(3)(b)
the price charged from related persons was lower than the 'normal price' because of extra
commercial consideration.
Since, in the above case, the Department filed to show existence of extra commercial
consideration in fixing the normal price between the assessee and the two aforementioned
companies, the price charged by the assessee was accepted as' normal value' and appeal was
dismissed.
3) Goods cleared for captive consumption-sale to related and unrelated buyers at same
price - Rule 4 of Valuation Rules will apply.
Citation: Oswal Woolllen Mills Ltd. Vs. CCEx. [2012] 282 ELT 547 (Tri)
Decision & conclusion :
Where goods are cleared for captive consumption and for sale to related and to unrelated buyers
at the same price, excise duty is leviable in terms of Rule 4 of the Valuation Rules, 2000. Rule 8
of Valuation Rules, 2000 can be invoked only in case when the entire goods are captively
consumed. Rule 9 of Valuation Rules can be invoked only when the entire goods are sold solely
to related persons.
Thus, Rule 8 and Rule 9 of Valuation Rules cannot be applied when the goods are cleared for
captive consumption and for sale to related and to unrelated buyers at the same price.

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4) In case, the goods are sold below cost of production to penetrate the market, the price
cannot be regarded as sole consideration for sale - this constitutes an extra commercial
consideration and therefore penetration price must be enhanced to arrive at Assessable
Value- Valuation will be in accordance with Rule 11 - Best Judgement Assessment
Citation: CCEx. Vs. Fiat India Pvt. Ltd. [2012] 283 ELT 161 (SC)
Facts:
Assessee was a manufacturer of Fiat Uno Model Cars. The assessee had been selling the goods
below the cost price continuously for 5 years which according to the assessee was penetration
price of market and competing with manufacturers of similar goods.
The Department refused to accept the wholesale price which was not based on manufacturing
cost and profit as the 'normal price' for purpose of quantification on assessable value. A special
audit was conducted u/s 14A by a cost accountant to ascertain the correctness of the price, which
was accepted by Department and SCN was issued to assessee demanding differential duty.
When matter was carried in appeal before Tribunal, the Tribunal decide in favour of assessee.
Aggrieved with the decision of Tribunal, this appeal was filed by Department .
Assessee's ContentionSection 4 of the Act does not mandate that price should always reflect the manufacturing cost
and profits. Under the amended section 4, each removal is a different transaction and the duty is
charged on value of each transaction. Intention to penetrate market cannot be treated as flow of
any extra commercial consideration. There is no additional consideration flowing from the buyer
to seller and whole transaction is bonafide. The transaction being bonafide, the Valuation Rules
cannot be invoked. More so, Rule 11 i.e. the best Judgment assessment can be resorted to only
when other Rules fails to apply.
Department's ContentionExcise is a tax on production and manufacture of goods. Excise duty is the duty leviable on the
value of the goods so manufactured. Therefore, it takes into account, manufacturing cost +
manufacturing profit.
There exists an extra commercial consideration in selling at exceptionally lower price, as it
would enable the assessee to penetrate the market which in turn would generate high turnover
which is the monetary consideration. Thus, the selling price cannot be said to be Sole
consideration.
Since, price could not be determined u/s 4 of the Act valuation has to be done in accordance with
Rule 11 of Valuation Rules i.e. Best Judgment assessment
Decision & conclusion :
Though amended section 4 treats each removal of goods a different transaction for levy of
duty, and thereby accepts different transaction values charged by the assessee to different
customers, but one of the important ingredient to be satisfied is 'price must be the sole
consideration' for sale.
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The main reason for selling the cars at price lower than manufacturing cost and profit is, to
penetrate the market and compete with manufacturers. This constitutes an extra commercial
consideration and therefore 'penetration price' must be added to arrive at the assessable value.
Where all the requirements of Section 4 are not satisfied then the transaction value shall not
be the Assessable Value and value in such a case has to be arrived at under the Central Excise
Valuation Rules, 2000.
The Valuation Rules are not required to be followed sequentially. The Rules provide for
arriving at assessable value independently under different contingencies.
As valuation could not be done with methods followed under other rules, the assessing
authority is justified in resorting to Best Judgment Assessment under Rule 11 and the
valuation as per Cost Audit Report is acceptable.
5) Battery is an integral part of UPSS system. Therefore, though bought out batteries
supplied with UPSS as optional item, value thereof be included in the valuation of the
UPSS.
Citation: Electronics and Controls Power System Vs. CCEx. [2011] 270 ELT 127 (SC)
Facts:
Appellant manufactured Uninterrupted Power Supply System (UPSS). It supplied batteries with
UPSS an optional items. The assessee did not include the value of batteries (i.e. bought our item)
in the assessable value of the UPSS. The Department issued SCNs demanding the differential
duty.
Assessee's contentionThe battery is a bought out item and not even fitted to the UPSS. It is supplied as an optional
item along with UPSS. Therefore, its value is not includible in the assessable value of the UPSS.
Department's contentionUPSS is an integral system of which battery is an essential and integral part. When the power
supply of electrical energy is interrupted, UPSS must draw power from the battery, convert it
into AC and supply it to unit. Thus, UPSS cannot function without a battery and therefore, it
should be regarded as an integral part of UPSS.
Decision & conclusion :
The Tribunal decided the case in favour of the Department and opined that as the battery forms
an integral part of the UPSS, its value thereof, must be included in determining the assessable
value of the UPSS. On an appeal, the Apex Court upheld the decision of tribunal.
6) Plastic caps if supplied free by customers, their cost in not includible in the assessable
value of the tubes manufactured by the assessee.
Citation: Essel Propack Ltd. Vs. CCEx. [2011] 274 ELT 3 (SC)
Facts:
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The appellant manufactured plastic tubes in its factory and supplied the same to M/s Colgate
Palmolive (I) Ltd. The plastic caps to it were not manufactured by the assessee in its factory and
these were supplied by Colgate to appellant and fitted to the tubes before removal of the same
from factory. The appellant paid duty on the assessable value (AV) of plastic tubes which did not
include cost of plastic caps. The Department issued SCN demanding duty on AV inclusive of
plastic caps.
Assessee's Contention The caps are not manufactured in the factory of appellant but are being supplied by customers,
and hence they do not form the part of toothpaste tube, and cannot be included in AV of
toothpaste tube.
Department's Contention If the caps are fitted to the tubes before removal from Appellant's factory, duty is to be paid on
the total value of tubes including the value of tubes including the value of plastic caps.
Decision & conclusion :
The Apex Court held that in respect of the tubes, in which the caps have been supplied by the
customer free of cost, the assessable value of tubes will not include the value of the caps.
7) Motorcycles cleared in packed condition from the factory to the depot - Packing to
motorcycles done to avoid scratch and breakages of lights is deemed to be one necessary
to put the excisable goods in saleable condition and therefore, includible in the assessable
value. It is irrelevant whether the packing charges are separately recovered from the
buyers.
Citation: Royal Enfield Vs. CCEx. [2011] 270 ELT 67 (SC)
Facts:
Appellant company manufactured motor cycles. They were cleared in fully packed conditions
from factory to depot and then sold to the dealers. Certain amount was charged by the appellant
as packing charges. The assessee assessed the value of the motorcycles excluding packing
charges. In the price declaration filed by the appellant, they declared the depot sale price per
vehicle and claimed the abatement of that amount towards packing charges. Department issued
SCN denying the abatement and claiming duty on value includible of packing charges.
Assessee's Contention The cost of packing material cannot be included in assessable value as the said cost cannot be
said to be the price at which such goods are ordinarily sold by the assessee to a buyer in the
course of wholesale trade for delivery at the time and place of removal.
The requisite packing was done to avoid scratch to painted body and breakage of lights fitted on
to motorcycles during transportation and therefore, the cost of aforesaid packing was not
includible as per Section 4 of Central Excise Act.
Decision & conclusion :
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In view of decision in GOI Vs. MRF Ltd. [1995] 77 ELT 433 (SC), it has been a settled position
of law that

where the goods are delivered in a packed condition at the time of removal, the cost of
packing shall be included.
the only test to be applied is whether such packing is necessary for putting the excisable
articles in condition in which it is generally sold in the wholesale market at factory gate.
If yes, then cost is liable to be included in value of goods and if not, cost of such packing
has to be excluded.
In the given case, the packing given to motorcycles is necessary for putting excisable article in
condition in which it is generally sold in whole sale market at factory gate.
Therefore, the cost of such packing cannot be excluded.

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CENVAT CREDIT

1) Iron and Steel structures manufactured and used captively in the factory for installation
of sugar manufacturing plant cannot be regarded as component or part of capital goods
hence it will not be entitled benefit of exemption notification no. 67/95 - CE.
Citation: Saraswati Sugar Mills Vs. CCEx. [2011] 270 ELT 465 (SC)
Facts:
The assessee was a manufacturer of sugar and molasses. In order to modernize the
manufacturing process it installed new machines new for which it manufactured Iron and Steel
structures in the factory and used them captively for the support of such machines.
The assessee claimed benefit of exemption notification no. 67/95 - CE. This exemption exempts
capital goods as defined in Rule 57Q of the Central Excise Rules, 1944, manufactured in a
factory and used within the factory of productionfrom the whole of the duty of excise leviable
thereon which is specified in the Schedule to the Central Excise Tariff Act, 1985.
Point of dispute is whether assessee is entitled to benefit of exemption notification no. 67/95 CE.
Decision & conclusion :
Iron and Steel structures manufactured and used captively in the factory for installation of
sugar manufacturing plant falls under chapter 73 and cannot be regarded as component or part
of capital goods hence it will not be entitled benefit of exemption notification no. 67/95 - CE.
Component in common parlance is integral part to constitution of whole article and without
which article is not complete. Iron and Steel structures would not go into composition of
vacuum pans, crystallizers etc., and are not essntial requirements is sugar manufacturing unit.
Thus, such Iron and Steel structures cannot be regarded as components of such plant and
machinery and will not be entitled benefit of exemption notification no. 67/95 - CE.
2) Machines 'made to order' - process of manufacturing is complete only when the machine
is tested; goods used in testing of the machine are inputs eligible for Modvat/Cenvat
credit.
Citation: Flex Engineering Ltd. Vs. CCEx. [2012] 276 ELT 153 (SC)
Facts:
The assessee, a body corporate was engaged in the manufacture of various types of packaging
machines - Automatic Form and Seal machines (F&S machines).
The machines were "made to order" according to the requirements of individual customers.
Before despatching the equipments, inspection and trial would be carried at the customer's
premises in presence of their engineers.

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On the customer being satisfied, an entry would be made in RG - 1register declaring, the
machine as manufactured and ready for clearance. If found deficient, it would not be delivered
until readjusted and returned.
Flexible laminated plastic fill in roll form and poly paper (henceforth termed as inputs) which
are excisable, were used for testing, tuning and adjusting various parts of the F&S machines.
The assessee filed a declaration and availed benefit of CENVAT credit for the duty paid on
the said inputs.
The Department issued SCN, denying the above credit, for which the assessee filed this
appeal.
Department's Contention The said materials were used for the purpose of testing the final product and therefore cannot be
treated as inputs. MODVAT/CENVAT credit is available only on the inputs that are actually
used in the manufacture of the final product. Testing of a machine takes place only after
manufacture is complete and therefore any goods used in the process subsequent to manufacture
cannot be termed as inputs within the meaning of Rule 2(k) of the CENVAT Credit Rules, 2004.
Assessee's Contention The expression 'in relation to' appearing in the rule 2(k) is very wide and includes all inputs so
long as they are used in or in relation to manufacture of the finished excisable goods. Since, the
machines are tailor made, as per customer's specifications, unless tested, the manufacturing
process cannot be said to be complete. To avail CENVAT/MODVAT credit, it is not necessary
that such inputs must be physically present in the finished product.
Decision & conclusion :
The assessee's contention was upheld and credit was allowed on the following grounds i) Manufacture is intrinsically integrated with marketability :
Manufacturing takes place when the raw material undergoes series of changes and
transformed into a commercially distinct commodity; and end with marketability of the
product.
Thus, if the product is not saleable, it will not be marketable and consequently the
process of manufacturing would not be held to be complete.
ii) Tailor made machines - process of manufacturing incomplete till machines tested to suit the
customer requirements :
In case of tailor made machines, if result of testing is not in conformity with customer's
requirements they lose their marketability, as they are of no use to any other customer.
Testing is inextricably connected with the manufacturing process and until it is carried
out, manufacturing process is incomplete and machines are not fit for sale and hence not
marketable.
iii) Physical presence of inputs in final product is not a pre-requisite for claim of Cenvat credit:

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The words 'in or in relation to' as used in the manufacture of inputs under Rule 2(k) of the
Cenvat Credit Rules, 2004, have widened the scope so as to attract goods which do not
enter into finished goods. In other words, physical presence of inputs in respect of which
Modvat /Cenvat credit claimed, is not a pre-requisite for such items.
iv) Goods used for testing are inputs:
Goods used for testing machines are inputs used in relation to manufacturing of final
product eligible for Modvat / Cenvat credit.
Therefore, flexible laminated plastic film and poly paper, used for testing F&S
machines, are inputs.
3) Application of Rule 5 to Deemed Exports:
Citation: CCE Vs. NBM Industries [2012] 276 ELT 9 (Guj)
Decision & conclusion :
For the purpose of refund under Rule 5 of Cenvat Credit Rules, 2004, the clearances by DTA
unit to 100% EOU (i.e. deemed exports) are to be treated at par with physical exports.
4) Time Limit for application of refund application
Citation: CCEx. Vs. GTN Eng (I) Ltd. [2012] 281 ELT 185 (Mad)
Decision & conclusion :
The time limit for filing refund application for cenvat credit is governed by provisions of Sec
11B of Central Excise Act 1944, since notification no.27/2012 issued under Rules 5 of Cenvat
Credit Rules 2004, specifically prescribes the same. The refund application is to be made within
one year from relevant date (i.e. date when final products are cleared for exportation).

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EXPORT, WAREHOUSING AND SSI

1) Application of Rebate claim under Rule 18 of Central Excise Rules, 2002 is to be filed
within the time limit prescribed under Section 11B of Central Excise Act, 1944.
Citation: Everest Flavours Ltd. Vs. UOI [2012] 282 ELT 481 (Bom)
Decision & conclusion :
The mandatory requirements of Section11B that a claim for refund of duty has to be presented
within a period of 1 year from the relevant date extends to filing of an application under rule
18 of Central Excise Rule, 2002, for rebate of excise duty on the excisable goods exported out
of India. This is evident from the Explanation provided in Sec 11B of Central Excise Act,
1944, which includes within the expression of 'refund', the rebate of duty of excise on
excisable goods exported out of India.
Rule 18 of Central Excise Rules, 2002, providing for the rebate of duty cannot be read
independent of requirement of limitation of prescribed in Section 11B of the Act. Mere
presentation of ARE-1 form does not constitute filing of a valid application for rebate. An
application for rebate has to be filed along with the documentary material as required.
Therefore, the application claiming rebate filed by the assessee exporter on 17th July 2007 for
the goods that were exported on 12th February, 2006 was beyond the period of limitation as
envisaged in Section 11B of the Central Excise Act, 1944 and rebate cannot be sanctioned.
2) Exemption based on end use - Mandatory compliance of conditions specified in
exemption notification :
Citation: Indian Oil Corporation Ltd. Vs. CCEx. [2012] 276 ELT 145 (SC)
Facts:
The appellant was a manufacturer of Reduced Crude oil (RCO) which was exempted from excise
duty if the same was used as fuel for generation of electrical energy by electricity undertakings
owned or controlled by Central Government or State Government or State Electricity Board etc.
Similarly, Naphta was exempt from whole of excise duty when the same was used for
manufacture of fertilizers.
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The said exemption was subject to condition that if such goods were used elsewhere in the
factory of production, then the procedure set out in the Central Excise Rules, 2001, was to be
followed.
The assessee removed the said goods under exemption without following the specified
procedure. However, the said goods were used for the intended purpose by the buyer i.e. for
generation of electrical energy and manufacture of fertilizers.
The Department denied the exemption since prescribed procedure was not followed. However,
assessee contended that he must be entitled to benefit of exemption and procedural non
compliance cannot be deprive him for benefit of exemption.
Decision & conclusion :
The Apex Court held that for claiming benefit of exemption, the conditions in such exemption
notification are to be complied with. Since, the assessee has removed excisable goods under
exemption without following the procedure specified in Central Excise Rules, 2001, the benefit
of exemption shall not be available to him.
3) SSI exemption not available if goods manufactured in brand name of other person:
Citation: CCEx. Vs. ACE Auto Co. Ltd. [2011] 263 ELT 3 (SC)
Facts:
The assessee, a small scale unit, was engaged in manufacture of clutch plates, clutch cover
assemblies and pressure plates.
The assessee prefixed symbol and logo "Tata" along with their own brand name "Ace" on cover
assembly which was manufactured for Tata vehicles.
The assessee's claim of SSI exemption was denied by the Central Excise Department alleging
that assessee has used brand name of another person (Tata).
Question arose whether the assessee is entitled for SSI exemption?
Decision & conclusion :
Assessee is not entitled for SSI exemption under notification no. 8/2003 if assessee uses brand
name or trade name of another person with an intention of indicating a connection between the
goods manufactured by him and such other person. The object of SSI exemption is to grant
benefit only to industries not having advantage of brand name or trade name.
The burden of proof to avail SSI exemption is of the assessee.
In this case, assessee used brand name Tata not only to indicate connection between goods
manufactured by them and Tata company but also intended to indicate the quality of their
product as that of Tata company.
Hence, assessee is not entitled SSI exemption benefit.

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4) Use of code names of other persons amounts to use of brand names. If effective
management or control is same, clearances are to be clubbed for SSI exemption.
Citation: Parle Bisleri Pvt. Ltd. Vs. CCEx. [2011] 263 ELT 15 (SC)
Facts:
M/s Parle Bisleri Pvt. Ltd. manufactured soft drink flavours which are assigned code names. The
appellants availed SSI exemption and sold its product to its 100% subsidiary Parle Export Ltd.
(PEL) and Parle International Ltd. (PIL). PEL used the products sold by appellant to manufacture
non-alcoholic beverages and soft drinks flavours, were researched and developed by PEL but
were allowed to be manufactured by appellant with code names given by PEL.
The Department contended that clearances of appellants must be clubbed with M/s PEL and M/s
PIL as they are effectively one and same company and thus, appellant is not entitled benefit of
SSI exemption. It was also contended that appellant were using brand name of another person.
Decision & conclusion :
It was held that Code names were 'brand names': Code names were used to denote soft-drink flavours. Such
flavours were earlier manufactured by PEL and appellant was subsequently allowed to use
the same. The franchise holders, buying the same flavours, placed order on the basis of code
numbers. Thus, there was connection in course of trade between flavours and entity using
code name. Hence, code names were brand name and assessee was not entitled to avail SSI
exemption.
Clubbing of clearances: The directors of appellants also served on Board of Directors of
PEL. M/s PEL has advance interest free loan of Rs. 1 Crore to the appellants for purchase of
raw material. Flavours manufactured by appellant were developed by PEL and owned by
PEL. Thus, there was inter dependency was there between PEL and appellants. There was
same effective management and financial control. Hence, corporate veil was lifted and their
clearances were clubbed.
5) SSI exemption cannot be withdrawn if brand name belongs to assessee himself although
some one else is equally entitled to use such name.
Citation: CCEx. Vs. Minimax Industries [2012]282 ELT A 106 (SC)
Facts:
The assessee was a partnership firm using brand name "Minimax" and was claiming SSI
exemption in respect of machines manufactured by it. Department of denied SSI exemption on
the ground that brand name belonged to some other person i.e. M/s Minimax Engineering
Industries (MEI), a sole proprietary concern (in which the sole proprietor of MEI was the brother
of the partners of the partnership firm). The assessee contended that the brand name belonged to
him as the MEI has not registered brand name in its name. Besides this, the same was not used to
indicate any connection of the assessees manufactured goods with MEI.
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Point of dispute was that, whether SSI exemption can be denied on ground that assessee is using
brand name of another person?
Decision & conclusion :
The Departments special leave petition against the judgment of High Court was dismissed by
Supreme Court. The High Court upheld the judgment of Tribunal in which the Tribunal held
that The assessee would be entitled the benefit of exemption, since the brand name belongs to
assessee himself even if some other person is equally entitled to use it.
As per SSI exemption notification, the SSI exemption could be denied only if the assessee
uses on the goods (in respect of which the exemption is sought), the same / similar brand
name with the intention of indicating a connection of his goods with goods of such other
person.
Since, the trade mark "Minimax" was being used by both MEI and partnership firm for last
number of years and the same has not been registered either under the Registration Act, or
under Trade Mark Act or any other act, MEI who has been using the name prior in time has
never claimed exclusive rights over the use of logo "Minimax" and had never taken any
action against the partnership firm; 'Minimax' has not acquired any such reputation that it can
be associated with MEI, therefore, "Minimax" belongs to both the entities namely the
partnership firm and the proprietary concern.
Therefore, there being no violation of condition as stipulated in exemption notification, the
same cannot be denied.

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EXEMPTION, DEMANDS, REFUNDS, & RECOVERIES

1) Citation: CCEx. Vs. Gurukripa Resins Pvt. Ltd. [2011] 270 ELT 3 (SC)
Facts:
The assessee was engaged in the manufacture and clearance of "Rosin" and "Turpentine oil". The
Turpentine oil manufactured without the aid of power was chargeable with Nil rate of duty, but
Turpentine oil, in relation to which manufacture was carried on with the aid of power, was liable
to excise duty @16%. The turpentine oil was manufactured from Rison. Rosin was lifted to
manufacturing platform which was subsequently heated to remove impurities and purified
material was heated to make vapours of Turpentine oil which was condensed by using water and
vapours of turpentine oil were converted into turpentine oil. The water which was used for
condensation was lifted to 30 ft height with the aid of electronic motor. The Department denied
exemption treating that turpentine oil was manufactured with aid of power and the same was
liable to excise duty @ 16%.
Question arose, whether turpentine oil is manufactured with aid of power and whether assessee
will not be entitled to the benefit of exemption?
Decision & conclusion :
The Supre Court held that lifting of water to overhead tank with the aid of electric motor is
integrally connected with the manufacture of turpentine oil since without sprinkling of water
on vapours, condensation is not possible and without condensation turpentine oil cannot be
obtained.
The Supreme Court observed that an activity or operation which is essential requirement and
is integrally connected with further operation for production of ultimate good, and the process
without which manufacture of the final product is impossible, would be a process in relation
to manufacture.
Thus, in this case, water used for condensation is essential for carrying out manufacturing
activity which is lifted with the help of electric motors. Thus, the assessee used power in or in
relation to manufacture of turpentine oil and hence, was not eligible for exemption.
2) Exemption from duty which was notified for goods manufactured at site of construction,
for use in construction work at such site cannot be denied when such manufacturing
activity was carried out at off road site to avoid the traffic jams and other related
problems.
Citation: CP Meier Vs. CCEx. [2012] 280 ELT 3 (Delhi)
Facts:
The petitioners were engaged in manufacture and supply of prefabricated structural components
to Delhi Metro Rail Corporation Ltd. (DMRC). They claimed exemption from excise duty under
notification no. 21/2006 - CE, which provided benefit of exemption to goods that were
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manufactured at site of construction for use in construction work at such site. The Department
denied exemption to the petitioners as the manufacturing activity was undertaken by them at a
separate off road site which was away from the main site, which according to the petitioners was
done to avoid the traffic jams at site of construction.
Decision & conclusion :
Exemption cannot be denied on grounds that the off road site which is used for manufacture is
not the site of construction, more so, in light of the clarification by CBEC Circular dated
18/05/99, that "site" included any premises made available to manufacturer. The said goods so
manufactured at off road site were ultimately used for construction work at site and the condition
of exemption notification of use at construction site was satisfied.
3) Explanatory notifications only interprets the existing rights and is treated as part and
parcel of the original notification. Explanatory notification being part of original
notification has to apply from date of original notification.
Citation: Loyal Textile Mills Ltd. Vs. Joint Secretary [2012] 280 ELT 8 (Mad)
Facts:
The assessee a manufacturer and exporter of cotton yarn/polyester yarn, paid excise duty with
respect to clearances affected for domestic requirements and also for export. The party claimed
rebate for all duties of excise paid on the goods exported under the relevant Government
notification. The party also claimed the refund of education cess which was paid by it since its
introduction from 9th July 2004. However, clarificatory explanation notification clarifying that
duty for purposes of rebate included education cess (among other duties included therein) was
issued by the Central Government on 6th September 2004. Based on this notification, the
Department denied the refund of education cess retrospectively since 9th July 2004 and admitted
the claim only prospectively from 6th September 2004.
Decision & conclusion :
The explanatory notification which only interprets the existing rights is to be treated as part and
parcel of the original notification and is operative from the date of original notification. As it
does not give any substantive right independently, it does not operate prospectively. Education
cess being a part of central excise duty, notification providing exemption / refund of duty of
excise otherwise applicable to education cess also with effect from when it became payable as
part of the duty of excise i.e. 9th July 2004.
4) Issue of notice is mandatory to raise a demand
Citation: CC. Vs. Merchant Impex [2012] 276 ELT 458 (Kar)
Decision & conclusion :

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A mere letter from the department specifying that assessee was ineligible for exemption cannot
be regarded as show cause notice, being communication or advices from department are not
show-cause notice. Therefore, any adjudication order passed without SCN is invalid.
5) Refund to be treated as erroneously granted if credit note to buyer is issued after grant
of refund
Citation: Grasim Industries Ltd. Vs. CCEx. [2011] 271 ELT 164 (SC)
Facts:
The appellants Chemical Division passed on the incidence of duty on sodium hypo cholorite to
its Staple Fibre Division and deposited the duty through TR-6 challans, in July 1989.
Subsequently, a refund claim of Rs. 2,00,000 was filed on 28-11-1990 and the same was
allowed. The assessee issued credit note to Staple Fibre Division after expiry of 2 years.
Department alleged that refund has been erroneously granted since the duty burden has been
passed on by chemical division and issued SCN for recovery of erroneous refund.
Assessee contended that since credit note has been issued, the refund was not invalidly granted.
They also contended that department should have filed an appeal against erroneous refund.
Decision & conclusion :
It was held that refund was erroneously granted as credit note for refund of duty was issued after
2 years from clearance of goods. The credit note so issued cannot be considered as reliable
document. Thus, refund claim made prior to issuance of credit note was not invalid.
6) Extended period of limitation not invocable in case assessee has bonafide belief that
process does not amount to manufacture.
Citation: CCEx. Vs. Diamond Scaffolding Co. [2011] 274 ELT 10 (Cal.)
Decision & conclusion :
The assessee did not pay excise duty on products manufactured by it because of favourable
judgments during the said period, holding that said process does not amount to manufacture.
Subsequently, the process was held as amounting to manufacture and department issued SCN
invoking extended period of limitation. It was held that there was no wilful suppression on the
part of the assessee with intent to evade duty. Hence, extended period of limitation cannot be
invoked.
7) Citation: UOI Vs. Rajasthan Spinning & Weaving Mills [2009] 238 ELT 3 (SC)
Decision & conclusion :
Mandatory penalty under Section 11AC of Central Excise Act, 1944 is not applicable to every
case of non-payment or short payment of duty. Condition mentioned u/s 11AC should exist
for penalty there under.
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Authorities have no discretion on quantum of penalty and the same is to be imposed as

specified under Section 11AC of the Central Excise Act, 1944.
Penalty u/s 11AC is to be imposed as per the provisions of that section. Payment of duty
before issuance of SCN cannot alter liability of penalty.
Penalty u/s 11AC is punishment for an act of deliberate deception by the assessee, with intent
to evade duty by adopting of any of the means mentioned in section 11AC of Central Excise
Act, 1944.
Duty paid before issuance of SCN is also subject to interest u/s 11AA of the Central Excise
Act, 1944.
In case, SCN is issued u/s Section 11A of Central Excise Act, 1944, invoking extended period
of limitation and charges of the notice are proved, then penalty under the Section 11AC shall
be imposed.
8) Penalty u/s 11AC - Malafide (Mens rea) or criminal intent is necessary:
Citation: CCEx. Vs. Pepsi Foods Ltd. [2010] 260 ELT 481 (SC)
Decision & conclusion :
When statute creates on offence and ingredient of offence is a deliberate attempt to evade duty
either by fraud or misinterpretation, statute requires 'mens rea' (malafide intent) as a necessary
constituent of such offence.
Imposition of penalty u/s 11AC of Central Excise Act, 1944 is wholly impermissible when no
fraud, suppression or misstatement is alleged in SCN.
Hence, if there is a bonafide mistake on part of assessee, penalty u/s 11AC cannot be levied.
Thus, criminal intent or mens rea is a necessary constituent to levy penalty u/s 11AC.
9) Chartered Accountant certificate is not a significant evidence to establish that incidence
of duty has not been passed on
Citation: CCus. Vs. Chennai Vs. BPL Ltd. [2010] (259) ELT 526 (Mad)
Decision & conclusion :
The High Court noted that Section 27 of the Custom's Act and Section 11B of Excise Act
mandates on the importer / manufacture to produce such documents or other evidence, while
seeking refund, to establish that the amount of duty in relation to which such refund is claimed,
has not been passed on by him to any other person.
The certificate issued by the Chartered Accountant was merely a piece of evidence
acknowledging certain facts. It would not automatically entitle a person to refund in the absence
of any other evidence. Hence, the respondent could not be granted refund merely on the basis of
the said certificate.
10) Citation: CCEx. Vs. Dhiren Gandhi [2012] 281 ELT 64 (Kar)
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Decision & conclusion :

Legal heirs of deceased individual assessee cannot be called upon to meet the liabilities of the
deceased unless they take over and continue to carry on the very same business of the deceased
and comply with statutory requirements.

APPEALS AND REVISION

1) Commissioner (Appeals) doesn't have power to refer the case back

Citation: MIL India Ltd. Vs. CCEx. [2007] 210 ELT 188 (SC)
Decision & conclusion :
The Supreme Court in above case held that the Commissioner Appeals does not have power to
refer the cash back to the adjudicating authority for fresh adjudication. The statutory power of
remand has been taken away by the Finance Act 2001, by making necessary amendment in the
statute.
2) Tribunal does not have a power to grant indefinite Stay
Citation: CCEx. Vs. Indian Oil Corporation [2010] 258 ELT 504 (Kar.)
Decision & conclusion :
The High Court set aside the Appellate Tribunal order in which the Appellate Tribunal held that
extension of stay not required and the stay once granted will remain in force till disposal of
appeal.
The High Court concluded that, as per the amended section which provides for automatic
vacation of stay after expiry of 180 days, the Tribunal cannot grant indefinite stay.
Tribunal is empowered to extend the stay based on application made thereof if the assessee is not
at fault and tribunal is unable to dispose of the appeal within 180 days of grant of stay for
reasons beyond its control. Thus, order of stay and order on extension of stay is not automatic.
3) Reapplication of evidence by Tribunal cannot be considered as rectification of mistake
and same amounts to Review
Citation: CCEx. Vs. RDC Concrete (India) Pvt. Ltd. [2011] 270 ELT 625 (SC)
Facts:
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The Tribunal looking to the shareholding pattern of the assessee and buyer in its first order held
that the assessee and the buyer were interconnected company and also directed for appointment
of Departmental Cost Accountant to conduct valuation audit.
On rectification application filed by assessee, the Tribunal after considering the same evidences
came to a conclusion that assessee and buyer were not interconnected undertakings and the audit
cannot be conducted by Departmental Cost Accountant but is to be conducted by independent
Cost Accountant.
The Department filed an appeal against the said rectificatory order that the same amounts to
review and not rectification.
Decision & conclusion :
The Supreme Court held that Re-appreciation of evidence and coming to a different conclusion
than earlier one amounts to review and not rectification. Re-appreciation of evidence on a
debatable point
cannot be said to be rectification of mistake apparent from record. Mistake apparent from record
must be an obvious and patent mistake and should not be established by long drawn process of
reasoning.
The arguments which were not accepted earlier during disposal of appeal cannot be accepted
during ROM application.
Thus, Re-appreciation of evidence in ROM application to conclude differently amounts to
review.
4) Appellate Tribunals order disposing of appeal on totally new ground is not sustainable
in law
Citation: CCEx. Vs. Gujchem Distillers [2011] 270 ELT 338 (Bom)
Facts:
The respondents were engaged in manufacturers of various excisable goods. The departmental
officers conducted checks in factory of respondents and found that the goods were in fully
manufactured condition but were not recorded in daily stock account. The department alleged
that the intention of respondents was to remove excisable goods without payment of duty since
the same were fully manufactured but were not recorded in Daily Stock Account maintained
under Rule 10 of Central Excise Rules, 2002 and, therefore, ordered confiscation of goods under
Rule 25 of the Central Excise Rules, 2002.
The respondents filed appeal before Commissioner (Appeals) who held that confiscation was
invalid and there was no intention on part of respondents to evade payment of duty. But, a
general penalty for non-compliance of provisions of Rule 10 (not recording the goods in Daily
Stock Account) was imposed.
The Department filed an appeal before tribunal against Commissioner (Appeals) order in which
the tribunal, held that the Department had not proved that the goods were in fully manufactured
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condition and therefore no entry was required to be made in Daily Stock Account and hence,
even general penalty was not imposable.
The Department filed an appeal before High Court against the judgment of Tribunal, in which
the department plead that Appellate Tribunal has disposed of the appeal on a ground which was
not urged by the respondents before the adjudicating authority.
Decision & conclusion :
The High Court elucidated that in the instant case, the CESTAT had disposed of the appeal on a
ground which was not urged by the respondents before the adjudicating authority. Thereby, the
CESTAT had disposed of the appeal on a totally new ground which was not laid before the
adjudicating authority and which would entail a finding on facts.
The High Court explained that had the CESTAT not been satisfied with the approach of the
adjudicating authority, it should have remanded the matter back to adjudicating authority.
However, it could not have been urged before the lower authorities. Thus, High Court remanded
the case back to the Appellate Tribunal.
5) The Doctrine of merger is not applicable when the appeal is dismissed on ground of
limitation and not on merits.
Citation: Raja Mechanical Co. Pvt. Ltd. Vs. CCEx. [2012] 279 ELT 481 (SC)
Facts:
The assessee wrongly filed an appeal before adjudicating authority. Nearly after a year's time,
realizing the mistake, the assessee filed an appeal the Commissioner (Appeals) but the same
was rejected on the grounds of limitation.
Aggrieved by the order of Commissioner (Appeals), the assessee filed appeal before tribunal
and tribunal confirmed the orders passed by the first appellate authority. Assessee rectification
application was also rejected in which Assessee claimed that the Tribunal ought to have
considered the appeal on merits and not limitation.
Being aggrieved by the order passed by the Tribunal, the assessee filed a reference application
to High Court which was rejected by the court.
The assessee filed an appeal to the Supreme Court and contended that the Tribunal ought to
have considered the assessee's appeal not only on the ground of limitation but also on merits
of the case since "doctrine of merger" theory would apply as the orders passed by the original
authority merged with the orders passed by the first appellate authority.
The department contended that when an appeal is dismissed on the ground of limitation (i.e.
delay in filing the same is not condoned), the doctrine of merger shall not apply.
Question arose whether the Tribunal was justified in not considering the case of the assessee on
merits and whether the doctrine of merger will be applicable in cases where appeal is dismissed
on ground of limitation.
Decision & conclusion :
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The Supreme Court observed that if for any reason an appeal is dismissed on the ground of
limitation and not on merits that order would not merge with the orders passed by the lower
authority. Thus, doctrine of merger is not applicable when appeal is dismissed on the grounds of
limitation and not on merits.
6) Valuation and classification matters - Direct Appeal to Supreme Court - No appeal to
High Courts - High Courts cannot also entertain writ petitions
Citation: UOI Vs. Guwahati Carbon Ltd. [2012] 278 ELT 26 (SC)
Decision & conclusion :
The Supreme Court held that an appeal against CESTAT decision regarding valuation of
excisable goods is to be filed before Supreme Court. Excise law is a complete code to seek
redressal.
The Supreme Court observed that writ petitions cannot be made against Appellate tribunal orders
where statutory remedy of appeal is available to aggrieved person.
Thus, High Court does not have power to entertain writ petitions against issues relating to
valuation under Central Excise.
7) Issues not raised in appeal before Tribunal - cannot be raised in High Court
Citation: Imperial Granites (P) Ltd. Vs. CCEx. [2012] 276 ELT 174 (AP)
Decision & conclusion :
The Court held that an appeal against those orders of Appellate tribunal lies to High Court where
CESTAT has not determined any issue raised before it or has wrongly determined the same. If
any issue has not been raised before tribunal, the same cannot be raised before High Court.

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ADVANCE RULINGS AND SETTLEMENT COMMISSION

1) The ruling pronounced by advance ruling authority can be challenged in the High Court
or Supreme Court, as AAR being a judicial body.
Citation: Columbia Sports Wear Co. Vs. DIT [2012] 283 ELT 321 (SC)
Facts:
Question arose whether an advance ruling pronounced by the authority can be challenged by the
applicant or any Income Tax Authority under Articles 226/227 of the Constitution before the
High Court or under Article 136 of the Constitution before the Supreme Court.
Decision & conclusion :
Article 226/227 of the Constitution empowers the High Court to exercise jurisdiction over the
courts and Tribunals subordinate to it. Similarly, Article 136 of the constitution empowers the
Supreme Court to exercise jurisdiction over the courts and Tribunals subordinate to it.
The advance ruling authority being a judicial body vested with powers of State under special
law, is deemed 'tribunal' within the meaning of expression under the Articles 136, 226 and
227 of the Constitution. Thus, the ruling pronounced by advance ruling authority can be
challenged in the High Court or Supreme Court, as AAR being a judicial body.
If special leave petition was directly made against order of Advance Ruling Authority, then
the Supreme Court would not entertain the petition unless such petition raises a substantial
question of general importance or similar question is already pending before the Supreme
Court for decision. In such a case writ petition can be filed to High Court.
2) Citation: Qualimax Electronics Pvt. Ltd. Vs. UOI [2010] 257 ELT 42 (Del.)
Facts:
The assessee filed an application before Settlement Commission on 08-01-2013 in relation to a
case. The department has adjudicated the case on 24-12-2012 and the same was dispatched by
adjudicating authority on 31-12-2012 but was not received by applicant before 08-01-2013 when
such application was filed.
Question arose whether Settlement Commission could entertain application for settlement
treating such case as pending case.
Decision & conclusion :
The Delhi High Court observed that such case cannot be regarded as pending case since the same
has already been adjudicated. Receipt of order in original is not relevant for settlement of case.
The date of adjudication is date when such order goes out of control of adjudicating authority by
signing it and sending it to the assessee. Since, in the present issue the adjudicated order was
dispatched on 31-12-2012 the adjudication became effective and complete on such date.
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3) Consolidated return covering past periods not a "return" u/s 32E - No settlement
Citation: Icon Industries Vs. UOI [2011] 273 ELT 487 (Del)
Facts:
The assessee's premises were searched by the revenue authorities on 07-02-2012 and assessee
obtained registration with the Central Excise Department on 18-02-2012. Subsequently, the
assessee filed consolidated returns for the periods prior to registration. After filing of
consolidated return the assessee applied to Settlement Commission.
The settlement commission rejected the application. The Settlement Commission opined that the
units were registered only after search was conducted and prior to that there was no registration
and no returns were filed, which is essential for acceptance of application u/s 32E. A writ
petition was filed against said order of Settlement Commission.
Decision & conclusion :
The Court held that As per provision of Section 32E, application for settlement can be filed along with periodical
returns showing production, clearance and central excise duty paid in the "prescribed"
manner.
A consolidated return covering more than one month or quarter filed just before or along with
filing of application before Settlement Commission by the applicant, who is not registered
with Central Excise and has not obtained ECC number, cannot be said to have filed periodical
returns which is mandatory requirement before settlement commissioner.
Such returns cannot contain details of any duty paid in prescribed.
In case, if belated returns are filed voluntarily, before issuance of show cause notice then the
condition of filing returns as stipulated u/s 32E is said to be complied.
4) Citation: J.R.B. Engineering Works Vs. Settlement Commission [2012] 275 ELT 179 (Del)
Facts:
The assessee was availing SSI exemption and was not registered with Central Excise Department
and has not filed returns. It was found that assessee was manufacturing goods in brand name of
another person and on that basis exemption was withdrawn. The assessee made an application to
the settlement commission. The Commission rejected the application since the assessee has not
complied with the requirement of filing periodical returns.
Decision & conclusion :
The Court held that since the applicant was neither obtained registration with Central Excise
Department nor complied with the requirement of filing periodical return and therefore,
settlement commission application was not maintainable.

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5) Settlement Commission cannot go beyond its jurisdiction and devise a mechanism for
settlement which is contrary to the provision of law.
Citation: CCEx. Vs. Suzlon Ceramics [2012] 282 ELT 338 (Guj.)
Facts:
The assessee clandstinely removed the goods without declaring the correct MRP. The
Department adopted the weighted average method of MRP and demanded the differential duty.
On the case being referred, the Settlement Commission devised a mechanism which was beyond
the statutory provision of law. The said order of Settlement Commission was challenged before
high court by both the parties.
Decision & conclusion :
The High Court quashed the order of the Settlement Commission on the following grounds Settlement Commission cannot go beyond its jurisdiction and devise a mechanism, in the
name of practical approach which is contrary to the provisions of law;
Though finding of facts and concerned questions of facts cannot be examined by the High
Court or Supreme Court, but the same can be interfered with, when the order passed by lower
authority is contrary to the provisions of the Act.

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PART - II - CUSTOMS
BASIC CONCEPTS

1) The importation of goods into India or exportation of goods from India is taxable event
in customs
Citation: Kiran Spinning Mills Vs. Collector [1999] 113 ELT 753 (SC), Garden Silk Mills Ltd.
Vs. UOI [1999] 113 ELT 359 (SC)
Decision & conclusion :
The Supreme Court has held in above case that taxable event occurs when the customs barrier is
crossed and not on the date when goods had landed in India or had entered the territorial waters
of India. Further, in Garden Silk case, , it was held that importation starts when the vessel the
mass of the goods crosses the territorial waters of India but is completed when such goods
becomes part of the mass of the goods within the country. Taxable event is reached when the
goods reach the customs barrier and the bill of entry for home consumption is filed.
2) Clearances from Domestic Tariff Area (DTA) to Special Economic Zone is chargeable to
export duty under the SEZ Act, 2005 or the Customs Act, 1962.
Citation: Tirupati Udyog Ltd. Vs. UOI [2011] 272 ELT 209 (MP)
Decision & conclusion :
It was held in the abovementioned case that the clearances of goods from DTA to Special
Economic Zone are not chargeable to export duty either under SEZ Act, 2005 or under Customs
Act, 1962 on the basis of the following observations The charging Section needs to be construed strictly. If a person is not expressly brought
within scope of the charging section, he cannot be taxed at all.
SEZ Act does not contain any provision for levy and collection of export duty on goods
supplied by a DTA unit to a unit in a Special Economic Zone for its authorized operations.
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Since, there is no charging provision in the SEZ Act providing for the levy of customs duty on
such goods, export duty cannot be levied on the DTA supplier.
Reading Section 12(1) of the Customs Act, 1962 along with Sections 2(18), 2(23), and 2(27)
makes it apparent that customs duty can be levied only on goods imported into or exported
beyond the territorial waters of India.
Since, both the SEZ unit and DTA unit are located within the territorial waters of India. supplies
from DTA to SEZ would not attract Section 12(1).
3) In case, goods rendered useless by natural causes the provisions of Section 22 do not
apply but provisions of Section 23 shall apply is importer relinquishes his title.
Citation: CC Vs. Symphony Services Corporation India Pvt. Ltd. [2012] 275 ELT 369 (Kar)
Facts:
The assessee was a STPI unit who worked under EOU scheme. They imported certain
equipments and the goods were substantially damaged due to heavy rains. The assessee
relinquished his title and applied for remission under section 23 of the Act.
The Department denied remission stating that case falls u/s 22 i.e. Abatement of duty on
damaged or deteriorated goods.
Decision & conclusion :
It was held that the case does not fall u/s 22 of the Customs Act, 1962. Under Section 22,
goods are damaged or deteriorated on account of only accident not due to any wilful act,
negligence or default of importer.
In Section 22, the accident refers to man-made accident and not a natural calamity.
In this case, importer has relinquished his title to the goods since the goods were rendered
useless to the importer. The said goods cannot be treated as lost or destroyed but have
become useless to the importer.
Hence, because of relinquishment of title to goods, he can avail benefit of remission of duty.

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CLASSIFICATION

1) Goods exempt from basic customs duty would not automatically be exempt from
additional duty of customs.
Citation: Kaur Sarin Traders Vs. UOI [2006] 199 ELT 224 (Pat).
Decision & conclusion :
Exemption from basic customs duty would not mean exemption from additional duty. When
goods are exempted from basic customs duty in terms of Section 12 of the Customs Act, 1962, it
would mean that they are exempted from additional duty of customs also, as basic customs duty
is leviable by virtue of Section 12 of the Customs' Act, 1962 while additional customs duty is
leviable u/s 3 of the Custom's Tariff Act, 1975.
2) Project import concessions not deniable when goods lost in sea before reaching project
site
Citation: CCEx. Vs. Lanco Kondapalli Power Pvt. Ltd. [2011] 268 ELT A76 (SC)
Facts:
The appellants were registered under Project Import Regulation, 1986, for import of power
equipment. They imported a gas turbine and generator in semi-knocked condition in 128
packages and the same were cleared from port by filing necessary bill f entry. However, the
coastal barges which carried the same to project site overtiurned, and the goods were destroyed
before the same could reach the project site.
The Department denied the project import concession and demanded duty at full rate since the
project import conditions were not fulfilled.
Decision & conclusion :

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The Supreme Court declined to interfere with the view of Appellate Tribunal in which the
tribunal set aside the differential demand, since the goods in thisa case have not been diverted for
any other use. The goods were destroyed and were not available for the purpose for which they
were imported.
Thus, assessee could not be denied the concession available for project imports.

VALUATION

1) Citation: CC Vs. Aggarwal Industriess Ltd. [2011] 272 ELT 641 (SC)
Facts:
M/s AGL entered into a contract in July 2012 with foreign suppliers for import of 1000 MT of
oil at US$ 450 per CIF per MT. The consignment was to be shipped in July 2012, but due to
certain unavoidable reasons the same was shipped in August 2012. However, in August 2012,
the oil prices drastically increased. Department issued notice under Rule 12 of Customs
Valuation Rules, 2007 on ground of increase in international price and subsequently rejected the
transction value having regard to value of imported identical goods and the value of identical
goods was taken as assessable value.
Decision & conclusion :
According to Rule 12 of Customs Valuation Rules, 2007, if the proper officer has a reason to
doubt the truth or accuracy of the deceased value, then he can call for information from importer
and if he is still not satisfied, only then such value can be rejected. Merely on the basis of
suspicion regarding correctness of invoice produced by an importer, the transaction value cannot
be rejected.
In the present case, the contract could not be performed in July 2012and the same was shipped in
August 2012. The importer paid contracted price only, though subsequently oil price increased
drastically.

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There was no collusion between importer and foreign supplier and the transaction so entered was
genuine and the conditions of Rule 3(2) were also satisfied.
Thus, merely because there is difference between contract price and price prevalent at the time of
importation, the same cannot form the basis of rejection of transaction value. Thus, contract price
shall be acceptable.

WAREHOUSING, DUTY DRAWBACK

1) Citation: SBEC Sugar Ltd. Vs. UOI [2011] 264 ELT 492 (SC)
Decision & conclusion :
In case goods are not removed from warehouse during the warehousing period (including
extension thereof), then the same shall be deemed to have been removed from warehouse on
expiry of such period. The rate of as applicable on the last date of warehousing period shall be
applicable.
2) Allowability of Drawback in case export goods get destroyed in transit
Citation: Sun Industries Vs. CC [1988] 35 ELT241 (SC), UOI Vs. Rajendra Dyeing & Printing
Mills Ltd. [2005] 180 ELT 433 (SC)
Decision & conclusion :
"India" includes territorial waters of India. When the export goods are destroyed before they
cross the territorial waters of India, then the same will not be regarded as 'export', being the
goods didn't move out of India.
In case the goods are destroyed in high seas (i.e. beyond territorial waters of India), then the
same shall be eligible for drawback since the export is completed.
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SEARCH, SEIZURE, CONFISCATION

1) Citation: N. K. Laminates Pvt. Ltd. Vs. Supritendant [2012] 275 ELT 359 (All)
Decision & conclusion :
In respect of search u/s 105 of Customs Act the following point of law must be considered:
Essential precondition before power of search is exercised is that officer concerned must have
reason to believe and such reason must exist before search is ordered,
The empowered officer need not record the reasons personally. If the subordinate officer has
recorded such reasons and he has given his assent in writing then such order shall be valid.
Search cannot be conducted on the basis of general order. The name of person on whom
search is to be conducted must be indicated in the search warrant.
2) No penalty can be imposed on Managing Director unless it is proved that MD had
deliberately attempted to evade duty
Citation: O.T.Enasu Vs. UOI [2011] 272 ELT 51 (Ker)
Facts:
The company imported certain goods. However, on violation of certain conditions, penalties
were imposed on the company as well as MD. The Managing Director challenged imposition of
penalty on him.
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Decision & conclusion :

Held that, as per Section 112(a)(ii), the liability to penalty is determined on the basis of duty
sought to be evaded.
Therefore, the jurisdictional fact to impose a penalty in terms of Section 112(a)(ii) includes the
essential ingredient that "duty was sought to be evaded". Being a penal provision, it requires to
be strictly constructed.
The concept of evading involves a conscious exercise by the person who evades. Therefore, the
process of "seeking to evade" essentially involves a mental element and concept of the status
"sought to be evaded" is arrived at only by a conscious attempt to evade.
The High Court inferred that unless it is established that a person has, by his omissions or
commissions, led to a situation where duty is sought to be evaded, there cannot be an imposition
of penalty in terms of Section 112(a)(ii) of the Act.
3) Service of show-cause notice u/s 124 within 6 months is not mandatory
Citation: CCEx. Vs. Ram Kumar Aggarwal [2012] 280 ELT 13 (MP)
Decision & conclusion :
In case of seizure of goods, Show cause notice must be given within six months of the seizure of
the goods as contemplated in Sections 110(2) and 124 of the Custom's Act, 1962. No where
under the said sections it is required that the said notice must be served within 6 months the
seizure of goods. Thus, issuance of notice by registered post within 6 months is a sufficient
compliance in the eye of law, more so, when the same has been received by assessee. Legislature
does not intend to require service of notice within six months.
4) Redemption fine to be refunded on relinquishment of title of goods
Citation: Purfina Chemicals Pvt. Ltd. Vs. CEGAT [2004] 167 ELT 145 (Mad)
Decision & conclusion :
The Madras High Court has held that where the title of the goods have been relinquished by the
importer then there is no requirement of payment of any fine in lieu of confiscation. Therefore,
the redemption fine so paid shall be refunded.

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EXEMPTION, DEMANDS, REFUNDS, & RECOVERIES

1) Merely because value of goods in the shipping bill is FOB value, the value cannot be said
to include the custom duty, when the invoice value and the FOB value is same. The refund
claim is not barred by unjust enrichment. Refund cannot be denied on grounds that the
appellant had not filed appeal against the assessment order.
Citation: Asia Pacific Commodities Ltd. Vs. Assisstant Commissioner of Customs [2012] 280
ELT 481 (AP)
Facts:
The appellants exported long grain rice under various shipping bills at FOB value. Cess at 0.5%
ad valorem was paid by the appellants. Cess paid for each consignment was not separately shown
in the shipping bills. During the period when exports were effected, Cess Act was repealed and
therefore the assessee claimed refund u/s 27 of the Custom's Act for refund of cess of export of
rice consequent to its abolition. The Assistant Commissioner granted refund of Cess in
assessment order but, the Commissioner passed revisionary order and denied refund on grounds
of unjust enrichment. During the course of appeal, the Department raised a further plea that when
assessee has not challenged the assessment order, claim for refund would not lie.
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Decision & conclusion :

As the cess was not mentioned in the Shipping bills separately, for each consignment and the
Invoice value being the same as the FOB value, therefore the same cannot be said to include
the duty paid under the Cess Act. Thus, it can be said that the appellants did not pass on the
incidence of duty to buyers. The refund of claim is therefore not barred by unjust enrichment
u/s 27 of the Customs Act.
The assessment order which being final without there being a challenge in the appeal must be
given effect to. However, if assessment order itself enables refund the law does not expect the
person to file appeal to claim the refund.
The CESTAT cannot deny refund to person who paid the customs duty when assessment
order itself provided refund.

ADVANCE RULING AND SETTLEMENT COMMISSION

1) No advance ruling can be sought in case of Expansion of existing/ongoing business of

import
Citation: Oracle India Pvt. Ltd. [2012] 277 ELT 128 (AAR)
Facts:
The assessee company, a wholly owned subsidiary of Oracle System Corporation, USA was
carrying on business of software and service in India (consultancy and education services). The
applicant proposed to start hardware business in India for which hardware was to be imported
from related parties and was to be resold in India subsequently. For valuation of hardware
products, the applicant filed application to advance ruling authority.
A question arose before advance ruling authority that whether import of hardware can be
regarded as proposed activity or was an already undertaken activity (as software's were being
imported).
Decision & conclusion :
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The Advance Ruling held that advance ruling is to be confined to an activity which is proposed
to be undertaken by applicant.
Where an existing activity is to be varied or added to or expended that would not entitle existing
entity to seek advance ruling under the Customs' Act, 1962.
Thus, applicant is not eligible to seek advance ruling because applicant was already engaged in
the business of import of software and import of hardware is expansion of existing line of
business.

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