STUDY MATERIAL

SYLLABUS: Levy and Collection of Excise Duty – Kinds of Excise Duty – Basic conditions
for liability to excise – concept of goods – excisability and Intermediate products –
packing, Labelling and branding of goods – valuation of excisable goods –
Registration in Central Excise – Procedure for Registration – Automatic or Deemed
Registration.

LESSON 1 – EXCISE DUTY

EXCISE DUTY – MEANING
Central excise duty is a duty on production or manufacture of goods. It is an indirect tax
where incidence generally falls on consumers of goods. The liability of duty is attracted the
moment a new commodity is manufactured. Even though the taxable event occurs at the time of
manufacture of goods, it is duty on the consumption of goods within the territory of India.
Normally, excise duties are levied at the manufacturing stage and the levy is at specified rate.

In general, excise is a Central subject and the Central Government is responsible for its
levy and collection in India. While excise duty on manufactured goods, octroi duty is a tax
levied on the entry of goods within a particular area. A ‘Cess’ is a tax imposed for some specific
purpose with reference to some goods. Cess is levied with the objective of developing the
industry or the production of concerned goods or for the welfare of the people.

There is a distinction between excise duty and sales tax. While excise duty us generally
charged on the assessable value ascertained in a specified manner, sales tax is based on selling
price of a product as shown in the Invoice.

KINDS OF EXCISE DUTY:

1. Basic Excise duties,
2. Additional duties in lieu of Sales Tax, and
3. Additional duties on specific commodities.

BASIC EXCISE DUTIES: These are leviable on innumerable commodities classified under the
Schedule to the CETA, 1985. The basis of levy of basic duty can be specific, ad valorem or a
fixed tariff value.

ADDITIONAL DUTIES IN LIEU OF SALES TAX: These are leviable under the Additional
Duties (Goods of Special Importance) Act, 1957. Textiles, sugar, tobacco, etc. are covered
under this Act.

ADDITIONAL DUTIES ON SPECIFIC COMMODITIES: These are levied under certain

particular enactments such as Additional Duty of Excise (Textiles & Textile Articles) Act, 1978,
Mineral Products Act, 1958, Medicinal and Toilet Preparations, etc.

SPECIAL EXCISE DUTY: Section 3 of Central Excise Act has been amended by Finance Act,
1999 to provide for levy of special duty on excise on excisable goods produced or manufactured
in India. The rate of special excise duty has been fixed at 6%, 8% and 16% ad valorem in
respect of three categories of products. As per this amended section all the provision relating to
manner of collection, refund, rebate, Modvat scheme, etc will be applicable to this duty as in the
case of basic excise duty.

ADDITIONAL DUTY OF EXCISE ON MOTOR SPIRIT(PETROL):

A new levy called, “Additional Duty Excise(Motor Spirit)” was imposed on petrol at the
rate of one rupee per litre. This came into force from mid-night of 1 st and 2nd June 1998. The
levy is intended for the purpose of mobilizing resources for the development of roads.

ADDITIONAL DUTY OF EXCISE ON HIGH SPEED DIESEL OIL

An additional duty of excise of rupee one per litre has been imposed on high speed diesel
oil (HSD). This came into force from the mod-night of 27.2.1999. Additional excise duty of Rs.
1.50 per litre imposed on light diesel Addition oil by the Finance Act, 2003.

BASIC CONDITION FOR LIABILITY TO EXCISE

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Sec 3 of the CEA , 1944 is the crucial provision empowering and authorizing the levy
collection of excise duty at the rates laid down in the Schedule to the CETA 1985. A close
scrutiny of Section 3 reveals that the following three basic conditions have to be fulfilled for
liability to excise:
1. The duty is leviable on goods.
2. The goods must be manufactured or produced in india.
3. The goods must be excisable goods.

CONCEPT OF GOODS
The word ‘goods” had Not been defined in the Central Excises Act, 1944 or the Central
Excise Rules. However based on definitions in other enactments as well as judicial
pronouncements, certain broad guidelines have evolved in this regard.
1. Article 366(12) of the Constitution defines goods as “goods includes all materials,
commodities and articles”.
2. Sale of Goods Act defines “goods” as “goods, means every kind of movable property
other than actionable claims and money; and includes stocks and shares, growing crops,
grass and things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale.
These definitions are too broad-based to fit into the scheme of excise duty. However, case
law on this aspect has crystallized two basic requirements, namely.
a) Goods must be movable:
Goods must be movable and hence any immovable property or property attached to the
earth is not “goods” and duty cannot be levied on it.
b) Goods must be marketable:
Goods are those things which satisfy the test of “marketability” i.e. they should be
capable of being bought or sold.

EXCISABILITY AND INTERMEDIATE PRODUCTS:

In the course of manufacture of a final product, sometimes an intermediate product may
come into existence. If a product which is completely identifiable and which can be sold in
market comes into existence during the manufacturing process at a intermediate stage, it will
amount to manufacture and will be dutiable. If any intermediate product is neither sold nor it is
independently marketable it will not be liable to duty. Though all independently marketable
intermediate products will be subject to excise duty, as per Notification no. 217/86 intermediate
products used for captive consumption in factory, and not sold as such, will be exempt from duty.

PACKING, LABELLING AND BRANDING OF GOODS:

Packing of manufactured goods for their safety or protection is not a process incidental or
ancillary to the completion of manufactured goods. However, packing of biscuits or match sticks
is a process incidental or ancillary to the completion of the manufactured product. If any goods
are cleared from factory in bulk packings on payment of duty and thereafter repacked in small
containers, the activity of repacking will not be treated as manufacture. The normal minimum
packing without which a manufactured product cannot be delivered whether for reason of
transport or otherwise should be treated as a process incidental or ancillary to the completion of
that product.

Mere labeling is not manufacturing as no new product emerges. In the absence of

statutory provision of putting marks or labels on containers with the object of identifying the end
product and enhancing the goodwill of the manufacturing would not form part of manufacture.
However in respect of patent or proprietary medicines, manufacture can be said to be complete
only when it is in accordance with the Drugs Act. Labeling of patent or proprietary medicines
would, therefore amount to manufacture. In Bapalal &Co. VS Government of India, the court
held that mere affixing of brand name on already manufactured article purchased from others or
mere inscription of additional trade does not amount to manufacture. In Banner &Co. VS Union
of India it was held that putting brand name on goods does not change the character of goods and
cannot amount to manufacture.

SUMMARY: Central excise duty is a duty on production or manufacture of goods. It is an

indirect tax where incidence generally falls on consumers of goods. Basic Excise duties,
Additional duties in lieu of Sales Tax, and Additional duties on specific commodities are the
kinds of excise duties. Basic condition for liability to excise are (i) The duty is leviable on goods
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(ii) The goods must be manufactured or produced in India (iii) The goods must be excisable
goods.

PART B
1. Discuss the nature of incidence of excise duty.
2. Explain definition of goods for charging tax under the Central excise law.
3. What are the basic condition to liability to excise?

PART C
1.Explain the various types of excise duty leviable under the Excise Act and the
administration set up of the Excise Department.

LESSON 2 – VALUATION OF EXCISABLE GOODS

INTRODUCTION:
Broadly speaking, Central excise duty can be levied in two ways:
1) specific rate of duty
2) Ad valorem rate of duty
In the case of specific rate of duty, the basis of levy is a specific quantity of the goods
such as weight, length, volume, number of units produced. Thus specific rate of duty has no
relevance to the selling price or value of the excisable goods and is, in fact independent of it.
In the case of ad valorem rate of duty, the basis of levy is the value of the goods. It is,
therefore, necessary to determine the ‘value’ of the excisable goods and then apply the ad
valorem rate of duty which is a fixed percentage of the value, say 10% ad valorem or 20% ad
valorem. Thus, ad valorem rate of duty is entirely related to and is dependent on the value of
excisable goods.

SCHEME OF VALUATION OF EXCISABLE GOODS:

Wherever excise duty is leviable at ad valorem rates, the scheme of valuation of excisable
goods is governed by the provisions of Section 4 of the Excises Act 1944 read with the
Central Excise Valuation Rules, 1975. The value of the excisable goods so determined under
Section 4 is generally termed as the “assessable value” based on which the ad valorem rate of
duty is applied and the actual duty liability is calculated.
Constitutionally, excise duty is a levy on the manufacture and production of excisable
goods and not on the sale of such goods. It thereby follows that excise duty should not be levied
on the selling price as such but should be levied on a “notional value” wherein certain
components of costs or expenses which may relate to a stage after the goods have been
manufactured and cleared have to be eliminated from the selling price, to conform to the
constitutional requirements.

IMPORTANCE OF VALUATION
With the increasing number of commodities being switched over, from specific rates of
duties to ad valorem rates, the importance of “Valuation” of excisable goods can hardly be
underestimated. Numerous adjudication, appeals and litigations in Courts have arisen on account
of “Valuation’ matters, leading to a plethora of judgements on various aspects of valuation.
In the Budget of 1995-96, new provision has been introduced by way of section 14A for
the purpose of conduction of “Special Audit”, in certain cases. Powers has been given to the
Central Excise Officers to direct any manufacturer to get the accounts of his factory, office, depot
etc. audited by a nominated Cost Accountant in cases where the Central Excise Officers is of the
opinion that the value has not been correctly declared or determined by the manufacturer.
The Cost Accountant is required to submit his report within a prescribed time – 180 days
– and his fees shall be recovered from the manufacturer. This provision of getting the accounts
audited by a professional Cost Accountant emphasis the Government’s importance towards
“Valuation” of excisable goods.

VALUATION OF EXCISABLE GOODS FOR PURPOSES OF CHARGING EXCISE

DUTY:
The Finance Act, 2000 replace the existing Sec 4 of the Central Excise Act with effect
form 1.7.2000. Hereafter, the concept of normal price is based on transaction value for
assessment. As per the amended Sec (4) of the Act, the excise duty is chargeable on any
excisable goods with reference to their transaction value.
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MEANING OF TRANSACTION VALUE:

As per new section 4(3)(c), the term “transaction value” means the price actually paid or
payable for the goods when sold.
a) It includes, in addition to the price charged, any amount the buyer is liable to pay to
assessee in respect of the sale.
b) It includes advertising, financing, servicing, warrantee commission or any other amount
payable by buyer to the manufacturer.
c) It does not include excise duty, sales tax and other taxes.
d) The transaction value will not be applicable for the purpose of payment of duty if the
buyer and seller are related.
e) If the goods are sold to related person or if the goods are not sold, valuation will be done
on the basis of rules as may be prescribed.

RELATED PERSON:
As per Sec 4(3) (b), persons shall be deemed to be ‘related’ if –
i) they are officers or directors of one another’s business.
ii) They are legally recognized partners in business,
iii) They are employer and employee.
iv) Any person directly or indirectly owns, controls or holds 5% or more of the
outstanding voting stock or shares or both of them.
v) One of them directly/indirectly controls the other.
vi) Both of them are directly/ indirectly controlled by any other person.
vii) Together they directly/indirectly control any other person or
viii) They are members of the same family.

CONCEPT OF VALUE
The substitution of the concept of assessable value from normal whole sale price to
Transaction Value has been made to make the valuation mechanism simple, user friendly, and
along commercially accepted practices. The law relating to determination of assessable value for
excisable goods is contained in Section 4 of the Central Excise Act, 1944, supplemented by the
Central Excise valuation (Determination of Price of Excisable Goods) Rules 2000. The Finance
Act, 2000 has amended Section 4 and brought into force with effect from 1.7.2000 on which date
the Valuation Rules were also simultaneously brought into force. It has been termed as a move
to facilitate the introduction of full-fledged VAT in the place of CENVAT.
This section 4 follows the prescription regarding assessable value to be based on
‘Transaction Value’ in the first instance as in Secn 14 of the Customs Act, 1962.

FIXATION OF VALUE UNDER NEW SECTION 4 OF THE CENTRAL EXCISE ACT,

1944:
According to Sec 4(1) of the Central Excise Act, where the duty of excises is chargeable
on any excisable goods with reference to their value, on each removal of the goods, such value
shall –
a) In a case where the goods are soled by the assessee, for delivery at the time and place of
the removal, the assessee and the buyer of the goods are not related and the price is the
sole consideration for the sale, be the transaction value;
b) In any other case, including the case where the goods are not sold, be the value
determined in such manner as may be prescribed.
c) The provisions of this Section shall not apply in respectof any excisable goods for which
a tariff value has been fixed under 3(2).

CONDITION TO BE FULFILLED FOR APPLICABILITY OF TRANSACTION VALUE

For applicability of transaction value in a given case, for assessment purpose, the
following condition must be satisfied:
1) The goods are sold by an assessee for delivery at the time of place of removal. The term
‘Place of removal’ has been defined to mean a factory or a warehouse.
2) The assessee and the buyer of the goods are not related.
3) The price is the sole consideration for the sale.
If any one of the above requirement is not fulfilled, then the transaction value shall not be
assessable value. The value in such case has to be arrived at under the valuation rules, to
be notified as provided under Sec 4(1) (b).
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REGISTRATION IN CENTRAL EXCISE:

Section 6 provides the statutory backing for “Registration”. As per section 6, any
prescribed person who is engaged in
a) Production or manufacture or any process of production or manufacture of specifed
excisable goods, or
b) The wholesale purchase or sale (also as a broker or commission agent) of the storage of
specified excisable goods,
Is required to get himself registered.
As per Rule 9, of the Central Excise Rule, 2002 and Notification issued under Rules 18
and 19, following are required to get registration, before commencing business:
a) Every manufacturer or excisable goods including Central / State Government
undertakings owned/ controlled by autonomous corporations, in respect of which excise
duty is leviable.
b) Persons holding private warehouses.
c) Persons who obtain excisable goods for availing end-use based exemption notification.
d) Persons who wish to issue Cenvatable invoices under the provisions of CENVAT Credit
Rules, 2002.
Separate registration is also required for each depot, godown, etc. in respect of persons issuing
CENVAT invoices.

EXEMPTION FROM REGISTRATION

a) Persons who manufacture excisable goods, which are chargeable to nil rate of excise duty
are of fully exempt from duty by a notification.
b) SSI units availing the slab exemption based on value of clearances under a notification.
c) The person who carries on wholesale trade or deals in excisable goods except first and
second stage dealer as defined in CENVAT Credit Rules, 2002.
d) 100% EOU or a unit in FTZ or special Economic Zone licensed or appointed under the
Customs Act, 1962.
e) In the case of ready made garments the job-worker need not get registered if the principal
manufacturer undertakes to discharge the duty liability.

PROCEDURE FOR REGISTRATION:

1) Application for registration should be made in the prescribed form A-1.
2) A ground plan in duplicate is required to be furnished to the Range Suptt. The plan
should show the boundaries of the factory and the main divisions into which the factory
is divided.
3) The store room proposed should be clearly shown on the ground plan and marked with a
distinguishing mark.
4) Manufacturer is required to submit prior declaration of factory premises and equipment if
not done earlier while submitting D-2 form for approval of ground plan.
5) The application form should be accompanied by a schedule giving the details of the
applicant firm/company as well as the details regarding the excisable goods along with
their tariff classification.

VERIFICATION OF DOCUMENTS:

Registration will be granted only after verification of ground plan, store room and other
details submitted in the application. However, in respect of SSI units, where clearances are
less than Rs. 60 lakhs p.a. separate store rooms are not necessary. If there are more than one
premises requiring registration, separate registration certificate for each of the premises is
required.

ISSUE OF CERTIFICATE OF REGISTRATION

After verification of documents submitted by the applicant, the Registration Certificate

will be sent to him by post / personally as per his choice indicated on the Application, within
7 working days of the receipt of the said Application. Once registration is granted, it has
permanent status unless it is suspended / revoked by the appropriate authority or is
surrendered by Registrant.
In case a registered person desires o manufacture a new product, he shall get the product
endorsed on his registration certificate. The registration certificate or its certified copy must
be exhibited in the registered premises.
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Validity of Registration Certificate: The Validity of the registration certificate is indefinite.

There is no need for renewal.
Notice of commencement of production: The real manufacturer should give in writing to
the commissioner for the production for the first time. Further, stoppage or resumption of
production, change in the nature of any raw material also must be informed to the
commissioner.
Registration Number (Electronic Control Code ): Each registered person is given an
assessee code. The registration certificate will be numbered according to ECC number of the
assessee granted by the proper officer. The code number is a 10 digit code, which contains
code number of Commissionerate, division, range, Individual registered person and a check
digit. Assessee should mention this code in his invoice. TR-6 challan and ER – 1 etc. A
separate registration is required for each chapter of the CETA.

AMENDMENTS TO THE REGISTRATION CERTIFICATE:

Any change in the constitution of a firm or a company or an association of persons should
be intimated to the Central Excise Officer within 30 days of such changes for a suitable
amendment in the Registration Certificate already issued to the firm or company or
association. For instance, at the time of admission, retirement or death of a partner, there will
be a change in the constitution of the partnership firm, and hence any such change should be
intimated for an amendment in the Registration Certificate.
Likewise if any registered person desires to manufacture a new product, he shall get the
product endorsed on his Registration Certificate.

FRESH CERTIFICATE:
Where a registered person transfers his business to another person, the transferee shall
obtain a fresh Registration Certificate.

SURRENDER OF CERTIFCATE
Every registered person who ceases to carry out the operations mentioned in the
Registration Certificate, shall surrender his certificate immediately.

PENALTY UNDER RULE 25 (1) (C)

Specific penal provision has been incorporated in respect of persons engaged in the
production, manufacture, storage of excisable goods without having applied for the Registration
Certificate required under Section 6. Confiscation of such goods as well as imposition of penalty
up to Rs. 10,000 is provided for in such cases of failure to apply for registration Certificate.
However, a stiffer punishment is also leviable in cases where the duty liability exceeds Rs 1 lakh
or where the contravention has been repeated for the second or subsequent time, involving duty
of Rs. 10,000 or more.

SUMMARY:
The provision of getting the accounts audited by a professional Cost Accountant
emphasis the Government’s importance towards “Valuation” of excisable goods. Specific rate of
duty, Ad valorem rate of duty are the two ways in which excise duty can be levied. Section 6
provides the statutory backing for “Registration”. As per section 6, any prescribed person who is
engaged in Production or manufacture or any process of production or manufacture of specifed
excisable goods, or the wholesale purchase or sale (also as a broker or commission agent) of the
storage of specified excisable goods, is required to get himself registered. After registration the
documents will be verified and registration certificate will be issued.

PART B
1. State the importance of Valuation?
2. Explain Issue of Certificate of registration?
PART C
1. Explain Registration in Central Excise?
2. Explain meaning of Transaction value?