ADDITIONAL DUTIES OF EXCISE (GOODS OF

SPECIAL IMPORTANCE) ACT, 1957

BY

UTTAM SINGH
(Roll No. - 1248, 8th Semester)
SUBMITTED TO Mr. Ganesh Pandey

FINAL PROJECT SUBMITTED IN FULFILLMENT OF PROJECT FOR THE

SUBJECT Tax Law - II

CHANAKYA NATIONAL LAW UNIVERSITY, MITHAPUR

PATNA
 ACKNOWLEDGEMENT

It gives me immense pleasure to express my gratitude towards all those who have helped and
encouraged me for the completion of this project. They all rendered their valuable time and
services in making this project a success.

Firstly, I would like to thank the all mighty God for giving blessing and support in helping me to
complete this project.

I take this opportunity to express my deep regards to my guide, Ganesh Pandey Sir for his
exemplary guidance, monitoring and constant encouragement throughout the course of this thesis

I am even thankful to my institution, Chanakya National Law University, Patna to give me such
an interesting project to work on.

Last, but not the least, I express my sincere thanks to my parents for their generous support and
cooperation throughout the project.

UTTAM SINGH
 INTRODUCTION

In December 1957, the Parliament passed the Additional Duties of Excise (Goods of Special
Importance) Act, 1957, to replace sales tax on sugar, tobacco and textiles (cotton fabrics, rayon
or artificial silk fabrics, and woolen fabrics) by additional duties of excise on the
reccommendation of National Development Council and the Second Finance Commission. In
1961, it was extended to cover silk fabric too.1 The substitution of sales tax in 1957 by additional
excise duties on the aforementioned items was a very significant change insofar as it aimed at
uniformity in the sales tax systems of the different States and sought to reduce collection costs,
tax-evasion and hardship to the business community which was obliged to maintain elaborate
accounts for sales tax purposes.

Thus, Additional Duties of Excise (AED) is charged on goods of special importance as per
Goods of Special Improtance Act, 1957. It is imposed in lieu of sales tax and shared between
The central and stats goverments on the basis of percentage given in the second schedule of the
Act. As per Section 7 of the Act,

 sugar,
 tobacco,
 cotton fabrics,
 rayon or artificial silk fabrics and
 woollen fabrics
were declared to be goods of special importance in inter-State trade or commerce. It
was further stated that every sales tax law of a State shall, in so far as it imposes or
authorises the imposition of a tax on the sale or purchase of the declared goods, be
subject as from the 1st day of April, 1958, to the restrictions and conditions specified in
section 15 of the Central Sales Tax Act, 1956(74 of 1956).

However, Section 7 now stands repealed and now additional excise duty is levied and collected
on the goods:

1
Sec. 15 of the Finance Act, 1961.
 described in column (3) of the First Schedule produced or
 manufactured in India and
 on all such goods lying in stock within the precincts of any factory, warehouse or other
premises
where the said goods were manufactured, stored or produced, or in any premises, at the rate or
rates specified in column (4) of the said Schedule.
OBJECT OF STUDY

The object of this submission is to study in depth all provision related to levy of additional excise
duty under the THE ADDITIONAL DUTIES OF EXCISE (GOODS OF SPECIAL
IMPORTANCE) ACT, 1957.

RESEARH METHODOLOGY

Doctrinal method of research comprising accumulation of information from books, online

materials and data, newspaper and magazine articles etc. has been used in this project.

SOURCES OF DATA

Primary and secondary, both types of sources have been made use of, by the researcher in order
to accomplish the object of the study.
 HISTORICAL DEVELOPMENT OF THE SCHEME

The question of levying additional excise duties in lieu of sales tax was first raised before the
Taxation Enquiry Commission in 1953-54. The problem was shelved for two years due to the
negative response of the Commission but was again examined by the National Development
Council in January 1956. It recommended that the sales tax on mill-made textiles, sugar and
tobacco (including manufactured tobacco) should be substituted by additional excise duties. The
suggestion, however, did not go down well with the State Governments but the Central
Government later on persuaded the States to accept the levy of additional excise duties in lieu of
sales tax on these three commodities. And thus, In December 1957, the Parliament passed the
Additional Duties of Excise (Goods of Special Importance) Act, 1957, to replace sales tax on
sugar, tobacco and textiles (cotton fabrics, rayon or artificial silk fabrics, and woolen fabrics) by
additional duties of excise. With the consent of the States, the Central Government further
imposed an additional excise duty on mill-made silk fabrics in lieu of sales tax in 1961.2

As regards the distribution of the proceeds from the duties, they agreed to follow the
recommendations of the Second Finance Commission which were as follows:

1) 1% of the net proceeds in any financial year of the additional duty of excise on each of the
three commodities, namely mill-made textiles, sugar and tobacco be retained by the Union
for the centrally administered areas
2) A sum equal to one and one quarter per cent of such net proceeds be paid to the State of
Jammu and Kashmir
3) Out of balance of the net proceeds a guaranteed sum and a certain percentage should be paid
to the States.3

However, as a consequence of the Constitution (Eightieth) Amendment Act, 2000, the net
proceeds of the additional excise duties levied under the Additional Excise Duties (Goods of
Special Importance) Act, 1957, cannot now be passed on to the States as Article 272 of the

2
Sec. 15 of the Finance Act, 1961.
3
Available at REPLACEMENT OF SALES TAX BY ADDITIONAL DUTIES OF EXCISE, available at
http://14.139.60.114:8080/jspui/bitstream/123456789/1234/1/014_Replacement%20of%20Sales%20Tax%20by%20
Additional%20Duties%20of%20Excise.pdf
Constitution stands deleted. These now form part of the tax revenue receipts of the Central
Government and are shareable with the States.4

4
Available at http://indiacode.nic.in/coiweb/amend/amend80.htm
REPLACEMENT OF SALES TAX BY ADDITIONAL DUTIES OF EXCISE

In December 1957, the Parliament passed the Additional Duties of Excise (Goods of Special
Importance) Act, 1957, to replace sales tax on sugar, tobacco and textiles (cotton fabrics, rayon
or artificial silk fabrics, and woolen fabrics) by additional duties of excise. These duties have
even replaced sales tax on silk fabrics now.5

Sales tax from its inception in India has been a constant source of harassment and inconvenience
to businessmen. The majority of the dealers in India are small tradesmen without much
education. The difficulties of maintaining complicated accounts, assessment of liability on the
basis of those accounts, understanding the statute and keeping pace with the frequent
amendments of the statute and the rules thereunder present difficulties too. Further, diversity in
the tax rates on the same commodity in the central and state tax laws tends to cause unnecessary
movement of goods from one state to another. The multiple taxation of the same commodity
under different tax laws and diversity in the rates of tax may also give rise to the problem of
interstate trade barriers.6 Further, the administration of tax collection and checking of tax evasion
has been a problem for the government.

To avoid all these difficulties, the National Development Council in December, 1956
recommended that on the three commodities mentioned above. i. e. sugar, tobacco and textiles,
sales tax should be replaced by the additional duties of excise by the Centre. In 1957, the
Government of India referred the matter to the Second Finance Commission to make
recommendations "as to the distribution of the net proceeds of this additional duty among the
States and the amounts which should be assured to the States as the income now derived by
them from the levy of sales tax on these commodities."7

5
sec. 15 of the Finance Act, 1961.
6
Available at
http://www.nipfp.org.in/media/medialibrary/2014/10/EXEMPTIONS_UNDER_ADDITIONAL_EXCISE_DUTIES
_IN_LIEU_OF_SALES_TAX_AN_EMPIRICAL_ANALYSIS_OF_LOSS_OF_REVENUE_TO_THE_STATES.p
df
7
Finance Commission Report, 1957, p. 2
The Commission adopted consumption and population as the main basis for the distribution of
the proceeds among the states. In accordance with the above principles and recommendations of
the Finance Commission the Additional Duties of Excise Act was passed by Parliament. States
were to give sales tax on sugar, tobacco and textiles and now even silk fabrics in lieu of the share
in the proceeds of additional excise duties on these commodities.

EXTENSION OF ADDITIONAL DUTIES OF EXCISE

From the point of view of trade, the scheme has been very welcome for it has eliminated
considerable inconvenience experienced by the commercial community previously. The states
are actually getting more revenue than before since evasion occurring under sales tax has now
been checked. Further by doing away with sales tax the scheme has been beneficial from the
point of view of interstate trade and commerce.

However, despite the substantial gain from the scheme, a general extension of it to other
commodities was not seen as feasible. Under sales tax, the states can change the rates to suit the
changing fiscal and trade conditions in their respective areas. Such adjustments are not possible
when the Central Government is levying additional excise duty in lieu of sales tax, for the
Central Government will need to have the consent of all the states, and then a change in the rate
of excise will affect not only that state which desires the change but also other states. Sales tax
can also be varied in relation to different grades of consumers in accordance with the needs of a
particular state, but this is not possible in the case of an excise levy by the Central Government.8
If additional duties of excise were substituted in place of sales tax the states' dependence on the
Centre for revenue would increase to a very great extent.

In the course of Lok Sabha debate on the Additional Duties of Excise Bill, it was suggested that
the Act be extended to other commodities. The then Finance Minister, Mr. T. T. Krishnamachari
observed: "It (the Bill) detracts from the responsibility of the States to their own people to some
extent, because they can always say that the Centre has done it. If tomorrow something goes

8
Available at http://shodhganga.inflibnet.ac.in/bitstream/10603/132573/13/13_chapter%207.pdf
wrong, say, in regard to any particular provision in this particular Bill, it is easy for the people to
say, well, it is the Centre that has done it, and we are not responsible. Even in the Taxation
Enquiry Commission .... I did mention this fact that the centralization of sales tax altogether
would not be a correct thing because if the power of taxation is shifted to the Centre, there is no
responsibility left so far as the States are concerned. So, we have also to keep the number of
commodities that will come within the purview of Central taxation, however, beneficial it might
be, to be restricted rather than enlarged, though, I do not, for one moment, say that there is no
room for enlarging the present list."?9

Therefore, extension of additional duties of excise does not seem a feasible device for use on a
general scale. However, the Centre in agreement with the states may consider the desirability of
extending it to a few more commodities, like cement and iron and steel.10

9
Lok Sabha Debates, 2nd Series Vol. X (1957) p. 6215. A meeting of the State Ministers was held in New Delhi on
29th July, 1960 to consider the extension of additional duties of excise on silk fabrics, match, paper and vegetable
products. Agreement could reach only with regard to silk fabrics to be covered by the scheme.-
10
D.R.Singh, Substitution of Excise Duty for Sales Tax Its Impact on State Revenues, available at
http://www.epw.in/system/files/pdf/1964_16/28/substitution_of_excise_duty_for_sales_taxits_impact_on_state_rev
enues.pdf
 ADDITIONAL DUTIES OF EXCISE (GOODS OF SPECIAL
IMPORTANCE) ACT, 1957

The ADDITIONAL DUTIES OF EXCISE (GOODS OF SPECIAL IMPORTANCE) ACT,

1957 was enacted to “provide for the levy and collection of additional duties of excise on certain
goods and for the distribution of a part of the net proceeds thereof among the States in pursuance
of the principles of distribution formulated and the recommendations made by the Finance
Commission in its second report submitted in 1990” and extends to whole of India.

As per Section 2 of the Act, “additional duties” means the duties of excise levied and collected
under Section 3(1) and “State” does not include a Union territory.

Levy and collection of Additional Duties

Section 3 of the Act is the charging section and provides that in respect of the goods:

 described in column (3) of the First Schedule produced or

 manufactured in India and
 on all such goods lying in stock within the precincts of any factory, warehouse or other
premises
where the said goods were manufactured, stored or produced, or in any premises, duties of excise
shall be levied and collected at the rate or rates specified in column (4) of the said Schedule.

Section 3(2) states that such duties of excise in respect of the goods specified therein shall be in
addition to the duties of excise chargeable on such goods under the Central Excise Act, 1944 or
any other law for the time being in force. Eg- although budget 2016 has not changed the basic
custom duty on cigarettes, the additional excise duty on the same has increased by more than
three times across cigarette sizes. As a result, the net impact on taxes will be around 10%.11

11
Available at http://economictimes.indiatimes.com/industry/cons-products/tobacco/budget-2016-excise-duty-on-
tobacco-products-up-by-10-15-cigarettes-set-to-cost-more/articleshow/51189987.cms
As per Section 3(3), the provisions of the Central Excise Act, 1944 and the applicable rules,
including those relating to refunds, exemptions from duty, offences and penalties shall apply in
relation to the levy and collection of the additional duties as they apply in relation to the levy and
collection of the duties of excise on the goods specified in sub-section (1).

Distribution of additional duties among States

Section 4 states that during each financial year, the States shall be paid such sums out of the
Consolidated Fund of India as provided in the provisions of the Second Schedule. Such sum
represents a part of the net proceeds of the additional duties levied and collected during that
financial year.

Expenditure to be charged on the Consolidated Fund of India

As per Section 5 of the Act, any expenditure under the provisions of this Act shall be expenditure
shall be charged on the Consolidated Fund of India.

Powers to make rules

The Act empowers the Central Government to formulate rules to prescribe the mode under which
and the procedure to be followed to pay off the expenses according to the provisions of the
enactment. It also lays down the modifications to be made between every financial year and
other supplementary and additional matters. The Government can frame the rules after notifying
in the Gazette of India. The rules framed in compliance with the provisions of the Act shall be
laid before the Lok Sabha and Rajya Sabha when such House is in session for entire duration of
thirty days that may be included in single session or more than one consecutive session. But prior
to the ending of the session right away subsequent to the session or consecutive session
mentioned above, the Lok Sabha and Rajya Sabha concur regarding some changes to the rule or
have the same opinion that the rule should not be formulated, then the rule shall be enforced only
on such alterations or the rule shall not be made.
 CONCLUSION

The ADDITIONAL DUTIES OF EXCISE (GOODS OF SPECIAL IMPORTANCE) ACT,

1957 was enacted to “provide for the levy and collection of additional duties of excise on certain
goods and for the distribution of a part of the net proceeds thereof among the States in pursuance
of the principles of distribution formulated and the recommendations made by the Finance
Commission in its second report submitted in 1990” and extends to whole of India.

Sales tax from its inception in India has been a constant source of harassment and inconvenience
to businessmen. The difficulties of maintaining complicated accounts, assessment of liability on
the basis of those accounts, understanding the statute presented difficulties. Further, diversity in
the tax rates on the same commodity in the central and state tax laws tends to cause unnecessary
movement of goods from one state to another. The multiple taxation of the same commodity
under different tax laws and diversity in the rates of tax may also give rise to the problem of
interstate trade barriers. 12 Further, the administration of tax collection and checking of tax
evasion has been a problem for the government. To avoid all these difficulties, the National
Development Council in December, 1956 recommended that on the three commodities
mentioned above. i. e. sugar, tobacco and textiles, sales tax should be replaced by the additional
duties of excise by the Centre.

Originally, the distribution of the net proceeds between the States and the Central Govermement
was to be as follows:

1) 1% of the net proceeds in any financial year of the additional duty of excise on each of the
three commodities, namely mill-made textiles, sugar and tobacco be retained by the Union
for the centrally administered areas
2) A sum equal to one and one quarter per cent of such net proceeds be paid to the State of
Jammu and Kashmir

12
Available at
http://www.nipfp.org.in/media/medialibrary/2014/10/EXEMPTIONS_UNDER_ADDITIONAL_EXCISE_DUTIES
_IN_LIEU_OF_SALES_TAX_AN_EMPIRICAL_ANALYSIS_OF_LOSS_OF_REVENUE_TO_THE_STATES.p
df
 3) Out of balance of the net proceeds a guaranteed sum and a certain percentage should be paid
to the States.13

As a consequence of the Constitution (Eightieth) Amendment Act, 2000, the net proceeds of the
additional excise duties levied under the Additional Excise Duties (Goods of Special Importance)
Act, 1957, cannot now be passed on to the States as Article 272 of the Constitution stands
deleted. These now form part of the tax revenue receipts of the Central Government and are
shareable with the States.14

However, the GST replaces the following taxes:

(i) Taxes currently levied and collected by the Centre:
 Central Excise duty
 Duties of Excise (Medicinal and Toilet Preparations)
 Additional Duties of Excise (Goods of Special Importance)
 Additional Duties of Excise (Textiles and Textile Products)
 Additional Duties of Customs (commonly known as CVD)
 Special Additional Duty of Customs (SAD)
 Service Tax.
Central Surcharges and Cesses so far as they relate to supply of goods and services
(ii) State taxes that would be subsumed under the GST are:
 State VAT
 Central Sales Tax
 Luxury Taxd. Entry Tax (all forms)
 Entertainment and Amusement Tax (except when levied by the local bodies)
 Taxes on advertisements
 Purchase Tax. Taxes on lotteries, betting and gambling.
‘

Thus, it can be concluded that after the introduction of GST Act, there is no practical aspect of
this Act.

13
Available at REPLACEMENT OF SALES TAX BY ADDITIONAL DUTIES OF EXCISE, available at
http://14.139.60.114:8080/jspui/bitstream/123456789/1234/1/014_Replacement%20of%20Sales%20Tax%20by%20
Additional%20Duties%20of%20Excise.pdf
14
Available at http://indiacode.nic.in/coiweb/amend/amend80.htm
 BIBLIOGRAPHY

 http://www.cbec.gov.in/htdocs-cbec/excise/cx-act/cx-addl-duties-act

 http://www.epw.in/system/files/pdf/1964_16/28/substitution_of_excise_duty

_for_sales_taxits_impact_on_state_revenues.pdf

 http://14.139.60.114:8080/jspui/bitstream/123456789/1234/1/014_Replacem

ent%20of%20Sales%20Tax%20by%20Additional%20Duties%20of%20Exc

ise.pdf

 http://indiacode.nic.in/coiweb/amend/amend80.htm

 http://www.eepcindia.org/download/150407122514.pdf

 http://www.cbec.gov.in/htdocs-cbec/excise/cxt-2016-17-new/cxt-1617-

june16-idx

 http://www.cbec.gov.in/resources//htdocs-cbec/excise/cxt-2016-17-

new/appxI-II.pdf

 http://economictimes.indiatimes.com/industry/cons-

products/tobacco/budget-2016-excise-duty-on-tobacco-products-up-by-10-

15-cigarettes-set-to-cost-more/articleshow/51189987.cms

 http://shodhganga.inflibnet.ac.in/bitstream/10603/132573/13/13_chapter%20

7.pdf