Excise duty Chapter 1 Basic Concepts: Four conditions needs to be satisfied for levy excise duty Basic conditions

for levy of excise duty: Under Sec 3 of the central excise tariff Act. (a) There must be goods. (b) The goods must be excisable. (c) The goods must be manufactured and produced. (d) Such manufacture and Production must take place in India. Goods- Two fundamental characteristics of goods are marketable and movable Immovability: Incase of Delhi cloth and general mills co, Damodar Ropeways and Construction to be a movable an article must be something which can be bought and sold. Immovable goods that are attached to earth and cannot be removed. No excise duty can be levied as they lack characteristics of movability Marketability- is the capability of goods being bought and sold in market. Actual sale is not necessary. Even a single buyer is sufficient to constitute marketability. The burden to prove marketability of an article is on department. Goods must be excisable- According to Sec (2d) of the Central Excise Tariff. Excisable Goodsmeans goods specified in the first Schedule and second schedule of the Central Excise Tariff Act as being subject to duty.Thus if goods are listed in the schedule to the tariff they are excisable. Non Excisable goods which are not listed in tariff schedule Manufacture- was held that word manufacture when used a verb is generally understood to bring into new substance.Manufacture implies a change but every change is not manufacture and yet every change of article is result of treatment labor and manipulation. But some more is necessary and there must be some transformation of new and different article must emerge having a distinctive name character or use the following are illustrations of manufacture (1)Gramophone co- Recording of audio cassettes on duplication music system since blank audio cassettes is distinct and different from pre-recorded audio cassettes

(2) Process of chemical sand other ingredients to pesticidal chemicals in concentrated form which results in emergence of new and distinct product i.e. insecticide and pesticide. (3) Filtration purification or any other process or any one or more of these process, of water` labeling or relabelling of containers or repacking from bulk packs to retail packs or adoption of any other treatment to render the product marketable to the consumer (4) Pharmaceutical products: Conversion of powder into tablets or capsules labelling or relabelling of containers intended for the consumers and repacking for bulk packs to retail packs or adoption of any other treatment in order to render the product marketable to the consumer. Assembly amounts to manufacture or not Assembly of components resulting in emergence of finished product which has a distinct character in use will amount to manufacture. The basic test is whether the process of assembling the parts or components have resulted in transformation, which has made the product to have a distinct character and use `and have a separate entry in tariff and goods are movable. if this condition is satisfied then the manufacture is said to have taken. For instance in BPL India it was held by the Apex court that the assembly of imported kits into VTR and coloured monitors by using fasteners constituted the process of manufacture since pursuant to such process of manufacture a transformation has taken place in the hands of technical experts which have made the product having distinct character in use Captive consumption: Excise duty is the duty on manufacture, duty is leviable even if the goods are consumed within the factory are not sold . However the goods must be marketable in the condition in which they are manufactured and excisable

The concept of manufacturer-The term manufacturer is a person who actually manufactures or produces excisable goods. The test who is manufactures or produces excisable goods and who has control over production. The test is to determine who is a manufacturer as liability to pay excise duty is on manufacturer or producer. If you are not manufacturer then no excise duty. The term manufacturer has been defined in Sec 2(f) to include not only a person who employees hired labor in production or manufacture of excisable goods. But also a person who engages in production in his own account. A manufacturer is one who actually takes manufacturing activity. The manufacturer is a person who manufactures or

produces excisable goods i.e. existence.

who actually bring a new product into

Manufacture through hired Labour: A person will be treated as manufacturer if he engages Hire labour who may be employee or contractor for the manufacturer of excisable goods. The important criteria to ascertain the role of a party as hired labour is to examine whether exist master and servant relationship, which implies that laborer is under the control and supervision of the party who hires them. Job worker cannot be treated as hired labour if he is not working under the control and supervision of raw material supplier, particularly when the job worker has his own factory and machinery on which he undertakes the job. The following are the tests for the purpose: 1. Supply of material 2. Control over production process 3. Financing the job worker 4. Provision for drawing and technical know-how Case1. 2. Who will be manufacturer? A person supplying raw material for getting the The job-worker goods manufactured on independent job-work basis. A customer gets the goods manufactured according The job-worker to his designs and specification or with name or {CCEx. V. M. M. trade name. Khambatwala [1996] 84 ELT 161 (SC)} If in the above instances, the supplier of raw Supplier of raw material exercise full control and supervision over material or the the job-worker. customer, as the case may be.

3.

VALUE ADDED TAX (VAT)

What is the background and justification of VAT In the old sales tax structure, there were problems of double taxation of commodities and multiplicity of taxes, resulting in a cascading tax burden. For instance, in the old structure, before a commodity is produced, inputs are first taxed, and then after the commodity is produced with input tax load, output is taxed again. This results an unfair double taxation with cascading effects. Justification of VAT - The VAT not only provides full set-off for input tax as well as tax on previous purchases, but it also abolishes the burden of several other taxes, such as turnover tax, surcharge on sales tax, additional surcharge, special additional tax, etc. In addition, Central Sales Tax is also going to be phased out. As a result, the

overall tax burden will be rationalized, and prices, in general, will fall. Moreover, VAT has replaced the existing system of inspection by a system of built-in selfassessment by traders and manufacturers. The tax structure has become simple and more transparent. This will significantly improve tax compliance and will also help increase revenue growth. VAT is based on the value addition to the goods, and the related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during the payment period. The essence of VAT is in providing set-off for the tax paid earlier, and this is given effect through the concept of input tax credit/rebate. This input tax credit in relation to any period means setting off the amount of input tax by a registered dealer against the amount of his output tax. In the old sales tax structure in several states, multiplicities of taxes (such as turnover tax, surcharge on sales tax, additional surcharge etc.) were imposed. With introduction of VAT, these other taxes will be abolished. Illustrations 1 - The following examples are given to give a birds eye view of VAT Illustration 1- VAT is calculated by deducting tax credit from tax collected during the payment period. Rs. Purchase price 100 Tax paid on purchase (i.e., input tax) at the rate (assumed) of 10 per cent 10 Sale price 180 Tax on sale price (i.e., output tax) at the rate (assumed) of 12.5 per cent 22.5 VAT payable (Rs. 22.5 Rs. 10) 12.5 Illustration 2- X Ltd. is a manufacture company. It purchases raw material from P and Q. Manufactured goods are sold by X Ltd. to a wholesaler Y Ltd. Y Ltd. sells goods to retailer Z. Retailer Z sells goods to consumers. Price Gross Net VAT without VAT payable by VAT dealer to the Government Rs. Rs. Rs. Raw material supplied by P to X Ltd. (VAT charged by P @ 12.5%) 1,000 125 125 0 to X Ltd. (VAT charged by 0 @ 4%) 6,000 240 240 Manufactured goods sold by X Ltd. to Y Ltd. (VAT charged by X Ltd. from Y 10,000 1,250 Ltd. @ 12.5%) 365 885 Less: VAT credit available to X Ltd. (Rs. 125 + Rs. 240) Goods sold by wholesaler Y Ltd. to Z (retailer) (VAT charged by Y Ltd. 17,000 2,125 from Z @ 12.5%) 1,250 875 Less: VAT credit available to Y Ltd. Goods sold by retailer Z to consumers (VAT charged by Z from 22,000 2,750 consumers @ 12.5%) 2,125 625 Less: VAT credit available to Z In the above case, VAT collected by Government is as follows Who will pay VAT to the Government Rs P 125 Q 240

X Ltd. Y Ltd. Z Total VAT collected by the Government

885 875 625 2,750