Indirect Taxation

CHAPTER 01 – CENTRAL EXCISE

Basic Concept of Excise Duty

The word “Excise” is derived from a Dutch term

“Acise”, which itself is derived from the Latin word
“Assensay” which means ‘To Tax’.

Dictionary meaning of “Excise” is “an indirect tax on

commodities manufactured, produced, sold, used or
transported within the country”
What is Excise Duty ?
Central Excise Duty is an Indirect Tax, levied on
on excisable goods manufactured in India.

In India, term “ Excise duty” has not been defined,

either in the Constitution of India or even in the
Central Excise Act, 1944. Article 265 only provides
That “no tax shall be levied except with authority
of law”.
The Constitution vested in the Seventh
Schedule, power to levy various taxes and duties
by the Union as well as the States.

Power to Central the Government – Entry No. 84

Power to the State Government – Entry No. 51

Definition
- SUPREME COURT

• Supreme Court of India has defined “Excise

Duty” as “a tax on the production or
manufacture of excisable goods produced or
manufactured within the country”.
WHAT IS TAXABLE EVENT

RELEVANT DATE FOR RATE OF

DUTY AND TARIFF VALUATION
• Taxable event is the event the happening of which attracts the
liability to pay tax.
• The taxable event in Central Excise is production or
manufacture of excisable goods

• Central Excise Rules, 2002

• Rule 4 states that duty is payable at the time of removal of

goods from the factory or warehouse.

• Rule 5 states that the relevant date for determining the rate of
duty and tariff valuation shall be the date of actual removal of
goods from the factory or warehouse.
• Though the taxable event for the purpose of
Central Excise is manufacture or production of
excisable goods but a person shall be liable to
pay excise duty at the rate prevalent at the time
of clearance of excisable goods from the factory
or warehouse and not at the rate prevalent at the
time of manufacture.
Rate of Duty Rate of Duty Whether duty payable
prevalent at the prevalent at the time
time of of removal of goods (Yes/ No)
Manufacture

Non- Excisable 16% No, as the goods were non-

excisable goods at the time of
manufacture

Exempted Exemption withdrawn Yes, as the goods were

excisable goods at the time of
manufacture
‘Nil’ rate of duty 16% Yes, as the goods were
excisable goods at the time of
manufacture

Goods were not liable Goods were made liable No, as there was no levy of
to special levy to special levy special duty on goods at the
time of manufacture
Nature of Excise Duty
• The taxable event is not independent of liability
to pay duty from levy of duty. Therefore, there
cannot be different taxable event for different
purposes.

• The method of collection does not affect the

essence of excise duty, but only relates to the
machinery of collection for administrative
convenience.
BASIC CONDITIONS FOR LEVY
OF EXCISE DUTY
Under section 3 of the Central Excise Act 1944 the
Basic conditions for levy are:

1. There must be GOODS

2. The goods must be EXCISABLE
3. There must be MOVABILITY of the goods
4. There must be MARKETABILITY of the goods
5. The goods must have been PRODUCED or
MANUFACTURED
6. Such production or manufacture MUST BE IN
INDIA.
7. There must be TAXABLE EVENT
8. There must be REMOVAL OF GOODS at the
factory or site
GOODS
• Article 366(12) of the Constitution defines
‘Goods’ to include all materials, commodities
and articles.
• Sec.2(7) of Sale of Goods Act, 1930 defines
‘Goods’ to mean every kind of movable property
other than actionable claims and money and
includes stocks and shares, growing crops, grass
and things attached to and forming part of the
land, which are agreed to be served before sale
or under the contract of sale.
Characteristics of ‘Goods’
1. MOVABILITY

In order to be Movable, an article must fulfill two

Conditions:

a. It should come into existence(as a result of

manufacture); and
b. It should be capable of being moved to market
to be bought and sold.
2. MARKETABILITY

In order to be Marketable, an article must fulfill

Conditions:

1.The goods should be capable of being sold in the

market
2.The goods should be capable of being sold ordinarily
3.The goods should be capable of being sold as such
4.Actual sale is not necessary.
5. The goods must be marketable in the condition
in which department wants to levy duty of
excise.
6. Even a single buyer is sufficient to constitute
marketability.
7. Mere selling doesn't mean marketability
Hence,

Everything, which is in existence and can be

moved to market and can be bought and sold, is
‘Goods’.

The goods include intermediate goods, semi-

finished goods, by products, sub-standard
goods, non-standard goods, waste, scrap, parts
and accessories, etc. Gas, steam and electricity
are also goods, as they are tangible property and
marketable
EXCISABLE GOODS

Section 2(d) of Central Excise Act defines the

term ‘Excisable Goods’ to mean the goods
specified in the schedule to the Central Excise
Tariff Act 1985, as being subject to a duty of
excise and includes salt.
CETA
1. Goods must be specified and listed in the
Schedule to the CETA, 1985
2. All the goods cannot be excisable only because
they are goods.
3. Non-Excisable goods :
If the goods are listed in the Schedules to the
Tariff, they are excisable. However, if the goods
in question are not listed in the schedules they
will be non-excisable goods.
4. Goods Exempt from Duty:
Excisable goods do not become non-excisable
after being fully exempted by notification. They
continue to be listed in the Schedules to the
Tariff as being subject to a duty of excise.

CASE LAW- Wallace Flour Mills Co. Ltd. Vs

Collector [1989] 44 ELT 598 (SC)
5. Goods CARRYING ‘Nil’ rate of duty:
Even goods with ‘Nil’ rate of duty, if find an
entry in the Schedules to the Tariff, are
excisable goods, because nil rate is also a rate
of duty.

6. Duty paid goods:

Duty paid goods are such goods, on which
‘appropriate duty has already been paid’. It
means that the excise duty should have been
paid at ‘appropriate rate’ or ‘correct rate’.
MANUFACTURER
The term manufacturer has been defined under
section 2(f) to include not only a person who employs
hired labour in the production or manufacture of
excisable goods but also a person who engages in
their production or manufacture on his own account.
Thus, on the analysis of the definition, the
manufacturer can be divided into following two
categories
1. A person who manufactures goods on his own
account
2. A person who manufactures the goods through hired
labours.
FACTORY
According to Section 2(e) of Central Excise Act
1944, factory means any premises, including
precincts thereof, wherein or in any part of
which any excisable goods other than salt are
manufactured or wherein or in part of which any
manufacturing process connected with
production of these goods is being carried on or
is ordinarily on.
WHOLESALE DEALER
Wholesale dealer means a person who buys or
sales excisable goods wholesale for the purpose
of trade or manufacture, and includes a broker
or commission agent who, in addition to making
contracts for the sale or purchase of excisable
goods for others, stocks such goods belonging to
others as an agent for the purpose of sale.
CLASSIFICATION

CHAPTER 01 – CENTRAL EXCISE

CLASSIFICATION

CLASIFICATION OF GOODS CONSISTS OF

DETERMINING THE HEADINGS OR SUB-
HEADINGS OF THE CENTRAL EXCISE TARIFF
UNDER WHICH THE SAID GOODS ARE
COVERED.
CETA 1986 came into force w.e.f.
February 28th , 1986
Features of CETA
1.CETA is very comprehensive as all the technical
and legal aspects in relation to goods have been
incorporated in it.
2.The goods of the same class has been grouped
together to bring about parity in treatment and
restrict the dispute in classification matter.
3.CETA provides detailed clarificatory notes under
each section/chapter
4. It interprets all the legal notes ant therefore
serve as statutory guidelines in classification of
goods.
5. Tariff is designed to group all the goods
relating to one industry under one chapter
from one raw material in a progressive
manner.
6. The Tariff is systematically divided into
headings, sub-headings and sub classifications.
7. Residuary entries have been incorporated
under each heading and sub-heading.
8. The Excise Tariff has been classified using 4
digit system.
General rules for Interpretation
a. “Heading” in respect of goods means , a
description in list of tariff provisions
accompanied by a four-digit number and
includes all sub-headings of tariff items.
b. “Sub-heading”, in respect of goods, means the
description in list of tariff provisions
accompanied by a six-digit number and
includes all tariff items
c. “Tariff item” means a description of goods in
the list of tariff provisions accompanying
either, 8 digit number and the rate of the duty
of excise, or 8 digit number with blank column
 Four column heading of CETS
• Tariff Item: It gives the respective Tariff Item (with
Heading and Sub-Heading) of the goods.
• Description of goods: It contains a brief description of
goods covered by respective Tariff item.
• Unit: The standard unit of quantity is specified for each
tariff item to facilitate the collection, comparison and
analysis of trade statistics e.g. Kg for Kilogram, cm for
centimeters, u for number.
• Rate of Duty: This column contains an abbreviation “%” in
relation to the rate of duty, which indicates that duty on the
goods to which the entry relates shall be charged on the basis
of value of the goods, the duty being equal to such percentage
of value as is indicated in the column.
HARMONISED SYSTEM OF
NOMENCLATURE (HSN)
• It is an internationally accepted product coding system,
formulated to facilitate trade flow and analysis of trade statistics.
• This system was developed by World Customs Organization.
• The coding system is formulated under auspices of GATT.
• It forms the basis of the system of classification in CETA.
 CLASSIFICATION
Where the The said article or group of articles
description of an shall be taken to be a Sub-
article or group of classification of-
articles is preceded
by-
(a) “-” (Single dash) The article or group of articles covered by
the said heading

(b) “--” (Double dash) The article or group of articles which has
“-” (Single dash)

(c) “---” (Triple dash) or The immediately preceding description of

“___” (Quadruple dash) article or group of articles which has “-”
(Single dash) or “--” (Double dash).
RULES FOR INTERPRETATION OF
TARIFF: HSN

Rule 1 : In case of chapter notes clearly determine

classification.
• Section and chapter titles are used for ease and
references
• But for legal purposes, classification of goods
shall be determined according to terms of
headings and relative section or chapter notes.
Rule 2: In case of classification of Incomplete or
unfinished goods
a.In case of material or substance [Rule 2 (a)]
This rule provides classification of an article in the
form of incomplete or unfurnished, or is presented
in an unassembled or disassembled form.
IMPORTANT ASPECTS
i. Functional aspect
ii. Physical aspect
iii. The degree of completion of the product
b. In case of good made of given material or
substance [Rule 2 (b)]
The rule relates to mixture or combination of
materials or substances and goods consisting
of two or more materials or substances.
Rule 3: In case of goods made of several materials
or substances
a. The heading which provides the most specific
description, shall be preferred to headings
providing a more general description.
Eg: Heading 8215 covers spoons, forks, ladles etc.
while heading 7323 covers table, kitchen or
other household articles of iron and steel. In
order to classify steel forks, obviously heading
8215 is preferred to heading 7323.
b. Mixture, composite goods consisting of
different materials or made up of different
components and goods put up in sets for retail
sale
Eg: Hair dressing sets consisting of a pairs of
electric hair clipper (8510), a comb (9615), a
pair of scissors (8213), a brush (9603), textile
material towel (6304) put up in leather
case(4202) classifiable in heading 8510
c. Latter the better maxim
Eg: conveyor belt used in colliery.
Top layer is vulcanized rubber as coal has tendency
to ignite and burn on its own
Central layer is that of textiles which gives strength
Bottom layer is of plastic which is friction free
Following headings are relevant
4010 Conveyor or transmission belting
5910 Transmission or conveyor belts or belting of
textile material whether or not reinforced with
metal or other material.
Rule 4: Classification in case of residuary goods
Goods which cannot be classified in accordance
with the above rules shall be classified under the
heading appropriate to the goods to which they
are most akin.

Rule 5: Classification under sub heading

This rule postulates that the classification of any
product under a sub heading is to be
contemplated after the product concerned has
been properly classified under its proper four
digit chapter heading.
VALUATION

CHAPTER 01 – CENTRAL EXCISE

VALUATION OF EXCISABLE GOODS FOR THE
PURPOSE OF CHARGING OF DUTY OF EXCISE
As per the CETA 1985, excise duty is payable on
following basis
1. Specific Duty
2. Duty based on value (ad valorem duty)
c.Tariff value under Sec 3(2) of Central Excise Act,
1944;
d.Transaction Value determined under Sec 4(3)(d) of
Central Excise Act, 1944; or
e.Retail sale price determined under Sec 4A of Central
Excise Act, 1944
3.Duty based on production capacity also known as
Compounded Levy Scheme (Rule 15 )
SPECIFIC DUTY
• Duty payable on the basis of certain units
(length, weight, volume, etc.)
• Simple method to collect excise duty
• Value remains static irrespective of the changes
in prices of the commodity. Hence, revision in
rate is essential.
TARIFF ITEM DESCRIPTION BASIC EXCIISE DUTY
Cement Rs. 600 metric tonne
Cement Clinkers Rs. 400 metric tonne
Cut tobacco Rs. 100 per kg.
DUTY BASED ON VALUE
AD VALOREM DUTY

When duty of Central Excise or customs is levied by

applying the given percentage of the value of goods,
then it is known as ad valorem duty

If excise duty rate is 16% ad valorem and the

assessable value of goods is Rs. 1,00,000 then the
excise duty is ___ ?
TRANSACTION VALUE
Transaction value under Sec 4(3)(d) of CEA, 1944 is:

a.TV is the price actually paid or payable for the

goods when sold.

b.It includes in addition to amount charged as price,

any amount that the buyer is liable to pay to the
assessee or any other person on behalf of the
assessee by reason of, or in connection with sale of
goods.
c. The payment may be made at the time of sale or
at any other time.

d. It includes any amount charged for, or to make

provision for the following:
Advg or publicity, Marketing & selling & Orgn
expenses, Storage, Outward handling, Servicing,
Warranty, Commission or any other matter.

e. It does not include the amount of excise duty,

sales tax or any other taxes actually paid or
payable on such goods.
Indirect Taxation

CHAPTER 02 – CUSTOMS
Basic Concept of Customs
• Custom means, a customary practice or a course of action that is observed
and repeated in the like circumstances.

• In India, the Customs Duty is levied in terms of the provisions of sections

12(1) of the Customs Act, 1962.

CONSTITUTIONAL BACKGROUND

Article 246 of the Constitution lays down the provisions pertaining to the
matters Union and State Govt. may make laws:

1. Union List
2. State List
3. Concurrent List
DEFINITIONS:
IMPORT:
As defined in section 2(23), means ‘bringing into India from a place
outside India’

EXPORT:
As defined in section 2(18), means ‘taking out of India to a place outside
India’

Indian Customs Water:

Section 2(28) defines “Indian Customs water” to mean the waters
extending into a sea up to the limit of contiguous zone of India under
section 5.
ADJUDICATING AUTHORITY[Sec 2(1)]
“Adjudicating Authority ” means any authority competent to pass any order or decision
under this act, but does not include the Board, Commissioner or Appellate Tribunal

ASSESSMENT [Sec 2(2)]

“Assessment” includes provisional assessment, re-assessment and any order of
assessment in which duty assessed is nil.

COASTAL GOODS [Sec 2(7)]

“Coastal goods” means goods, other than imported goods, transported in a vessel from
one point in India to another.

CUSTOMS AREA [Sec 2(11)]

“Customs area means the area of a customs station and includes any area in which
imported goods are ordinarily kept before clearance by CA ”
DUTIABLE GOODS [Sec 2(14)]
“Dutiable goods” means any goods which are chargeable to duty and on
which duty has not been paid.

ENTRY [Sec 2(16)]

“Entry” in relation to goods means entry made:
1. Bill of entry in case of Imported goods
2. Bill of shipping or export in case of export goods
3. The label affixed or declaration accompanying the parcel under Sec
82 and 84, in case the goods are imported or exported by post.

GOODS [Sec 2(22)]

1. Vessels, aircrafts and vehicles;
2. Stores;
3. Baggage;
4. Currency and negotiable instrument; and
5. Any kind of movable property.
IMPORTER [Sec 2(26)]
“Importer”, in relation to any goods at any time between their importation
and the time when they are cleared for home consumption includes any
owner or any person holding himself out to be an importer.

PROHIBITED GOODS [Sec 2(33)]

“Prohibited goods” means any goods the import or export of which is
subject to any prohibition under this act or any other law.

SMUGGLING [Sec 2(39)]

“Smuggling”, in relation to any goods, means any act or omission which
will render such goods liable to confiscation under sec 111 or 113.
ACTS

There are two acts, which form part of Customs Law in India, namely

1. The Customs Act, 1962

2. The Customs Tariff Act, 1975

The Customs Act, 1962 :

It is the basic act for levy of Customs Duty in India. It contains various provisions relating to
imports and exports of goods and merchandize as well as baggage of persons arriving in India.

The Customs Tariff Act, 1975

Customs Duty is levied on goods imported or exported goods from India at the rates specified
under The Customs Tariff Act, 1975. The replaced Schedule is based on HSN.