Central Excise

Central excise - is levied under entry 84 of union list. - is duty charged on goods manufactured in India. - levy and collection is governed by Central Excise Act, 1944, Central Excise Rules, 2002 & Central Excise Tariff Act, 1985.

Scope of Chargeability
Central Excise is levied on all goods and tobacco manufactured or produced in India except - alcoholic liquor for human consumption - opium, - Indian hemp, - narcotics and narcotic drugs, but including medicinal and toilet preparations containing alcohol

Difference between Central Excise & Income Tax

Central Excise -Levied on person and corporate -Related on income -Tax burden cannot be shifted -Administrative cost of collection is more Income Tax -Levied on commodities -Related to commodity -Tax burden can be shifted -Administrative cost of collection is less

Definitions (relevant ones)

Sec 2(a) Adjudicating Authority means any authority competent to pass any order or decision under this act, but does not include Central Board of Excise & Customs (CBEC), Commissioner of Central Excise (Appeals) or the Appellate Tribunal. Sec 2(b) Central Excise Officer : means Chief Commissioner, Commissioner, Joint Commissioner, Deputy Commissioner or Assistant Commissioner of Central Excise or any other officer of the Central Excise department or any person (including an officer of the State Government) invested by the CBEC with any of the powers of a Central Excise officer under this Act.

Definitions, contd
Sec 2(d) Excisable Goods are those specified in the first and second schedule of the Central Excise Tariff Act, 1985 as being subject to levy of Central Excise duty Sec 2(e) Factory means any premises including the precincts thereof, wherein or in any part of which, excisable goods are manufactured or wherein any manufacturing process connected with production of these goods is carried on

MANUFACTURE.
Sec 2(f) Manufacture includes any process incidental or ancillary to the completion of a manufactured product and which is specified in relation to any goods in the section or chapter notes of first schedule to Central Excise Tariff Act, 1985 as amounting to manufacture (Deemed Manufacture) OR
(contd..)

Manufacture, contd..,
which in relation to the goods specified in the Third Schedule, of the Central Excise Act, 1944 involves - packing or repacking of such goods in a unit container; or - labeling or rebelling of containers including the declaration or - alteration of retail sale price on it or - adoption of any other treatment on the goods to render the product marketable to the consumer, AND (contd..)

Manufacture, contd..,
and the word manufacturer shall be constructed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods but also any person who engages in their production or manufacture on his own account.

Deemed Mfr Eg:

Recording of sound on cassettes, tapes and discs
Cutting, sawing, sizing or polishing of blocks or any other process of converting into slabs or tiles Cutting of betel nuts into smaller pieces and addition of oils, sweetening etc

Definitions, contd,
Rule 2(c) Assessee means any person who is liable for payment of duty assessed or a producer or manufacturer of excisable goods or a registered person of a private warehouse in which excisable goods are stored and includes an authorized agent of such person.

LEVY OF CENTRAL EXCISE

Conditions: There must be goods Goods must be movable and marketable They should be excisable and They should have been produced or manufactured in India.
Goods include any article, material, or substance, which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable

Charging Section Sec 3

(1) There shall be levied and collected in such manner as may be prescribed (a) a duty of central Excise called the Cenvat on all excisable goods, (excluding goods produced or manufactured in Special Economic Zones) which are produced or manufactured in India as and at the rates set forth in the first schedule to the Central Excise Tariff Act, 1985 and (b) a special duty of excise in addition to the duty of excise specified in clause (a) on excisable goods specified in second schedule to C.E.T. Act, 1985 which are produced or manufactured in India, as and at the rates set forth in the said second schedule thereto.

Charging section . Contd

The rate of duty on goods cleared from FTZ and 100% EOU shall be at the rate of customs duty as if the goods are imported. Goods manufactured by Government is liable for excise duty Govt may fix tariff value for goods

Types of Duties
CENVAT Duty - sec 3(1)(a) - levied on excisable goods of Central Excise Act. - levied at the rates prescribed in first schedule of C.E. Tariff Act. - If any exemption notification is issued under the Act, the rate as per the notification shall be the effective rate. - The rate of duty is 8%, 12% & 14% for all goods specified in First Schedule.

Types of Duties, contd,

Special Excise Duty: Sec 3(1)(b) - levied on the goods specified in second schedule of Central Excise Tariff Act. - rate of duty is 8% and 16%. - Levied on goods like Tyres & tubes of cars and bus, Air conditioners, Motor spirit, Pan masala, aerated soft drinks, motor cars etc.,

Types of Duties, contd,

Additional Duties of Excise (AED): It is levied under several acts on certain excisable goods for specified purpose and the net receipt is used for the said purpose. Other types of duties: National calamity duty ADE under Sugar Export promotion Act 1953 Additional duty of excise and customs on HSD Oil and motor spirit ADE (Textile and Textile Articles) Act 1978

Cess
Education Cess: Education Cess is levied in accordance with chapter VI of Finance Act 2004 as to fulfill the commitment of the Government to provide and finance universalized quality basic education. It is levied @ 2% on the aggregate of all duties of excise including the Special Excise duty. Secondary and Higher education cess: Levied @ 1% on the aggregate of all duties of excise including the special excise duty

Central Excise Tariff Act, 1985

Excise duty is levied only on the goods specified in Central Excise Tariff Act, 1985. The Act consists of following schedules: Schedule I : Cenvat Duty Schedule II : Special Excise duty Schedule III : Goods liable for duty based on MRP

Tariff Act., contd.,

- The goods are classified on the basis of Harmonized System Nomenclature, in schedule I & II on which duty is payable at the rates specified in respective schedules. - SED is payable only on the goods specified in second schedule and at the rates specified therein. - The tariff also contains notes and explanations under each section/chapter for ascertaining the classification of goods and defining certain processes as manufacture.

Forms of Levy
Specific Rate: Duty is levied based on unit of measurement i.e., based on quantity. Eg. Match box per 100 box Sugar & molasses per Quintal and ton Basis Marble slabs square meter basis Tiles square meter basis Cement clinkers per ton basis.,

Advalorem:
Duty is levied as a percentage on the value of goods called assessable value determined u/s 4, Sec 4A or Tariff value fixed by Government of C.E. Act. Eg. Cosmetics, Motor vehicles, chemicals, machineries, computers, fabrics, etc.

Forms of levy, contd,

Slab rate: In either case of specific or advalorem duties may be fixed at different rates depending on slab. Eg. Cigarettes on length basis Compound levy: Duty is levied at a fixed amount based on the equipment used to produce the goods. The manufacturer has the option to pay compounded duty in lieu of duty payable based on specific or advalorem rate. Eg. Marble slab, Stainless steel patties/pattas.

Valuation Sec 4
Excise duty is payable on value of goods manufactured and cleared. Generally the duty is payable on the transaction value between the buyer and manufacturer, except - when the manufacturer and buyer related; and - price is not the sole consideration. The value of the goods on which duty is payable is determined under Section 4

Valuation, contd,
(1) If the excise duty is chargeable with reference to their value, then, the transaction value between the seller and buyer would be the value on which excise duty payable if the following conditions are satisfied a) goods are sold for delivery at the time and place of removal; and b) the assessee and the buyer of the goods are not related; and c) the price is sole consideration for the sale.

Valuation, contd,
(2) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed Explanation : If the goods sold is price cum duty, the value shall be the price actually paid to him for the goods sold. In case, any additional money consideration flows directly or indirectly from the buyer to the assessee in connection with the sale of such goods, such price-cum-duty (excluding sales tax and other taxes) paid shall be deemed to include the duty payable on such goods.

Valuation, Contd.
4(2) In case of goods for which tariff value is fixed by the government, the same shall be value for the purpose of excise duty.

Definitions for valuation:

Assessee means the person who is liable to pay the duty of excise under this Act and includes his agent Persons shall be deemed to be related if they are inter connected undertakings they are relatives amongst them the buyer is a relative and distributor of the assessee, or sub distributor of such distributor they are so associated that they have interest, directly or indirectly in the business of each other

Definitions- Place of removal

a factory or any other place or premises of production or manufacture of the excisable goods from where they are removed a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed on 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 the factory

Definitions - time of removal

in respect of excisable goods removed from the place of removal shall be the time at which such goods are cleared from factory

Definitions - transaction value

means the price actually paid or payable for the goods when sold. In addition to the amount charged the following shall be included any amount that the buyer is liable to pay to or on behalf of the assessee by reason of or in connection with the sale whether payable at the time of sale or at the any other time

Transaction Value, Contd

any amount charged for or to make provision for advertising, publicity, marketing, selling, organization expenses, servicing, storage, outward handling, warranty, commission or any other matter. The following shall not be included in transaction value
Excise duty Sales tax Other taxes if any actually paid or payable of such goods

Central Excise Valuation Rules

Shall apply if any of the conditions specified for assessing the duty based on transaction value is not fulfilled

Rule 5
Delivery at place other than place of removal: If the goods are delivered at a place other the place of removal (factory), the transaction value shall be reduced by the cost of transportation from the place of removal to the place of delivery

Rule 6
Additional consideration received: If the price charged is not the sole consideration, then the money value of additional consideration flowing directly or indirectly from the buyer shall be included to transaction value for levy of duty. Certain goods and services specifically mentioned in rule 6

Rule 7
Goods removed to depot etc., : The value of the goods sold from the depot, consignment agents premises or any other place shall be the transaction value of the goods sold from such other place at or about the same time. In case of multiple sales at depot the price of highest aggregate quantity shall be adopted.

Rule 8
Captive consumption : The value of excisable goods consumed by assessee for manufacture of other article shall be 110% of cost of such goods manufactured CAS-4 (Cost Accounting standard) issued by ICWAI shall be applied for calculating the cost of goods manufactured

Rule 9
Sale only through related persons not being ICUs, : Where the assessee so arranges that goods are not sold, except to or through a person who is related other than ICU, then the value shall be of the goods shall be the normal transaction value at which these goods are sold to unrelated buyers or by the related person to unrelated buyers

Rule 10
Sale through interconnected undertakings, : If the ICUs are so connected that they are relatives, or distributor, sub distributor or have mutual interest, the value shall be ascertained as per Rule 9. In other case the value shall be computed as if the parties are not related

Rule 10A
The goods cleared from Job workers place, shall be the transaction value charged by the principal manufacturer if the buyer is not related and price is sole consideration If the goods are cleared to a depot, consignment agent etc, the valuation as similar to rule 7 shall apply.

Rule 11
Residuary Rule, : If the value of excisable goods cannot be ascertained as per the specified rules, the value shall be determined using reasonable means consistent with the principles and general provisions of Central Excise Act.

MRP Valuation Sec 4A

The CG notifies the goods on which MRP to be declared The assessable value for such goods shall be the MRP minus abatement prescribed If more than one MRP, max shall be taken If different MRP for different areas, MRP of goods intended to be sold in a area If MRP is altered to increase mrp, such MRP shall be assessable value

Exemption Sec 5
Central Government to give exemption May be absolute or conditional Exemption can be from whole or part of duty Not applicable to goods cleared locally by 100% EOU or FTZ

Registration
Registration required by following:
Manufacturer/Producer of excisable goods Persons who intend to issue cenvatable invoices as First stage dealer & Second stage dealer Persons holding warehouses for storage of non duty paid goods Exporters who intend to avail cenvat credit persons who obtain excisable goods for availing end use exemption

Registration

. contd

Registration separately required for every premises like depot, godown etc., unless when the premises of part of same factory but are segregated by public road, canal or railway line

Duty payment
Shall be paid within 5th of following month If paid electronically the date shall be 6th SSI units shall pay within 15th (16th) of following month Duty for the month of march shall be paid within 31st March Date of deposit of cheque is shall be the date of payment Failure will attract 13% interest pa. Default beyond 30 days, assessee required to clear the gods without availing cenvat credit

Assessments
Self Assessment: Assessment under central excise is a self assessment based on invoice. The assessee should assess the duty payable on excisable goods except in case of cigarettes and pay the duty

Assessment . Contd.
Provisional Assessment assessee unable to determine the value of excisable goods or the rate of duty applicable, may request the AC or DC for provisional assessment stating the reasons and period of coverage authority by order may allow payment of duty on provisional basis upon which the assessee is required to execute a bond assessment shall be made after receipt of information, but a period not exceeding 6 months for the date of order of provisional assessment.

Demand Assessment Scrutiny assessment

The Central excise officer can issue notice within one year from relevant date requiring assessee to pay duty, when such excise duty has not been levied or has not been paid or has been short levied or is short paid or is erroneously refunded

Scrutiny Asst.. Cont..

Time limit is extended to 5 years if the non payment, short payment, short levy etc is on account of fraud, collusion, willful misstatement, suppression of facts, or contravention of any provisions

Scrutiny Asst. Contd

Relevant date means date of filing return if return is filed if return not filed the last date on which the return is to be filed where the duty is provisionally assessed, date of adjustment after final assessment where the duty is refunded, the date of refund in any other case, the date on which duty is to be paid. The officer considering the representation if any, made by the person on whom notice is served, shall determine the amount of duty which shall not be in excess of amount specified in the notice

Penalty
Penalty shall be 100% on duty determined on scrutiny assessment Penalty shall be reduced to 25% if the duty so determined and penalty is paid within 30 days On appeal if duty is reduced or increased, penalty shall also be determined accordingly

Returns
file monthly return in form ER-1 within 10 days from the end of month with prescribed details, proof of payment & declaration SSI, to file quarterly return within 20 days of end of the quarter furnish annual return by 30th of November furnishing the prescribed particulars

SSI - Exemption
SSI- Manufacturer whose aggregate value of clearances in the preceding financial year had not exceeded 4 crores entitled to exemption of duty for clearances or captive consumption up to an aggregate value not exceeding Rs.1.5 Crores above 1.5 crores are liable for normal rate of duty shall not avail the cenvat credit on inputs & Capital goods, for clearance up to 1.5 crores