CENTRAL EXCISE DUTY
MEANING OF CENTRAL EXCISE DUTY
An excise or excise tax (sometimes called an excise duty) is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good. This tax is now known as the Central Value Added Tax (CENVAT).
Though the collection of tax is to augment as much revenue as possible to the government to provide public services, over the years it has been used as an instrument of fiscal policy to stimulate economic growth. Thus it is one of the socio-economic objectives.
LEVY OF EXCISE DUTY
The power to levy a duty of excise manufactured or produced in India derives its authority from entry 84 of the Union List (List I) of Seventh Schedule read with Article 246 of the Constitution of India. Thus, Central Excise is a tax on the 'act of manufacture or production'. Section 3 of the Central Excise Act, 1944 (hereinafter referred to as "the Act") is the charging section, which specifies the conditions under which Excise Duty is livable on all excisable goods which are manufactured or produced in India.
MEANING OF MANUFACTURE
The taxable event for Central Excise duty to be attracted is manufacture or production in India of excisable goods. Section 2(f) of the Act defines the term "manufacture" in an inclusive manner so as to include 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 the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture.
Which in relation to goods specified in the Third Schedule to the Central Excise Tariff Act, 1985 involves packing or repacking of such goods in a unit, container or labeling or re-labeling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consume?
MEANING OF GOODS
Central Excise duty is levied on goods which are manufactured or produced. The understanding of term goods is very importance in determining the livability of Excise Duty. The Act does not define the term "goods". The judgment of the Supreme Court in the case of Delhi Cloth and General Mills (supra) is considered to be the landmark judgment in this regard, where it is held that an article can be called "goods”.
- The marketability element of goods was enumerated in Union of India and Others, Appellants vs. Sonic Electro Chem. (P) Ltd. 2002 (52) RLT 878 (SC) where the Supreme Court held that the essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold.
- The Explanation is added by Finance Act, 2008 under section 2(d) provides that goods includes any article, material or substance which is capable of being sold for consideration and such goods shall be deemed to be marketable.
The levy of duty requires the valuation of the goods under consideration after establishing the duty liability and the classification of the goods. Except in cases where specific duty has been provided for on the basis of certain unit like weight, length, etc. as in case of goods like cigarettes (length basis), cement clinkers (per ton basis), for most of the goods the rates are specified on an valorem basis expressed as a percentage of value of goods.
The modes of valuation of goods under the Excise Act are:
(A) Tariff value
The Central Government is authorized under the provisions of section 3(2) of the Act, to fix the tariff value for any goods which may be different for different classes of goods. This is also termed as the notional value. The duty in such cases is the % of such tariff value and not the Assessable Value.
(B) M.R.P. value
The Central Government under section 4A of the Act can notify goods on which excise duty will be payable on the MRP less % of abatement. Such value shall be deemed to be the assessable value in such cases. The provisions of this section are applicable to products which are statutorily required to put MRP under the Standards of Weight and Measures Act, 1976
(C) Transaction value
In respect of all other goods which are not covered by the above-mentioned provisions, their assessable value would be in terms of "transaction value" as provided in section 4 of the Act. The assessable value would be the transaction value when the goods are sold by an assessed for delivery at the time and place of removal, where the assessed and the buyer are not related and price is the sole consideration. In all other cases, which do not fulfill the aforesaid conditions, value shall be determined as per the Central Excise Valuation Rules, 2000.
The definition of transaction value as per section 4(3)(d) means the price actually paid or payable for the goods when sold, and includes in addition to the amount charged as price, 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 at the time of sale or any other time.
The definition gives an inclusive but not exhaustive list of additions and deductions from the invoice price in respect of certain amounts.
The valuation rules have to be followed when transaction value cannot be determined under section 4(1); which are enumerated below:
(a) If goods are not sold at the time of removal, the value of excisable goods shall be value of goods sold by the manufacturer for delivery at any other time nearest to the time of removal of goods except in cases of stock /branch transfer, sale to related person, job work where specific provisions have been made.
(b) In case goods are sold for delivery at any other place other than the place of removal, the value will be the price less the actual cost of transportation from place of removal to the place of delivery.
(c) In case the price is not the sole consideration in respect of any transaction, the value of goods shall be the aggregate of such transaction value and the amount of money value of additional consideration flowing directly or indirectly from buyer to the assessed.
(d) In case where goods are cleared to depot, consignment agent etc., transaction value shall be the normal transaction value of such goods sold from such other place at or about the same time. The normal transaction value is the price at which the greatest aggregate quantity of goods is sold.
(e) In case of consumption of goods captivity consumed by the assessed or on his behalf, the value shall be 110% of the cost of production.
(f) In case of sale of goods to a related person, the value shall be the price at which the related person has sold the goods to an unrelated person. In case a related person does not sell the goods but uses or consumes the goods in production or manufacture of the article, the value shall be 115% of the cost of production.
Section 6 provides that any person who is engaged in the production or manufacture of specified goods or the wholesaler engaged in purchase or sale or the storage of any specified goods shall be liable to get him registered with the proper officer as per provision contained in Rule 9 of the Central Excise Rules. Thus manufacturers or dealers who intend to issue invoices should get registered themselves. Application for registration has to be made in Form A-1 in the office of the jurisdictional AC/DC. The assessed will be issued a 15 digit registration number and a registration certificate on completion of the registration procedure.
The notification No. 36/2001 (NT) provides exemption from registration to the following persons:
(i) Person who manufactures those goods which are chargeable to NIL rate of duty or remains fully exempt from whole of duty. However if the exemption from payment of whole of duty is based on the value of clearance made in a financial year, the value of clearance shall not exceed Rs. 1.5 core. Such manufacturer shall file the declaration in prescribed form with the jurisdictional AC/DC if his value of clearance in the previous financial year exceeds Rs. 90 lacks.
(ii) Person manufacturing excisable goods by following the warehousing procedure as provided in the Custom Act, 1962.
(iii) Person engaged in the wholesale trade except first stage dealer and second stage dealer.
(iv) Person who uses excisable goods in any purpose other than processing or manufacture of any goods availing benefit of exemption.
PROCEDURE FOR CLEARANCE OF GOODS FROM FACTORY
As per Rules 8, 10, 11 & 12 of Central Excise Rules, 2002, registered person is required to follow the following procedure for clearance of goods:
(a) Maintain Daily Stock Account (DSA) indicating the opening balance, quantity produced, inventory of goods, quantity removed, assessable value, the amount of duty payable and duty paid on manufactured goods.
(b) The goods should be removed under invoice. The invoice shall be prepared in triplicate. Original for buyer, duplicate for transporter and triplicate for assessed. It shall be serially numbered and shall contain the registration number, name of the consignee, description, classification, time and date of removal, mode of transportation, vehicle registration number, rate of duty, quantity and value of goods and duty payable thereon.
(c) The excise duty on the goods removed shall be paid by 5th of the following month but the goods removed during the month of March the duty shall be paid by 31st March. However, in case of small scale manufacturer the duty is payable by 5th of the following month after end of the quarter. In this case also the duty for quarter Jan to March is payable by 31st March.
(d) The ER-1 return shall be filed within 10 days from the close of the month to which the return relates. However where the assessee has availed the benefit of the notification providing exemption based on value of clearance in a financial year, he shall file the return within 10 days after the end of quarter.
Rule 7 of the Central Excise, 2002 provides that where assessed is unable to determine the value of excisable goods or the rate of duty he shall request the Assistant Commissioner or Deputy Commissioner for permitting him to make the assessment provisional. The Assistant Commissioner will ask the assessed to execute bond supported by Bank Guarantee to make the assessment provisional.
SMALL SCALE BENEFIT
This notification provides exemption from whole of duty livable on goods specified in annexure to the notification up to the aggregate value of clearance of Rs. 1,50,00,000/- . In computing 1,50,00,000/- the following clearance shall not be taken in account:
a) Clearances, which are exempt from the whole of the excise duty livable thereon ( other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason;
b) Clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4;
c) Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods
RECOVERY OF DUTY
As per the provision of section 11A the show cause notice for recovery of duty short paid, short levied or not paid or not levied or refunded erroneously shall be served by the proper officer within a period of one year from the relevant date. In case the demand for duty arises on account of fraud, collusion, misstatement or suppression for facts or contravention of any of the provisions of the Act or rules with intent to evade payment of duty the period of one year will be extended to 5 years. The Central Excise Officer after considering the submission made in reply to show cause notice as well as during personal hearing shall pass the order called Order-In-Original either confirming the demand or dropping the demand or partly confirming the demand and levy of penalty and interest.
Section 11B of Central Excise Act provides that any person claiming refund of duty of excise shall make an application for such amount to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise in such form and manner as may be prescribed. The application shall be accompanied by the documentary evidence which evidences payment of duty and also other documents to substantiate that incidence of duty has been borne by the applicant. In case it is not substantiated that the incidence of duty has not been borne by the applicant, the refund amount shall be credited to Consumer Welfare Fund. A refund application should be filed within one year firm the date of payment of Duty. By Finance Act, 2008 even interest paid by the manufacturer shall also refunded. The period of one year shall not apply where any duty has been paid under protest.
Interest on delay in granting fund
In case the refund has not been granted within a period of 3 months from the date of application, the applicant shall be entitled to the interest @ 9% of the duty amount from the date immediately after the expiry of 3 months from the date of receipt of such application.
PROCEDURE RELATING TO SPECIAL AUDIT
Section 14A of the Act empowers the Chief Commissioner of Central Excise to appoint the cost accountant (now also Chartered Accountant) or auditing the records of any manufacturer in order to determine the value of the goods manufactured by him. As per the provisions if at any stage of enquiry, investigation or other proceedings before any Assistant Commissioner or Deputy Commissioner, it is felt that the value has been correctly declared or determined, the Assistant Commissioner or Deputy Commissioner may send the proposal for audit of the records at factory, office, depot, distributor etc. Similarly, if the Commissioner has reason to believe that the credit of duty availed or utilized is not within any normal limits, having regard to the nature of excisable goods produced, he may appoint Cost Accountant (now also Chartered Accountant) for verifying the a ailment and utilization of credit.
If a person commits any of the following offence:
a) possesses the goods in excess of the quantity prescribed for the notified goods or of any variety of such goods.
b)Transport the goods which are prohibited absolutely or with such exceptions or conditions notified by central government.
c) Does not obtain registration under the Act
d) Removes any excisable goods in contravention of provision of any of the Act or concerns himself with removal.
e) acquires possession of, or in any way concerns himself in transporting, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under this Act or any rule made there under.
f) contravenes any of the provisions of this Act or the rules made there under in relation to credit of any duty allowed to be utilized towards payment of excise duty on final products.