11

Basic Procedures including Basic Procedures including Classification under Central Classification under Central

Excise; Demands and Penalties Excise; Demands and Penalties under Central Excise Lawunder Central Excise Law

Bharat RaichandaniBharat Raichandani

AdvocateAdvocate

22

CLASSIFICATIONCLASSIFICATION

To impose taxes at different rates.To impose taxes at different rates. Need to know the details of trade.Need to know the details of trade. Standardization and methodical Standardization and methodical

system of classification.system of classification. Avoid over-simplicityAvoid over-simplicity Avoid unnecessary differentiationAvoid unnecessary differentiation

33

USED BYUSED BY

Customs authoritiesCustoms authorities StatisticiansStatisticians CarriersCarriers ProducersProducers

44

EVOLUTIONEVOLUTION

Brussels Tariff Nomenclature 1949Brussels Tariff Nomenclature 1949 Customs Co-operation Council Customs Co-operation Council

Nomenclature 1974Nomenclature 1974 Harmonized System of Nomenclature Harmonized System of Nomenclature

19881988

55

Harmonised SystemHarmonised System

Harmonized System of Nomenclature Harmonized System of Nomenclature Used as basis for National Customs Used as basis for National Customs

Tariff – CTA 1975Tariff – CTA 1975 Used as basis for Levying excise duty Used as basis for Levying excise duty

in India – CETA 1985 – 28-2-1986in India – CETA 1985 – 28-2-1986 VAT – 2005 many statesVAT – 2005 many states

66

General structureGeneral structure

Multi-purpose nomenclatureMulti-purpose nomenclature Headings grouped in ChaptersHeadings grouped in Chapters Chapters grouped under SectionsChapters grouped under Sections Arranged in 21 Sections Arranged in 21 Sections

77

STRUCTURE STRUCTURE contd…contd…

General Rules for the interpretation General Rules for the interpretation of the Systemof the System

Section Notes, Chapter Notes, Sub-Section Notes, Chapter Notes, Sub-heading Notes.heading Notes.

Headings arranged in a systematic Headings arranged in a systematic orderorder

Headings, where appropriate sub-Headings, where appropriate sub-divided into sub-headingsdivided into sub-headings

88

Structure Structure contd…contd…

Headings and sub-headings, which, Headings and sub-headings, which, together with thetogether with the

Section Notes, Chapter Notes and Section Notes, Chapter Notes and sub-heading notes andsub-heading notes and

Interpretative Rules ,Interpretative Rules , Provide for a systematic and unfiorm Provide for a systematic and unfiorm

classification of goods. classification of goods.

99

SECTION AND CHAPTER NOTESSECTION AND CHAPTER NOTES

Certain Sections and Chapters have Certain Sections and Chapters have Notes.Notes.

These notes form an integral part of These notes form an integral part of the Tariff and have the same legal the Tariff and have the same legal force as the Interpretative Rules. force as the Interpretative Rules.

Some of these notes are grouped Some of these notes are grouped under the title “Sub-heading notes”.under the title “Sub-heading notes”.

1010

FUNCTION OFFUNCTION OF SECTION AND SECTION AND CHAPTER NOTESCHAPTER NOTES

The function of the notes is to define The function of the notes is to define the precise scope and limits of each the precise scope and limits of each sub-heading, Heading (group of sub-heading, Heading (group of headings), Chapter or Section.headings), Chapter or Section.

General definitionGeneral definition delimiting the delimiting the scope of scope of

-a sub-heading or -a sub-heading or -heading or -heading or -the meaning of particular term:-the meaning of particular term:

1111

INTERPRETATIVE RULESINTERPRETATIVE RULES

There are six Rules for interpretation of There are six Rules for interpretation of the Tariff..the Tariff..

Rule 1 takes precedence over all the Rule 1 takes precedence over all the following Rules.following Rules.

Rule 1 – classification to be determined by Rule 1 – classification to be determined by the terms of the Heading the terms of the Heading

and of the Section or Chapter Notes. and of the Section or Chapter Notes. Only where the terms of the headings or Only where the terms of the headings or

Section/Chapter Notes do not otherwise Section/Chapter Notes do not otherwise require, other Rules come into play.require, other Rules come into play.

1212

Interpretative Rule 2(a)Interpretative Rule 2(a)

Extends the scope of the heading Extends the scope of the heading

To cover not only the Complete To cover not only the Complete article but also articles article but also articles incomplete and unfinishedincomplete and unfinished

-Provided – as presented –-Provided – as presented –

it has the essential character of it has the essential character of the complete or finished article.the complete or finished article.

1313

Interpretative Rule 2(a)Interpretative Rule 2(a)contd…contd…

Extends the scope of the heading Extends the scope of the heading

to cover also the Complete or to cover also the Complete or finished article Presented in finished article Presented in unassembled Or disassembled unassembled Or disassembled form in the same heading asform in the same heading as

assembled articles.assembled articles.

1414

Second part of Rule 2(a)Second part of Rule 2(a)

In this case also incompleteIn this case also incomplete

and unfinished and unfinished

-Provided – as presented – it has -Provided – as presented – it has the essential character of the the essential character of the complete or finished article.complete or finished article.

1515

Interpretative Rule 2(b)Interpretative Rule 2(b)

Goods consisting of more than Goods consisting of more than one material or substance, must one material or substance, must be classified according to the be classified according to the principles of Rule 3.principles of Rule 3.

Question : Question : application of Rule 2(b) to application of Rule 2(b) to Imported through different PortsImported through different Ports Cleared from different factoriesCleared from different factories

1616

Interpretative Rule 3(a)Interpretative Rule 3(a)

Goods should be classified in the heading Goods should be classified in the heading giving the most specific description.giving the most specific description.

If two or more headings, each refer If two or more headings, each refer To only one of the materials or substances To only one of the materials or substances

contained in mixed or composite goods, or contained in mixed or composite goods, or to only some of the articles included in a set to only some of the articles included in a set

put up for retail sale,put up for retail sale, those headings are to be regarded as those headings are to be regarded as

equally specific in relation to those goods.equally specific in relation to those goods. This is so even if one of them gives a more This is so even if one of them gives a more

complete description than the other.complete description than the other.

1717

SPECIFIC vs GENERALSPECIFIC vs GENERAL

Description by name is more Description by name is more specific than description by class specific than description by class

Description which more clearly Description which more clearly identifies them – where identifies them – where identification is less complete.identification is less complete.

1818

Interpretative Rule 3(b)Interpretative Rule 3(b)

To apply only if Rule 3(a) fails for --To apply only if Rule 3(a) fails for ---Mixtures-Mixtures-composite goods consisting of -composite goods consisting of

different materials, different materials, -composite goods consisting of -composite goods consisting of

different components; different components; -goods put up in sets for retail sales-goods put up in sets for retail sales-To be classified in the heading -To be classified in the heading

appropriate to the material or appropriate to the material or component which gives them their component which gives them their essential characteressential character

1919

Test of essential character??Test of essential character??

Vary between different kind of Vary between different kind of goods.goods.

Nature of the materialNature of the material Nature of the componentNature of the component Bulk Quantity Weight or ValueBulk Quantity Weight or Value Role of a constituent material in Role of a constituent material in

relation to use of the goods.relation to use of the goods.

2020

Interpretative Rule 3(c)Interpretative Rule 3(c)

Applicable for goods not Applicable for goods not classifiable in terms of Rule 3(a) classifiable in terms of Rule 3(a) or 3(b).or 3(b).

Goods should be classified in the Goods should be classified in the heading which occurs last in heading which occurs last in numerical order amongst those numerical order amongst those which equally merit which equally merit consideration.consideration.

2121

Interpretative Rule 4Interpretative Rule 4

Goods which are not specifically Goods which are not specifically covered by any heading (e.g. covered by any heading (e.g. because they have newly because they have newly appeared on the world market) appeared on the world market)

Shall be classified in the heading Shall be classified in the heading appropriate to the goods to appropriate to the goods to which they are most akin.which they are most akin.

2222

Interpretative Rule 5(a)Interpretative Rule 5(a)

Governs classification of cases, boxes Governs classification of cases, boxes and similar containers presented with and similar containers presented with the articles for which they are the articles for which they are intended.intended.

Shall be classified with such articles Shall be classified with such articles when of a kind normally sold when of a kind normally sold therewith.therewith.

This rule will not apply to containers This rule will not apply to containers which give the whole the essential which give the whole the essential character.character.

2323

Interpretative Rule 5(b)Interpretative Rule 5(b)

Governs classification more generally Governs classification more generally to packing containers presented with to packing containers presented with the goods they hold.the goods they hold.

To be classified with the goods, if To be classified with the goods, if they are of a kind normally used for they are of a kind normally used for packing such goods.packing such goods.

This will not apply where they are This will not apply where they are suitable for repetitive use.suitable for repetitive use.

2424

Interpretative Rule 6Interpretative Rule 6

Sub-headings of a HeadingSub-headings of a Heading According to the terms of the sub-According to the terms of the sub-

headings.headings. Related sub-heading notes.Related sub-heading notes. In terms of the above Rules.In terms of the above Rules. Sub-headings at the same level are Sub-headings at the same level are

comparable.comparable. Within a single heading, the choice of Within a single heading, the choice of

a a • single dash sub-heading may be made single dash sub-heading may be made • Only on the basis of the texts of Only on the basis of the texts of • the competing single dash sub-headings.the competing single dash sub-headings.

2525

Harmonized systemHarmonized system

Uses 6 digit nomenclatureUses 6 digit nomenclature Each Heading is identified by four Each Heading is identified by four

digit code.digit code. First two digits indicate the Chapter.First two digits indicate the Chapter. Later two digits indicate the position Later two digits indicate the position

of the heading in the Chapter of the heading in the Chapter

2626

HSN vs CTA - CETAHSN vs CTA - CETA

HSN uses 6 digitsHSN uses 6 digits CETA uses 8 digitsCETA uses 8 digits 8 digits referred to as Tariff item8 digits referred to as Tariff item Rate of duty is indicated against Rate of duty is indicated against

tariff itemtariff item

2727

Division of HeadingsDivision of Headings

Heading further sub-divided into Heading further sub-divided into

-One or more Single dash– sub-heading of -One or more Single dash– sub-heading of the Headingthe Heading

-One or more Double dash-- sub-heading of -One or more Double dash-- sub-heading of the single dash sub-headingthe single dash sub-heading

-One or more Triple dash---sub-heading of -One or more Triple dash---sub-heading of the double dash sub-headingthe double dash sub-heading

-One or more Four dash----sub-heading of -One or more Four dash----sub-heading of the triple dash sub-headingthe triple dash sub-heading

2828

Rate of dutyRate of duty

Customs ActCustoms Act• Section 12Section 12

Customs Tariff ActCustoms Tariff Act• Section 2Section 2

Central Excise ActCentral Excise Act• Section 3Section 3• Section 2(d) Section 2(d)

2929

Rate of dutyRate of duty

Eight digit description is referred to as Eight digit description is referred to as “Tariff item”“Tariff item”

Rate of duty is indicated against the “Tariff Rate of duty is indicated against the “Tariff item”item”

If the rate of duty is left “blank”, then If the rate of duty is left “blank”, then there is no levy.there is no levy.

If “nil” is indicated in the rate of duty If “nil” is indicated in the rate of duty column, it denotes that the levy is column, it denotes that the levy is attracted but the rate chargeable is NIL.attracted but the rate chargeable is NIL.

3030

CLASSIFICATIONCLASSIFICATION

How to approach How to approach State of goodsState of goods PrinciplesPrinciples Selecting section / chapterSelecting section / chapter Question to be askedQuestion to be asked

3131

APPROACH TO APPROACH TO CLASSIFICATIONCLASSIFICATION

Clearly understand the productClearly understand the product Description of the productDescription of the product Qualities/properties of the productQualities/properties of the product Functions of the productFunctions of the product Field of Industry in which usedField of Industry in which used Source of energy–mechanical /thermal/ Source of energy–mechanical /thermal/

hydel/electricalhydel/electrical Chemical formulaChemical formula Stage of the product – raw-rough / semi Stage of the product – raw-rough / semi

finished / finishedfinished / finished Worked / not worked etc.Worked / not worked etc.

3232

Process by which it is obtained/ Process by which it is obtained/ Method of manufacture Method of manufacture

DistillationDistillation Solvent extractionSolvent extraction PurificationPurification ConcentrationConcentration WeldingWelding ExtrusionExtrusion MouldingMoulding PressingPressing Forging/castingForging/casting MiningMining Chemical synthesisChemical synthesis FormulationFormulation MixingMixing Re-packing from bulkRe-packing from bulk By product ofBy product of Residue ofResidue of

3333

Selecting Section / ChapterSelecting Section / Chapter

Sections are arranged Sections are arranged progressivelyprogressively

Natural or made therefromNatural or made therefrom Derived therefromDerived therefrom Man madeMan made

3434

Questions to be askedQuestions to be asked

Whether the Section throws you out.Whether the Section throws you out. If yes, no need to look into any of the chapters If yes, no need to look into any of the chapters

within the said Section.within the said Section. If the Section does not throw you out,If the Section does not throw you out, Whether the Chapter throws you outWhether the Chapter throws you out If yes, no need to look into any of the Headings If yes, no need to look into any of the Headings

within the said Chapterwithin the said Chapter Within the chapter see the description of the Within the chapter see the description of the

Heading whichHeading which Accommodates you.Accommodates you. Thereafter find out the sub-heading which covers Thereafter find out the sub-heading which covers

you.you.

3535

PRINCIPLES OF PRINCIPLES OF CLASSIFICATIONCLASSIFICATION

Statutory definitionStatutory definition Common parlance/trade parlanceCommon parlance/trade parlance Dictionary meaningDictionary meaning Scientific or technical meaningScientific or technical meaning IS GlossaryIS Glossary Primary functionPrimary function Advertisement claimsAdvertisement claims End useEnd use Residuary entryResiduary entry

Demands and PenaltiesDemands and Penalties

DEMAND UNDER SECTION 11 ADEMAND UNDER SECTION 11 A Show cause notice :Show cause notice : Who Can IssueWho Can Issue

• Proper officerProper officer• Proper officer means an officer who is Proper officer means an officer who is

assigned those functions by Central assigned those functions by Central Board of Excise & Customs (CBEC) or Board of Excise & Customs (CBEC) or CommissionerCommissioner

• Officers of DGCEI also empoweredOfficers of DGCEI also empowered3636

Section 11ASection 11A

SCN when to be issued :SCN when to be issued :

If excise duty :If excise duty : has not been levied or has not been levied or has been short levied orhas been short levied or has been erroneously refundedhas been erroneously refunded

3737

Section 11 ASection 11 A

• Time limit for issuing SCN :Time limit for issuing SCN :

• Normal period Normal period : One Year from : One Year from relevant relevant date date

• Extended Period: Five years from Extended Period: Five years from relevant relevant date date

(in cases of collusion, wilful mis-statement or (in cases of collusion, wilful mis-statement or suppression of facts)suppression of facts)

3838

Section 11ASection 11A

Extended period of five years when Extended period of five years when there isthere is

a)a) Wilful Suppression/MisstatementWilful Suppression/Misstatement

b)b) FraudFraud

c)c) CollusionCollusion

with intention to evade dutywith intention to evade duty

3939

Section 11ASection 11A

Suppression should be wilfulSuppression should be wilful

(Tamilnadu Housing Board vs CCE (Tamilnadu Housing Board vs CCE 74 ELT 9)74 ELT 9)

b)b) No suppression if all facts disclosedNo suppression if all facts disclosed

c)c) No suppression if facts which were No suppression if facts which were not required to be disclosed, are not required to be disclosed, are not disclosednot disclosed

d)d) No suppression if bonafide beliefNo suppression if bonafide belief4040

Section 11A (2)Section 11A (2)

Conclusion of proceedings if full duty, Conclusion of proceedings if full duty, interest and 25% of duty as penalty interest and 25% of duty as penalty amount, is paid amount, is paid

If part amount of duty is paid, If part amount of duty is paid, proceedings to continue for balance proceedings to continue for balance amountsamounts

4141

Section 11A (2B)Section 11A (2B)

Circumstances in which SCN need Circumstances in which SCN need not be issuednot be issued

If duty is paid with interest before If duty is paid with interest before SCN and the officer is duly informed SCN and the officer is duly informed

This applies only in cases of normal This applies only in cases of normal period of limitationperiod of limitation

If extended period invoked, issuance If extended period invoked, issuance of SCN cannot be stoppedof SCN cannot be stopped

4242

Section 11ASection 11A

Necessary ingredients of SCNNecessary ingredients of SCN- Should give all essential particulars and Should give all essential particulars and

amount demandedamount demanded- Should state nature of contravention Should state nature of contravention

and provisions contravenedand provisions contravened- Charges/Allegations to be informed Charges/Allegations to be informed

alongwith groundsalongwith grounds

4343

Cotspun’s CaseCotspun’s Case1999 (7) SCC 633.1999 (7) SCC 633.

Supreme Court held :Supreme Court held : If excise duty paid on the basis of If excise duty paid on the basis of

classification list approved by the classification list approved by the Department, there cannot be any Department, there cannot be any short levy and no show cause notice short levy and no show cause notice under Section 11A can be issued under Section 11A can be issued

4444

Amendment to Section 11A Amendment to Section 11A overcame Cotspun’s ratioovercame Cotspun’s ratio

There can be a short levy even if classification There can be a short levy even if classification

lists were approved and SCN’s could be issued lists were approved and SCN’s could be issued

retrospective effect was given i.e from 17-11-retrospective effect was given i.e from 17-11-

1980 when Section 11A of the Central Excise Act 1980 when Section 11A of the Central Excise Act

came into effectcame into effect

4545

No amendment to Rule 10No amendment to Rule 10

Amendment to Section 11A did not Amendment to Section 11A did not

validate the action taken under Rule 10 of validate the action taken under Rule 10 of

the erstwhile Central Excise Rules, 1944the erstwhile Central Excise Rules, 1944

Therefore Cotspun’s ratio still applies to Therefore Cotspun’s ratio still applies to

erstwhile Rule 10erstwhile Rule 10

4646

Cotspun’s case applies to Cotspun’s case applies to Customs ActCustoms Act

Since there was an amendment in Section 11 A of Since there was an amendment in Section 11 A of Excise Act only ,Excise Act only ,

And no such amendment in corresponding Section And no such amendment in corresponding Section 28 of Customs Act 28 of Customs Act

Cotspun’s ratio will apply to Customs Act and there Cotspun’s ratio will apply to Customs Act and there cannot be any short levy if department has cannot be any short levy if department has approved, assessed or accepted value or rate of approved, assessed or accepted value or rate of duty duty

4747

Some issuesSome issues

Applied for rectification of mistake-Applied for rectification of mistake-No appeal filed- What is the position?No appeal filed- What is the position?

Appeal is time barred beyond Appeal is time barred beyond condonable period – What happens?condonable period – What happens?

4848

Some issuesSome issues

Can commissioner (appeals) condone Can commissioner (appeals) condone delay beyond period of 30 days?delay beyond period of 30 days?

Singh enterprises 2008 (221) ELT Singh enterprises 2008 (221) ELT 163 (SC)163 (SC)

4949

Some issuesSome issues

Can department file appeal Can department file appeal under section aggrieved person under section aggrieved person for the purpose of filing an for the purpose of filing an appealappeal

Narendra P Unrao 15 ELT 275 Narendra P Unrao 15 ELT 275 (T).(T).

5050

Some issuesSome issues

Power of commissioner (appeals) to Power of commissioner (appeals) to remand matter back to adjudicating remand matter back to adjudicating authority authority

MIL India limited 2007 (210) ELT 188 MIL India limited 2007 (210) ELT 188 (SC)(SC)

5151

Section 11 DSection 11 D

Any amount collected by a person Any amount collected by a person who is liable to pay duty, who is liable to pay duty, from a buyer,from a buyer, representing the same as duty of representing the same as duty of excise, excise, shall be deposited with Central Govtshall be deposited with Central Govt

5252

Time Limit under Section 11DTime Limit under Section 11D

No time limit prescribed to issue SCN No time limit prescribed to issue SCN under Section 11 Dunder Section 11 D

Does time limit under Section 11A Does time limit under Section 11A apply to Section 11Dapply to Section 11D

What can be a reasonable time to What can be a reasonable time to issue SCN under Section 11Dissue SCN under Section 11D

5353

Amendment to Section 11DAmendment to Section 11D

W.e.f 10/05/2008W.e.f 10/05/2008

Any person who collects the amountAny person who collects the amount

And not “every person liable to pay And not “every person liable to pay duty”duty”

5454

Penalties under Central Excise Penalties under Central Excise Act Act

Section 9 Offences and penalties Section 9 Offences and penalties Section 9 AA offences by companiesSection 9 AA offences by companies Section 9 C presumption of culpable Section 9 C presumption of culpable

mental State.mental State. Penalty under section 11 ACPenalty under section 11 AC

5555

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