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Excise DutyImplementation in BUSY

Overview of Excise Duty

Excise duty is an indirect tax levied on goods produced or manufactured within acountry. In other words, it is a duty on goods that are manufactured locally for

domestic consumption. It is charged whenever the goods are moved from theirprincipal place such as factory or godown even if the movement of goods is for stock

transfer. Being an indirect tax, it is collected by the manufacturer and deposited with

the government. The manufacturer passes on the burden of the duty to theconsumer in the form of increased cost price.

Excise duty comes under the purview of Central overnment and thus, the Centralovernment is responsible for levy and collection of excise duty. Excise duty is

popularly known as Central Excise.

Central Excise !uty is the single biggest source of revenue for the Centralovernment.

To manufacture excisable goods it is necessary for the manufacturer to register withthe Central Excise authority.

Basis for Levy and Collection of Excise Duty

"hen a new commodity is manufactured excise duty is levied but the duty is

collected only on the removal of the goods. In other words, when the manufacturedgoods are removed for the purpose of sale or consumption excise duty is levied.

#et us understand with the help of a case scenario.

$head Cars is a car parts manufacturing concern based in !elhi. %n $pril &', ())' it manufactured &,')) car parts comprising of car seats and

engine parts. %n $pril (', ())' it sold all the &,')) manufactured car parts to a dealer

based in !elhi.In this case, excise duty will be levied on the manufactured goods on $pril (' since

the goods were removed *sold+ on this date. Thus, as soon as the goods areproduced or manufactured they are liable for excise duty but the excise duty is

collected only at the time of removal of the goods.

$lthough the final burden of excise duty falls on the consumer in the form of price

hike but the liability to collect and deposit excise duty with the Central government is

on the producer or manufacturer.

There are different types of excise duties that are levied depending on the goodsunder consideration. #et us discuss the types of excise duties in detail.

Types of Excise Duty

There are three types of Excise duties levied in India. These are Basic Excise !uty

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$dditional Excise !uty

-pecial Excise !uty

Basic Excise Duty

Basic Excise !uty *BE!+ is charged as per -ection of Central Excises and -alt $ct

&/00 on all excisable goods other than salt, which are produced or manufactured inIndia at the rates set forth in the -chedule to the Central Excises Tariff $ct, &/1'.

Additional Excise Duty

$dditional Excise !uty *$E!+ is charged as per -ection of the $dditional !uties of

Excise $ct &/'2 on the goods described in the -chedule to this $ct. $E! is chargedin lieu of -ales tax and it is shared between Central and -tate overnments.

Special Excise Duty

-pecial Excise !uty *-E!+ is levied on all excisable goods that are sub3ect to BE!

under the Central Excises and -alt $ct &/00. Each year the relevant provisions of the

4inance $ct specify whether -E! will be levied and collected during the relevantfinancial year.

"e have discussed the broad outline of the excise duty system. #et us now discuss

the working of the excise duty system.

Working of te Excise Duty Syste!

5nder the excise duty system, the manufacturer produces, sells the goods, andcollects the appropriate excise duty. 4urther, the manufacturer deposits the excise

duty collected with the Central overnment.

The Central government needs to exercise control over excise duty collection to keep

a check on the payment of excise duty. 4or this purpose the manufacturer need tomaintain certain registers depending on the type of excise reporting that the

manufacturer comes under.

Types of Excise "eporting

Excise reporting refers to how a manufacturer reports the collection of excise duty. Inother words, the type of registers that the manufacturer maintains comprises excise

reporting.

There are two types of Excise 6eporting&. 7anufacturing Excise 6eporting

(. Trading Excise 6eporting

The basic differentiator between the two types of excise reporting is the nature of the

transactions carried out by the manufacturer8dealer.

#et us understand with the help of diagrammatic representation.

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Ahead Cars

(Manufacturer)

Fast Wheels

(Dealer)

Today Cars

(Manufacturer)

Go Cars(Dealer)

In this case scenario, $head Cars and Today Cars are manufacturing concerns that

produce car parts. These concerns pay excise duty on purchase of raw material andcollect excise duty on the sale of the goods. Thus, they will maintain manufacturing

excise reporting.%n the other hand, 4ast "heels is a trading concern *dealer+ that purchases

excisable goods and pays excise duty but when it sells the goods it cannot collect

excise duty. The trading concern *dealer+ cannot collect excise duty on sales becausethe trading concern simply passes on the goods to a further manufacturer or dealer.

It has not produced a new product and thus cannot charge excise duty. In such a

case, 4ast "heels will come under trading excise reporting. -imilarly, o Cars is atrading concern *dealer+ that will come under trading excise reporting.

Note: The terms trading concern and dealer have the same meaning !oth the termsmean a middle "usiness entity in the chain of transactions These terms have "eenused interchangea"ly in the document #imilarly$ the terms manufacturing concernand manufacturer have the same meaning and have "een used interchangea"ly in

the document

To summari9e we can say that if a manufacturer collects excise duty on sale of goods

then manufacturing excise reporting is applicable. %n the other hand, if amanufacturer8dealer does not collect excise duty on the sale of goods then trading

excise reporting is applicable.

Typically speaking, manufacturers come under manufacturing excise reporting whilethe dealers come under trading excise reporting. Thus, we can conclude that the

type of excise reporting applicable depends on whether excise duty is collected onthe sale of goods.

#et us now discuss the working of the two types of excise reporting in detail.

#$ %anufacturing Excise "eporting

4or manufacturing excise reporting there are primarily eight registers that are

re:uired. These are&.& ;ersonal #edger $ccount

&.( Excise !uty 6egister

&. 6 ($ II&.0 6 (C II

&.' 6

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Each debit and credit entry must be made on a separate line and assigned a runningserial number for each financial year.

There are two methods of maintaining the ;#$ account. %ne is where advance

payment is made into ;#$ account and second is where payment is made into ;#$account as and when the excisable goods are sold. "e will discuss both the methods

in detail.

#et us start with the first method. 5nlike -ales Tax in which the tax is first collected

and then deposited, excise duty is first deposited and then collected i.e. an advance

payment of excise duty is deposited in banks irrespective of whether any sale orconsumption of goods has taken place. Excise duty can be charged on sales only

after an advance payment has been deposited in the bank.

"hen the assessee *manufacturer+ deposits any amount with the Central Exciseauthorities for payment towards excise duty, he makes a debit entry in the ;#$. $t

the time of sale or consumption of excisable goods, the assessee pays the dutydetermined by him by making a credit entry in the ;#$. The balance in the ;#$ at a

given point of time is the amount available for future payment of excise duty. If any

goods are sold or consumed without a credit entry or without ade:uate debit balancein the ;#$, they will be treated as goods sold or removed without payment of duty.Excise !uty can be charged on sale or consumption only when ;#$ register has a

debit balance.

This is the first method. Earlier it was mandatory to make an advance payment into;#$ but now it is not mandatory.

In the second method, payment into the ;#$ account is made as and when excisable

goods are sold. Thus, the only difference between the two methods is that noadvance payment in ;#$ account is re:uired in the second method. Everything else

remains the same in both the methods.

#et us understand with the help of an example.

%n $pril &, ())', ;#$ has a balance of 6s. &)),))). %n $pril 0, goods are sold andexcise duty amounting to 6s. '),))) is collected. The excise duty collected is

ad3usted against the ;#$ balance of 6s. &,)),))).

iven here in the table format is the balance in ;#$ account and the corresponding

ad3usted excise duties on sales.

Date Ty%e of

transaction

&'cise duty on

sales to "e

adusted

!alance in the *A

after the

adustment&

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Excise !uty paid