8828Economic Offences Central Excise

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Post Qualification Course inInternational Trade Laws &

WTO

Economic Offences : Central Excise Law



Direct & Indirect Taxes

� Tax Collection

� (2004 ± 05)� Union Excise Duty - Rs.1,04,1999

crore

� Customs Duty ± Rs. 54,250 crore

� Income Tax & Corporate Tax ± Rs.1,39,365

crore



Offences ± Causes

± Central Excise Duty is an indirect tax

± Result - Entrusted to Subordinate Management



Offences ± Causes II

� Indirect taxes are regressive

� Are they?

� CE Duty is a kind of ³expenditure tax´



Offences ± Causes III

� High tax rates induce temptation to evade

� To sell cheap & break barriers

� (Anti dumping duty example)

� To enjoy unjust enrichment.



Minimal Control Necessary� But economic progress calls for industrial

development

� Industrial development requires liberalised

environment



Liberalization: CE Law &

Procedure

� 1968 ± Introduction of SRP

� 1986 ± Modvat ( 2000 ± cenvat)

� 1992 ± One time registration� 1994 ± Modvat on capital goods

±Invoice by Dealers




Procedure

� 1996 : Mandatory penalty for evasion

� 1999 : Rationalisation of tax rates

� 2000 : Abolition of Statutory records

± Reliance on private records




Procedure

� 2001: New Central Excise Rates

� 2004 : Integration of Cenvat credit

of CE duty & ST



Liberalization : CE Law

Procedure

� 10 September 2004

� Cenvat Credit Rules 2004

± Compounding of offences.

± Duty liability from successor in business

± Maximum 3 adjournments

± Increase in fee for appeals



Liberalization : CE Law &

Procedure

± Audit under section 14 A & 14AA

± Excise Audit ± 2000



Excise Audit 2000

� Selective audit ± unit & frequency based on risk assessment

� Audit preceded by Desk Review� Specific audit duration:

� Duty > 5 crore - 7 days

� Duty 1 ± 5 crore ± 5 days

� Duty 0.5 ± 1 crore ± 4 days

� Duty 0.1 ± 0.5 crore ± 3 days

� Duty < 0.1 crore ± 2 days



Why CAs Should Study

Economic Offences

± Certification role

± Tax Auditor role

± Advisory role



Certification Role ± Examples

± Inventory» GSM case

» Excess stock - not clandestine removal

± Credit records

± Disclosures

± Suits involving audit certificates

± Call as witness



Tax Auditor Role� Waste and scrap is practically treated as

final product for excise purpose

� There are about 85 entries of waste in

CETA

� Waste & scrap - importance



Case Study on Waste & Scrap

� Activated clay is used for refining &

bleaching edible oil. The spent earth is

subsequently sold. It is specified in the

tariff. Offence case was made for failure to

pay daily.

� Discuss.



Waste & Scrap� Mention in CETA

� Marketable commodity (spent nickel)

� There should be manufacture

� Ancillary process is not manufacture

(Cinder)



Offences vs. Activism

� Thorough knowledge essential to guard

against overzealousness



Offences vs. Technology� Computer assembly is not manufacture

� Triveni Engineering ± Marketability test ±

goods ³as such´

� No duty on immovable property

� No duty in case of dismantling

� Removal without dismantling attracts duty� Turnkey project not dutiable but

components, if marketable.



Offences vs Technology� Computer assembly is manufacture

� Information supplied by e-mail

� Software is goods for ST & Octroi; but issoftware manufactured?

� Recording of cassette is manufacture

� Receiving cassette and recording music asper choice is service activity

� Packing of CD, pan masala etc.



Important Concepts� Manufacturer

� Job Worker

� Hired Labourer

� Master-Servant relationship

� Owner of Raw material� Brand name owner

� Manufacturer should not be dummy



Basic Procedures� Registration vs. exemption (> 40 / 100 lakh)

� Daily stock register (R 10) for goods

manufactured, cleared & in stock.� Form not prescribed

� Nil entry- when entry ± QC & packing

� Clearance under invoice duly authenticated� Triplicate / Additional copy ± proforma

invoice



Basic procedure� Monthly return in ER 1

� Quarterly return by SSI in ER3

� Monthly return by EOU in ER2

� ER4 by assessee paying duty > 1 crore



Basic procedure� W.e.f. 25.11.2004 information about

principal input in ER5 by 30th April

� First return by 31st December, 2004� Changes within 15 days in ER5

� Only for specific tariff heading and by

assessees paying duty > 1 crore� Monthly return of receipt and consumption

of principle input in ER6



Basic procedure� Submission of list of records maintained for

purchase, receipt, sale or delivery of goods

including inputs and capital goods

� Changes in boundary, management etc. to

be intimated in EA 1.



Cenvat Offences� If cenvat wrongly taken or availed, interest

is payable. (R 14) (S 11 A & B)

� Interest for wrong utilization - appears

valid

� Interest for wrong availment ± debatable

� Taking ± attempting to commit offence

� Utilising ± committing offence



Cenvat Offences� Penalty for taking wrongly cenvat credit (R

15)

� Not ensuring inputs suffered duty

� Contravention to Cenvat Credit Rules

� Penalty ± confiscation on goods + monetary

penalty (limited to duty or Rs.10,000/-

whichever is high.



Cenvat Offences� Penalty in case of fraud, etc. (S 11/ R 15)

� Mandatory penalty ± equal to duty

� 25% reduction in penalty for prompt

payment

� For service tax ± mandatory minimum

penalty = duty; maximum is twice duty.



Offences ± SSI Units� Common office, common partners

� No financial flow back

� No common funding

� One unit belongs to FIL; another DIL; both under

SIL; no common funding or financial flow back

� One unit belongs to husband; another to wife; bothmanaged by husband under POA

� Other facts of case to be seen



Payment under protest� Refund possible when payment under PLA

� Refund not possible when payment through

cenvat credit

� No provision for cash refund of cenvat

credit except for exports and other cases of

departmental lapses.



SCN & Time Limit� SCN for normal cases - one year

� SCN for fraud ± five years

� Time limit valid even when there is interim stay

� SCN needed even if party admitted liability

� Mere letter is not SCN

� Mere endorsement is not SCN� No SCN - No Penalty



Suppression, Misstatement or

Fraud� Conscious withholding not mere in action

� No suppression, if no disclosure

requirement

� When facts disclosed, fraud cannot be

alleged.

� No suppression, if department knows the

facts.



Important Factors� Demand on fuel consumption basis is arbitrary.

� Demand without reckoning wastage is

unsustainable .� Raw material shortage is inadequate for

clandestine removal.

� False statement to bank etc. cannot prove

suppression of production.� Demand on private slips basis without

corroborative evidence not valid

8828Economic Offences Central Excise

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