AN OVERVIEW OF EXCISE LAW Bharat Raichandani Advocate.
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AN OVERVIEW OF EXCISE LAW Bharat Raichandani Advocate
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Transcript of AN OVERVIEW OF EXCISE LAW Bharat Raichandani Advocate.
AN OVERVIEW OF EXCISE LAW
Bharat RaichandaniAdvocate
2
Background
Constitution of India
Article 265 : Taxes not to be imposed save by authority of law. No tax shall be levied or collected except by authority of law.
Article 246 (1) : gives power to CG to make laws in respect of matters given in List-I in Seventh Schedule to the constitution. (UNION LIST)
Article 246(3) : gives power to SG to make law in respect of matters given in List-II in Seventh Schedule to the constitution. (STATE LIST)
Union List – Entry No. 84
Empowers CG to levy excise duty.
“Duties of excise on tobacco and other goods manufactured or produced in India
except - Alcoholic liquors for human consumption, opium, narcotics
But including - Medical and toilet preparation containing alcohol, opium or narcotics.‛”
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Background
Duty On
•Excisable : Must be Mentioned in Central Excise Tariff Act,
1895
•Goods : Goods must Moveable and Marketable
•Manufactured : New and identifiable product know in the market
must emerge in India
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Excise Duty - Extent – Whole of India (notification no 166/87)
INDIA
Land Sea
Inside India Inside India Inside India Outside India
Excise DutyLevied
Excise DutyNot Levied
Excise DutyLevied
Excise DutyNot Levied
• J&K
• Export Oriented Unit
• Electronic Hardware Trade Park
• Software Trade Park
• DTA
S. E. Z. Designated Areas of Continental Shelf and EEZ i.e. upto 200 nautical miles
High Seas beyond 200 nautical miles
CENTRAL EXCISE ACT,1944
EXCISABLE GOODS
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EXCISABLE GOODS
Section 2(d) :
“excisable goods” means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;
Explanation - For the purposes of this clause, “goods“ includes 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.
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Excisable Goods – Mentioned in CETA
Goods must be mentioned in CETA
•Non Excisable goods are those goods which have not been specified in the CETA, 1985 either in First or Second Schedule.
•Excisable goods – do not become non excisable even if nil rate of duty is prescribed in the CETA for them or these are made exempt by virtue of a notification.
•Nil rate of duty is also a rate of duty
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NIL RATE OF DUTY STILL TAXABLE
SUPREME COURT CASES
Wallace Flour Mills Vs. CCE [(1989) 44-ELT-598 (SC)]
Even if the rate of duty is nil, the goods can still be excisable, if they are manufactured and are marketable goods. “Nil rate of duty is also a rate of duty”
Associated Cement Co. Ltd Vs. Commissioner of Customs [(2001) 128-ELT-21 (SC)]
“If by virtue of an exemption notification the rate of duty was reduced to nil, the goods specified in the Tariff Act would still be regarded as excisable goods on which nil rate of duty was payable”. Hence, the Supreme Court has not categorically stated that goods with a nil tariff rate can also be considered “excisable goods”.
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Excisable Goods - Moveable
Goods must be Moveable
• Immovable property or property attached to earth is not “goods”
•Installation of machinery at plant does not amount to manufacture.
•Turnkey projects involving supply of machinery for assembly/ installation / erection on foundation / civil structure at site will not be considered as excisable goods
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Excisable Goods - Marketable
Goods must be marketable
•Goods must be marketable in the condition in which department wants to levy duty of
excise
• Marketability does not depend upon number of buyers and sellers in the market;
even one purchaser is enough
•Actual sale not necessary.
•Intermediate goods if these are marketable; even if they are consumed within the
factory of manufacture
•Goods capable of being bought or sold in the market are deemed to be marketable.
Even by-products / sub-standard products are considered as goods
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FEW DECIDED CASES ON EXCISABLE GOODS
“Market” Indian Cable Co. Ltd Vs. CCE [(1994) 74-ELT-22(SC)
It is expressed that marketability is a decisive test for durability. It only means “saleable” or “suitable for sale”, It need not be, in fact, marketed. The article should be capable of being sold or being sold to consumers in the market, as it is without anything more. In the absence of a finding, that the goods are “marketable”, i.e. saleable or suitable for sale, it could not be said to be a goods, which may be subject to excise duty.
Goods which are not listed in Tariff or goods which are mentioned in Tariff, but the column of the rate of duty is blank are non-excisable goods, e.g. water (they is no entry in tariff).
Excise law is not applicable on non-excisable goods.
“Non-dutiable goods” are excisable goods listed in Excise Tariff. Excise law is applicable to them, but they are not liable to excise duty. Non dutiable goods may be of two types:
(i) Nil duty goods- tariff rate for such goods is nil, and
(ii) Exempted goods-100% exemption is available under Sec.5A for such goods
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FEW DECIDED CASES ON EXCISABLE GOODS
Amaravathi Co-operatives Sugar Mills versus CCE, Coimbatore, [(2013) 291-ELT-126(Tri-Chennai)]
In this case CESTAT held that “press mud and sludge are specified in the First Schedule of the Central Excise Tariff against headings 23032000 and 23033000 but they are not subject to a duty of excise, as under the rate column the duty of excise is indicated as nil. Hence till such time, no duty is specified in the First Schedule of the Central Excise Tariff, press mud and sludge cannot be considered to be excisable goods”. The judgment, therefore, says that the rate of duty being nil, the goods are not excisable.
CCE, Vadodara Vs. Dhiren Chemical Industries [(2002) 139-ELT-3 (SC)]
Rate of duty being nil, the goods are not excisable goods.
CCE Vs. Polyset Corporation [(2000) 115-ELT-41 (SC)]
The date of manufacture of goods is relevant for determining whether the goods were excisable and as to the rate of duty that the said goods must bear, what is relevant is the date of their clearance.
CENTRAL EXCISE ACT,1944
MANUFACTURE
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Manufacture
Section 2(f) :
“manufacture" includes any process,
(i)incidental or ancillary to the completion of a manufactured product; and
(ii)which is specified in relation to any goods in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture;
(iii)which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling 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.
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MANUFACTURE
Manufacture can be said to have taken place when:-
after process, a new and different article emerges having a different name, character or use.
Criteria
• Identity of original articles should be lost
• Test of irreversibility is important
Incidental process : Occasional or casual process, absolute not necessity (optional)
Ancillary process : Integral part of the manufacturing process (compulsory)
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MANUFACTURE
The accepted wisdom about manufacture in central excise :
Manufacture implies a change ; but not every change is a manufacture. A new product should emerge from the raw material stage with a new name, new use and marketability.
Manufacture in Central Excise :
•Two concepts
-Actual substantive manufacture
-Deemed manufacture
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Manufacture (Section 2(f)(ii)
Chapter Notes / Section Notes Relating to
Process amounting to deemed manufacture (Section 2(f)(ii)
Water including natural or artificial mineral water
Filtration, purification, labeling or relabeling of containers or repacking from bulk packs to retail packs.
Glass and Glass wares Printing, decorating or ornamenting.
Pharma products and essential oils & retinoid
Conversion into powder into capsules, labeling or relabeling of containers intended for consumers and repacking from bulk packs to retails packs.
Refined edible vegetable oils
Process of refining namely treatment of crude oil with alkali, bleaching, deodorization.
Base Metals & articles thereof
Process of drawing or redrawing a rod, wire or any other similar article into wire.
Marble, Granite, Sandstone Process of metallization, lamination or lacquering
Audio/ Video cassettes Recording of sound
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Manufacture 2(f)(iii)
The following processes in relation to goods specified in Third Schedule will also amount to deemed manufacture:-
i. Packing or repacking of such goods in a unit container; or
ii. Labeling or relabelling of containers including declaration or alteration of retail sale price on it; or
iii. Adoption of any other treatment on the goods
to render the product marketable for consumer
Affixing of MRP? Deemed manufacture
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Manufacture and Excisibility- Leading cases decision of Supreme Court
HAWKINS COOKERS LIMITED Vs COLLECTOR OF C.EX.,CHANDIGARH 1997 (96) E.L.T.507 ( SC)
Formation of a new Article/Product come in existence because of some activity undertaken by the assesse.
TATA IRON AND STEEL CO.LTD Vs UNION OF INDIA 2004 (164) E.L.T 372 (SC)
A new distinct and commercial commodity is an essential item of manufacture. Excisability / Marketability is a question of fact and does not follow the mere mention of item in ISI
COMMISSIONER OF C.EX, CHENNAI-II Vs TARPAULIN INTERNATIONAL 2010 (256) E.L.T.481 (SC)
Manufacture means production of article from raw or prepared materials, by giving new form, quality, properties or combinations including any process incidental or ancillary. Every change is not manufacture to attract duty, manufacture to result in different goods and known in market.
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Manufacture and Excisibility- Leading cases decision of Supreme Court
UNION OF INDIA Vs DELHI CLOTH AND GENERAL MILLS CO. LTD 1977 (1) E.L.T (J 199) SC
"Manufacture implies change, but every change is not manufacture and yet every change in an article is a result of treatment, labour and manipulation, but something more is necessary and there must be transformation; a new and different article must emerge having distinctive name, character and use".
GRASIM INDUSTRIES LTD Vs UNION OF INDIA 2011 (273) E.L.T. 10 (SC)
Repairing activity in any possible manner cannot be called as a part of manufacturing activity in relation to production of end product.
COLLECTOR OF CENTRAL EXCISE, NEW DELHI Vs M/S BALLARPUR INDUSTRIES LTD (1989) 4 SCC 566
Use of any item as a fuel used as an aid in the process of manufacture of goods do not attract levy of tax.
TEGA (I) LTD Vs CCE 2004(164)ELT390 [SC]
Rubber lining/ Painting/ Cutting/ Welding/of Iron and Steel pipes and Tanks does not amount to manufacture.
CENTRAL EXCISE ACT,1944
VALUATION
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VALUATION
Date of determination of duty and tariff valuation
Tariff rate applicable on the date of removal from factory
In case goods used within factory then such date when goods are issued for use.
Valuation Rules for calculating excise duty
Specific duty based on some measure like weight, volume, length etc.
Duty as a % of Tariff Value fixed u/s 3(2)
Compounded Levy Scheme (Rule 15)
Duty based on Maximum Retail price printed on carton after allowing deduction
Duty as a % on Assessable Value fixed u/s 4 (ad valorem duty)
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VALUATION : SPECIFIC DUTY
Payable on the basis of certain unit like weight, length , volume, thickness, etc
If selling price of the product increases, the revenue earned by the government does not increase correspondingly
Examples of specific duty
• Pan Masala in retail packages
• Matches (per 100 boxes/packs)
• Sugar (per quintal basis)
MRP is not marked on the package or when MRP is not the sole consideration
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VALUATION : TARIFF VALUE
Under Sec 3(2) of Act, the Central Government has fixed tariff values for the goods, making assesse’s task easy
Tariff value is fixed by the Govt from time to time
“Notional Value” may be fixed on the basis of wholesale price or average price of various manufacturers as the Govt may consider appropriate
Provision of fixing tariff value is used very rarely as frequent changes become necessary when price rises
Presently tariff value are fixed for-
Pan Masala not containing tobacoo for less than 2 grams: Rs 1.50 per unit pack
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Valuation : Compounded Levy Scheme
Central Govt. may, by notification, specify the goods in respect of which an assessee shall have the option to pay Excise duty on the basis of specified factors relevant to the production of such goods and at specified rates.
It is devised for administrative convenience as a simplified scheme.
It is an optional scheme i.e. the manufacturer can opt to pay duty as per normal rules and procedure also.
Under this scheme, the manufacturer has to pay prescribed duty for specified period on the basis of certain factors relevant to the production, like the size of equipment, etc.
After making the lump-sum periodic payment, the manufacturer does not have to follow any procedure of excise regarding storage and clearances of goods.
Few examples:
• Stainless steel patty : Rs.30,000 per cold rolling machine per month
• Aluminum circles : Rs.12,000 per cold rolling machine per month
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Valuation : MRP Based valuation (Section 4A)
Applicable to goods covered under provisions of Legal Metrology Act and Rules.
Central Govt. has to issue a notification in Official Gazette specifying the commodities to which the provision is applicable
Govt. permits reasonable abatement (deductions) from the “retail sale price".
The “retail sale price” should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer.
It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packaging, forwarding charges, etc. If under certain law, MRP is required to be without taxes and duties, that price can be the “retail sale price.”
If more than one “retail sale price” is printed on the same packing, the maximum of such retail price will be considered. If different MRP are printed on different packages for different areas, each such price will be “retail sale price” for purpose of valuation.
Tampering, altering or removing MRP is an offense and goods are liable to confiscation. If price is altered, such increased price will be the “retail sale price” for the purpose of valuation.
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Valuation : Duty Based on Value (Section 4)
Excise duty is payable on the basis of value called “ad valorem duty”.
This “assessable value” shall be transaction value on each removal of goods if following conditions are satisfied –
• The goods should be sold at the time and place of removal.
• Buyer and assessee should not be related.
• Price should be the sole consideration for the sale.
• Each removal will be treated as a separate transaction and “value” for each removal will be separately fixed.
Inclusions in Transaction Value
Packing charges
Design and Engineering charges
Consultancy charges relating to manufacturing
Compulsory after Sales Service / service in warranty period
Pre-delivery inspection charges for vehicles
Loading and handling charges within the factory
Royalty charged in franchise agreement
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Valuation : Duty Based on Value (Section 4)
Exclusions from Transaction Value
Trade Discounts
Outward handling, freight and transit insurance charges
Notional Interest on security deposit / advances
Installation and Erection expenses
Interest on Receivables
Bank charges for collection of sale proceeds
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Central Excise Valuation ( Determination of price of excisable goods) Rules, 2000
These rules apply when any of the ingredients of transaction value is missing
The rules are used for ascertaining the “normal transaction value” at which the greatest aggregate quantity of goods are sold
Value nearest to time of removal if goods are not sold (Rule 4)
Removal of free samples or supply under warranty claims.
Value of such goods sold by the assessee at any other time nearest to time of removal of goods under assessment
Goods sold at different place (Rule 5)
In case of FOR delivery contract, actual cost of transportation from place of removal up to place of delivery of the excisable goods will be allowable as deduction.
Cost of transportation can be either on actual basis or on equalized basis.
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VALUATION RULES, 2000
Valuation when price is not the sole consideration – (Rule 6)
Consideration includes supply of following directly or indirectly, free or at reduced cost.
Materials, components, parts and similar items
Tools, dyes, moulds, drawings, blue prints, technical maps, charts and similar items used
Material consumer, including packaging materials
Engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of the goods.
Sale at depot / consignment agent (Rule 7) –
Price prevailing at depot at the time of removal of factory
Captive Consumption (Rule 8)-
In case of captive consumption, valuation shall be done on the basis of cost of production plus 10%
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VALUATION RULES, 2000
Related person (Rule 9 and Rule 10)
Sold to related person / holding company / subsidiary for consumption : Cost of
production plus 10%
Sold to or through related person / holding company / subsidiary company : selling
price of related person
Job work on behalf of a principal manufacturer (Rule 10A)
Resale price of the principal manufacturer
Residual Method (Rule 11)
Value shall be determined using reasonable means consistent with the principle and
general provisions of these rules and Sec4(1) of Act.
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VALUATION AT JOBWORK
When does Job work amount to Manufacture?
• Labor/ Jobwork charges + Raw material costs are includible in assessable value.
• Ujjagar Prints etc Vs U.O.I. 1989 (39) E.L.T 493 (SC)
• Empire Industries Vs U.O.I. 1985 (20) E.L.T 179 (SC)
• Pawan Biscuits Co. Vs CCE. 2000 (120) E.L.T 24 (SC)
Is buyer’s profit margin includible in Assessable Value in the hands of Jobworker?
• Food Specialities Ltd Vs U.O.I. 1998 (97) E.L.T 402 (SC)
Rule 10A was inserted from 1-3-2007 to specifically provide for job work valuation
The Central Board of Excise & Customs circular no 902/22/2009 dated 20-10-09 in the case of vehicle body builders
• Commissioner Vs P.R. Rolling Mills Pvt. Ltd 2010 (260) E.L.T A84 (SC)
• International Auto Ltd. [2005 (183) E.L.T 239 (S.C.)]
Value of scrap retained by the job worker and cleared on payment of duty was not includible in assessable value of bars/section cleared by job worker to principal since intermediate goods were not liable to duty
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VALUE OF CAPTIVE CONSUMPTION
Assesable Value shall be :-
(CAPTIVE CONSUMPTION) * 110%
even if the same or identical or comparable goods are manufactured & sold by the same assesee.
Board in Circular No 692/8/2003, dated 13-2-2003 (2003 (152) E.L.T. T40), held to be retrospective
Cadbury India Ltd (2006 (200) E.L.T. 353 (SC)
For calculating cost of production for goods captively consumed, the CAS-4 issued by the Institute of Cost & works Accountants of India should be strictly followed. Such cost would not include marketing expense, advertising expense, insurance, interest etc
CENTRAL EXCISE ACT,1944
PROCEDURES
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IMPORTANT PROCEDURE IN CENTRAL EXCISE
Issue of invoice under Rule 11 of central excise rules 2002
Provisional assessment under Rule 7 & finalization
Time and manner of payment of duty under Rule 8
Remission of duty under Rule 21 for damaged/defective/unfit/unmarketable goods
Credit of duty paid on sales returns under Rule 16
Rule 16-A – removal of any inputs as such or partially worked outside the factory for testing, repair etc
Rule 16-B – removal of semi-finished products for further work / finishing and return
Rule -16C – removal of finished goods outside for test etc & return
Export without payment of duty as well under claim for rebate of duty – LUT (UT1), Bond, ARE
Removal of excisable goods without duty for export warehousing under Rule 20
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EXCISE INVOICE
The Invoice shall be serially numbered & shall contain:-
(a). Registration Number
(b). Description of goods
(c). Classification
(d). Time & Date of Removal
(e). Mode of Transport & Vehicle Registration No.
(f). Rate of duty
(g). Qty. & Value of goods
(h). Amt. of duty
(i). Address of concerned Central excise Division.
It shall be prepared in Triplicate (Buyer/Transporter/Assesee).
Before using Invoice book, the serial no. should be intimated to Superintendent.
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RETURN AND AFIR
Return submission :- (a). Monthly
(b). Form ER-1
within 10 days from the close of month.
Annual Financial Information Statement (AFIR) :-
* Annually
* Form ER-4
* 30th November of succeeding year
* filing only if duty of Rs. 1 crore or more has been paid
through “PLA”
CENTRAL EXCISE ACT,1944
PENAL PROVISIONS
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PENAL PROVISIONS IN CENTRAL EXCISE
Prosecution for select offenses under section 9 of the Act
Demand of duty under section 11A with normal time limit of one year and 5 years for cases where suppression of facts by the assesses is alleged
Time limit for adjudication of SCN
Interest for delayed payment under section 11AB
Penalty equal to duty under section 11AC in cases involving suppression of facts.
Penalty under Rule 25 – maximum upto duty or Rs 2000/-whichever is greater, with confiscation of the goods
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Penal Provisions Cont…
Rule 26 – penalty for abettors , transporters, issuers of false invoices – max upto duty or Rs 2000/- whichever is greater
Rule 27 – general penalty where no penalty is specified for any offense in the rules, max of Rs 5,000/- with possible confiscation of the goods
Tax default – penalty under rule 8 – daily clearance on payment of duty in cash, plus prohibition of using cenvat credit, till dues are paid up.
Rule 12CC – blanket powers given to the department to impose restrictions on Manufacturers and Dealers involved in tax evasion
Section 11DDA – power to order provisional attachment of property to protect “Revenue” during he pendency of proceedings
Section 14 – power to issue summons
Section 13 – power to arrest
SUMMONS,
INQUIRIES,
INVESTIGATION,
SHOW CAUSE
NOTICE,
APPEALS, WRIT
PETITIONS,
RECOVERY
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Relevant provisions
Section 11 of CEA, 1944 – Recovery of sums due to the Government
Section 11A of CEA, 1944 - Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded
SECTION 11AA - Interest on delayed payment of duty
SECTION 11AC - Penalty for short-levy or non-levy of duty in certain cases.
SECTION 11B - Claim for refund of [duty and interest, if any, paid on such duty
SECTION 11BB - Interest on delayed refunds.
SECTION 11C - Power not to recover duty of excise not levied or short-levied as a result of general practice.
SECTION 12E - Powers of Central Excise Officers.
SECTION 12F - Power of search and seizure
SECTION 13 - Power to arrest
SECTION 14 - Power to summon persons to give evidence and produce documents in inquiries under this Act.
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Relevant provisions (Continued)
SECTION 33 - Power of adjudication
SECTION 34 - Option to pay fine in lieu of confiscation
SECTION 34A - Confiscation or penalty not to interfere with other punishments
SECTION 35 - Appeals to Commissioner (Appeals)
SECTION 35B - Appeals to the Appellate Tribunal.
SECTION 35F - Deposit of certain percentage of duty demanded or penalty imposed before filing appeal
SECTION 35G - Appeal to High Court
SECTION 35H - Application to High Court.
SECTION 35-I - Power of High Court or Supreme Court to require statement to be amended
SECTION 35L - Appeal to the Supreme Court
SECTION 35Q - Appearance by authorised representative
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Issuance of Show Cause Notice
DEMAND UNDER SECTION 11 A
Issuance of Show cause notice Who Can IssueProper officer - Proper officer means an officer who is assigned those functions by Central Board of Excise & Customs (CBEC) or Commissioner; Officers of DGCEI also empoweredRelied upon documents – to be soughtCounter each allegation separatelyGeneral rebuttal not sufficientCross examinationTime bar
Service of SCNMere issue not sufficient - to be servedRefusal to accept notice is due service of notice.In case of partnership firm, SCN can be issued to any partner.In case of company, SCN can be issued to any of director, secretary or principal officer.Notice to agent is valid.
Personal HearingFacts to be statedWritten submissions must be filed, based on queries, if any raised by the Adjudicating authorityCopies of case law/circulars
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Issues relating to Appellate and Recovery proceedings
Appellate Proceedings Can commissioner (appeals) condone delay beyond period of 30 days? - Singh enterprises 2008 (221) ELT 163 (SC) Can department file appeal under section – aggrieved person for the purpose of filing an appeal - Narendra P Unrao
15 ELT 275 (T) – Indorama Synthetics (Bombay High Court) Power of commissioner (appeals) to remand matter back to the adjudicating authority - MIL India Limited 2007
(210) ELT 188 (SC)
Recovery Proceedings Recovery of confirmed demand during pendency of stay application. All earlier circulars on the above subject rescinded Circular No.967/01/2013-CX issued on 1st January, 2013. Larsen & Toubro – Bom HC
Writ Petitions What is Writ Petition ? Types of writs• Habeas Corpus• Certiorari• Mandamus• Prohibition• Quo warranto SC- Article 32 and HC- Article 226 When Maintainable ?
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Questions ??
