Ca final Excise and Custom

5/24/2018 Ca final Excise and Custom

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Prof. Tayals Notes on Indirect Taxes

1

Central Excise: An Introduction

The main source of revenue for the government is collection of taxes, out of which indirecttaxes contribute a major portion. Indirect tax is a tax which is borne by the consumer directly

at the time of purchase of goods or availing of services e.g. Excise, Customs, ervice Tax,

ales Tax etc.

Central Excise Duty An Introduction

Excise duty is an indirect tax levied on !manufacture or production of excisable goods" in India. Thetaxable event under the Central Excise law is manufactureand the liability of Excise duty arises assoon as the goods are manufactured. The duty, though it becomes payable on the manufacture ofgoods, is collected periodically as prescribed.

Excise duty is levied throughout the country on manufacture#production of goods from themanufacturer but the ultimate burden of tax is borne by the consumer. It is not a tax on sale.

Therefore, for the purpose of charging excise duty, sale of goods is immaterial. In variousjudgments, the honourable upreme Court has held that "Excise Duty is essentially a tax on theproduction or manufacture of excisable goods produced or manufacture within the country and is

unrelated to the sale of the same."The duty is now actually called the Central Value Added Tax(CENVAT!.

Constitutional validity and entitlement to collect Excise Duty

$rticle %&' of the Constitution of India provides that no tax shall be levied or collected except byauthority of law. The (nion )overnment or tate )overnment can charge tax#duty from the entrywise legislative enabling power specified in the (nion *ist, tate *ist or the Concurrent *ist of theeventh chedule of the Constitution and corresponding acts passed by the +arliament or the tate*egislatures, as the case may be. The power to levy excise duty is given to (nion of India i.e.Central )ovt.- (nder Entry /, *ist I to the eventhchedule of the Constitution of India.Entry / in the (nion *ist empowers the Central )overnment to enact laws to levy0

"duties of excise on tobacco and other goods manufactured or produced in India, except

a. alcoholic liquors for human consumption;

b. opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet

preparations containing alcohol or any substances included in sub-paragraph b! of this entry.

Thus, the Central )overnment is empowered to impose excise duties on all commodities, exceptalcoholic liuors meant for human consumption, opium, Indian hemp, narcotics and other narcoticdrugs.

Tayal Institute Private Limited, Mumbai Ph: !"!#$%!, &mail: tayalsir'(mail.com1
mailto:[email protected]:[email protected]


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"asics of Central Excise #a$

2or understanding of excise law, one have to have thorough 3nowledge of the Central Excise $ct14// CE$-, the Central Excise 5ules %66% CE5-, CE78$T Credit 5ules %66/ CC5-, CentralExcise 8aluation 5ules, %666 and the Central Excise Tariff $ct 14' CET$-.

Central Excise Act% &' ( CEA : This $ct came into force on %#%#14// and applies to thewhole of India. It provides for levy of excise duty, valuation of goods and collection of duty. The$ct is divided into 11 chapter and /6 sections 16' sections in total-

Central Excise Tariff Act% &')* :This $ct classifies

all the goods under 4& Chapters broadlyon the basis of 9armonised ystem of 7omenclature. These chapters, grouped into %6sections, are further divided into headings, sub:headings and sub:classification. The $ct containstwo schedules. chedule I specifies the rate of CE78$T earlier 3nown as ;asic Excise


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into effect the powers. The rules may lay down the procedures governing several specificsituations to carry out the effect of the $ct.

$ total of =& different situations have been explicitly enumerated under ection =>%-. ome ofthe important powers are0

1. To provide the nearest ascertainable euivalent of the normal price u#s /.%. To ma3e rules u#s / to determine and provide for trade discount etc.

=. To provide for the issue of registration certificated and transport permits and the fees, ifany, to be charged therefore.

/. @anner in which application for refund can be made ection11;-.

'. To provide for the assessment, collection of excise duties, authorities by whom functionsunder this $ct are to be discharged.

&. To ma3e rules regarding removal of excisable goods from the place where they areproduced, stored or manufactured and their transport to or from the premises of a

registered person, or a bonded warehouse, or to a mar3et.>. To provide for the appointment, licensing, management and supervision of bonded

warehouse.

. To provide for the employment of officers of the )overnment to supervise the carryingout of any rules made under this $ct.

ection = provides that the 5ules shall be made by issue of notification and the notification

shall be placed before the +arliament for a period of t8irty dayswhenever it is in session,

whether comprised in one session or more. If parliament decides to amend any of the

notifications so issued then the notification will have effect in modified form. Btherwise any

such notification will cease to have effect. ince notification is issued under the $ct, thesealso have statutory force.

Effect of amendments% etc9% of rules% notifications or orders

$ccording to section #$% &'here any rule, notification or order made or issued under this %ct or

any notification or order issued under such rule, is amended, repealed, superseded or rescinded,

then, unless a different intention appears, such amendment, repeal, supersession or rescinding shall

not(

a! re)i)e anything not in force or existing at the time at which the amendment, repeal,

supersession or rescinding ta*es effect; or

b! affect the pre)ious operation of any rule, notification or order so amended, repealed,superseded or rescinded or anything duly done or suffered thereunder; or

c! affect any right, pri)ilege, obligation or liability acquired, accrued or incurred under any

rule, notification or order so amended, repealed, superseded or rescinded; or

d! affect any penalty, forfeiture or punishment incurred in respect of any offence committed

under or in )iolation of any rule, notification or order so amended, repealed, superseded or

rescinded; or

e! affect any in)estigation, legal proceeding or remedy in respect of any such right, pri)ilege,

obligation, liability, penalty, forfeiture or punishment as aforesaid,

and any such in)estigation, legal proceeding or remedy may be instituted, continued or enforced and

any such penalty, forfeiture or punishment may be imposed as if the rule, notification or order, as the



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case may be, had not been amended, repealed, superseded or rescinded.

"indin effect and a66licability of Notifications;Circulars;Trade Notices

The Central Excise $ct, 14// authorises the Central )overnment to issue notifications and the ;oardcan issue circulars. These circulars have binding effect on officers of the


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been inserted in Chapter >1 in terms of which, for the purpose of the heading >11=, the process ofaffixing or embossing trade name or brand name on articles of jewellery shall amount tomanufacture.

49 Information Tec8noloy

i- Excise duty of 1% has been imposed on computers w.e.f.1.=.%66&.ii- Excise duty of has been imposed on pac3aged software. There is a general exemption

for customised software any custom designed software developed for a specific user orclient- other than pac3aged software or canned software. !+ac3aged software or cannedsoftware means software developed to meet the needs of variety of users and it isintended for sale or capable of being sold off the shelf."

iii- Excise duty at the rate of 1& has been imposed on set top boxes not covered byInformation Technology $greement.

. Cess: Cess is a tax imposed for specific purpose with reference to some goods. Cess is imposed on

different goods on specific enactments in addition to excise duty. It should be utili?ed only for thepurpose for which it has been levied. Entry / of *ist I of the eventh chedule to theConstitution of India empowers the Central )overnment to levy cess. Cess is levied and collected

by the Central Excise $uthorities and the provisions of the Central Excise $ct and rules, unlessotherwise provided, are applicable to cess.

(nder ection 1 of the 2inance $ct, %66/, an education cess calculated % F econdery andand 9igher Education Cess 1- would be levied on the aggregate of the duties which are leviedand collected by the Central )overnment. Education cess is to be calculated on the aggregate of allthe duties.

Difference bet$een Cess > Duty

Cess Duty

1. It is a charge levied and collected forspecified purposes e.g. Education Cess.

It is levied on goods.

%. Cess is for a specified purpose.


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(aAd?udicatin aut8ority!means any authority competent to pass any order or decision underthis $ct, but does not include the Central ;oard of Excise and Customs constituted under the Central;oards of 5evenue $ct, 14&= '/ of 14&=-, Commissioner of Central Excise $ppeals- or$ppellate TribunalH

(aaA66ellate Tribunal! means the Customs, Excise and ervice Tax $ppellate Tribunalconstituted under section 1%4 of the Customs $ct, 14&% '% of 14&%-H(aaabro1er! or commission aent!means a person who in the ordinary course of businessma3es contracts for the sale or purchase of excisable goods for othersH

(b Central Excise @fficer!means the Chief Commissioner of Central Excise, Commissioner ofCentral Excise, Commissioner of Central Excise $ppeals-, $dditional Commissioner of CentralExcise, Aoint Commissioner of Central Excise $ssistant Commissioner of Central Excise or


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(6rescribed! means prescribed by rules made under this $ctH(8sale! and 6urc8ase!% with their grammatical variations and cognate expressions, mean anytransfer of the possession of goods by one person to another in the ordinary course of trade or

business for cash or deferred payment or other valuable considerationH

(1$8olesale dealer! means a person who buys or sells excisable goods wholesale for thepurpose of trade or manufacture, and includes a bro3er or commission agent who, in addition toma3ing contracts for the sale or purchase of excisable goods for others, stoc3s such goods

belonging to others as an agent for the purpose of sale.

Definitions under section (3 of t8e Central Excise Act

(aassessee!means the person who is liable to pay the duty of excise under this $ct and includeshis agentH

(bpersons shall be deemed to be related!if :i-they are inter:connected underta3ingsHii-they are relativesHiii-amongst them the buyer is a relative and a distributor of the assessee, or a sub:distributor ofsuch distributorH or

iv-they are so associated that they have interest, directly or indirectly, in the business of eachother.

Explanation.K In this clause :

&i' (inter-connected !nderta)ings(means two or more underta*ings which are inter-connected

with each other in any of the following manners, namely566

%! if one owns or controls the other;

7! where the underta*ings are owned by firms, if such firms ha)e one or more common

partners;

4! where the underta*ings are owned by bodies corporate,66

I! if one body corporate manages the other body corporate; or

II! if one body corporate is a subsidiary of the other body corporate; or

III! if the bodies corporate are under the same management; orI! if one body corporate exercises control o)er the other body corporate in any

other manner;

D! where one underta*ing is owned by a body corporate and the other is owned by a

firm, if one or more partners of the firm,66

I! hold, directly or indirectly, not less than fifty per cent. of the shares, whether

preference or equity, of the body corporate; or

II! exercise control, directly or indirectly, whether as director or otherwise, o)er

the body corporate;

E! if one is owned by a body corporate and the other is owned by a firm ha)ing bodiescorporate as its partners, if such bodies corporate are under the same management;



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8! if the underta*ings are owned or controlled by the same person or by the same group;

9! if one is connected with the other either directly or through any number of

underta*ings which are inter-connected underta*ings within the meaning of one or

more of the foregoing subclauses.

ExplanationI.66 8or the purposes of this clause, two bodies corporate shall be deemed to

be under the same management,66

i! if one such body corporate exercises control o)er the other or both are under the control

of the same group or any of the constituents of the same group; or

ii! if the managing director or manager of one such body corporate is the managing director

or manager of the other; or

iii! if one such body corporate holds not less than one-fourth of the equity shares in the other

or controls the composition of not less than one-fourth of the total membership of the

7oard of directors of the other; or

i)! if one or more directors of one such body corporate constitute, or at any time within a

period of six months immediately preceding the day when the question arises as to

whether such bodies corporate are under the same management, constituted whether

independently or together with relati)es of such directors or employees of the first

mentioned body corporate! one-fourth of the directors of the other; or

)! if the same indi)idual or indi)iduals belonging to a group, while holding whether by

themsel)es or together with their relati)es! not less than one-fourth of the equity shares in

one such body corporate also hold whether by themsel)es or together with their

relati)es! not less than one-fourth of the equity shares in the other; or

)i! if the same body corporate or bodies corporate belonging to a group, holding, whetherindependently or along with its or their subsidiary or subsidiaries, not less than one-

fourth of the equity shares in one body corporate, also hold not less than one-fourth of

the equity shares in the other; or

)ii! if not less than one-fourth of the total )oting power in relation to each of the two bodies

corporate is exercised or controlled by the same indi)idual whether independently or

together with his relati)es! or the same body corporate whether independently or

together with its subsidiaries!; or

)iii! if not less than one-fourth of the total )oting power in relation to each of the two bodies

corporate is exercised or controlled by the same indi)iduals belonging to a group or by

the same bodies corporate belonging to a group, or :ointly by such indi)idual orindi)iduals and one or more of such bodies corporate; or

ix! if the directors of one such body corporate are accustomed to act in accordance with the

directions or instructions of one or more of the directors of the other, or if the directors of

both the bodies corporate are accustomed to act in accordance with the directions or

instructions of an indi)idual, whether belonging to a group or not.

Explanation**.( If a group exercises control o)er a body corporate, that body corporate

and e)ery other body corporate, which is a constituent of, or controlled by, the group shall be

deemed to be under the same management.

Explanation***.( If two or more bodies corporate under the same management hold, inthe aggregate, not less than one-fourth equity share capital in any other body corporate, such



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other body corporate shall be deemed to be under the same management as the first mentioned

bodies corporate.

Explanation*+.( In determining whether or not two or more bodies corporate are under

the same management, the shares held by financial institutions in such bodies corporate shall not

be ta*en into account.

*ll!stration

+nderta*ing 7 is inter-connected with underta*ing % and underta*ing 4 is inter-connected with

underta*ing 7. +nderta*ing 4 is inter-connected with underta*ing %; if underta*ing D is inter-

connected with underta*ing 4, underta*ing D will be inter-connected with underta*ing 7 and

consequently with underta*ing %; and so on.

Explanation.( 8or the purposes of this clause, "group" means a group of(

i! two or more indi)iduals, associations of indi)iduals, firms, trusts, trustees or bodies

corporate excluding financial institutions!, or any combination thereof, which exercises, or isestablished to be in a position to exercise, control, directly or indirectly, o)er any body corporate,

firm or trust; or

ii! associated persons.

Explanation+*.( 8or the purposes of this clause,66

I! a group of persons who are able, directly or indirectly, to control the policy of a body

corporate, firm or trust, without ha)ing a controlling interest in that body corporate, firm or trust,

shall also be deemed to be in a position to exercise control o)er it;

II! "associated persons"(

a! in relation to a director of a body corporate, means(

i! a relati)e of such director, and includes a firm in which such director or his relati)e

is a partner;

ii! any trust of which any such director or his relati)e is a trustee;

iii! any company of which such director, whether independently or together with his

relati)es, constitutes one-fourth of its 7oard of directors;

i)! any other body corporate, at any general meeting of which not less than one-fourthof the total number of directors of such other body corporate are appointed or controlled by the

director of the first mentioned body corporate or his relati)e, whether acting singly or :ointly;

b! in relation to the partner of a firm, means a relati)e of such partner and includes any

other partner of such firm; and

c! in relation to the trustee of a trust, means any other trustee of such trust;

III! where any person is an associated person in relation to another, the latter shall

also be deemed to be an associated person in relation to the former;



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(iirelative!shall have the meaning assigned to it in clause /1- of section % of the Companies$ct, 14'& 1 of 14'&-H

(c6lace of removal!means :i- a factory or any other place or premises of production or manufacture of the excisable goodsHii-a warehouse or any other place or premises wherein the excisable goods have been permitted to

be deposited without payment of dutyH

iii- a depot, premises of a consignment agent or any other place or premises from where theexcisable goods are to be sold after their clearance from the factoryH

from where such goods are removedH

(cc time of removal!%in respect of the excisable goods removed from the place of removal referredto in sub:clause iii- of clause c-, shall be deemed to be the time at which such goods are clearedfrom the factoryH

(d transaction value!means the price actually paid or payable for the goods, when sold, andincludes in addition to the amount charged as price, any amount that the buyer is liable to pay to, oron behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time ofthe sale or at any other time, including, but not limited to, any amount charged for, or to ma3e

provision for, advertising or publicity, mar3eting and selling organi?ation expenses, storage, outwardhandling, servicing, warranty, commission or any other matterH but does not include the amount ofduty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.

Definitions under section A of t8e Central Excise Act

Explanation1.K 2or the purposes of this section, retail sale priceJmeans the maximum price atwhich the excisable goods in pac3aged form may be sold to the ultimate consumer and includes alltaxes, local or otherwise, freight, transport charges, commission payable to dealers, and all chargestowards advertisement, delivery, pac3ing, forwarding and the li3e and the price is the soleconsideration for such sale 0

.rovidedthat in case the provisions of the $ct, rules or other law as referred to in sub:section 1-reuire to declare on the pac3age, the retail sale price excluding any taxes, local or otherwise, theretail sale price shall be construed accordingly.

Definitions under +ule , of t8e Central Excise +ules% ,--,

(a Act! means the Central Excise $ct, 14// 1 of 14//-H

(b assessment! includes self:assessment of duty made by the assessee and provisionalassessment under rule >H

(c assessee! means any person who is liable for payment of duty assessed or a producer ormanufacturer of excisable goods or a registered person of a private warehouse in which

excisable goods are stored and includes an authori?ed agent of such personH



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(d "oard! means the Central ;oard of Excise and Customs constituted under the Central;oard of 5evenue $ct, 14&= '/ of 14&=-H

(e duty! means the duty payable under section = of the $ctH

(ea lare tax 6ayer!means a person who, :

i- has one or more registered premises under the Central Excise $ct, 14// 1 of 14//-Hor

ii- has one or more registered premises under Chapter 8 of the 2inance $ct, 144/ =% of144/-H

and is an assessee under the Income:Tax $ct, 14&1 /= of 14&1-, who holds a +ermanent$ccount 7umber issued under section 1=4$ of the said $ct, and satisfies the conditions andobserves the procedures as notified by the Central )overnment in this regard.L

(f notification! means the notification published in the Bfficial )a?etteH

( Tariff Act!means the Central Excise Tariff $ct, 14' ' of 14&-H(8 $are8ouse!means any place or premises registered under rule 4H and



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,

Conce6t of /oods and Excisable /oods

The term !)oods" has not been defined under the Central Excise $ct and the definition given underthe ales of )oods $ct cannot be adopted for the purpose because applicability of Central Excise islimited and it does not apply to all the goods within the meaning of ales of )oods $ct. 2or the

purpose of understanding, we can say all the goods which are manufactured or produced within themeaning of Central Excise $ct are the goods.

9ere it is to be clearly understood that all goods are not excisable. Therefore, all the goods arebroadly divisible into two categories i.e. excisable and non:excisable.

$ccording to ection %d- of Central Excise $ct, 14//0 (Excisa$le goods means goods specified in

t#e ,irst c#ed!le and t#e econd c#ed!le to t#e Central Excise ariff "ct 19 as $eing s!$ectto a d!t of excise and incl!des salt.

Explanation.K ,or t#e p!rposes of t#is cla!se (goods( incl!des an article material ors!$stance #ic# is capa$le of $eing $o!g#t and sold for a consideration and s!c# goods s#all $e

deemed to $e mar)eta$le.5.

It means all goods specified or covered in the tariff are the excisable goods. Thus, if the goods arelisted in the chedules to the Tariff, they are excisable. $fter payment of duty, the goods do not ceaseto be excisable goods.

Excisable /oods% Non Excisable /oods > /oods Carryin Nil +ate of Duty

$ll excisable goods are not dutiable either because of nil rate of duty applicable or because of exemptiongranted by the Central )overnment under ection '$ of the $ct. Term !Excisable )oods" has already

been defined above.

&a' Non- Excisa$le goods 67on:Excisable are the goods which are not listed in the Tariff chedule.

&$' oods Carring Nil 8ate of !t 6 )oods covered in tariff and chargeable with nil rate of dutycontinue to be excisable goods because nil rate of duty is also a rate of duty. CCE 8s 8a?ir ultanTobacco Co. *td.-



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Difference bet$een Excisable > Dutiable /oods

Excisable /oods Dutiable /oods

1. Excisable goods are those goods which are

specified in Central Excise Tariff chedule.


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$s per the )eneral Clauses $ct, 14>, mo)able goods< means property of every description except immovableproperty. 2or the purpose of excise the goods are said to be movable if those are capable of K

a- being brought to mar3et in the same formH andb- being sold Delhi 4loth = 9eneral >ills 4o. td s +?I!

Ghether an item is movable or not, depends on various facts and circumstances. In irp!r =aperdera$ad, @AA$, the upreme Court stated that the paper ma3ing machine, thougherected on concrete foundation, is movable and mar3etable. The concrete foundation is only to ma3ethe machine wobble free and the machine can be dismantled into parts and shifted to any site, if need

be. 9owever, in the case of riveni Engg and *nd!stries ?td. +s. CCE /000, the upreme Courtopined that installation of turbo alternator on concrete base specifically constructed on the landcannot be treated as a common base. Therefore, the installation and erection of turbo alternator on the

platform constructed on the land is immovable property which is not excisable.

In >unicipal 4orporation of 9reater >umbai . +nion of India, a petrol pump of huge capacitywhich was not embedded in earth but which could not be removed without being dismantled was heldto be immovable. Therefore, whether an article is movable or not depends on the facts of the case.

C;EC has vide its circular 7B '#1#%66%:CM dated 1'#1#%66% clarified that if any goods installed atsite are capable of being sold or shifted as such after remo)al from the base and without dismantling

into its componentsBparts, the goods would be considered to be mo)able and thus, excisable. Che

mere fact that the goods, though being capable of being sold or shifted without dismantling, are

actually dismantled into their own componentsBparts for the ease of transportation etc., they will not

cease to be dutiable merely because they are transported in dismantled condition.

.

Che intention of the party is also a factor to be ta*en into consideration to ascertain whether the

embedment of a machinery in the earth was a temporary or permanent to determine whether the

goods are mo)able or immo)able.

(II Conce6t of 5ar1etability;Vendibility:

The 2inance $ct %66 has added an explanation to the definition of Excisable )oods i.e.

Explanation.K8or the purposes of this clause, "goods" includes any article, material or substancewhich is capa$le of $eing $o!g#t and soldfor a consideration and such goods shall be deemed to be

mar*etable.

Therefore, concept of mar3etability, as decided in various cases earlier has become redundant. $s of

now, goods to be considered as mar3etable should be ca6able of being bought and sold.

@!estionA


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(III Conce6t of 5anufacture

The definition of the term !manufacture" given under section %f- enlarges the scope of the wordmanufacture. $ccording to section %f- of the Central Excise $ct, 14//0

"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 3ection or 4hapter notes of the 8irst

3chedule to the 4entral Excise Cariff %ct, @A$ of @A$F! as amounting to manufacture; or

iii! which, in relation to the goods specified in Chird 3chedule in)ol)es pac*ing or re-pac*ing of

such goods in a unit container or labeling or re-labeling 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 mar*etable to the consumer,

and the word "manufacturer" shall be construed accordingly and shall include not only a person

who employs hired labour in the production or manufacture of excisable goods, but also any

person who engages in their production or manufacture on his own account;

The word manufacture is a compound word of *atin origin derived from the word !manu" by hand!facere", to do, to ma3e, to formH but the meaning is not confined that which is done by hand alone,

but by machinery as well.Gindustan Holes 4orporation . 44E, ol*ata /00F2

The upreme Court inDelhi 4loth = 9eneral >ills 4o. td stated that &>anufacture implies changebut e)ery change is not manufacture and yet e)ery change of an article is the result of treatment,

labour and manipulation. 7ut something more is necessary and there must be transformation. % new

and different article must emerge ha)ing a distinct name, character or use.

,acts of t#e caseA The Company, manufacturing vegetable 3nown as !8anaspati", filed +etition. The

petitioners purchased groundnut oil and til oil from the open mar3et and subjected it to variousprocesses in order to obtain vanaspati. The


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iii- distinctive use.

+olishing of tiles does not amount to manufacture of gla?ed tiles as gla?ed tiles are normally notpolished at all. )la?ed tiles are produced when a coating of melt glass is applied on the surface of thebody of the tiles. Thus, mere fact of polishing does not lead to the conclusion that the tiles are gla?ed.

44Ex s. 7ell 9ranito 4eramics imited 34! /00F2

.roduced

The word produced is used to cover items li3e tobacco, coffee, ore etc., which are produced, but nomanufacturing process may be carried out. ;y:products, waste and scrap is also produced, they arenot manufactured.

5anufacture Vs .rocessin:

@anufacture involves a series of processes, whereas a process is one of the activities underta3en formanufacture of a product from input materials. @anufacture is the cumulative effect of various

processes to which raw materials are subjected and each such step towards the finished product would

constitute processing in relation to the manufacture.If there is no essential difference in identity between the original product and the processed product,then no manufacture has ta3en placed for the purpose of excise. $lthough the input material hasundergone a degree of processing, it must be regarded as still retaining its original identity. Ghere the

product retains its substantial identity through the stage of processing, it could be said to have beenmerely processes and not manufactured.

The distinction between the manufacture and process has been dealt by the upreme Court in the caseof :nion of *ndia +. lass *nd!stries ?td. where in the apex court observed that the answer to theuestion whether the process is that of manufactureJ would be based on two fold test P

2irstly, whether by the said process a different product comes into existence or whether the identity ofthe original product ceases to exist.

econdly, whether the product which was already in existence will serve no purpose or will be of nocommercial use but for the said process.

Certain ot8er issues in 5anufacture

&9 8et8er assembly amounts to manufactureF

Ghere the process of assembling of parts or components results in the transformation of the productinto a new product which has a distinct name, character and use and which has a separate entry in theCentral Excise Tariff, then such assembling activities amount to manufacture.

InJarne Culaman >anufacturers H)t td s 44E, the appellant had fitted a platform, load cells andindicator system, which in the assembled form became a weigh bridge. The assessee contended thatsuch assembling activity did not amount to manufacture. The assessee also contended that since dutywas paid on the items purchased, further duty cannot be demanded. Geld that the weighbridge was acommercial commodity, having a distinct name, character and use and hence the activity of assemblyamounts to manufacture.

imilarly, in7H India td s. 44E, the upreme Court held that assembly of imported 3its of 8T5



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with colour monitors imported in disassembled condition amounted to manufacture since the endproduct had a distinct character and use and the process of assembly was done by technical experts ors3illed persons. 9owever, if the assembly of such duty paid components does not result in theemergence of a new article having a distinct character and use, then it will not amount tomanufacture.

,9 Dutiability of 0ite +elated Activities:

Qeeping in view the various judgments passed by the upreme Court, in exercise of the powerconferred under ection =>; of the Central Excise $ct, 14//, and with a view to bring uniformity inconnection with the classification of goods erected and installed at site, the C;EC has issued order

7o. '#1#%66% P CM dated 1'thAanuary %66%. $ccording to it0 K

i- 2or goods manufactured at site to be dutiable, they should have a new identity, character anduse, distinct from the inputs#components that have gone into its production. 2urther, suchresultant goods should be specified in the Central Excise Tariff as excisable goods besides being

mar3etable i.e. they can be ta3en to the mar3et and sold even if they are not actually sold-. Thegoods should not be immovable.

ii- Ghere processing of inputs results in a new product with a distinct commercial name, identityand use, excise duty would be chargeable on such goods immediately upon their change ofidentity and prior to their assimilation in the structure or other immovable property.

iii- Ghere change of identity ta3es place in the course of construction or erection of a structurewhich is an immovable property, then there would be no manufacture of NgoodsN involved andno levy of excise duty.

iv- Integrated plants#machines, as a whole, may or may not be !goods" e.g. plants for transportationof material such as handling plants- are actually a system or a networ3 of machines. The system

comes into being upon assembly of its component. In such a situation there is no manufacture ofNgoodsN as it is only a case of assembly of manufactured goods into a system.

v- If items assembled or erected at site and attached by foundation to earth cannot be dismantledwithout substantial damage to its components and thus cannot be reassembled, then the itemswould not be considered as moveable and will, therefore, not be excisable goods.

vi- If any goods installed at site example paper ma3ing machine- are capable of being sold orshifted !as such" after removal from the base and without dismantling into its components#parts,the goods would be considered to be movable and thus excisable. The mere fact that the goods,though being capable of being sold or shifted without dismantling, are actually dismantled into

their components#parts for ease of transportation etc., they will not cease to be dutiable merelybecause they are transported in dismantled condition. 5ule %a- of the 5ules for theInterpretation of Central Excise Tariff will be attracted as the guiding factor is capability of

being mar3eted in the original form and not whether it is actually dismantled or not, into itscomponents.

vii- Ghen the final product is considered as immovable and hence not excisable goods, the sameproduct in CQ< or unassembled form will also not be dutiable as a whole by applying 5ule %a-of the 5ules of Interpretation of the Central Excise Tariff. 9owever, components, inputs and

parts which are specified excisable products will remain dutiable as such identifiable goods atthe time of their clearance from the factory or warehouse.

viii- The intention of the party is also a factor to be ta3en into consideration to ascertain whether theembedment of machinery in the earth was to be temporary or permanent.



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06ecific instances of site related activities

(i !rn )e proectsli3e teel +lants, Cement plants, +ower plants etc. involving supply oflarge number of components, machinery, euipments, pipes and tubes etc. for theirassembly # installation # erection # integration # inter:connectivity on foundation#civil structure

etc. at site, will not be considered as excisable goods for imposition of Central Excise !ge tan)s made of metal for storage of petroleum products in oil refineries or installations.These tan3s, though not embedded in the earth, are erected at site, stage by stage, and aftercompletion they cannot be physically moved. Bn sale#disposal they have to be necessarilydismantled and sold as metal sheets#scrap. It is not possible to assemble the tan3 all overagain. uch tan3s are therefore not moveable and cannot be considered as excisable goodsCri)eni Engg. 4ase!.

iii- 8efrigeration/"ir conditioning plants. These are basically systems comprising ofcompressors, ducting, piping, insulators and sometimes cooling towers etc. They are in the

nature of systems and are not machines as a whole. They come into existence only byassembly and connection of various components and parts. Though each component isdutiable, the refrigeration#air conditioning system as a whole cannot be considered to beexcisable goods. $ir conditioning units, however, would continue to remain dutiable as perthe Central Excise Tariff $ct. CCEx. *ndore +s. +irdi rot#ers D2007DC

iv- ?ifts and escalatorsA

a- Though lifts and escalators are specifically mentioned in sub heading /%.16, those whichare installed in buildings and permanently fitted into the civil structure, cannot be consideredto be excisable goods. uch lifts and escalators have also been held to be non:excisable by

the )ovt. of India in the case of ?tis Ele)ators India 4o td.b- There may, however, be instances of fabrication of complete lifts and escalators which are

movable in nature as a whole and can be temporarily installed at construction sites orexhibitions for carrying men or material. uch cases alone would be liable to duty under sub:heading /%.16 of the Central Excise Tariff. ;ut there is no duty liabiloity when such lift isshifted to another site.

+rocuring various duty paid components of burglar and fire alarm system to a customer"ssite and thereafter connecting same does not amount to manufacture and, hence, notexcisable. Kicom Electronics 3ecurity 3ystems imited s. 44Ex., >umbai /0012Cri-

>um2. imilar is the case with lifts, escalators, air:conditioners etc.

39 Dutiability of Intermediate .roduct

The definition of manufacture u#s %f- also imply that manufacture would ta3e place at anintermediate stage of the process, as long as the intermediate products are 3nown commercially as adistinct and identifiable product.

9owever, although excise duty is chargeable on manufacture of goods, the collection of the duty ispostponed to the time of removal of goods from the factory. The intermediate goods would bechargeable to duty as they would be deemed to have been removed prior to consumption in themanufacturing process. 9owever an intermediate product would be excisable only if it is a complete

product in the sense that it is capable of being sold to a consumer.Intermediate products, which are capable of being mar3eted as goods in their own right, will be



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chargeable to duty, notwithstanding that they are not pac3ed or stored separately but are used as partof a continuous process.

$lthough mar3etable intermediate goods are chargeable to duty, there are currently severalexemption notification in force which exempt captively consumed intermediate products fromR duty

if these are used in manufacture of final product which is dutiable. If such exemption is not available,duty liability is certain.

9 Ca6tive Consum6tion

Ghen excisable goods manufactured in a factory are used within the factory as an intermediate goodsfor manufacturing some other goods, it is 3nown as captive consumption e.g. engines manufacturedin one part of the factory may be used in manufacture of car in another part of the factory. ection =of the C.E. $ct 14// lays down that Excise ar*etable!= if incorporated in tariff, it will be chargeable to duty. Jo duty on scrap if final

product is exemptnotification no. =#4' dt. 1=#4'-.

Gaste and scrap generated out of used barrels, used barrel sheets, burnt fire bric3s, bro3en grinding



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wheels, used 9


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Conce6t of Deemed 5anufacture

$s per clause ii! and iii! of 3ection /f!of The Central Excise $ct, 14//, manufacture also includes

any process P

ii! which is specified in relation to any goods in the 3ection or 4hapter notes of the 8irst

3chedule to the 4entral Excise Cariff %ct, @A$ as amounting to manufacture; or

iii! which, in relation to the goods specified in Chird 3chedule in)ol)es pac*ing or re-pac*ing of

such goods in a unit container or labeling or re-labeling 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 mar*etable to the consumer,

The processes that ualify to be manufacture as per clause ii- and iii- of section %f- aretermed as deemed manufacture.

Thus, if any process which is specified in the ection or Chapter 7otes of the 2irst chedule tothe Central Excise Tariff $ct, 14' as amounting to manufacture is carried out, goods will bedeemed as manufactured, even if as per Court decisions, the process may not amount tomanufacture. 2or instance, 7ote % of Chapter 4 provides that in case of tea, or tea waste,

blending, sorting, pac3ing or re:pac3ing into smaller containers shall amount to manufacture.imilarly, if any of specified processes li3e re:pac3ing, re:labelling, alteration of retail sale priceetc.- is being carried out on goods covered in Third chedule to the Central Excise $ct, 14// , the

process will be deemed to be as that of manufacture and, thus, will be liable to excise duty.Ghere an activity is deemed to be manufacture, duty liability is created even though there is notransformation.

ome examples of deemed man!fact!re

1. $;C *imited gets wafers manufactured by B+ *imited and gets in a pac3ing of ' Qg. Bnreceipt of the same, $;C *imited repac3s it in pac3ets of '6 gms. each. Gafers are includedin the third schedule of the Central Excise $ct. Therefore, although $;C *imited carries outonly repac3ing of the wafers manufactured by B+ *imited, still amounts to manufacture.Therefore, $;C *imited to liable to pay duty on removal of consumer pac3s of the wafers.

%. Bne company buys pressure coo3ers from the manufacturer and after repac3ing sells thesame pressure coo3er under its own brand name. ince pressure coo3er is covered underchedule III, repac3ing and branding amounts to manufacture within the meaning of section

%f-iii-

Computers are not covered under chedule III. Therefore, same activities in case of computerwould not amount to manufacture within the meaning of section %f-iii-.

=. In case of dairy products li3e mil3, cream, butter D cheese, labelling or re:labelling ofcontainersD repac3ing from bul3 pac3s to retail pac3s or application of any other treatmentto render the product mar3etable to the consumer shall amounts to manufacture.

/. *abelling or re:labelling of containers and re:pac3ing from bul3 pac3s to retail pac3s of 0 +an masala U7ote > to Chapter %1L, natural or artificial mineral waters U7ote % to Chapter %%L,

un:manufactured tobacco, cigar and cigarettes U7ote % to Chapter %/L, organic chemicals U7ote 11 to Chapter %4L,



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colouring matter U7ote = to Chapter =%L, perfumes, beauty preparations for use on the hairs U7ote / to Chapter ==L, soaps, waxes etc.U7ote & to Chapter =/L

shall amount to manufacture.'. ;leaching merceri?ing, dyeing, printing etc. to

yarn of wool U7ote = to Chapter '1L, cotton fabrics U7ote = to Chapter '%L, mono:filaments U7ote = and / to Chapter '/L, synthetic woven fabrics U7ote / to Chapter ''L, special woven fabrics, tufted textile fabrics U7ote to Chapter 'L, Qnitted or crocheted fabrics U7ote / to Chapter &6L

shall amount to manufacture.

&. =L

>. 5ecording of sound or other phenomena on audio or video tapes shall amount tomanufacture. U7ote > to Chapter 'L

. The process of cutting or sawing or si?ing or polishing or any other process, for converting ofstone bloc3s into slabs#tiles

4. The process of metallisi?ing of cover plates, sheets, film, foil and strip of plastics etc.

16. The process of drawing or redrawing of iron and steel bar, rod, wire rod, round bar or anyother similar article into bright bar

11. Coating of pipes of iron and steel with cement or polyetehelene or other plastic material.

1%. 5efining of edible oil.

*abeling of assessee"s name, address and brand name on barrels containing lubricating oil additivesimported by them, carried out to meet reuirements of 5ule == of tandard Geights and @easures+ac3aged Commodities- 5ules, 14>> and not to render the goods mar3etable does amount tomanufacture. 44Ex., 4hennai s. Indian %dditi)es imited. /0012Cri-4hennai2

@!estionA "C Compan imported medicines in pallets it# one $ig $ox containing assorted

medicines in smaller !nits #ic# ere t#en repac)ed in t#ermocole $oxes of different siGes #ic#

again ere p!t into card$oard $oxes. #e card$oard $oxes ere in t!rn la$elled containing

interalia t#e name of t#e medicine t#e name of t#e man!fact!rer t#e H!antit $atc# no.

man!fact!ring date expir date and name of t#e mar)eting agenc. #e department reling !ponnote to c#apter 30 claimed t#at t#e activities as aforesaid amo!nt to man!fact!re i.e. $!l) pac)

to retail pac). ecide #et#er t#e a$ove activities tantamo!nt to man!fact!re. &4


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Conce6t of 5anufacturer

$ccording to ection %f- of the Central Excise $ct, 14// &the word manufacturer< shall beconstrued accordingly and shall include not only a person who employs hired labour in the

production or manufacture of excisable goods, but also any person who engages in their production

or manufacture on his own account. Thus, the definition of manufacturer provides for twocategories of manufacturers0

a. +ersons who manufacture on their own account.b. +ersons who get goods manufactured through hired labourers.

$ person may own a brand but another independent manufacturer may manufacture the product. Insuch cases, the person who gets his goods manufactured by the independent manufacturer, does not

become a !manufacturer" merely due to the reasons such as0 the goods are produced according to his specifications, or the goods are produced under franchisee agreement, or

his trademar3 or brand name is affixed to such goods, or he supplies the raw material to the actual manufacturer, or entire production is supplied to one customer.

9owever, it should be noted that the actual manufacturer should not merely be a dummy or a hiredlabour of the supplier.

$ manufacturer is one who actually underta3es the manufacturing activity. $ raw material supplieris not the manufacturer. imilarly, a customer who gets the goods manufactured according to hisspecifications and#or designs or with his brand or trade name does not become the manufacturer.CCE Vs9 55 8ambat$ala

imilarly, in J?aar .rints Case, it has been held that manufacturer is one who actuallymanufactures the goods. It is immaterial whether he manufactures his own goods or others goods. 2orexample, where !M" supplied raw material to !S" and gets manufacture done by the later, !S" is themanufacturer though !M" supplied the reuisite raw material. (5ay '4

imilarly, in ood 06ecialities Case, 2ood pecialities *td manufactured goods under 7estle"s brandname and trademar3. 7estle controlled production and also prescribed uality specifications. Theupreme Court held that the manufacturer is 2ood pecialities *td and not 7estle who is merely a

brand holder.

In Cibatul #imitedgoods produced under agreement with the buyer"s brand name. The buyer is

entitled to test every lot and to reject the goods which are found to be sub:standard. The buyer alsoholds ' share capital in the selling company. ;uyer cannot be treated as manufacturer.

Guestion: $ merchant manufacturer gets the goods manufactured according to his design andspecifications from a job:wor3er. Gho will be called as manufacturer under the Centrla Excise *aw.


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istinction $eteen lev and collection

In +?I s 7ombay Cyre International td.the upreme Court held that while the levy of excise dutyis on the manufacture or production of excisable goods, the stage of collection need not in point oftime coincide with the completion of the manufacturing process. The duty can be levied at any stageas long as the duty is imposed on manufacture or production of excisable goods.

Thus, the excide duty is levied on manufacture or production of excisable goods but the rate of duty isdetermined as per the rules framed in this behalf by the Central )overnment.(5ay ')

0ection 3 2 Determination of Taxable event for levy of duty

@! Chere shall be le)ied and collected in such manner as may be prescribed (

a! a duty of excise to be called the Central +al!e "dded ax4EJ%C!, on all excisable goods

which are produced or manufactured in India as, and at the rates, set forth in the ,irst c#ed!le

to the 4entral Excise Cariff %ct, @A$;

b! a special duty of excise, in addition to the duty of excise specified in clause a! abo)e, onexcisable goods specified in the 3econd 3chedule to the 4entral Excise Cariff %ct, @A$, which

are produced or manufactured in India, as, and at the rates, set forth in the said 3econd

3chedule5

Hro)ided that the duties of excise which shall be le)ied and collected on any excisable goods

which are produced or manufactured (

i! .. ?mitted!

ii! by a hundred per cent export-oriented underta*ing and brought to any other

place in India,

shall be an amount equal to the aggregate of the duties of customs which would be le)iableunder the 4ustoms %ct, @AF/ or an ot#er la for t#e time $eing in force on li*e goods

produced or manufactured outside India if imported into India, and where the said duties of

customs are chargeable by reference to their )alue, the )alue of such excisable goods shall be

determined in accordance with the pro)isions of the 4ustoms %ct, @AF/ and the 4ustoms Cariff

%ct, @A1.DNov. 9

Explanation 1 ('here in respect of any such li*e goods, any duty of customs le)iable for the

time being in force is le)iable at different rates, then, such duty shall, be deemed to be le)iable

at the highest of those rates.

Explanation 2(In this pro)iso,(

i! "free trade Oone" means a Oone which the 4entral 9o)ernment may, by notification in the

?fficial 9aOette, specify in this behalf;

ii! "hundred per cent export-oriented underta*ing" means an underta*ing which has been

appro)ed as a hundred per cent export-oriented underta*ing by the 7oard appointed in this

behalf by the 4entral 9o)ernment in exercise of the powers conferred by section @L of the

Industries De)elopment and Negulation! %ct,@A@ F of @A@!, and the rules made under

that %ct;

iii! "special economic Oone" means a Oone which the 4entral 9o)ernment may, by

notification in the ?fficial 9aOette, specify in this behalf.



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@%! Che pro)isions of sub-section @! shall apply in respect of all excisable goods other than salt

which are produced or manufactured in India by, or on behalf of 9o)ernment, as they apply in

respect of goods which are not produced or manufactured by 9o)ernment.

/! Che 4entral 9o)ernment may, by notification in the ?fficial 9aOette, fix, for the purpose of

le)ying the said duties, tariff )alues of any articles enumerated, either specifically or under generalheadings, in the 8irst 3chedule and the 3econd 3chedule to the 4entral Excise Cariff %ct, @A$ as

chargeable with duty ad )alorem and may alter any tariff )alues for the time being in force.

#! Different tariff )alues may be fixed(

a! for different classes or descriptions of the same excisable goods; or

b! for excisable goods of the same class or description(

i- produced or manufactured by different classes of producers or manufacturersH orii- sold to different classes of buyers0

Hro)ided that in fixing different tariff )alues in respect of excisable goods falling under sub-clause i!or sub-clause ii!, regard shall be had to the sale prices charged by the different classes of producers

or manufacturers or, as the case may be, the normal practice of the wholesale trade in such goods.

India

$s per 7otification dated 1.>.%66& issued by @inistry of External $ffairs read with @aritime Vones$ct, 14>& oil rigs erected within %66 nautical miles are within India. Therefore,

- Excise duty is levied on the crude extracted

- upply of goods from main land to oil rigs is not export

- upply to oil rigs from abroad is import.

Essentials for c8arin of excise duty

In order to attract the levy of Central Excise duty, the following conditions must be satisfied0a- The product# article, on which the levy of duty is sought, must be goods

b- The goods must be, excisable goods, as defined u#s %d- of the Central Excise $ct, 14//.c- The goods must have been produced or manufactured the term !manufacture" has been

defined u#s %f- of the Central Excise $ct, 14//-.d- uch production or manufacture of excisable goods must be in India as stipulated in ection

= of the Central Excise $ct, 14//-.e- The goods must be movable.

f- The goods must be mar3etable, andg- The goods should not be exempt.

!mmar 6 $ll excisable goods which are produced or manufactured in India excluding goodsproduced on manufactured in special economic ?ones- shall be chargeable to1. a duty of excise CE78$T duty- at the rates mentioned in the first schedule of CET$ referred as

basic excise duty- and%. a special duty of excise, as specified in the second schedule of CET$. this will be in addition to

;asic CE78$T duty-

No excise duty on 0EK units

ection =1- excludes pecial Economic Vones EV- from payment of excise duty. In other words,and goods manufactured or produced in a unit situated within pecial Economic Vone shall not be



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liable to pay any excise duty. The reason behind this is that these unit are treated as units situated outIndia to promote export. 9owever, this exclusion is only for EV. Bther export promotion ?ones or

par3s or unit will continue to pay excise duty. There is special method of collection of duty on unitestablished in 2TV and 166 Export Briented (nits.

Duty on oods manufactured in &--L E@Js

Excisable goods manufactured in 166 export oriented underta3ings, electronic hardware par3s,software par3s and bio:technology also attracts excise duty when such goods are removed to domestictariff areas. Excise duty is payable as per the Custom Tariff $ct and the 8aluation of such goods willalso be done in accordance with the provisions of the Customs $ct, 14&%.

;ut by virtue of 7otification 7o. %=#%66= P CE dated =1.=.%66= basic custom duty is exempt to theextent of '6.

Duty on /overnment underta1ins

ection =1$- of the Central Excise $ct, 14// states that, &Che pro)isions of sub-section @! shall

apply in respect of all excisable goods other than salt which are produced or manufactured in India

by, or on behalf of 9o)ernment, as they apply in respect of goods which are not produced or

manufactured by 9o)ernment. Therefore, the goods manufactured or produced in a factory owned orcontrolled by Central or tate )overnment is eually liable to excise duty in the same manner as nongovernment manufacturer.

Taxable event

Taxable event is the happening because of which liability to pay tax arises. Even though taxable eventta3es place at a particular point of time, for the purpose of administrative ease, its assessment andcollection may be postposed to a future date.

2or the purpose of levy of central excise, the taxable event is manufacture or production of excisablegoods in India. Time and rate of payment of duty is regulated by 5ule ' and of Central Excise5ules, %66% respectively. Discussed in a separate chapter later!. $s per 5ule ', a person shall beliable to pay excise duty at the rate prevalent at the time of clearance of excisable goods from thefactory# warehouse and not at the rate prevalent at the time of manufacture. Collection of duty at thestage of removal does not mean that it is imposed on sale or transfer of ownership.

Duty liability $8en oods are not sold

It is to be noted that the taxable event is manufacture of excisable goods and its sale. Therefore, dutyis attracted even when Pa. goods are used within the factory

b. goods are captively consumed for further manufacturec. goods are given as free samplesd.


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"nserA (nder Central Excise, Taxable event is manufacture of exisable goods. Therefore, duty ispayable even if goods are provided free of cost during gurantee or warranty period. @oreover, 5ule /of the 8aluation 5ules also supports the fact that duty is payable even on parts which are supplied freeof cost during guarantee or warranty period. The upreme Court in the case ofE4E Industries td. ).44Ex. /00L @FL! EC /#F 34! has held that parts used for repair, replacement during the warranty

period are excisable. If some spare parts are supplied as free replacements for defective parts, exciseduty is payable on such spare parts also.

In ?arsen I o!$ro ?td. +. CCE also it was held that the duty is payable even when goods aresupplied free of cost under warranty period.

=oer of Central overnment to c#arge excise d!t on t#e $asis of capacit of prod!ction in

respect of notified goods.@- 0ection 3A

3". @! Jotwithstanding anything contained in section #, where the 4entral 9o)ernment, ha)ingregard to the nature of the process of manufacture or production of excisable goods of any specified

description, the extent of e)asion of duty in regard to such goods or such other factors as may be

rele)ant, is of the opinion that it is necessary to safeguard the interest of re)enue, specify, by

notification in the ?fficial 9aOette, such goods as notified goods and there shall be le)ied and

collected duty of excise on such goods in accordance with the pro)isions of this section.

/! 'here a notification is issued under sub-section @!, the 4entral 9o)ernment may, by rules,(

a! pro)ide the manner for determination of the annual capacity of production of the factory,

in which such goods are produced, by an officer not below the ran* of %ssistant

4ommissioner of 4entral Excise and such annual capacity shall be deemed to be the annual

production of such goods by such factory; or

b! i! specify the factor rele)ant to the production of such goods and the quantity that is

deemed to be produced by use of a unit of such factor; and

ii! pro)ide for the determination of the annual capacity of production of the factory in which such

goods are produced on the basis of such factor by an officer not below the ran* of %ssistant

4ommissioner of 4entral Excise and such annual capacity of production shall be deemed to be the

annual production of such goods by such factory5

Hro)ided that where a factory producing notified goods is in operation during a part of the year only,

the annual production thereof shall be calculated on proportionate basis of the annual capacity of

production5Hro)ided further that in a case where the factor rele)ant to the production is altered or modified at

any time during the year, the annual production shall be re-determined on a proportionate basis

ha)ing regard to such alteration or modification.

#! Che duty of excise on notified goods shall be le)ied, at such rate, on the unit of production or, as

the case may be, on such factor rele)ant to the production, as the 4entral 9o)ernment may, by

notification in the ?fficial 9aOette, specify, and collected in such manner as may be prescribed5

Hro)ided that where a factory producing notified goods did not produce the notified goods during any

continuous period of fifteen days or more, the duty calculated on a proportionate basis shall be

1Inserted through Finance Act, 2008



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abated in respect of such period if the manufacturer of such goods fulfils such conditions as may be

prescribed.

L! Che pro)isions of this section shall not apply to goods produced or manufactured, by a hundred

per cent. export-oriented underta*ing and brought to any other place in India.

Explanation 1.(8or the remo)al of doubts, it is hereby clarified that for the purposes of section # ofthe 4ustoms Cariff %ct, @A1, the duty of excise le)iable on the notified goods shall be deemed to be

the duty of excise le)iable on such goods under the 8irst 3chedule and the 3econd 3chedule to the

4entral Excise Cariff %ct, @A$, read with any notification for the time being in force.

Explanation 2.(8or the purposes of this section, the expression &hundred per cent. export-oriented

underta*ing shall ha)e the meaning assigned to it in section #.


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)uidance 7otes issued by IC$I on $ccounting Treatment for Excise


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1- E)ery person who produces or manufactures any excisable goods, or who stores such goodsin a warehouse, shall pay the duty le)iable on such goods in the manner pro)ided in rule $ or

under any other law, and no excisable goods, on which any duty is payable, shall be remo)ed

without payment of duty from any place, where they are produced or manufactured, or from

a warehouse, unless otherwise pro)ided5

/! Jotwithstanding anything contained in sub-rule @!, where molasses are produced in a

*handsari sugar factory, the person who procures such molasses, whether directly from such

factory or otherwise, for use in the manufacture of any commodity, whether or not excisable,

shall pay the duty le)iable on such molasses, in the same manner as if such molasses ha)e

been produced by the procurer.

#! PPPPPPPPPPPPP

L! Jotwithstanding anything contained in sub-rule @!, 4ommissioner may, in exceptional

circumstances ha)ing regard to the nature of the goods and shortage of storage space at the

premises of the manufacturer where the goods are made, permit a manufacturer to store his

goods in any other place outside such premises, without payment of duty sub:ect to such

conditions as he may specify.

@!estionA *s t#ere an exception to t#e r!le t#at central excise d!t is paa$le $ a prod!cer or

man!fact!rer of goods on removal t#ereof from t#e factor and d!t is paa$le $ someone

elseJ &2 mar)s'

;r

@!estionA Explain #et#er a person #o is neit#er a prod!cer nor a c!rer nor a man!fact!rer of

excisa$le goods $!t onl stores s!c# goods in a are#o!se can $e called !pon to pa t#e d!ties of

excise on s!c# goodsJ &3


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+elevant Date for +ate of Duty or tariff value

U5ule ' of The Central Excise 5ules, %66%L

$ccording to 5ule ' Central Excise 5ules, %66%:

1- The rate of duty or tariff value applicable to any excisable goods, other than 3handsarimolasses, shall be the rate or value in force on the date when such goods are removed from afactory or a warehouse, as the case may be.

%- The rate of duty in the case of 3handsari molasses shall be the rate in force on the date ofreceipt of such molasses in the factory of the procurer of such molasses.

eemed removal K If any goods are used within the factory, the date of removal of such goods shallbe the date on which such goods are issued for use and duty is also chargeable at the rate prevailingon that date though it is payable at the time of removal of finished goods.

Dutiable 2 Lallace ,lo!r . 9E cannot be charged on the goods manufactured prior to1.=.%66>.



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Table s8o$in Excisability > Dutiability in various cases

/oods Tariff +ate of Duty 0tatus as 6er

Exem6tion

Notification

8et8er

ExcisableF

8et8er

DutiableF

$ %6 7o Exemption Ses Ses

; %6 /6 Exemption Ses Ses

C %6 166 Exemption Ses 7o

< 7il 7o Exemption Ses 7o

E 7ot mentioned inCET$

7.$ 7o 7.$

Table s8o$in determination of +ate of Duty

0tatus on t8e Date of

5anufacture

0tatus on t8e Date of +emoval Effective +ate of Duty

Tariff 5o< P 7I* Tariff 5o< :1& CET$ amended- 1&

Tariff 5o< : Tariff 5o< :1& CET$ amended- 1&

Tariff 5o< : 1& Tariff 5o< : CET$ amended-

7ot mentioned in CET$ 5o< : 1& CET$ amended- 7o . The goods are covered under CET$ since 1./.6>b. )oods were manufactured on 1&.16.6> but were removed from the factory on

16.11.6>. +rior to 1st7ovember the goods were chargeable with 7il rate of duty abd thereafter the

rate becomes 1' ad:valorem.

.o$er of Central /overnment to rant exem6tions from Duty of Excise (0ection *A:

$ccording to ection '$ of the Central Excise $ct, 14// K@! If the 4entral 9o)ernment is satisfied that it is necessary in the public interest so to do, it

may, by notification in the ?fficial 9aOette, exempt generally either absolutely or sub:ect to such

conditions to be fulfilled before or after remo)al! as may be specified in the notification, excisable

goods of any specified description from the whole or any part of the duty of excise le)iable thereon5

Hro)ided that, unless specifically pro)ided in such notification, no exemption therein shall applyto excisable goods which are produced or manufactured(



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i! in a free trade Oone and brought to any other place in India; or

b! by a hundred per cent export-oriented underta*ing and brought to any other place in India.

Explanation.(In this pro)iso, "free trade Oone," and "hundred per cent export-oriented

underta*ing" shall ha)e the same meanings as in Explanation / to sub-section @! of section #.

@%! 8or the remo)al of doubts, it is hereby declared that where an exemption under sub-section@! in respect of any excisable goods from the whole of the duty of excise le)iable thereon has been

granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such

goods.

/! If the 4entral 9o)ernment is satisfied that it is necessary in the public interest so to do, it

may, by special order in each case, exempt from payment of duty of excise, under circumstances of an

exceptional nature to be stated in such order, any excisable goods on which duty of excise is le)iable.

/%! Che 4entral 9o)ernment may, if it considers it necessary or expedient so to do for the

purpose of clarifying the scope or applicability of any notification issued under sub-section @! or

order issued under sub-section /!, insert an Explanation in such notification or order, as the casemay be, by notification in the ?fficial 9aOette at any time within one year of issue of the notification

under sub-section @! or order under sub-section /!, and e)ery such Explanation shall ha)e effect as

if it had always been the part of the first such notification or order, as the case may be.

#! %n exemption under sub-section @! or sub-section /! in respect of any excisable goods from

any part of the duty of excise le)iable thereon the duty of excise le)iable thereon being hereinafter

referred to as the statutory duty! may be granted by pro)iding for the le)y of a duty on such goods at

a rate expressed in a form or method different from the form or method in which the statutory duty is

le)iable and any exemption granted in relation to any excisable goods in the manner pro)ided in this

sub-section shall ha)e effect sub:ect to the condition that the duty of excise chargeable on such goods

shall in no case exceed the statutory duty.

Explanation.("8orm or method", in relation to a rate of duty of excise means the basis, namely,

)aluation, weight, number, length, area, )olume or other measure with reference to which the duty is

le)iable.

L! E)ery notification issued under sub-rule @!, and e)ery order made under sub-rule /!, of rule

$ of the 4entral Excise Nules, @ALL, and in force immediately before the commencement of the

4ustoms and 4entral Excises aws %mendment! %ct, @A$$ /A of @A$$! shall be deemed to ha)e

been issued or made under the pro)isions of this section and shall continue to ha)e the same force

and effect after such commencement until it is amended, )aried, rescinded or superseded under the

pro)isions of this section.

! E)ery notification issued under sub-section @! or sub-section /% shall,(

a! unless otherwise pro)ided, come into force on the date of its issue by the 4entral 9o)ernment

for publication in the ?fficial 9aOette;

b! also be published and offered for sale on the date of its issue by the Directorate of Hublicity

and Hublic Nelations, 4ustoms and 4entral Excise, Jew Delhi, under the 4entral 7oard of

Excise and 4ustoms constituted under the 4entral 7oards of Ne)enue %ct, @AF# L of @AF#!.

F! Jotwithstanding anything contained in sub-section !, where a notification comes into force

on a date later than the date of its issue, the same shall be published and offered for sale by the said

Directorate of Hublicity and Hublic Nelations on a date on or before the date on which the said

notification comes into force.



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0ection *A of t8e Central Excise Act 6rovides t8at

a. $s per sub:section 1- if Central )overnment is satisfied that it is inpublic interest so to do, it may grant exemption from central excise duty either generally or subject tocertain conditions from whole or part of duty, by issuing a notification in the official ga?ette.

b. $s per sub:section 1$- where exemption has been granted from wholeof the duty absolutely, the assessee cannot pay duty on such goods.

c. $ny such exemption shall not be applicable for goods manufactured by166 export oriented units or free trade ?ones and brought to any place in India.

d. ub:section %- provides that whenever the Central )overnment is of theopinion that it is in public interest, it may grant exemption to any goods from duty. The exceptionalcircumstances on the basis of which exemption is granted shall be mentioned in the order.

e. The Central )overnment may by another notification or order add anyclarification within a period of one year. $ny such clarification shall have effect as if it is part of original

order or notification.f. The exemption or special order may be granted by providing for a levy ofduty on such goods at a rate specified in a form or a method different from the form or method in whichthe statutory duty is leviable. 9owever, the duty prescribed in the notification cannot exceed thestatutory duty.

g. $ny notification or special order issued under sub:section 1- or %-becomes applicable from the date of issue.

Exemption granted under section '$ can be of various 3inds such as +roduct based, industry based, processbased, area based.

Ineader Engineering 'or*s s. 44E 34!, the appellant cleared goods to be used in manufacture of shipsto be used by Indian 7avy, without payment of duty. $n exemption notification stated that goods can besupplied to Indian 7avy ships to be used as stores. Therefore, exemption is not available in the given case.

Emerency 6o$er of Central /overnment to increase t8e rate of duty:


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+rovided that the Central )overnment shall not issue any notification under this sub:section forsubstituting the rate of duty in respect of any goods as specified by an earlier notification issued underthis sub:section by that )overnment before such earlier notification has been approved with orwithout modifications under sub:section %-.

Explanation. : 2orm or methodJ, in relation to a rate of duty of excise, means the basis, namely,valuation, weight, number, length, area, volume or other measure with reference to which the dutymay be levied.

"pproval of t#e =arliament D!$-section &2'

Every such notification issued under sub:section 1-, shall be laid before each 9ouse of +arliament, ifit is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within sevendays of its re:assembly, and the Central )overnment shall see3 the approval of +arliament to thenotification by a resolution moved within a period of fifteen days beginning with the day on which thenotification is so laid before the 9ouse of the +eople and if +arliament ma3es any modification in thenotification or directs that the notification should cease to have effect, the notification shall thereafter

have effect only in such modified form or be of no effect, as the case may be, but without prejudice tothe validity of anything previously done thereunder.

=oer to rescind D!$-section &3'

$ny notification issued under sub:section 1- or %- may be rescinded by the Central )overnment atany time by notification in the Bfficial )a?ette.



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Mob2or1 Jnder Central Excise

Aob wor3 means supplying the material by a customer to a job wor3er who carries out certainprocesses such as machining, drilling, welding, printing, dyeing etc. and returns the material to thecustomer after carrying out the processes who will than either use it for further manufacture or clearthe product as received from the job wor3er.

!t lia$ilit of goods man!fact!red !nder o$ or)

ince duty liability arises only on fully manufactured goods, therefore if no !manufacture" of goodsta3es place during job wor3 i.e. if wor3 carried out by the job wor3er does not amount to manufacture,there is no duty liability e.g. goods are not mar3etable or if only repairing or reconditioning is done.

Bn the other side, if job wor3 amounts to manufacture, duty liability will arise and the fact who hassupplied the raw material is immaterial.

L#o ill $ear t#e $!rden of d!t lia$ilit in case of o$-or)J

7ormally, duty liability is on the actual manufacturer


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he supplier of raw material- discharges the duty liability on the final product.

;t#er points to $e noted !nder t#is notification areA -

The exemption is available even if job wor3er manufactures an intermediate product. Eligibility of inputs to be sent and final products to be manufacture are as discussed above.

Exemption under notification is not available, if no duty liability arises on final product. Gaste and scrap arising during job:wor3 is not reuired to be returned to raw material

supplier as new Cenvat credit provisions ma3e no provision of returning the scrap to the rawmaterial supplier. Thus, job:wor3er is liable to pay duty on scrap as he is the !manufacturer" ofthe scrap.

Trader cannot send goods for job:wor3 under this notification. 2ollowing are eligible to sendmaterials for job:wor3 P

W @anufacturerW ExporterW (nits in EV, EB(, E9T+, T+

W (nits supplying final products to (7 and international organi?ation for official use or toproject funded by them.

XXXXXXXXXXXXXXXXXXXXXXXXXXX



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3

Classification of Excisable /oods

Introduction

The Central Excise duty is chargeable at the rates specified in the schedule to the Central ExciseTariff $ct, 14' UCET$L. This Tariff is modeled as per practices followed internationally, based on9armoni?ed ystem of 7omenclature 97-. 97 is an internationally accepted product codingsystem formulated under the )eneral $greement of Trade and Tariff )$TT-.

CET$ is divided into %6 sections and 4& Chapters. Effectively there are 41 chapters only becausethere are no Chapters with numbers 1,&,16,1% and >>. The chapters are arranged classifying all goodsof a 3ind beginning with the raw material and ending with the finished goods, within the samechapter.

Each Chapter is further divided into headings and sub:headings. 2or ascertaining the rate of duty inrespect of a particular item, the positioning of that item under a particular head or sub:head isessential. #e positioning of an item in t#e appropriate #eading/s!$-#eading is calledclassification.

CE" +s. CE" K

Central Excise $ct CE$- and Central Excise Tariff $ct CET$- are lin3ed together as follows P

b- ection % of CET$ states that rate at which duties of excise shall be leviedunder CE$ are as specified in schedule to CET$ chedule to CET$ contains 41 chapters-

c- ection =1- of CE$ specifies that duty shall be levied and collected on all

excisable goods which are produced or manufactured in India as, and at the rates, set forth in thechedule to the Central Excise Tariff $ct CET$-.

Thus, both $cts are lin3ed to each other.

.ur6ose of Classification

Classification means determination of the heading and sub:heading of CET$ under which the goodsfall. It is essential for determining the rate of duty applicable as well as eligibility for any exemption,as may be granted by Central )overnment from time to time.

Classification code

The excisable goods have been classified by using four digit system, with two more digits added forfurther sub:classification. 2irst two digits refer to the Chapter of the Tariff, next two digits refer tospecific item of the chapter and last two digits indicate sub:classification.

CETA Vs9 70N

CET$ is based on International convention of 9armonised ystem of 7omenclature 97-, called9armonised Commodity


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These are the official notes issued by the customs co:operation council, ;russels. They explain andclarify the scope and extent of each and every heading of the 97. It is to be noted that theseexplanatory notes do not have any legal bac3ing as in the case of Chapter 7otes and ection 7otescontained in the tariff. Therefore, these notes are of persuasive value only and can be used as an aidfor classification of goods when there is an ambiguity as to the scope of the entry.

eatures of Central Excise Tariff Act% &')*:

a- The $ct has been drafted ta3ing into account both technical and legal aspects. Classification isbased on 9armonised ystem of 7omenclature 97- which is an internationally acceptedproduct coding system formulated under )$TT.

b- The items have been so codified commencing with the raw material and ending with the finishedgoods.

c- )oods of the same class have been grouped together so as to bring parity in treatment and restrictdisputes in classification matters.

d- The scope and ambit of a Chapter is set out through ection 7otes and Chapter 7otes. 2urther, ina few activities have been deemed as manufacturing activities in certain chapters.

e- The 5ules for interpretation form part of the Tariff $ct.

f- The $ct also provides for emergency power of Central )overnment to increase rate of duty.

g- The 2irst chedule comprises of 4& chapters. These chapters broadly fall under %6 ections. $ection represents a broader categori?ation.

h- Each Chapter has been further divided into various headings and the headings are further dividedinto sub headings for sub: classification of goods.

i- +roduct classification is done by using a /:digit system with % more digits available for further

sub:classification. The first % digits refer to the chapter and the next % digits refer to the specificitems in the chapter. Two more digits are available for the further classification if reuired.

j- The earlier general residuary entry namely tariff entry &, which covered all goods not elsewherespecified has been removed. In the tariff $ct, appropriate residuary entries have been inserted inchapters.

c#ed!les of CE"

CET$ consists of two schedules Pa. The first schedule gives basic excise duties leviable on various products.

b. econd schedule gives list of items on which special excise duty is payable. econd schedule

contains only few items.-

0ections and C8a6ters of CEA

ections

Tariff is divided in %6 sections. Each of %6 sections is related to a broader class of goods. ection 7otes are given at the beginning of each ection, which govern entries in that

ection. These notes are applicable to all Chapters in that section.



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C#apters

2urther each of the sections is divided into various Chapters and each Chapter contains goodsof one class.

Chapter 7otes : Chapter 7otes are given at the beginning of each Chapter, which governentries in that Chapter.

/eneral Ex6lanatory Notes:

Ghere the description of an article or a group under a heading is preceded by !P" single dash-, thesaid article or group of articles shall be ta3en to be a sub:classification of the article or group ofarticles covered by the said heading.

Ghere the description of an article or a group is preceded by !: :" double dash-, the said article orgroup of articles shall be ta3en to be a sub:classification of the immediately preceding descr

Ca final Excise and Custom

Documents

Transcript of Ca final Excise and Custom