CA Final Paper 8 Indirect Tax Law Chapter 1 V S Datey

Duty Liability

Valuation

Classification of goods

Cenvat

Section 3 of Central Excise Act ‘There shall be levied and collected in such manner as may be prescribed duty of excise on all excisable goods (excluding goods produced or manufactured in SEZ) produced or manufactured in India -‘

Entry 84 of List I - Duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, but including medical and toilet preparations containing alcohol, opium or narcotics.

General excise duty rate is 12% plus education cess of 2% and SAHE cess 1%. Thus, normally, total duty is 12.36% . W.e.f. 17-3-2012

In some cases, partial or full exemption is available

Duty is on ‘goods’

Goods must be ‘excisable goods’

Goods must be manufactured or produced

Such manufacture or production should be in India

Must be movable and marketable.

Actual marketing not necessary.

Marketable – Not ‘marketed’

Mere mention in Central Excise Tariff not sufficient – SC in Bhor Industries and Moti Laminates

Electricity

Water

Software – packaged and tailor made

Air

Machinery if movable

Waste and scrap is ‘final product’ for excise.

Waste and scrap are ‘goods’ if these are normally salable.

Waste and scrap is dutiable only if ‘manufactured’.

Waste and scrap is dutiable only if it is specified in Central Excise Tariff

In Triveni Engineering v. CCE AIR 2000 SC 2896 = 120 ELT 273 (SC), it was observed, 'The marketability test requires that the goods as such should be in a position to be taken to market and sold. If they have to be separated, the test is not satisfied'. [Thus, if machine has to be dis-assembled for removal, it is not ‘goods’ and duty cannot be levied].

Section 2(d) - Excisable Goods means ‘Goods specified in the Schedule to CETA as being subject to a duty of excise and includes salt’.

Goods include article capable of being sold.

Nil Duty and Exempt from Duty – Both are ‘excisable goods’

An explanation added to section 2(d) as follows - 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.’

‘Production’ is broader than ‘manufacture’. ‘Production’ included ‘manufacture’

In both production and manufacture, new and identifiable product should emerge

Usually, ‘production’ term is used for new product by natural process. ‘Manufacture’ derived from ‘manu’ i.e. by hands.

Items like ore, asbestos, coffee, tea, tobacco, dairy products etc.

live products like horse, fish, flowers etc.

By-products, scrap etc. which are not really 'manufactured' but they do get 'produced'

It also covers ‘manufactured goods’ as term ‘produced’ is broader than ‘manufacture’.

“Manufacture” includes any process - (i) incidental or ancillary to the completion of manufactured product; (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; or (iii) which, in relation to goods specified in Third Schedule to the CEA, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consumer [section 2(f)]

Manufacture as specified in various Court decisions i.e. new and identifiable product having a distinctive name, character or use must emerge or

Deemed Manufacture – (a) Process amounting to manufacture (b) Products covered under MRP provisions

Union of India v. Delhi Cloth Mills Co. Ltd. AIR 1963 SC 791 = 1 ELT (J199) (SC five member constitution bench) - manufacture means bringing into existence a new substance. Manufacture is end result of one or more processes, through which original commodity passes. Manufacture implies a change but every change is not manufacture. A new and different article must emerge having a distinctive name, character or use.

Repairs, testing

Packing, Labelling – not manufacture except in case of deemed marketability

Assembly of computer components

Assembly of CKD packs

Processes specified as ‘amounting’ to manufacture in Central Excise Tariff – About 35 processes in different Chapters

Repacking, relabelling, putting or altering MRP is ‘deemed manufacture’ in case of about 144 articles covered under MRP valuation provisions

Manufacture or production of excisable goods in India is taxable event.

Distinction between sales tax and central excise.

Captive consumption, free samples, intermediate product

Ownership irrelevant in Excise. Excise Duty payable on intrinsic value of goods

Clearance of goods is not taxable event, though duty is payable at the time of clearance

Taxable event and valuation need not coincide.

Nexus is sufficient.

Effect of budget – goods manufactured before Budget

Section 2(f) - “the word manufacturer shall be understood 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.”

Duty liability is on ‘manufacturer’ – rule 4(1) of Central Excise Rules

Exceptions – (a) Molasses produced in Khandsari sugar factory (b) goods in warehouse (c) Job work under Notification No. 214/86-CE

Person who actually brings new and identifiable product into existence – ownership is not relevant

Raw material supplier is not ‘manufacturer’. Job worker is the manufacturer.

Brand name owner is not ‘manufacturer’.

Loan licensee is not ‘manufacturer’

Contractor undertaking contract work within the factory is not ‘manufacturer’

Example – Shirt stitched by tailor, Wheat given to chakkiwala for grinding into wheat powder

Specialised agency doing fabrication within factory

Imported goods

Imports of CKD packs – assembly in India will not be ‘manufacture’

Excise is a duty on manufacture or production of excisable goods in India

Goods must be movable and marketable

New and identifiable product known in the market should emerge, except in case of ‘deemed manufacture’

Clearance of goods is not the taxable event

Assessee is engaged in business of interior decoration. He provides composite service including woodwork, furniture items etc. Assessee carried out work of renovation of furniture in a hotel. Furniture was fabricated at the site. Demand of excise duty was confirmed on assessee in respect of furniture which was movable. Demand in respect of furniture which was not movable was dropped.

The term ‘furniture’ generally refers to movable items such as desk, tables, chairs etc. Furniture is not immovable property. Hence, excise duty is payable.

CCE v. Mehta and Co. (2011) 264 ELT 481 (SC).

Appellant was supplying raw material and the household ladies were manufacturing 'dhoop, agarbatti' etc. in their houses. The final product was directly sold from premises of the ladies and was not brought to the factory of appellant. There was no supervision over their work by the appellant. Payment to the ladies was on basis of number of pieces manufactured. Department issued demand of excise duty on appellant.

The household ladies are the manufacturers and raw material supplier is not the manufacturer. The ladies cannot be termed as 'hired labour‘

CCE v. M M Khambhatwala 84 ELT 161 = AIR 1996 SC 3319