1

Presented By Presented By

CA Swatantra Singh,CA Swatantra Singh, B.Com , FCA, MBAB.Com , FCA, MBA Email ID: Email ID: singh.swatantra@gmail.comsingh.swatantra@gmail.com

New Delhi , 9811322785New Delhi , 9811322785,, www.caindelhiindia.com, www.caindelhiindia.com,

www.carajput.com www.carajput.com

Basic of Central Excise

MANUFACTURE AND EXCISIBILITYSection 3 of Central Excise Act, 1944.Basis of Levy.What is Manufacture?.CE Law gives only a truncated definition for

manufacture – Includes Deemed Manufacture.Widest definition is available in Foreign Trade

Policy – but that is not applicable to CE Law. …contd

The statutory definition of manufacture in central excise act “Manufacture” includes any process—(i) Incidental or ancillary to he

completion of a 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 as amounting to manufacture

Continued…….. (iii) Which in relation to the goods

specified in the Third Schedule involves packing or repacking 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 marketable to the consumer

Continued……And the word “manufacturer” shall be

construed accordingly and shall include not only a person who employs hired labor in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.

…contd

Leading cases – Decisions of Supreme Court.

- ‘Formation of a new Article’ Vide Hawkins Cookers Ltd Vs Collector [-

1997 (96) ELT 507 SC. - ‘A new distinct and commercial commodity.’ Vide TISCO V.O.I[2004(164) ELT 372 SC.

The accepted wisdom about manufacture in central exciseManufacture 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.

2) Ingredients of excisablityFact of Manufacture.Entry availability in CE Tariff.Marketability.

Manufacture in central exciseTwo conceptsActual substantive manufacture & Deemed

manufactureActual substantive manufacture – does it

include mere processing?Deemed manufacture

What is deemed manufacture?Process or activity specified in section or

chapter notes – for example:Labeling or re labeling of containersRepacking from bulk packs to retail packsAdoption of any other treatment to render

the product marketable to the consumer

Continued….Addition of chemicals and other

ingredients to certain products of tariff heading 3808

In relation to products of heading no 3920 & 3921 – process of metallization or lamination or lacquering

In relation to some products of heading 7013 – the process of printing , decorating or ornamenting

Continued….In relation to flat-rolled iron & steel products

under chapter 72 – the process of hardening or tempering

In relation to articles of iron and steel under chapter 73 – the process of galvanization

Continued….In relation to motor vehicles under chapter

no 87 – building a body or fabrication or mounting or fitting of structures or equipment on the chassis falling under 8706

3) Select Decided cases in ManufactureAffixing Information stickers on goods

imported does not amount to Manufacture. -CCE Vs Proctor & Gamble Home Products

2004 [167] ELT 173 – [TRI – D].Erection of imported Power Plant does not

amount to manufacture. -Spectrum Power Generating Co. Ltd VCCE –

2004(177)ELT 968 [Tri-D].Conversion of old, diesel operated Buses into

CNG Buses does not amount to Manufacture.

…contd

…contd

-Nugas Technologies India (P) Ltd. VCCE [-171 ELT 376 Tri-D].

Gold Plating of watch cases does not amount to Manufacture.

-Commissioner Vs Divya cases – 2004[169]ELT225[Tri-D]

Mixing of chocolate Powder with Sugar and Skimmed Milk to form drinking chocolate does not amount to Manufacture – CCE Vs Fountain Consumer Appliances Ltd – 2004 [171] ELT 329 (Tri – Chennai)

…contdBranding, polishing and affixing MRP on

locks acquired from artisans does not amount to Manufacture.

Key locks (I) P Ltd Vs CCE – 2004(165) ELT,74 –(Tri-D).

Printing of date of Manufacture is a Legal requirement and hence it is a Process of manufacture.

- Surat Beverages (P) Ltd Vs Commissioner 2004 (165) ELT313 [Tri- Mumbai].

Rubber lining/ Painting/ Cutting/ Welding/of Iron and Steel pipes and Tanks does not amount to manufacture.- Tega (I) Ltd Vs CCE – 2004(164)ELT390 [SC]

…contdTransformation of Catalyst into spent Catalyst does

not amount to Manufacture. -CCE Vs Deepak Fertilizers & Petro Corp.Ltd.-

2004 (178)ELT 686 [Tri-M].The Test of Marketability is a Burden of Revenue. -FGP(I) Ltd Vs U.O.I – 2004(168) ELT 289 [SC]Testing/ Gardening/ Certification of Helium gas

cylinders before Sale is an activity amounting to manufacture.

- Commissioner Vs Air liquide North (I) P. Ltd - 2004[174]ELT 201 [Tri - Del].

4]Valuation – The Crux of the matterTending to become more like an opinion

poll.Section 4 and 4A/ Valuation Rules 2000.What is Transaction value?.Requirements for acceptance of Transaction

PriceSale of goods.For Delivery, at the time and place of

removal Seller and Buyer not related.Price is the sole consideration for sale.The legal fiction created by the definition of

time of removal – let us note this

A tour of the valuation rules 2000The official name for the rules is this –

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

The valuation rules….They are 11 rules in allRule 1 – name & entry into force from 1-7-

2000Rule 2 – definitionsRule 3 – exhortation to decide the value

(when the transaction value is unavailable or unacceptable)

The valuation rules….Rule 4 – ascertainable equivalent price of

such goods – nearest in time to the time of removal of goods from the factory – margin adjustment on account of differences in dates of delivery allowed

Rule 5 – cases when the delivery of goods is at a place other than the factory

The valuation rules…..Rule 6 – when there is additional

consideration to the sale not reflected in the transaction price charged – solution: monetize the additional consideration and add it up to the tax value

Rule 7 – Depot / branch sales – solution: adopt the nearest prevailing depot price

Valuation rules….Rule 8 – captive /self consumption/use –

solution: tax value is 110% of the cost of production of the goods (as per CAS 4)

Rule 9 – sales to related persons – solution: resale price of related person / 110% of the cost where the related person does not resell but consumes or uses for self

Valuation rules….Rule 10 – sales to inter-connected

undertakings /holding company /subsidiary company – solution:: do as per rule 9 above.

Rule 10A – job work on behalf of a principal manufacturer – solution: resale price of the principal manufacturer

Rule 11 – residual method

5) Exclusions From Value-By StatuteExcise Duty.Sales Tax.Other taxes such as Octroi, entry tax.-By Court / Tribunal DecisionsTrade Discount.Cash Discount/ Prompt Payment discount.Turn over discount.Quantity discount.Year – end/ Bonus discount. … contd

…contdFreight and Freight insurance, including equalised

Freight.Bought – out items [not integral/ critical to

Product].Carry bags for Laptops.Syringe bought out and supplied with P & P

medicines.Computer Software ( discuss with NCR case)Third party Inspection charges at the instance of

and borne by the buyer.Excess of Freight collected over actual expenditure

on freight. Interest on receivables …contd

…contdErection, Commissioning charges if products

emerge as immovable property.Free items supplied with products.Advertising charges borne by the client – buyer on

his own account.Additional warranty charges.Notional interest on Advances/ deposits from

buyers not influencing the price.Straw supplied with Juice.Rental paid on durable and returnable containerLiquidated damages received for non- lifting of

molasses

6) Inclusions into Value-By StatuteAdvertising.Publicity.Marketing/ Sales Promotion.Storage/ Outward handling.Servicing.Warranty.Commission.-By Tribunal/ Court DecisionsDharmada.Design/ Development/ Engineering. …contd

…contd

Royalty.Amortised Cost of tools/ dies/ moulds received from buyers.

Interest on inventory.Value of waste retained by Jobworker.

Packing.Cost of material supplied by Customer.

7) Valuation When goods are assembled at site

Is it a Composite/ turnkey/ works contract?

Excise duty is not leviable on immovable property but on Parts / Components/ goods already manufactured.

Case Studies – Lifts/ Boiler Plants/ Industrial Furnaces.

8) Valuation in JobworkWhen does Jobwork amount to Manufacture?.Labor/ Jobwork charges + Raw material costs are

includible in assessable value.Ujjagar Prints etc Vs U.O.I.Empire Industries Vs U.O.I.Pawan Biscuits Co. Vs CCE.Is buyer’s profit margin includible in Assessable

Value in the hands of Jobworker?.Food Specialities Ltd Vs U.O.I.

Continued…….The impact of new valuation rule 10AThe Central Board of Excise & Customs

circular no 902/22/2009 dated 20-10-09 in the case of vehicle body builders

Job work exemption under notification no 214/86

9) MRP based ValuationSection 4A/ weights & Measurements Act.MRP minus prescribed abatement is the

assessable value.Region – wise MRP acceptedIf different MRPs are printed, the maximum

MRP will be taken as the basis.Sale of phones with MRP fixed, to customer,

by phone companies U/S 4A only.Multi – Piece Packages.

10) Refunds & RebatesSection 11B/ Rule 18/ cenvat Rule 5/ Section

11BB.One year time limit / Provision for Interest.Theory of unjust enrichment.Refund claim thro’ credit notes – what

happens?Mafatlal Industries Vs U.O.I. L&T Sargent Lundy Ltd Vs CCE

11)SSI ExemptionNotification no: 8/ 2003 as amended.

Basic ceiling Rs.1.5 Cr.Outer ceiling Rs. 4 Cr.Only listed goods benefit.Use of Trademark/ symbol/ brand of another person disentitles.

…contd

Perennial issues – Clubbing of Clearances and use of Brand name.

Use of Foreign – owned Trade mark/ Brand name by Indian SSI Units.

Clearances Excluded / included for Computing Rs.1.5 Cr and Rs 4 Cr. Value Caps.

Valuation of Depot Sales(Stock Transfer)

Where the excisable goods are transferred to :-

a depot/premises of consignment agent/branch/any other place ,

from where those excisable goods are to be sold, in that case,

the “Assessable Value “ shall be• The price at which maximum no. of goods are sold,• At the branch,• At the time of removal from factory.

Example of Stock TransferFactory Branch

Received on10/01/07

Sent to Branch on 01/01/07

Ex-factory Price = Rs. 500

Ex-Depot Price = Rs. 700

Price on 10/01/07 = Rs. 800

Sale on 15/01/07

Price on 15/01/07 = Rs.900

A.V. shall be Rs. 700 on which E.D. will be charged.

Valuation of Captive ConsumptionA.V shall be :-

even if the same or identical or, comparable goods

are manufactured & sold by the same assesee.

(Cost of Production)*110%(Cost of Production)*110%

Manner of PaymentLast Day :- 5th day of the following month

(Exception :- in case of goods removed during the march :- 31st March)

Explanation :- The “date of presentation” of the cheque shall be the date on which duty is paid,subject to “realization” of thatcheque

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.

Return & AFIR Return submission :- (a). Monthly

(b).Form ER-1within 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 mor has

been paid through “PLA”

Records Required To Be MaintainedRG-23A- Part I (Stock Account of Input

Goods)RG-23A- Part II (Credit on Input Goods)RG-23C- Part II (Credit on Capital Goods)RG-1 (Daily Stock Account)PLA (Personal Ledger Account)

RG-23A (Part I) RegisterThe Receipt,Disposal,Consumption,Inventory of Inputs & Capital Goods.

RG-23A (Part II) Register The Assessable Value, Duty Paid, Cenvat Credit taken or utilized, Persons from whom Input/Capital Goods are procured.

Conditions for allowing Cenvat Credit on “Input” Goods :-

100% credit immediately on receipt of Input goods

Credit shall be taken on Process Losses but not on Storage & Transit Losses

Input does not includes LDO, HSD, Petrol.

RG-23C (Part II) Register The Assessable Value, Duty Paid, Cenvat Credit taken or utilized, Persons from whom Input/Capital Goods are procured.

Conditions for claiming Cenvat Credit on Capital Goods :-

50% in the year of receipt.

Remaining 50% in subsequent year (if in possession) but possession not necessary for components, spares& accessories,

refractory & refractory material, moulds & dies.

Exception :- 100% allowed if capital goods cleared in the year of receipt itself.

Credit on non-specified machine is not allowed.

Daily Stock Account Maintain Proper Records on a daily basis regarding :-

(a). Description of goods manufactured(b). Opening Balance©. Goods manufactured(d). Goods removed(e). Inventory(f). A.V of goods(g). Duty payable(h). Actual duty paid

The first & last page of account shall be duly authenticated.

Preserve Records for 5 years after the end of F.Y. to which records pertains.

Personal Ledger AccountThe “Credit” in taken when duty is deposited

through TR-6 Challans.

The “Debit” is passed when duty is required to be paid.

2 copies of PLA & TR-6 ---- To be filed with ER-1.

Job WorkIf Input/Capital goods not received back

within 180 days, then Cenvat Credit taken on those goods has to be reversed.

Exception :- Jigs, Fixtures, Moulds.

Returns Raj in central exciseER 1 – monthly – due by the 10th of the

following monthER 2 – monthly, for EOU – due by the 10th of

the following monthER 3 – quarterly for SSI units – due by

the10th of the following quarter

Continued….ER 4 – Annual financial statement for units

paying INR I crore in excise – due by the 30th of April of the following year

ER 5 – CENVAT – Annual Return of information relating to principal inputs – due by 30th April of the following year – some class of manufacturers given exemption

Continued……ER 6 – monthly return of principal cenvat

inputs due by the 10th of the following month – some class of manufacturers given exemption

ER 7 – Annual Installed capacity statement – due by the 30th April of the following year

Important procedures in central exciseIssue of invoice under Rule 11 of central

excise rules 2002Provisional assessment under Rule 7 &

finalizationTime and manner of payment of duty

under Rule 8Remission of duty under Rule 21 for

damaged/defective/unfit/unmarketable goods

Important procedures in central exciseCredit of duty paid on sales returns under

Rule 16Rule 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

Important procedures in central exciseRule -16C – removal of finished goods outside

for test etc & returnExport 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

Penal provisions in central excise – simply draconian & colonialProsecution for select offenses under section

9 of the ActDemand 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

Penal provisions in central exciseInterest for delayed payment under section

11ABPenalty 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

Penal provisions in central exciseRule 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

Penal provisions in central exciseTax 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

Penal provisions in central exciseSection 11DDA – power to order provisional

attachment of property to protect “Revenue” during he pendency of proceedings

Section 14 – power to issue summonsSection 13 – power to arrest

CENVAT CREDIT The foundation of the value-added tax systemAvoids cascading effect of tax on tax on taxIntegrates goods and servicesCenvat credit Rules 2004 – apply to

Manufacturers & Service providers

Cenvat credit rules – what is the gain?Input stage duty relief in the form of tax

credit to – Capital goodsInputsInput services

Cenvat credit – Capital goodsAll goods falling under the following chapters

–Chapter 82 – tools etcChapter 83 – miscellaneous articles of base

metalsChapter 84 – machinery, equipment etc

Capital goods…..Chapter 85 – electrical / Electronic

machinery & equipment etcChapter 90 – optical, photographic,

medical , checking, measuring equipment etc

Abrasives under heading no 6805Grinding wheels & the like under heading

6904

Capital goods……Pollution control equipmentComponents, spares & accessories of the

goods for the above two categoriesMoulds, dies , jigs and fixturesRefractories, and Refractory materialsTubes, pipes and fittings thereofStorage tank

Capital goods…Used in the factory of the manufacturer of

final products, but does not include any equipment or appliance used in the office

Or, used for providing output serviceMotor vehicles registered in the name of the

following service providers are allowed – courier agency, GTA, Rent a cab operator , tour operator, outdoor caterer

Capital goods….Ownership of capital goods is not required

for a manufacturer or service provider except for the motor vehicle credit

Credit to be taken for 50% of the duty in the first year and the rest in any subsequent year

Depreciation under Income tax prohibited

Capital goods…..The 50% restriction does not apply to

special CVD of 4% paid on imported capital goods

Removal of capital goods requires reversal of credit – 2.5% depreciation on credit for every quarter of use

Removal on scrapping of capital goods requires payment of duty on transaction value

Capital goods….Provision for removal of capital goods for

test, repair etcMoulds, dies , jigs and fixtures can be

deployed at the premises of the job workerCapital goods can be produced and used in

the factory of production for manufacture of excisable goods – duty exempt

Capital goods….Capital goods on which credit is taken should

not be solely used in the manufacture of exempted goods

Capital goods which are not defined in the CCR but used in the factory of production will qualify for credit as “Inputs”. – Benco Products Vs CCE – CESTAT larger bench decision

INPUTSWide definition in the CCR“Inputs” means all goods except light

diesel oil, high speed diesel and petrolUsed in or in relation to the manufacture

of final productsWhether directly or indirectlyWhether contained in the final product or

not

Inputs….Inputs include ---Lubricating oilsGreasesCutting oilsCoolantsAccessories of the final products

Inputs…Goods used as…Paint or packaging material or as fuel or for

generation of electricity or steam Used in or in relation to the manufacture of

final products or for any other purposeWithin the factory of production

Inputs……For service providers:All goods except light diesel oil, high

speed diesel , petrol and motor vehiclesAnd used for providing output serviceInputs will not include cement, angles and

channels, CTD / TMT bars & other items used for construction in the factory / building or in laying of foundation or structural support of capital goods

Input servicesFor manufacturers:Any service used by a manufacturer Whether directly or indirectlyIn or in relation to the manufacture of final

productsAnd clearance of final products upto the

place of removal

Input services…..For service providers:Any input service used by a provider of

output service for providing an output service

Input services allowed to both manufacturers to service providersServices used in relation to –Setting upModernizationRenovationRepairsOf a factory or the premises of the service

provider

Common services….Or an office relating to such factory or the

premisesAdvertisementSales promotionMarket researchStorage upto the place of removalProcurement of inputs

Common services….Activities relating to Business “such as” –AccountingAuditingFinancingRecruitment and quality controlCoaching and training

Common services….Computer networkingCredit ratingShare RegistrySecurityInward transportation of inputs & capital

goodsOutward transportation upto the place of

removal

Important features of cenvat creditInput credit can be availed immediately on

receipt of the goods accompanied by the relevant invoice

No one-to-one correlation between input and output

Cenvat credit is a legal and vested right

Important features of cenvat creditInput service tax credit should be taken only

after settling the service supplier invoice with value and tax

Transfer of credit on transfer of business allowed

Transitional credit

Important features of cenvat creditImportance of new rule 6 in CCR 2004Options there underMaintain separate accountsOr pay 5% on the value of exempted goods

and six % on the value of exempted services

Important features of cenvat creditOr take credit proportionate to the taxable

turnover as per formula prescribedInputs & capital goods & input services

should not be exclusively utilized in the manufacture / provision of exempted goods or exempted services

Clearances to EOU/SEZ/BTP/STP/EHTP & exports will not require reversal of credit

Important features of cenvat creditStorage of inputs outside the factory allowed

subject to applying for the sameSignificance of tax invoice in CENVAT credit

systemFirst stage dealer/second stage dealer/input

service distributor

Adjudication Proceedings under Service Tax

Provisions at a GlanceSection 14 of CEA, 1944 - Power to summon

persons to give evidence and produce documents in inquiries under this Act

Section 73 of FA, 1994 - Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded

Section 73A of FA, 1994 - Service Tax Collected from any person to be deposited with Central Government

Section 73B of FA, 1994 - Interest on amount collected in excess

Section 73C of FA, 1994 - Provisional attachment to protect revenue in certain cases

88

..Provisions at a GlanceSection 73D of FA, 1994 - Publication of

information in respect of persons in certain casesSection 74 of FA, 1994 - Rectification of

mistakeSection 75 of FA, 1994 - Interest on delayed

payment of service taxSection 83A of FA, 1994 – Power of

AdjudicationSection 87 of FA, 1994 - Recovery of any

amount due to Central Government

89

Power to summon persons to give evidence and produce documents in inquiriesSub section (1) of Section 14 of CEA, 1944Any Central Excise Officer duly empowered by the

Central Government in this behalf, shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making for any of the purposes of this Act. A summons to produce documents or other things may be for the production of certain specified documents or things or for the production of all documents or things of a certain description in the possession or under the control of the persons summoned.

90

Inquiry before Show Cause Notice F.No 137/39/2007-CX-4 dated 26-2-2007 and F.No. 137/39/2007-CX-4 dated 21-1-2008

At first instance:  For calling for information/documents normally the mode of communication should be either in the form of a telephone call or by way of sending a simple letter.

Second instance: Issuance of summons should be resorted to, only when the above mentioned modes of communications are found to be ineffective or are likely to jeopardize revenue interest or when it is essential to ensure personal presence of the person concerned to tender evidence or record statement in connection with a service tax evasion case;

91

….InquirySimple Notices are not summons

Simple notices are not summons but, it should be an endeavor that no notice should left unattended / unreplied.

Even if some notices are wrong, must be replied politely.

Precautions during inquiry proceedingsInquiry before issuance of show cause notice is

very critical stage and therefore, must be handled carefully.

92

…..InquiryMaking statement in the course of inquiry

◦ Statement must be given carefully. It is difficult to rebut the statement later.

◦ Statement can be used against the person making such statement.

◦ Where statement is to be retracted, it should be retracted as soon as possible.

Collected cheques under force during inquiry:◦ There is power with the department to collect /

recover amount during inquiry.

93

…Forced recovery during investigationIn NARESH KUMAR & COMPANY Versus UOI

[2010 -TMI - 77634 – CALCUTTA - HC] has held that, The authority concerned has no jurisdiction or authority to collect any amount at the time of raid simply it is not empowered legally to do so.

Also see: ABHISHEK FASHIONS PVT. LTD. versus UOI [2006 -TMI - 701 - HIGH COURT OF GUJARAT] - In absence of any statutory provision on the basis of which any such recovery can be made, the action of the respondent authorities in collecting the cheques from the petitioner cannot be sustained in law

94

Power of Adjudication – S. 83ANot. 30/2005 dt. 10/8/2005 and 48/2010 dt.

8/9/2010 Superintendent of Central Excise◦Not exceeding Rs. one lakh (excluding the

cases relating to taxability of services or valuation of services and cases involving extended period of limitation.)

Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise◦Not exceeding Rs. five lakhs (except cases

where Superintendents are empowered to adjudicate.)

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…Power of Adjudication – S. 83AJoint Commissioner of Central Excise

Above Rs. five lakhs but not exceeding Rs. fifty lakhs

Additional Commissioner of Central ExciseAbove Rs. twenty lakhs but not exceeding Rs.

fifty lakhsCommissioner of Central Excise

Without limit

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Show Cause Notice – Section 73Normal Period of Limitation(1) Where any service tax has not been levied

or paid or has been short-levied or short-paid or erroneously refunded, the 2[Central Excise Officer] may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:

97

….SCN - Section 73 Extended Period of LimitationPROVIDED that where any service tax has not been

levied or paid or has been short-levied or short-paid or erroneously refunded by reason of—

(a) fraud; or    (b) collusion; or(c) wilful misstatement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter

or of the rules made thereunder with intent to evade payment of service tax,

by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "one year", the words "five years" had been substituted.

98

SCN – Period of limitationExplanation: Where the service of the

notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.

99

SCN – Relevant Date (6) For the purposes of this section, "relevant date" means,—(i) in the case of taxable service in respect of which service tax

has not been levied or paid or has been short-levied or short-paid—

  (a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;

  (b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

  (c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;

(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.

100

Contents of SCNSCN should not be vague or ambiguousSCN must be specificRUD should be supplied with SCNCorrigendum to SCN may be issued but no

new ground be raisedNo corrigendum after submission of reply to

SCN

101

Serving of SCN – Section 37C of CEA, 1944(1) Any decision or order passed or any summons or

notices issued under this Act or the rules made thereunder, shall be served,—

(a) by tendering the decision, order, summons or notice, or sending it by registered post with acknowledgement due, to the person for whom it is intended or his authorised agent, if any;

(b) if the decision, order, summons or notice cannot be served in the manner provided in clause (a), by affixing a copy thereof to some conspicuous part of the factory or warehouse or other place of business or usual place of residence of the person for whom such decision, order, summons or notice, as the case may be, is intended; ………….

102

…Serving of SCN – Section 37C of CEA, 1944(c) if the decision, order, summons or notice cannot

be served in the manner provided in clauses (a) and (b), by affixing a copy thereof on the notice board of the officer or authority who or which passed such decision or order or issued such summons or notice.

(2) Every decision or order passed or any summons or notice issued under this Act or the rules made thereunder, shall be deemed to have been served on the date on which the decision, order, summons or notice is tendered or delivered by post or a copy thereof is affixed in the manner provided in sub-section (1).

103

Serving of SCNMere issue of SCN is not sufficient, it has to

be served on the personRefusal to accept notice is due service of

noticeIn case of partnership firm, SCN can be

issued to any partnerIn case of company, SCN can be issued to

any of director, secretary or principal officerNotice to agent is valid.

104

Reply to SCNSubmission of Reply to SCN with 30 days or

extended period as sought.Assessee can take inconsistent and contrary standsAssessee can raise dispute to demand on different

groundsIf the statement of a third person relied upon by the

department, assessee can demand cross-examination of such person and have statement by such person.

Personal hearing may be opted. In case the officer is changed, new officer should give personal hearing.

105

Challenge to invoking of extended period of limitationWhere extended period of limitation has been

invoke, carefully examine the SCN to see:◦ Whether, allegation for invoking extended period is

specific or general.◦ Which of the allegation has been invoked.◦ Calculate period before knowledge of facts to the

department and after knowledge of facts to the department.

◦ What evidences have been adduced by the department to prove its allegation.

◦ Whether department has discharged its initial burden to prove the allegation.

106

Challenge to invoking of extended period of limitationMere non declaration is not sufficient but a

positive mis declaration is necessary See: circular no. 5/92 dated 13/10/192 CE

PADMINI PRODUCTS Versus CCE [2008 -TMI – 42519 – SC = mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract Section 11-A of the Act.

107

…. Challenge to extended period of limitationSuppression, miss declaration must be willfulIntention to evade duty is not mere failure to pay

duty. It must be something more.Mere inaction is not suppressionMere ommission to give correct information is not

supression it is willfullNo suppression if assessee was ignorant about legal

provisionsNo suppression if assessee had a bonafide belief.If there is a confusion prevailing in field, no

suppression108

…. Challenge to extended period of limitationIf there is a clarificatory circular, it is a ground of

banafide belief.Contradictory judgments on of the tribuanl or courts

are valid ground of no suppression.No suppression if department is aware of factsNo suppression if SCN were issued on the same

subjectIf demand is based on return, no suppressionNo suppression in case of PSU / govt. undertakingsNo suppression if figures were disclosed in

published balance sheets.

109

…. Challenge to extended period of limitationRevenue neutral position

Where assessee is able to take the cenvat credit of tax paid, suppression can not be held

But, mere availability of cenvat credit is no conclusive that there was no suppression of facts.

Suppression of facts is a question of facts and must be challenged accordingly.

110

Others aspects of SCN and demandDemand based on third party’s records without

considering other parameters are not sustainable.Demand based on mere presumption is not

sustainable.In case of normal period of limitation, if service tax

with interest is deposited before issuance of SCN, no notice would be served and penalty be imposed.

In case of extended period of limitation, where service tax with interest and 25% penalty is deposited, no notice would be issued and penalty be imposed.

111

Forced Recovery ST from third person – Section 87(b)Section 87(b) empowered the central excise

officers to recover the amount from the third person.

O.N.G.C. LTD. Versus DC. OF CCE [2010 -TMI - 77636 - ANDHRA PRADESH HIGH COURT] – recovery can not made from the third parties merely by issuing notice in the absence of assessment order.

.112

Swami Vivekananda said…..The lamp is constantly burning out, and that

is its life. If you want to have life, you have to die every moment for it. Life and death are only different expressions of the same thing looked at from different standpoints; they are the falling and the rising of the same wave, and the two form one whole. One looks at the "fall" side and becomes a pessimist another looks at the "rise" side and becomes an optimist.

(KARMA-YOGA – Chapter VIII)113

EXCISE AUDIT

TYPES OF AUDIT IN CENTRAL EXCISE DEPT

INTERNAL AUDITSPECIAL AUDIT U/S 14A &14AA

STATUTORY AUDIT BY C&AG

PROCEDURES IN EXCISE AUDITANNUAL & MONTHLY PROGRAMMESELECTION OF ASSESSEEPRELIMINARY DESK REVIEWTOUR OF THE PLANTINTERVIEW OF KEY PERSONNELEVALUATION OF INTERNAL CONTLPREPARATION OF AUDIT PLANCONDUCT OF AUDITPREPARATION OF AUDIT REPORT

REQUIREMENT ON THE PART OF CAWELL VERSED WITH THE ACCOUNTING

SYSTEM ADOPTED BY VARIOUS UNITSSHOULD NOT BE A COST AUDITOR FOR

THE SAME UNITCAS-4 CERTIFICATIONS NOT ISSUED

FOR THE SAME UNITSOUND WORKING KNOWLEDGE OF

CENTRAL EXCISE LAWS ESPECIALLY EXCISE AUDIT, CENVAT & VALUATION

WHAT IS EXPECTED OF COST ACCTS

TO SCRUTINISE ER-5 & ER-6 RETURNSTO VALIDATE, INTERPRET & ANALISE

DATA AS PER THESE RETURNSTO IDENTIFY VALUATION ISSUES IN

CASE OF RELATED UNITSTO VALIDATE & INTERPRET CAS-4

CERTIFICATE

SCOPE OF THE WORKSUCH ASSIGNMENTS ARE SELECTIVE IN

NATURESERVICES OF CA ARE ONLY ADVISORY IN

NATUREONLY FOR DESK REVIEWREPORT OF CWA FORM PART OF WORKING

PAPERS OF DEPT.

LIMITATIONS OF WORKCWA NOT ALLOWED TO VISIT UNITSCONFLICT OF INTEREST PART OF AUDIT TEAM & NOT

INDEPENDENT COMPLETELYONLY EMPANELLED CWA ARE

CONSIDEREDONE/TWO DAYS ONLY

DOCUMENTS TO BE SCRUTINISEDMONTHLY RETURNSER-5 & ER-6 RETURNSANNUAL REPORT W.R.T. QUANTITATIVE

DETAILSCOST AUDIT REPORTCAS-4 CERTIFICATE

REPORTINGFORMAT TO BE DESIGNED BY INSTITUTEIT IS IN THE NATURE OF ADVISE NOTETO BE SUBMITTED TO SUPT. INCHARGE

OF TEAMTO BE COMPLETED BEFORE AUDIT

SCHEDULE

POINTS TO PONDERTREND ANALYSIS OF CENVAT/DUTYRISK LOSS ANALYSISINPUT/OUTPUT RATIOVALUE ADDITIONRECONCILIATION OF DUTYOTHER RATIOS

WHAT TO KNOW FROM P&L SALE VALUE AND ED PAIDPURCHASE AND CENVATLOSS BY FIRE/THEFTWRITING OFF OF OBSOLETE ITEMSDISCOUNT RECEIVED/PAIDOTHER INCOMESDEPRECIATION

WHAT TO KNOW FROM P&LROYALTY/TECH KNOW HOWDESIGN & DEVT. CHARESINSURANCE CLAIMSERRECTION CHARGES – ST ANGLEEXCISE DUTY PAID

STATISTICAL TECHNIQUESRISK ASSESSMENTRIST LOSS ANALYSISTREND ANALYSISABC ANALYSISINPUT-OUTPUT RATIO

RISK LOSS ANALYSISIN RESPECT OF –

EXCISE DUTY PAID OF FINISHED GOODS

CENVAT ON INPUT vs PURCHASES

SALES REVENUE WITH INCOME TAX AND SALES TAX RETURNS

RLA – ED PAID – STEP 1NOTE DOWN DUTY PAID AS PER RT12DEDUCT ED RELATING TO PREVIOUS

PERIODS, EXPORT GOODS, INPUTS CLEARED AS SUCH, WASTE, MISC HEAD OF PLA, ETC.

NET DUTY PAYABLE ON FINISHED GOODS

RLA- STEP 2TOTAL SALE VALUE AS PER P&L a/cDEDUCT SALES TAX (as per sales tax returns)DEDUCT EXPORT VALUE, SCRAP SALE

VALUE, VALUE OF EXEMPTED GOODS, TRADING GOODS, ETC.

GET SALE VALUE OF DUTIABLE GOODS

RLA – STEP 3 IF NET SALE VALUE IS INCLUSIVE OF ED,

CALCULATE ED PAYABLE ASNET SALE VALUE x16

116IF NET SALE VALUE IS EXCLUDING ED,ED PAYABLE IS

SALE VALUE x 16/100

RLA – STEP 4COMPARE THE ED AS PER RT12 (step 1)

With ED PAYABLE AS PER P&L a/c (step3)If the difference is very negligible, ignoreOtherwise, we have to ask for reconciliation by

the assessee.

RATIO ANALYSISSALES TO RAW MATERIALSSALES TO OTHER INCOMESALES TO DISCOUNTSALES TO SCRAP SALESSALES TO EXPORTSSALES TO DEBTORSSALES TO EXCISE DUTY

CONTENT OF COST AUDIT REPORT

1 REPORT BY COST AUDITOR

2 DETAILS OF ASSESSEE

3 COST ACCOUNTING SYSTEM

4 FINANCIAL POSITION

5 EXPENSES TO BE SPECIFIED

6 RATIOS

7 RAW MATERIALS

8 POWER AND FUEL

9 WAGES AND SALARIES

10 STORES AND SPARES

11 DEPRECIATION

12 OVERHEADS

13 ROYALTY/TECH KNOW-HOW

14 SALES

15 ABNORMAL COSTS

16 OTHER ITEMS

17 AUDITOR’S OBERVATIONS

EXPENSES/INCOMES TO BE SPECIFIED

Expenses to be specified Expenditure on spl exhibitionsj) Expdr.-abonormal or non-recurring

Incomes to be specifiedc) Abnormal or non-recurring incomes

RATIOS & RAW MATCost of production on Cap EmployedActual production vs Installed capacity

Cost of major RM consumedSpecify Significant transport costAnalysis of variancesComment of Inventory accounting

STORES AND SALESCOMMENT ON THE METHOD

OF STORES ACCOUNTINGNON-MOVING ITEMS OVER 2 YRS

PRODUCT-WISE SALES REALISATIONEXPORT REALISATION-PROFIT?

AUDITOR’S OBSERVATIONPRINCIPLE DEVIATIONSNEGLIGENCE & NON-COMPLIANCESCOPE OF INTERNAL AUDITAGREEMENTS OF SALE/PURCHASESEPARATE ANNEX FOR DIFF

UNITS

139

Presented By Presented By

CA Swatantra Singh, B.Com , FCA, MBA CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.comEmail ID: singh.swatantra@gmail.com New Delhi , 9811322785,New Delhi , 9811322785, www.caindelhiindia.com, www.caindelhiindia.com, www.carajput.comwww.carajput.com