Centra Excise
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Transcript of Centra Excise
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Presented By Presented By
CA Swatantra Singh,CA Swatantra Singh, B.Com , FCA, MBAB.Com , FCA, MBA Email ID: Email ID: [email protected]@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
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..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
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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.
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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;
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….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.
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…..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.
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…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
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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:
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….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.
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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.
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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.
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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
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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; ………….
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…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).
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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.
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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.
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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: [email protected] ID: [email protected] New Delhi , 9811322785,New Delhi , 9811322785, www.caindelhiindia.com, www.caindelhiindia.com, www.carajput.comwww.carajput.com