Central Excise - Into & Basic Concepts

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Taxation system in India

Direct Taxes Indirect Taxes

Excise CustomsIncome Tax Wealth Tax

Sales Tax / VAT Service Taxes


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Taxation system in IndiaDirect Taxes Indirect Taxes

Tax on property / income, to be paid by theowner / earner

Tax on goods / services, incidence onintermediary but burden on consumers

Direct Taxes Indirect Taxes

Imposed on Persons Imposed on Goods / Services

Progressive

based on level of income /wealth (i.e., capacity to pay)

Regressive

No relation with income

Incidence & burden on taxpayer Shifting of burden by taxpayer to consumer

Administrative convenience costly &

difficult

Administrative convenience easy &

economical


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Central Excise


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Central Excise Law

Central Excise Act, 1944

Central Excise Tariff Act, 1985

Rules

Central Excise Rules, 2002

CENVAT Credit Rules, 2004

Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000

Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008

The Central Excise Act, 1944 extends to the whole of India.


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Excise Duty

Excise duty is a duty on excisable goods produced or manufactured in India.

Basic Conditions of excise liability

The duty is on goods.

The goods must be excisable.

The Goods must be manufactured or produced.

Such manufacture or production must be in India.


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Excise Duty

Types of excise duty

Basic Excise duty (CENVAT).

Specific

Tariff Value

Ad veloram

Special Excise Duty.

Additional duty of excise.

Education Cess.


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Excise Duty

Levy of excise duty and taxable event

Section 3 is the charging section under Central Excise Act, 1944;

provides for levy of excise duty on all excisable goods produced or manufactured in India;

Production or Manufacture of excisable goods in India is the taxable event;

Relevant date for rate of duty and tariff valuation (Rule 4 & 5 of Central Excise Rules, 2002)

Duty is payable at the time and place of removal of goods

Relevant date for determination of rate of duty and valuation shall be the actual date of

removal

Liability to pay excise duty is on the manufacturer / warehouse-keeper


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Excisable Goods

Excisable Goods means goods specified in the schedules to the Central Excise Tariff Act, 1944

as subject to a duty of excise [Section 2(d)].

Goods has not been defined in the Act.

Sale of Goods Act, 1930 Every kind of movable property

UIO v. Delhi Cloth & General Mills Co. Ltd. Movability and marketability

Amendment to Section 2 (d) Goods capable of being bought and sold are deemed to be

marketable;


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Manufacture

Section 2 (f) Inclusive definition :-

Any process incidental or ancillary to the completion of manufactured product;

Specified as deemed manufacture in CETA

Repacking / re-labeling / alteration of MRP Specified as amounting to manufacture in CETA

UIO v. Delhi Cloth & General Mills Co. Ltd.

Bringing into existence a new substance and not just bringing some change in the

substance;

Manufacture implies a change but every change is not a manufacture, there must be a

transformation, a new and different article must emerge

Deemed manufacture Mineral Water, Conversion of powder into tablets or capsules, printing /

artwork on glasses, Refined edible oil, Betel Nut (Supari)


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Central Excise Basic ConceptsJune 5, 2010


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Manufacture Some issues

Bleaching, dyeing, printing & mercerizing of textile fabric:-

Whether duty payable at each time the fabric is subjected to one process, or

One time on final clearance of textile fabric after all the process?

Held in CCEx V. Textile Corpn. of Marathwada Ltd. (2008) that duty is payable at the final stage.

(Even if paid at each stage, CENVAT Credit available)

Manufacture vis--vis processing

Manufacture a result of one or more process;

Manufacture implies processing, however, every processing may not amount to

manufacture

[Parle Products Ltd. and J. G. Glass Industries Ltd.]

Whether packing, labeling and branding amounts to manufacture?

Whether assembly amounts to manufacture? (BPL India Ltd.)


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Change in tariff headings

Whether change in tariff heading between the input material and the final output necessary to

render finished goods liable to duty?

Inputs and final product falling under same heading :-

Manufacture is a process of bringing into existence a new substance;

Once a new substance commercially known as such emerges, it is exigible to duty;

Therefore, it is irrelevant whether the new article falls into the same tariff heading

Input and final product fall under different tariff headings :-

Mere change in tariff heading does not mean there is manufacture;

The process of bringing the change should amount to manufacture to make productexcisable

(S R Tissues)

To conclude, change in tariff heading is not relevant to determine excisability.


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Captive Consumption

Captive Consumption :-

Use/consumption of goods manufactured in one unit by another unit of the same organisation or

related organisation for further processing / manufacturing another product.

Duty liability on Captively consumed goods :-

Duty liability arises on ___________________ ?

Status of duty liability on captively consumed goods / goods removed for captive

consumption !!

Fiction of removal by explanation to Rule 5 date or issue shall be the date or removal.

Capitively consumed godds excisable only if other conditions of excisabilty fulfilled

(Goods excisable- manufacture).

Current position in Excise law Most of the intermediate product exempt from excise duty if the

final product is excisable.

Case Cipla Ltd. (2008)mere transfer to another captive unit doesnt establish marketabilty.


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Miscellaneous

Waste and Scrap :-

Waste and scrap liable to excise duty?

Earlier position v. new position ..(liable to duty if movable, marketable, manufactured

and mentioned in the tariff)

Waste of exempted goods exempt

Scrap arising during manufacture of parts for repair of plans is excisable (Grasim Industries

Ltd. 2008)

Site related activities :-

Plant and Machinery in a fully manufactured condition removed in a CKD and reassembledat site ;

Various parts are purchased/manufactured at site and a new plant and machinery comes

into existence;

Piece by piece erection of parts into a plant and machinery in immovable manner


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Manufacturer

Manufacturer Section 2(f) :-

A person who manufactures goods on his own account;

A person who manufactures goods through hired labour.

An independent contractor or job worker may himself be treated as manufacturer in case he

exercises control over the activity.

Examples -

Example Manufacturer?

Raw material supplied for manufacturing goods

on Independent job work basis

Raw material supplier OR Job worker?

Goods manufactured by job-worker based on

designs and specifications and/or trade name of

customer

Customer OR Job worker?

In case the customer exercises full control and

supervision over the job worker in the above

cases


Job-worker acting as dummy or there is common

source of funding



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EOU

SEZ and Domestic Tariff Area.

100% Export Oriented Undertaking :-

Section 3 Duty not chargeable on goods manufactured by a 100% EOU for export out of

India

Proviso to Section 3 In case excisable goods manufactured by a 100% EOU are brought to

any other place in India, excise duty equal to the aggregate of customs duty which would

have been levied in case of import of similar goods, shall be levied.

Valuation of the goods to be done as per the Customs Act


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Imp Definitions (Section - 2)

Factory - Any premises wherein any excisable goods are manufactured or any process

connected with the production is being carried on.

Wholesale dealer A person who buys or sells excisable goods for the purpose of trade and

manufacture.

Sale and purchase Transfer of the possession of goods by one person to another in the

course of trade for a consideration.

Broker or commission agent a person who makes contracts for sale or purchase of excisable

goods for others.

Excisable goods Goods specified in the schedules to the CETA and subject to a duty of excise

and includes salt (Explanation added for deemed marketability in case capable of being bought

and sold)


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Exercise Relevant date for rate of duty

Example Whether duty payable?

At the time of manufacture Not excisable

At the time of clearance 14% duty imposed

YES OR NO?

At the time of manufacture Exempted

At the time of clearance

Exemption withdrawn

and 14% duty restored

YES OR NO?

(Wallace Flour Mills Co. Ltd. case)

At the time of manufacture Nil rate of duty

At the time of clearance 14%

YES OR NO?

Special duty of excise

At the time of manufacture Not liable

At the time of clearance liable

YES OR NO?

(Vazir Sultan Tobacco Co. Ltd. case)


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Exercise computation of duty

Goods manufactured were liable @14% (plus 3% EC); exempted vide a notification

at the time of manufacture. Exemption notification withdrawn while clearance of

certain goods on 1-3-2010. Certain goods manufactured prior to 1-32010 removed

on 2-3-2010. Value of goods Rs. 3,00,000.

Compute excise duty payable.

Goods manufactured were liable @14% (plus 3% EC); additional duty of excise @

8%. Value of goods Rs. 3,00,000. Compute excise duty payable.


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Exercise computation of duty

Amount of excise duty

Rs. 300,000 x 14.42% = 43,260

Amount of excise duty

Basic Excise duty - Rs. 300,000 x 14% = 42,000

Add. Excise duty - Rs. 42,000 x 8% = 3,360

EC (42000+3360) - Rs. 45360 x 3% = 1,361

Total = 46,721


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Central Excise ClassificationJune , 2010

Central Excise - Into & Basic Concepts

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