Customs & Service

8/2/2019 Customs & Service

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Basics of Excise duty.

Conditions forimposition ofexcise duty

Entry No. 84 of List I of Seventh Schedule to Constitutionempowers Central Government to impose levy of excise ongoods manufactured or produced in India.

In case of deemed manufacture, imposition of excise duty canbe justified under entry 97 of List I. Excise is a duty on manufacture. Manufacture or production of

excisable goods in India is the taxable event in CentralExcise. [Section 3(1) of Central Excise Act]

Ownership of inputs or final products is irrelevant for purpose ofliability of excise duty.

Person liable topay excise duty

Excise Duty liability is generally on manufacturer, but in somecases, duty is collected from others also. Duty liability is nomanufacturer, though he can collect it from buyer. He will beliable even if he does not collect [rule 4(1) of Central Excise

Rules] In case of goods stored in warehouse under rule 20, the duty

liability is on person who stores the goods in warehouse [rule4(1) of Central Excise Rules]

In case of molasses produced in khandsari sugar factory, dutyliability is of procurer i.e. purchaser if he is procuring it formanufacture of any commodity [rule 4(2) of Central ExciseRules].

In case of job work, duty liability is of job worker, even if he isnot owner of manufactured goods. However, if inputs are sentunder Cenvat provisions or under notification No. 214/86-CE,

duty liability is of raw material supplier.

Rate of exciseduty

Basic excise duty is levied u/s 3(1) of Central Excise Act. Thesection is termed as charging section. The duty rate isgenerally 10% w.e.f. 27-2-2010 i.e. total 10.3% includingeducation and SAH cess [earlier, it was 8.24% and still earlier, itwas 14% i.e. total 14.42%).

Education cess is payable @ 2% of the basic duty and Secondaryand High Education Cess is 1% of basic excise duty.

NCCD and Cess is payable on some products.

Goods andexcisable goods

As per judicial interpretation, for purpose of levy of Excise duty,an article must satisfy two requirements to be goods i.e. (a) itmust be movable and(b) it must be marketable. However,actual sale is not necessary.

Goods includes any article, material or substance which iscapable of being bought and sold for a consideration and suchgoods shall be deemed to be marketable [Explanation to section2(d) of Central Excise Act].

Marketability is to be decided on the basis of condition in whichgoods are manufactured or produced.

The marketability test requires that the goods as such shouldbe in a position to be taken to market and sold. If they have to

be separated, the test is not satisfied. Thus, if erected andinstalled machinery has to be dismantled before removal, it will


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not be goods - Triveni Engineering v. CCEAIR 2000 SC 2896 120ELT 273 (SC).

Software is excisable goods. However, presently, exciseduty/service tax as well as Vat is payable on branded(packaged) software and service tax and Vat is payable oncustomised software.

Section 2(d) of Central Excise Act defines Excisable Goods asGoods specified in the Schedule to Central Excise Tariff Act,1985 as being subject to a duty of excise and includes salt.Thus, unless an article is specified in the Central Excise TariffAct as subject to duty, no duty is leviable.

Goods includes any article, material or substance which iscapable of being bought and sold for a consideration and suchgoods shall be deemed to be marketable. Thus, some articleslike cement structures and trusses, scrap etc. will be goodseven if otherwise they are not marketable.

Dutiability ofwaste and scrap

Waste and scrap is final product for excise purposes. Waste andScrap can be goods but dutiable only if manufactured, are capableof being sold and are mentioned in Central Excise Tariff.

Manufacture

Taxable event for central excise duty is manufacture orproduction in India. The word produced is broader thanmanufacture and covers articles produced naturally, live

products, waste, scrap etc. Manufacture can be (a) as defined by Court or (b) Deemedmanufacture.

Manufacture as defined by Courts, takes place only when theprocess results in a commercially different article orcommodity. There can be manufacture if both inputs and finalproduct fall in same tariff heading.

In Union of India v. Delhi Cloth Mills Co. Ltd. AIR 1963 SC 791 =1963 Suppl (1) SCR 586 = 1977 (1) ELT (J199) (SC) (SC fivemember constitution bench) it has been held that themanufacture means bringing into existence a new substance.Thus, manufacture implies a change but every change is not

manufacture. A new and different article must emerge having adistinctive name, character or use.

However, this test does not apply in case of deemedmanufacture.

Assembly can be manufacture. Putting two items together formaking a set is not generally manufacture.

Deemedmanufacture

Deemed manufacture is (a) process as specified in CETA. Over 35processes have been specified or(b) Repacking, relabelling, putting

or altering MRP in case of articles covered under MRP valuationprovisions [clauses (ii) and (iii) of section 2(f) of Central Excise Act]


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In case of deemed manufacture as specified in CETA, simplerepacking is not deemed manufacture. It has to be from bulk packto retail pack. However, in case of products covered under MRPvaluation, it can be manufacture.Simply putting manufacturers mark is not labelling.Mere putting name of goods, consignor and consignee is notlabelling.Mere putting bar code is not manufacture.

Who ismanufacturer

Manufacturer is who manufactures [Section 2(f) of CentralExcise Act] He is the person who actually brings new andidentifiable product into existence or undertakes processdefined as deemed manufacture.

Duty liability is on manufacturer, except in few cases ofreverse charge. Mere supplier of raw material or brand nameowner is not manufacturer.

Loan licensee is not manufacturer. Ownership is not relevant to determine who is manufacturer. If

relationship between brand name owner/raw material supplierand the actual person bringing the new and identifiable productinto existence are on Principal to Principal basis, the brandname owner/raw material supplier will not be manufacturer.

Classification of goods for Central Excise and Customs

Background of CentralExcise Tariff Rate of duty is determined based on Classification ofgoods read with relevant exemption notification. Classification is done on basis of Central Excise Tariff

and Customs Tariff. Both the tariffs are based on HSN(Harmonised System of Nomenclature) developed byWCO.

Goods are classified in 20 sections (21 in case ofcustoms). Each section consists of various chapters.

Tariff is based on 8 digit classification of goods. Firsttwo digits indicate chapter, next two digits indicateheading and next two are sub-classification. Single,double and triple dashes are used to groups and sub-

groups. Eight digit classification is termed as tariff item. Rate

of duty is indicated only against tariff item. Classification is done on basis of GIR (General

Interpretative Rules) which are part of Tariff. Titles ofsections and chapters are only for reference. Sectionnotes and chapter notes have overriding effect.

Steps in classification of anarticle

(1) Refer the heading and sub-heading. Readcorresponding Section Notes and Chapter Notes. Ifthere is no ambiguity or confusion, the classification is

final (Rule 1 of GIR). You do not have to look toclassification rules or trade practice or dictionary


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meaning. If classification is not possible, then only goto GIR. The rules are to be applied sequentially.

(2) If meaning of word is not clear, refer to tradepractice. If trade understanding of a product cannot be

established, find technical or dictionary meaning of theterm used in the tariff. You may also refer to BIS orother standards, but trade parlance is most important.

(3) If goods are incomplete or un-finished, butclassification of finished product is known, find if theun-finished item has essential characteristics offinished goods. If so, classify in same heading - Rule2(a).

(4) If ambiguity persists, find out which heading isspecific and which heading is more general. Prefer

specific heading.- Rule 3(a).

(5) If problem is not resolved by Rule 3(a), find whichmaterial or component is giving essential character tothe goods in question - Rule 3(b).

(6) If both are equally specific, find which comes last inthe Tariff and take it - Rule 3(c).

(7) If you are unable to find any entry which matches thegoods in question, find goods which are most akin -

Rule 4.

(8) In case of mixtures or sets too, the procedure is moreor less same, except that each ingredient of themixture or set has to be seen in above sequence. As perrule 2(b), any reference to a material or substanceincludes a reference to mixtures or combinations ofthat material or substance with other material orsubstance.

(9) Packing material is classified along with the goodsexcept when the packing is for repetitive use Rule 5

General Principles ofclassification of an Article

Words used in Tariff are to be understood in the sensethese are understood in the trade. This is tradeparlance theory. The trade parlance is more importantthan dictionary or technical meaning, unless the wordis specifically defined in the Tariff itself.

HSN is very important guide in classifying a productand it should be normally followed.

End use is generally not relevant for classification,except when the tariff description so requires and


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classification is relating to function of the product.Basis of calculation of duty payable i.e. Valuation

Modes of calculation ofexcise duty

Duty can be payable on basis of specific duty (based on weight,length, volume etc.), MRP based duty [section 4A], compounded

levy, tariff value [section 3(2)], production capacity [section 3A]or on ad valorem basis [section 4].MRP based valuation [section 4A]Products covered underMRP provisions

In case of about 110 products, duty is payable u/s 4A of Centralon basis of MRP printed on the package, after allowing abatementat specified rates. MRP should be inclusive of all taxes and duties.

The provision applies only when product is package intended forretail sale andis specified in a notification issued u/s 4A.

MRP provisions areoverriding

MRP provisions u/s 4A are overriding provisions.

Assessable value whenMRP not applicable

Even in case of products covered u/s 4A, where MRP provisionsare not applicable, valuation will be on basis of value u/s 4 i.e.Assessable Value.

MRP provisions do not apply to free samples, package less than10gm/10 ml, wholesale package or package above 25 Kg (50 Kg insome cases)

Deemed manufacture ofproducts u/s 4A

In case of goods covered under section 4A, packing or repackingand re-labelling is deemed manufacture.

Incorrect MRP Department can ascertain MRP if MRP not declared or incorrectlydeclared or obliterated. Penalty can be imposed [section 4A(4)(a)of Central Excise Act].

Basic requirement of Assessable Value [section 4]Transaction value asassessable value

When duty is payable on ad valorem basis, it is payable onassessable value as defined in section 4 of Central Excise Act.

Transaction Value is taken as Assessable Value only if goods aresold at the time and place of removal, buyer is unrelated andprice is sole consideration [Section 4(1)(a) of Central Excise Act].

What is transaction value Transaction value is the price paid or payable for the goods at thetime and place of removal, by reason of, or in connection withsale, inclusive of all expenses but excluding taxes [section 4(3)(d)of Central Excise Act].

Transaction value does not include duty of excise, sales tax andany other taxes on goods. Only taxes actually paid or payable areallowed as deduction.

Price to be taken asinclusive of excise duty

If goods are cleared without payment of duty, the price is takenas cum duty price and excise duty payable should be calculatedby back calculations CCEv. Maruti Udyog 122 Taxman 105 =(2002) 3 SCC 547 = 141 ELT 3 (SC 3 member bench). If there isadditional consideration, it will be added to invoice price andthen duty payable is calculated by making back calculations[Explanation to section 4(1) of Central Excise Act]

Inclusions and exclusions in transaction valueBy reason of or in Any amount charged is includible in assessable value if it is by


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connection with sale ofsuch goods.

reason of or in connection with sale of such goods.

Packing and designcharges

Duty is payable on packing charges and design charges related tomanufacture.

Price escalation Duty is payable in case of price escalation after clearance, but

not when price was final at the time of clearance. If there is pricerise after clearance of goods from factory, differential excise dutyand interest @ 13% is payable.

Trade discounts Trade discount is allowable as deduction from assessable value.Cash discount is allowable. Discount need not be uniform.

Notional interest onadvances

Notional interest on advances is includible only if there isevidence that it has depressed the selling price.

Warranty charges Compulsory charges for after sale service during warranty periodare includible. After sale service charges which are optional arenot includible.

PDI and after salesservice

Pre-delivery charges (PDI) and after sale service charges are notincludible if these are incurred by dealer out of his commission.

Outward freight after place of removal not includible in assessable valuePlace of removal Transport charges upto place of removal are includible in

assessable value.Ownership transferring atfactory gate

If delivery is ex-works and property is transferred to buyer atfactory gate, outward freight is not includible in assessable valueas factory gate is the place of removal. This will be so even iftransport is arranged by manufacturer and charged to buyer.

Contract FOR Even if contract is F.O.R. destination basis, there can be sale atfactory gate, since as per section 39 of Sale of Goods Act, deliveryof goods to carrier isprima facie delivery to buyer. If contract isF.O.R. basis andsale takes place only when goods are delivered to

buyer (i.e. property in goods passes to buyer at destination only),transport charges are includible in assessable value.

Profit on transportactivity permissible

If assessee himself provides transport services, reasonable profiton the transport activity should be permissible i.e. it is notincludible in assessable value.

Equalised freight Equalised freight is also allowable as deduction, if there is saleat factory gate.

Bought out goods and accessories when includible in assessable valuePrice of essential boughtout goods

Price of Bought out goods supplied along with manufactured goodsis includible, if these are essential parts of manufactured goods.

Price of parts not fitted

at time of removal

Since goods are to be assessed in the condition in which cleared

from factory, value of components not fitted is not required to beadded in assessable value, even if they are essentialPrice of accessories notincludible

Price of accessories and optional bought out items is notincludible in Assessable Value

Accessory means an object not essential in itself but adding tobeauty, convenience or effectiveness of something else.

Valuation rulesTransaction value notacceptable

If transaction value is not acceptable, valuation is required to bedone as per Valuation Rules [Section 4(1)(b) of Central Excise Actand Valuation Rule 3]

Value of similar goods Valuation can be done on value of such goods (i.e. goods ofsame class of same manufacturer) [Rule 4]


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Transport upto place ofremoval

Cost of transport upto place of removal is includible inassessable value but not beyond that [Rule 5]

Money value of otherconsideration includible

If price is not sole consideration, money value of otherconsideration should be added e.g. cost of material, patterns,dies, designs etc. supplied by buyer is required to be added to

Assessable Value [rule 6]. Value of patterns, dies etc. should beadded on pro-rata basis.Captive consumption In case of captive consumption, duty is payable on basis of cost of

production plus 10%. Cost of Production should be calculated onbasis of CAS-4 [Rule 8]

Job work In case of job work, duty is payable by job worker. Valuation isdone on the basis of price at which raw material supplier(Principal Manufacturer) sales the manufactured final product inmarket [Rule 10A]. If goods are covered under MRP valuationprovisions, duty is payable on MRP basis.

Valuation in case of sale from depot/branchDepot price at the time

of removal

In case of depot sale, duty is payable on basis of depot price

prevailing at the time of removal of final product from the factory[Rule 7].

Subsequent sale price notrelevant

Price at which the goods are actually sold subsequently is notrelevant. Differential duty is not payable even if goods are soldlater at higher price from depot. Similarly, refund is not availableif prices are goods are subsequently actually sold at lower price.

Transport charges afterdepot

Transport charges upto depot and depot expenses are notallowable as deduction (These are already included in depotprice). Transport charges from depot onwards are not includiblein assessable value.

Value addition done at

depot

Any value addition done at depot is not includible in assessable

value, if activity is not manufacture (the reason is that goodsare to be assessed in the condition in which they are removedfrom factory).

Deemed manufacture incase of MRP

In case of products covered under MRP provisions, if packing inretail pack and labelling of MRP is done at depot/place ofconsignment agent, it will be deemed manufacture and exciseduty will be payable.

Valuation when sale through related personPrice to unrelated buyerrelevant

If goods are sold through related person, value for purpose ofexcise will be the price at which the related buyer sales goods tounrelated buyer.

Inter connectedundertaking

An inter-connected undertaking will be treated as relatedperson for excise valuation only if there is holding subsidiaryrelationship [Inter-connected undertaking means 25% commoncontrol]

Holding and subsidiary A holding and subsidiary are related persons,Rate legal entities A mere distributor is not a related person.

A company or firm is a separate legal entity and cannot be arelated person of other company or firm.

Piercing corporate veil Even if the buyer does not fall within the definition of relatedperson, sale price to him can be rejected by piercing thecorporate veil. His selling price can be considered if it is found, by

piercing corporate veil, that the transaction is not at arms lengthi.e. price is not the sole consideration.


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Valuation in case ofentire sale throughrelated person

If goods are sold solely through related person (except in case ofinter connected undertaking, unless there is holding subsidiaryrelationship), valuation will be normal transaction value atwhich the related buyer sales to unrelated buyer [rules 9 and 10of Valuation Rules]

Supply of goods torelated person forcaptive consumption

If goods are supplied to related person for captive consumption,valuation will be on basis of cost of production plus 10%.

Partial sale throughrelated person

If sale is partly to related person and partly to unrelated person,valuation shall be done on reasonable basis by residual methodunder rule 11.

If related person is only one of the buyers and substantial salesare made to unrelated persons at same price, that price can beconsidered for valuation in respect of sale to related person also.

Other provisions relating to valuationResiduary rule of

valuation

If valuation is not possible under any of aforesaid rules, valuation

will be on basis of best judgment assessment, i.e. value shall bedetermined using reasonable means consistent with the principlesand general provisions of Valuation rules and section 4(1) ofsection 4 of the Act [Rule 11]

Duty based on productioncapacity

Section 3A of CEA provides for payment of duty on basis ofproduction capacity, without any reference to actual production.Production capacity will be determined as per Rules. Pan masalaand gutkha are covered under these provisions.

Compounded levy scheme Compounded levy scheme under rule 15 of Central Excise rules,provides for payment of duty on basis of production capacity. It isan optional scheme. The scheme is presently applicable to

stainless steel pattas/patties and Aluminium circles. Thesearticles are not eligible for SSI exemption.Tariff value [section 3(2)of Central Excise Act]

In some cases, tariff value is fixed by Government from time totime. This is a Notional Value for purpose of calculating theduty payable. Once tariff value for a commodity is fixed, duty ispayable as percentage of this 'tariff value' and not the AssessableValue fixed u/s 4.

Administration of CentralExcise

Administration of Central Excise is under CBE&C (CentralBoard of Excise and Customs). The hierarchy is ChiefCommissioner, Commissioner, Additional Commissioner, JointCommissioner, Deputy Commissioner, Assistant Commissioner,Superintendent and Inspector.

Registration Every person who produces or manufactures excisable goods,is required to get registered, unless exempted. [Rule 9 ofCentral Excise Rules]. If there is any change in informationsupplied in Form A-1, the same should be supplied in Form A-1.

Daily Stock Account Manufacturer is required to maintain Daily Stock Account (DSA)of goods manufactured, cleared and in stock. [Rule 10 ofCentral Excise Rules]

Clearance of goods

under Invoice

Goods must be cleared under Invoice of assessee. In case of

cigarettes, invoice should be countersigned by Excise officer.[Rule 11 of Central Excise Rules]


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Payment of excise duty Duty is payable on monthly basis through GAR-7 challan /Cenvat credit by 5th/6th of following month, except in March.SSI units have to pay duty on quarterly basis by 5th/6th ofmonth following the quarter. Assessee paying duty through PLAmore than Rs 10 lakhs per annum is required to make e-payment only [Rule 8].

Returns of production,clearances and paymentof excise duty

Monthly return in form ER-1 should be filed by 10th offollowing month. SSI units have to file quarterly return in formER-3. [Rule 12 of Central Excise Rules] - - EOU/STP units to filemonthly return in form ER-2 see rule 17(3) of CE Rules E-return is mandatory where duty paid in previous year (by cashand/or through Cenvat credit) exceeded Rs 10 lakhs inprevious year.

Annual FinancialInformation

Assessees paying duty of Rs one crore or more per annumthrough PLA are required to submit Annual FinancialInformation Statement for each financial year by 30thNovember of succeeding year in prescribed form ER-4 [rule

12(2) of Central Excise Rules].Information aboutPrincipal Inputs

Specified assessees are required to submit Information relatingto Principal Inputs every year before 30th April in form ER-5,to Superintendent of Central Excise. [rule 9A(1) to CenvatCredit Rules]. Any alteration in principal inputs is also requiredto be submitted to Superintendent of Central Excise in formER-5 within 15 days [rule 9A(2) to Cenvat Credit Rules]. Onlyassessees manufacturing goods under specified tariff headingare required to submit the return. The specified tariffheadings are 22, 28 to 30, 32, 34, 38 to 40, 48, 72 to 74, 76,84, 85, 87, 90 and 94; 54.02, 54.03, 55.01, 55.02, 55.03,55.04. Even in case of assessees manufacturing those products,only assessees paying duty of Rs one crore or more (eitherthrough current account or Cenvat credit) are required tosubmit the return.

Monthly return ofreceipt andconsumption of each ofPrincipal Inputs

Assessee who is required to submit ER-5 is also required tosubmit monthly return of receipt and consumption of each ofPrincipal Inputs in form ER-6 to Superintendent of CentralExcise by tenth of following month [rule 9A(3) to Cenvat CreditRules]. Only those assessees who are required to submit ER-5return are required to submit ER-6 return.See chart below for various returns to be filed.

Annual Installed

Capacity statement

Submit Annual Installed Capacity Statement in form ER-7 every

year before 30th April.Submission of List ofrecords

Every assessee is required to submit a list in duplicate ofrecords maintained in respect of transactions of receipt,purchase, sales or delivery of goods including inputs andcapital goods, input services and financial records andstatements including trial balance [Rule 22(2)].

Changes in details ofassessee

Inform change in boundary of premises, address, name ofauthorised person, change in name of partners, directors orManaging Director in form A-1. [ReferInstructions given belowform A-1]

Non-core procedures (to

be followed whenrequired)

Export without payment of duty or under claim of

rebate [Rules 18 and 19 of Central Excise Rules] Receipt of goods for repairs / reconditioning [Rule 16


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of Central Excise Rules] Receipt of Goods at concessional rate of duty for

manufacture of Excisable Goods. Provisional Assessment [Rule 7 of Central Excise Rules] Warehousing of goods. Adjudication, Appeals and settlement.

See chart after following chart for summary ofnon-core procedures

Returns to be filed under Central Excise

Form ofReturn

Description Who is requiredto file

Time limitfor filingreturn

ER-1

[Rule 12(1)of CentralExciseRules]

Monthly Returnby large units

Manufacturersnot eligible forSSI concession

10th offollowingmonth

ER-2 [Rule 12(1)

of CentralExciseRules]

Return by EOU EOU units 10th offollowingmonth

ER-3 [Proviso to

Rule 12(1)of CentralExciseRules]

QuarterlyReturn by SSI

Assessees eligiblefor SSI concession

(even if he doesnot avail theconcession)

10th of nextmonth of the

quarter

ER-4 [rule 12(2)

of CentralExciseRules]

AnnualFinancialInformationStatement

Assessees payingduty of Rs onecrore or more perannum eitherthrough PLA orCenvat or bothtogether (Till 29-9-2008, the

provision wasapplicable onlywhen paymentthrough PLAalone was morethan Rs onecrore).

Annually by30thNovember ofsucceedingyear

ER-5 [Rules

9A(1) and9A(2) of

CenvatCredit

Informationrelating toPrincipalInputs

Assessees payingduty of Rs onecrore or more perannum (either

through PLA orCenvat or both

Annually, by30th Aprilfor thecurrent year

(e.g. returnfor 2005-06


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Rules] together) andmanufacturinggoods underspecified tariffheadings (Till 29-9-2008, theprovision wasapplicable onlywhen paymentthrough PLAalone was morethan Rs onecrore).

is to be filedby 30-4-2005].

ER-6 [Rule9A(3) ofCenvatCredit

Rules]

Monthly returnof receipt andconsumptionof each of

PrincipalInputs

Assesseesrequired tosubmit ER-5return

10th offollowingmonth

ER-7 [Rule12(2A) ofCentralExciseRules]

AnnualInstalledCapacityStatement

All assessees,exceptmanufacturers ofbiris and matcheswithout aid ofpower and ,reinforcedcement concretepipes

Annually, by30th Aprilfor thepreviousyear (e.g.return for2010-11should besubmitted by30-4-2011

Form asperNotification No.73/2003-CE(NT)[Rule 9(8)of CenvatCreditRules]

Quarterlyreturn ofCenvatableInvoices issued

Registereddealers

By 15th offollowingmonth

ST-3 [Rule9(9) ofCenvatCreditRules andrule 7(2) ofService TaxRules]

Half yearlyreturn oftaxableservicesprovided

Person liable topay service tax

Within 25days fromclose of halfyear

ST-3 [Rule9(10) ofCenvatCredit

Rules]

Hal yearlyreturn ofCenvat creditdistributed

Input ServiceDistributor

Within onemonth fromclose of halfyear


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6 Other Procedures in Central Excise

ExportProcedures

Exports are free from taxes and duties. Goods can be exported without payment of excise duty under

bond under rule 19 or under claim of rebate of duty under rule

18. Container containing export goods should be sealed by exciseofficer. Self-sealing is permissible.

Excisable Goods should be exported under cover of Invoice andARE-1 form. Export should be within 6 months from date ofclearance from factory.

Merchant exporter has to execute a bond and issue CT-1 sothat goods can be cleared without payment of duty.Manufacturer has to issue Letter of Undertaking.

Export to Nepal/Bhutan are required to be made on paymentof excise duty, except when supply is against internationalbidding.

Rebate under rule 18 can be either of duty paid on finalproducts or duty aid on inputs but not both. EOU has to issue CT-3 certificate for obtaining

inputs without payment of excise duty.

Bringing good forrepairs

Final products cleared on payment of duty can be broughtback for repairs etc., by following prescribed procedures.

Duty paid goods can be brought in factory forbeing re-made, refined, reconditioned or for anyother reason under rule 16.

The goods need not have been manufactured by

assessee himself. Cenvat credit of duty paid on such goods can betaken, on basis of duty paying documents of suchgoods.

After processing/repairs, if the process amountsto manufacture, excise duty based on assessablevalue is payable.

If process does not amount to manufacture, anamount equal to Cenvat credit availed should bepaid [rule 16(2)].

If some self manufactured components are used,duty will have to be paid on such components.

Buyer/recipient of such goods can avail Cenvatcredit of such amount/duty.

If the above procedure cannot be followed,permission of Commissioner is required [rule16(3)].

Bonds Assessee is required to execute bond for various purposeslike obtaining goods without payment of duty, clearance ofseized goods etc. B-1 bond is for exporting without payment ofduty, B-17 bond is for EOU.

Bringing goods onconcessional rateof duty

Goods can be obtained at concessional rate of dutyconcessional rate of duty under Central Excise (Removal ofGoods at Concessional Rate of Duty for Manufacture ofExcisable Goods) Rules, if prescribed conditions are satisfiedand procedure is followed.


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Cenvat Credit in easy steps

What is Cenvat?Avoid cascading effect Basic purpose of Vat is to eliminate cascading effect of taxes by tax

credit system. This is done through mechanism of input tax credit.

Destination Principle Cenvat is based on destination principle i.e. excise duty/service taxis paid only when goods are consumed. Till then, burden of dutygets passed on to the next buyer/customer [In case of sales tax, asper this principle, sales tax is payable in the State in which goodsare consumed and not in the State in which goods are produced]

Credit of inputs, inputservices and capitalgoods

Cenvat scheme allows credit of excise duty paid on inputs goods,capital goods and service tax paid on input services [Rule 3(1) ofCenvat Credit Rules]

Utilisation of CenvatCredit

This credit can be utilised for payment of excise duty on dutiablefinal products and service tax on taxable output services [Rule 3(4)of Cenvat Credit Rules]

Credit only ifmanufacture orprovision of service

Cenvat credit is available only if there is manufacture orprovision of taxable output service.

One to one relationnot required

Cenvat Credit Rules do not require one to one relationship [Rule3(1) read with 3(4) of Cenvat Credit Rules] Entire Cenvat credit iscommon pool which can be utilised for payment of any eligibleduty, service tax or amount.

Input (goods) eligible for Cenvat creditInputs used in or inrelation tomanufacture

Inputs which are used in or in relation to manufacture of taxablefinal product and inputs directly used for provision of taxableoutput service are eligible for Cenvat credit [Rule 2(k) of CenvatCredit Rules]

Input may be used directly or indirectly in manufacture. Any inputintegrally connected with manufacturing process is eligible. Processloss is eligible.

Consumables eligible Consumables are eligible for Cenvat credit.Accessories, packingmaterial, paint

Accessories, packing material and paints are eligible as inputs.

LDO, HSD and petrolnot eligible

LDO, HSD and petrol are not eligible for Cenvat credit [Explanation1 to Rule 2(k) of Cenvat Credit Rules]

Cement, angles,channels etc. not

eligible

Input does not include cement, angles, channels, CTD or TMT usedfor construction of factory shed, building or foundation or

structures to support capital goods [Explanation 2 to Rule 2(k) ofCenvat Credit Rules]Inputs directly usedfor providing service

Definition of input is restricted for service providers. Only inputsused directly in providing taxable service are eligible.

If service provider charges separately for material supplied whileproviding service, its cost is not includible. Correspondingly, dutypaid on such material is not Cenvatable.

Instant credit Cenvat credit on input (goods) is instant, i.e. as soon as inputs arereceived in the factory.

Input Service

Input service eligiblefor Cenvat credit Cenvat credit is available of service tax paid on input services.


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Definition of input service is very wide [Rule 2(l) of Cenvat CreditRules]. Inclusive part of the definition expands the scope muchbeyond manufacture or provision of taxable service.

Any service in relationto business is input

service

Decisions in Coca Cola (Bombay High Court) andABB (LB of CESTAT)have cleared most of doubts about interpretation of input service

and it is clear that any relation with manufacture or provision oftaxable service is not required. any service in relation to businessof manufacturer or service provider is input service

Credit only afterpayment of bill

Credit of service tax on input services is available only afterpayment is made of bill including service tax to service provider forservice [Rule 4(7) of Cenvat Credit Rules]

Input Service Distributor and Input Credit DistributorUtilisation of credit ofservice tax paid at HO,depots

Service tax paid at Head Office, Regional/Branch office can beutilised through mechanism of Input Service Distributor. Theyshould be registered and pass credit through invoice [Rules 2(m)and 7 of Cenvat Credit Rules]

Distribution of Credit

through Invoice

The Input Service Distributor can distribute Cenvat credit of

service tax availed by it by issuing an Invoice to its manufacturingunits or units providing output service. The invoice should havedetails as required in Rule 4A(2) of Service Tax Rules.

Distribution can be inany ratio

The distribution of credit can be in any ratio. However, total creditdistributed should not be more than service tax paid on inputservices. If some input service is exclusivelyused for exemptedfinal product/output service, its credit is not available fordistribution by Input Service Distributor [Rule 7].

Credit of excise dutyon input goods

Input Credit Distributor can distribute credit on duty paid on inputs(goods) if invoice received at HO and distributed to other places[Rule 7A of Cenvat Credit Rules]

Since Cenvat credit can be passed through mechanism ofendorsement of invoice, this facility is not much used.

Capital goods eligible for Cenvat creditCapital goods eligiblefor Cenvat credit

Only capital goods as defined in Rule 2(a) of Cenvat Credit Rulesare eligible for Cenvat Credit. Following capital goods are coveredin clause (A)(i) of above definition - Tools, hand tools, knives etc.falling under chapter 82 * Machinery covered under chapter 84 *Electrical machinery under chapter 85 * Measuring, checking andtesting machines etc. falling under chapter 90 * Grinding wheelsand the like, and parts thereof falling under sub-heading No 6804 *Abrasive powder or grain on a base of textile material, of paper, ofpaper board or other materials, falling under chapter heading 6805

Dumpers or tippers falling under chapter 87 are eligible as capitalgoods for Cenvat credit to providers of service of Site formationand clearance, excavation and earthmoving and demolition [section65(105)(zzza)] and Mining of mineral, oil or gas services [section65(105)(zzzy)], if these are registered in name of service providerand zre used for providing taxable service (amendment w.e.f. 22-6-2010). Other service providers and manufacturers are not eligible.

This definition is quite different from capital goods as understood

in conventional accounting or under income tax.Capital goods to be Capital goods should be used in the factory of manufacturer or for


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used in factory provision of output service.Equipment orappliances used inoffice not eligible tomanufacturer

Capital goods does not include equipment or appliance used in anoffice of manufacturer (this restriction does not apply to serviceprovider)

Eligibility of Motorvehicles Motor vehicle is capital goods only in respect of specified serviceproviders [Rule 2(a)(B) of Cenvat Credit Rules]Sending out capitalgoods

Capital goods should be used in factory. These can be sent outsidefor job work but should be brought back within 180 days [Rule4(5)(a) of Cenvat Credit Rules]

Moulds, dies, jigs and fixtures can be sent outside withoutrestriction of return within 180 days [Rule 4(5)(b) of Cenvat CreditRules

Partial use of capitalgoods for exemptedgoods allowable

Capital goods used exclusively for manufacture of exempted goodsare not eligible for Cenvat credit. Thus, partial use for exemptedgoods is allowable i.e. full Cenvat credit is available.

Capital goods on hirepurchase/lease/loan

Capital goods obtained on hire purchase/lease / loan are eligible[Rule 4(3) of Cenvat Credit Rules]

Duty paying documents Duty paying documents eligible are same for Cenvat on inputs.Depreciation shouldnot be availed onCenvat portion

Depreciation under section 32 of Income Tax Act should not beclaimed on the excise portion of the Capital Goods. Rule 4(4) ofCenvat Credit Rules (Otherwise, the manufacturer will get doublededuction for Income Tax - one credit as Cenvat and another creditas depreciation) e.g. if cost of 'capital goods' is Rs 1.16 lakhs, out ofwhich Rs 0.15 lakh is duty paid, assessee can claim depreciationunder Income Tax only on Rs one lakh, if he has availed Cenvatcredit of Rs 0.16 lakh. The requirement gets satisfied only if the

assessee follows accounting procedure specified in guidelinesissued by Institute of Chartered Accountants of IndiaCredit to be availed intwo instalments

Cenvat credit on capital goods is required to be availed in morethan one year, i.e. upto 50% credit can be availed when these arereceived and balance in any subsequent financial year. Thecondition for taking balance credit is that the capital goods shouldbe in possession of manufacturer of final products in subsequentyears. SSI units can avail entire 100% Cenvat credit in first yearitself Rule 4(2)(a) of Cenvat Credit Rules.

Removal of capitalgoods as such, afteruse or as scrap

Capital goods on which Cenvat credit was taken can beremoved as such on payment of amount equal toCenvat credit availed [Rule 3(5) of Cenvat Credit Rules]

If capital goods on which Cenvat was availed areremoved as scrap, an amount equal to duty on scrapvalue is payable [Rule 3(5A) of Cenvat Credit Rules].

If capital goods are cleared after use as second handcapital goods, amount is payable at reduced rate byreducing credit taken @ 2.5% per quarter.

Availment of Cenvat creditWhat is CenvatCredit

CenvatCredit is a pool of duties and taxes paid on inputs, capitalgoods and input services as specified in Rule 3(1) of Cenvat CreditRules.

Procurement of goodsfrom EOU

In respect of inputs / capital goods procured from EOU unit, Cenvatcredit is available equal to CVD and special CVD paid and education


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cess and SAH education cess w.e.f. 7-9-2009 (earlier, it wasallowable as per a complicated formula) Rule 3(7)(a) of CenvatCredit Rules.

Utilisation of Cenvat creditUtilisation for any

eligible purpose

Cenvat credit is a pool. The credit in this pool can be utilised for

payment of any excide duty on excisable final product and servicetax on taxable output service. The credit can also be used forpayment of certain amounts [Rule 3(4) of Cenvat Credit Rules]

Credit only of inputsand services receivedupto end of month

Credit can be utilised only of inputs and input services receivedupto end of the month [First proviso to Rule 3(4) of Cenvat CreditRules] (even if excise duty/service tax is payable at a later date)

Inter-changeability ofcredit of various duties

Credit of Basic excise duty, CVD, Special CVD and service tax canbe utilised for payment of anyduty on final product or service taxon output services, except duty payable u/s 85 of Finance Act onpan masala and certain tobacco products [provisos to Rule 3(4) ofCenvat Credit Rules]

Restrictions on

interchangeability

Cenvat Credit of education cess, NCCD and additional excise duty

paid on inputs under section 85 of Finance Act (and correspondingCVD on imported inputs) can be utilised only for payment ofcorresponding duty on final product i.e. the credit is not inter-changeable.

Credit of special CVD Credit of special CVD (present rate is @ 4%) u/s 3(5) of CustomsTariff Act can be utilised by manufacturer but not by serviceproviders [thirdproviso to Rule 3(4) of Cenvat Credit Rules]

Credit of educationcess and SAHE cess

Credit of education cess paid on input goods and paid on inputservices is inter-changeable. Similarly, credit of SAH Education cesspaid on input goods and paid on input services is inter-changeable.

Duty paying document for availing Cenvat credit

Eligible duty/taxpaying document

Cenvat credit can be availed on basis of eligible duty documents asspecified in Rule 9(1).

Invoice of Manufacturer, Bill of Entry, Supplementary Invoice,Dealers Invoice and GAR-7 challan when service receiver is liableto pay service tax are major eligible documents.

Transit Invoice Credit can be availed on basis of transit invoice i.e. on basis ofinvoice of manufacturer when goods purchased through dealer andname of ultimate buyer is shown as consignee.

No time limit foravailing Cenvat credit

There is no time limit for availing Cenvat credit can be taken evenafter 3/4 years

Credit cannot bedenied on account ofminor defects

There is ample case law that Cenvat credit cannot be denied forminor defects in duty paying document.

Endorsement of dutypaying document

Duty/tax paying document need not be in name of themanufacturer using the input/input services formanufacture/provision of taxable output service. It is sufficient ifthese are endorsed in his name with certificate that endorser hasnot availed Cenvat credit.

Burden of proof Person taking credit must take reasonable steps while availingCredit. Burden of proof of admissibility of Cenvat credit is on him

[Rule 9(5) of Cenvat Credit Rules]Dealers Invoice for Cenvat


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First stage and secondstage dealer can issueCenvatable Invoice

Cenvat credit can be availed on basis of Invoice issued by dealerregistered with Central Excise [Rule 9(1) of Cenvat Credit Rules]

First stage and second stage dealer registered with Central Excisecan issue Cenvatable Invoice. First stage dealer means dealer

purchasing goods from manufacturer or his depot or consignmentagent. They have to submit quarterly return to department within15 days from close of quarter [Rule 9(8) of Cenvat Credit Rules]

Optional refund of 4%special CVD

If the first stage dealer claims refund of special CVD of 4%, thebuyer cannot avail Cenvat credit. (This is not compulsory on dealer.It is optional).

Transit Invoice Transit Invoice is also permissible. In such case, dealer need not beregistered, if name of ultimate buyer is shown as consignee in theinvoice issued by manufacturer.

Cenvat credit of CVDand special CVD onimported goods

Cenvat credit can be availed in respect of imported goodspurchased through dealer, by either issuing dealers invoice or byendorsement of Bill of Entry.

Manufacture of Exempted as well as taxable goods and provider of both exempted andtaxable servicesNo credit if finalproduct/outputservice exempted

Cenvat credit is available only if final product is dutiable or servicetax is payable on output service [Rule 6(1) of Cenvat Credit Rules]

Options available tomanufacturer ofexempted as well astaxable goods andprovider of exemptedand taxable services

If assessee is manufacturing exempted as well as dutiable goodsand/or providing taxable as well as exempt services, and availingCenvat credit, he has three options (a) maintain separate recordsof inputs and input services used for exempt final products/services(b) If common inputs/input services are utilised for exempted aswell as taxable final product, assessee is required to pay 5%

amount on exempted final product or 6% amount on exemptoutput services (b) Pay amount proportionate to credit onexempted final product/output service [Rule 6(2) and 6(3) ofCenvat Credit Rules]

Option cannot bechanged during theyear

Option once availed cannot be changed in the financial year. Theoption is to all exempted goods/services [Explanation I to Rule 6(3)of Cenvat Credit Rules]

Entire credit withoutproportionate reversal

In case of 16 services covered under Rule 6(5) of Cenvat CreditRules, entire Cenvat credit is available without proportionatereversal.

Supplies to SEZ, EOU,exports,

In case of supplies covered under Rule 6(6) of Cenvat Credit Rules[exports, supplies to SEZ/EOU, specified projects], entire credit isavailable without proportionate reversal.

Removal of inputs for sale or job workRemoval of inputs assuch

Inputs on which Cenvat credit was taken can be removed as suchon payment of amount equal to Cenvat credit availed [Rule 3(5)of Cenvat Credit Rules]

Sending inputs for jobwork

Inputs on which Cenvat credit was availed can be sent outside forjob work. These should come back within 180 days [Rule 4(5)(a) ofCenvat Credit Rules]

Direct despatch fromplace of job worker

Direct despatch of final product from place of job worker can bedone with permission of AC/DC for one financial year [Rule 4(6) ofCenvat Credit Rules]

Removal of wasteWaste is final product Waste is final product for excise purposes and duty is payable as if


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final product is being cleared. This applies only if waste isproduced or manufactured and is excisable goods.

Waste not mentionedin Tariff

If a particular waste is not mentioned in Central Excise tariff,neither any amount nor duty is payable at the time of clearance.

Records and returns under Cenvat

Records of Cenvatcredit Manufacturer/service provider is required to maintain records ofinputs and capital goods, records of credit received and utilised.[Rule 9(5) of Cenvat Credit Rules]

Return of Cenvatcredit availed andutilised

Returns of details of Cenvat credit availed, Principal Inputs andutilization of Principal Inputs in forms ER-1 to ER-7 is to besubmitted [Rule 9A of Cenvat Credit Rules]

Revised return Revised return of Cenvat credit can be submitted within 60 days[Rule 9(11) of Cenvat Credit Rules]

Returns by dealers,input servicedistributor

Dealer/service provider/input service distributor is also required tosubmit returns [Rule 9(6) and 9(10) of Cenvat Credit Rules]

Other provisions relating to CenvatSSI to reverse Cenvatat end of year

SSI unit can opt out of Cenvat at end of the year. He has to reverseCenvat credit on inputs in stock as on 31st March [Rule 11(2) ofCenvat Credit Rules]

SSI can take Cenvat ofduty on inputs in stock

When he starts payment of duty during financial year afterexemption is over, he can avail Cenvat credit of duty paid on inputsin stock

Simultaneousexemption

Simultaneous exemption and availment of Cenvat is permissible bySSI only in specified cases.

Cenvat credit toexporter

Exporter of final product or taxable services can avail Cenvat crediton inputs and input services. He can claim refund of Cenvat creditif he cannot utilise the Cenvat credit for payment of duty on sale

made within India on payment of duty [Rule 5 of Cenvat CreditRules]

Refund of credit ofinput services

Merchant exporter can claim refund of specified input services usedwhile exporting final product.

Transfer,amalgamation ofundertaking

If undertaking is transferred, merged or shifted, Cenvat credit canbe transferred [Rule 10 of Cenvat Credit Rules] .

Penalty for improperCenvat credit

Penalty can be imposed for wrongfully taking or utilising Cenvatcredit [Rules 15 and 15A of Cenvat Credit Rules]

Accounting for Cenvatand stock valuation

Accounting for Cenvat should be as per guidance note issued byICAI.

Inventory valuation should be as per AS-2 which requires exclusionof Cenvat credit. However, for income tax purposes, Cenvat credithas to be added in valuation in view of section 145A of Income TaxAct.

Basics of Customs Duty

Customs duty on imports andexports

Customs duty is on imports into India and export out of India. Section12 of Customs Act, often called charging section, provides that dutiesof customs shall be levied at such rates as may be specified underThe Customs Tariff Act, 1975', or any other law for the time being in

force, on goods imported into, or exported from, India.Similarity between excise and There are many common provisions and/or similarities in provisions


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customs Central Excise and customs Law. Administration, SettlementCommission and Tribunal are common. Provisions of Tariff, principlesof valuation, refund, demands, exemptions, appeals, search,confiscation and appeals are similar.

Taxable event in imports In case of imports, taxable event occurs when goods mix with

landmass of India - Kiran Spinning Mills v. CC 1999(113) ELT 753 = AIR2000 SC 3448 (SC 3 member bench).In case of warehoused goods, thegoods continue to be in customs bond. Hence, 'import' takes placeonly when goods are cleared from the warehouse - confirmed in UOIv.Apar P Ltd. 112 ELT 3 = 1999(6) SCC 118 = AIR 1999 SC 2515 (SC 3member bench).- followed in Kiran Spinning Mills v. CC 1999(113)ELT 753 = AIR 2000 SC 3448 (SC 3 member bench).

Taxable event in exports In case of exports, taxable event occurs when goods cross territorialwaters of India - UOI v. Rajindra Dyeing and Printing Mills (2005) 10SCC 187 = 180 ELT 433 (SC).

Territorial waters andexclusive economic zone

Territorial waters of India extend upto 12 nautical miles inside seafrom baseline on coast of India and include any bay, gulf, harbour,

creek or tidal river. (1 nautical mile = 1.1515 miles = 1.853 Kms).Sovereignty of India extends to the territorial waters and to theseabed and subsoil underlying and the air space over the waters.

Exclusive economic zone' extends to 200 nautical miles from thebase-line. Area beyond that is high seas.

Indian Customs Waters Indian Customs waters extend upto 12 nautical miles beyondterritorial waters. Powers of customs officers extend upto 12 nauticalmiles beyond territorial waters.

Type of Customs Duties

Basic customs duty Basic customs duty levied u/s 12 of Customs Act is generally 10% ofnon-agricultural goods, w.e.f. 1-3-2007.

Countervailing Duty(CVD)

CVD equal to excise duty is payable on imported goods u/s 3(1)of Customs Tariff Act to counterbalance impact of excise dutyon indigenous manufactures, to ensure level playing field.

CVD is payable equal to excise duty payable on like articles ifproduced in India. It is payable at effective rate of excise duty.

General excise duty rate is 10.30% w.e.f. 27-2-2010 (10% basicplus 2% education cess and SAH Education cess of 1%).

CVD is payable on assessable value plus basic customs duty. Incase of products covered under MRP provisions, CV duty ispayable on MRP basis as per section 4A of Central Excise.

CVD can be levied only if there is manufacture. CVD is neither excise duty nor basic customs duty. However, all

provisions of Customs Act apply to CVD.

Special CVD Special CVD is payable @ 4% on imported goods u/s 3(5) of Customs TariffAct. This is in lieu of Vat/sales tax to provide level playing field to Indiangoods. Traders importing goods can get refund. CVD is not payable ifgoods are covered under MRP valuation provisions/

Education Cess Education cess of customs @ 2% and SAH Education cess of 1% is payable.


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Total duty Total import duty considering all duties plus education cess on non-agricultural goods is generally 26.85%

Other duties NCCD (national calamity contingent duty)has been imposed on a fewarticles. In addition, on certain goods, anti-dumping duty, safeguard duty,protective duty etc. can be imposed. Cess is payable on some goods

imported/exported.Safeguard duty Safeguard duty can be imposed if large imports are causing serious injuryto domestic industry. In addition, product specific safeguard duty onimports from China can be imposed.

Anti dumping duty Antidumping duty is leviable u/s 9A of Customs Tariff Act when foreignexporter exports his good at low prices compared to prices normallyprevalent in the exporting country.Dumping is unfair trade practice and the anti-dumping duty is levied toprotect Indian manufacturers from unfair competition.Margin of dumping is the difference between normal value (i.e. his saleprice in his country) and export price( price at which he is exportingthe goods).

Price of similar products in India is not relevant to determine marginof dumping.Injury margin means difference between fair selling price of domesticindustry and landed cost of imported products. Dumping duty will belower of dumping margin or injury margin.Benefits accruing to local industry due to availability of cheap foreigninputs is not considered. This is a drawback.CVD is not payable on antidumping duty. Education cess and SAHeducation cess is not payable on anti-dumping duty.In case of imports from WTO countries, antidumping duty can beimposed only if it cause material injury to domestic industry in India.Dumping duty is decided by Designated Authority after enquiry andimposed by Central Government by notification. Provisionalantidumping duty can be imposed. Appeal against antidumping dutycan be made to CESTAT.

Calculations of customs duty

General customs duty rate for non-agricultural goods s 10%. Total customs duty payable w.e.f. 27-2-2010 is26.85% as excise duty rate is generally 10%. Assessable value = CIF Value of imported goods converted intoRupees at exchange rate specified in notification issued by CBE&C plus landing charges 1% (plus some

additions often arbitrarily and whimsically made by customs).

Calculation of customs duty payable is as follows -Duty

% Amount Total Duty

(A Assessable Value Rs 10,000(B Basic Customs Duty 10 1,000.00 1,000.00(C Sub-Total for calculating CVD '(A+B)' 11,000.00(D CVD 'C' x excise duty rate 10 1,100.00 1,100.00(E Education cess of excise - 2% of 'D' 2 22.00 22.00(F) SAH Education cess of excise - 1% of 'D' 1 11.00 11.00

(G Sub-total for edu cess on customs 'B+D+E+F' 2,133.00(H Edu Cess of Customs 2% of 'G' 2 42.66 42.66


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(I) SAH Education Cess of Customs - 1% of 'G' 1 21.33 21.33(J) Sub-total for Spl CVD 'C+D+E+F+H+I' 12,196.99(K Special CVD u/s 3(5) 4% of 'J' 4 487.88 487.88(L) Total Duty 2,684.87(M) Total duty rounded to Rs 2,685

Notes Buyer who is manufacturer, is eligible to avail Cenvat Credit of D, E, F and Kabove.A buyer, who is service provider, is eligible to avail Cenvat Credit of D, E and F above.A trader who sells imported goods in India after chargingVat/sales tax can get refund of Special CVD of 4% i.e. K above

Value for Imports

Assessable Valuefor customs

Customs duty is payable as a percentage of Value often called AssessableValue or Customs Value'. The Value may be either

Value as defined in section 14(1) of Customs Act or

Tariff value prescribed under section 14(2) of Customs Act.

Transaction Valuefor customsvaluation

Transaction value at the time and place of importation or exportation,when price is sole consideration and buyer and sellers are unrelated is thebasic criteria for value u/s 14(1) of Customs Act. Thus, CIF value in caseof imports and FOB value in case of exports is relevant.

Valuation in caseof high seas sale

In case of high sea sale, price charged by importer to assessee would formthe assessable value and not the invoice issued to the importer by foreignsupplier. National Wire v. CC 2000(122) ELT 810 (CEGAT) * GodavariFertilizers v. CC (1996) 81 ELT 535 (CEGAT).

Exchange rate for

customsvaluation

Exchange rate as applicable on date of presentation of bill of entryu/s 46,

as determined by CBE&C (Board) or ascertained in manner determined byCBE&C should be considered.

Valuation Rules Valuation for customs is required to be done as per provisions of CustomsValuation (Determination of Value of Imported Goods) Rules, 2007. Theserules are based on WTO Valuation Agreement.

CIF value pluslanding charges isAV

CIF value of goods plus 1% landing charges (for loading, unloading andhandling) is the basis for deciding Assessable Value.

Additions toAssessable Value

Commission to local agents, packing cost, value of goods and toolingssupplied by buyer, design/engineering work done outside India, royaltyrelating to imported goods, insurance, transportation upto port, shipdemurrage are addible. However, royalty or technical know-howunconnected with goods under imported cannot be added to assessablevalue. If buyer has made, directly or indirectly, any payment to seller as acondition of sale, such payments should be included.

Interest,demurrage notaddible

Interest on deferred payment, demurrage at port is not required to beadded. However ship demurrage is to be added.

Addition of valueof computersoftware

Value of computer software loaded on machine is to be added to value ofmachinery.

Valuation of oldmachinery and

old cars

Old machinery and old cars are often valued on basis of depreciated value,though such method has no sanction of law.

Conditions for Transaction Value, i.e. the price at which the goods are actually sold is the


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acceptingtransaction valueas assessablevalue

primary method and is expected to be used in majority of cases. It can berejected only for special circumstances in section 14(1) and rule 3(2).

The special circumstances in section 14(1) are (a) Buyer and seller shouldnot be related and(b) Price should be the sole consideration for the sale.

As per rule 3(2) of Valuation Rules, conditions for accepting transactionvalue are - (a) There should be no restriction on buyer for disposal of goods(b) sale or price should not be subject to a condition or consideration forwhich value cannot be determined (c) There should be no furtherconsideration to seller of which adjustment cannot be made (d) Buyer andseller should not be related unless the transaction value is acceptableunder rule 3(3).

Methods ofvaluation incustoms

The methods of valuation for customs methods are as follows -TransactionValue of Imported goods [Section 14(1) and Rule 3(1)], Transaction Value ofIdentical Goods [Rule 4], Transaction Value of Similar Goods [Rule 5],Deductive Value which is based on identical or similar importedgoods sold

in India [Rule 7], Computed value which is based on cost of manufacture ofgoods plus profits [Rule 8] and Residual method based on reasonable meansand data available [Rule 9]. The methods are to be applied sequentially.

Distinctionbetweenidentical goodsand similar goods

The major distinction between 'identical goods' and 'similar goods' is thatthe 'identical goods' should be same in all respects, except for minordifferences in appearance, while in case of 'similar goods', it is enough ifthey have like characteristics and like components and perform samefunctions. In both the cases, quality and reputation (including trade markreputation) should be same, goods should be from same country,engineering/development work should not be free.

Valuation of Export goods

Transactionvalue for exportgoods

Customs value of export goods is to be determined under section 14 ofCustoms Act, read with Customs Valuation (Determination of Value ofExport Goods), Rules, 2007. Transaction value is the main criteria forvaluation.

FOB Value to benormallyconsidered

FOB value is normally considered as value for export valuation.However, this can be rejected if there is over valuation (often done toget excess export benefits).

Exchange rate asdetermined byCBE&C

Exchange rate as applicable on date of presentation ofa shipping bill orbill of exportu/s 50, as determined by CBE&C (Board) or ascertained inmanner determined by CBE&C should be considered.

Conditions foracceptingtransactionvalue forassessment

If there is no sale or buyer or seller are related or price is not the soleconsideration, value of the goods will be determined as per ValuationRules.

Methods ofvaluation, iftransactionvalue not

acceptable

If valuation is not possible on basis of transaction value, valuation willbe done by proceeding sequentially through rules 4 to 6 The methodsare - Export value by comparison [Rule 4}, Computed value [Rule 5] andResidual method [Rule 6].


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General Provisions about Customs Procedures

Basic document is

Entry

Entry in relation to goods means entry made in Bill of Entry, Shipping

Bill or Bill of Export. In case of import by post, label or declarationaccompanying goods is entryLoading andunloading atspecified places only

Imported goods can be unloaded only at specified places. Goods can beexported only from specified places.

Computerisation ofcustoms procedures

Customs procedures are largely computerised. Most of documents haveto be e-filed.

Amendment todocuments

Documents submitted to customs can be amended with permission Incase of bill of entry, shipping bill or bill of export, it can be amendedafter clearance only on the basis of documentary evidence which was inexistence at the time the goods were cleared, warehoused or exported,and not on basis of any subsequent document. [proviso to section 149].

ICD and CFS Imported and export goods are usually handled in containers. These canbe stored in Inland Container Depot (ICD) or Container Freight Station(CFS). They function like dry port for handling and temporary storage ofimported/export goods and empty containers.

Boat Notes Boat Notes are used for transferring small cargo from ship to shore, orfrom shore to ship, without berthing the ship.

Transshipment ofgoods

Goods can be transshipped from one conveyance to other afterfollowing required procedure. Such transhipment may be to any majorport or airport in India. The goods can be transshipped to any othercustoms station in India if Customs Officer is satisfied that the goods arebona fide intended for transhipment to any customs station. The

facility is available at all customs ports and Inland Container Depots(ICDs).

Coastal goods Procedures have been prescribed for coastal goods, even if there isneither import nor export.

Import Procedures

e-filing of documents Goods should arrive at customs port/airport only. Most of customsprocedures are computerised. E-filing of documents is required.

Import manifest orImport Report

Person in charge of conveyance is required to submit Import Manifestor Import Report.

Entry Inwards Goods can be unloaded only after grant of Entry Inwards.Risk ManagementSystem

Self Assessment on basis of Risk Management System (RMS) has beenintroduced in respect of specified goods and importers.

Bill of Entry for homeconsumption onpayment of customsduty

Importer has to submit Bill of Entry giving details of goods beingimported, along with required documents. Electronic submission ofdocuments is done in major ports.

White Bill of Entry is for home consumption. Imported goods arecleared on payment of customs duty.

Bill of Entry forwarehousing

Yellow Bill of Entry is for warehousing. It is also termed as into bondBill of Entry as bond is executed. Duty is not paid and imported goods

are transferred to warehouse where these are stored. Green Bill ofEntry is for clearance from warehouse on payment of customs duty. It


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is for ex-bond clearance.Noting, examinationand assessment

Bill of Entry is noted, Goods are assessed to duty, examined and pre-audit is carried out. Customs duty is paid after assessment.

Bond Bond is executed if required if assessment is provisional (PD bond) orconcessional rate of customs duty is subject to certain post import

conditions.Out of customs chargeorder

Goods can be cleared outside port after Out of Customs Charge orderis issued by customs officer. After that, port dues, demurrage andother charges are paid and goods are cleared.

Demurrage ifclearance from portdelayed

Demurrage is payable if goods are not cleared from port/airport withinthree days. Goods can be disposed of if not cleared from port within 30days.

Export Procedures

Entry Outward Loading in conveyance can start after Entry Outward is given bycustoms officer.

Export manifest/Exportreport

Person in charge of conveyance is required to submit ExportManifest or Export Report.

Registration with DGFTand EPC

Exporter has to be obtain IEC number from DGFT is advance. Heshould be registered with Export Promotion Council if he intends toclaim export benefits.

Third party exports Export can be by manufacturer himself or third party (i.e. by exporteron behalf of another). Merchant exporter means a person engaged intrading activity and exporting or intending to export goods [para 9.40of FTP]

Registration ofdocuments under

Export PromotionScheme

Advance authorisation, DEPB etc. should be registered if exports areunder Export Promotion Scheme.

Shipping Mill Export is required to submit Shipping Bill with required documents forobtaining permission to export. There are five forms : (a) Shipping Billfor export of goods under claim for duty drawback - these should bein Green colour (b) Shipping Bill for export of dutiable goods - thisshould be yellow colour (c) Shipping bill for export of duty free goods- it should be white colour (d) shipping bill for export of duty freegoods ex-bond - i.e. from bonded store room - it should be pink colour(e) Shipping Bill for export under DEPB scheme - Blue colour.

FEMA formalities GR/SDF/Softex form (under FEMA) is required to be submitted.

Noting, assessment,examination The shipping bill is noted, goods are assessed and examined. Exportduty is paid, if applicable.Certification ofdocuments for exportincentives

If export is under export incentives, relevant documents are checkedand certified. Then proof of export is obtained on ARE-1.

Let export order Conveyance can leave only after Let Export order is issued.

Baggage, post and courier

What is baggage Baggage includes unaccompanied baggage but does not include

motor vehicles [section 2(3)].


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Baggage includes all dutiable articles imported by passenger or crewbut does not include motor vehicles, alcoholic drinks (beyond limits)and goods imported through courier.

Taking out foreigncurrency and Indian

Rupees

Indians going out can take out any amount of foreign currency aslong as it is obtained from authorised foreign exchange dealer. He

can take out and bring in Indian currency only upto Rs 7,500.Green channel and redchannel

Incoming passenger with no dutiable goods can pass through greenchannel. Passenger with dutiable goods should pass through redchannel.

Customs duty on baggage General rate of duty on import of baggage is 36.05% (35% basiccustoms duty plus 2% education cess plus 1% SAH education cess).One laptop computer is exempt.

General Free Allowance(GFA)

Bona fide luggage including used personal effects are exempt fromcustoms duty. In addition to bona fide luggage and one laptopcomputer, Indian resident or foreigner residing in India over 12 yearsof age is allowed general free allowance (GFA) of Rs 25,000, afterstay abroad for more than three days. GFA is lower when passenger

comes from some countries like Nepal, Bhutan, Myanmar or China.

GFA cannot be clubbed with other person.One laptop exempt Besides GFA, one laptop can be imported free of customs duty.Import of gold and silveras baggage

If a person comes after 6 months of stay, he can bring gold upto 10Kg on payment of customs duty @ Rs 750 per 10 gms (plus educationcess of 3%) and silver upto 100 Kg on payment of customs duty @ Rs1,500 per Kg (plus education cess of 3%).

Import of commercialsamples

Commercial samples can be brought in or taken out withinprescribed limits.

Transfer of residence

(TR)

Additional concession is available if a person transfers his residence

after stay abroad for two years. He is eligible for concessional rateof 15% duty (plus 2% education cess) of goods upto Rs 5 lakhs. Incase of some goods, duty is Nil. He is also entitled to GFA.

In case of mini TR (i.e. person returning after 365 days), usedpersonal effects and household articles upto Rs 75,000 can bebrought duty free, in addition to GFA. However, items specified inAnnex I, II and III as specified in Baggage Rules are not allowed dutyfree.

Baggage by foreigntourist coming to India

and currency he canbeing in

Foreign tourists can bring used personal effects and travel souvenirsfree of duty. Articles upto Rs 8,000 can be brought as gifts duty

free.

If value of foreign currency notes exceeds US $ 5,000 or aggregatevalue of foreign exchange (in the form of currency note, bank notes,traveller cheques etc.) exceeds US $ 10,000, the passenger has tomake declaration in Currency Declaration Form (CDF)

Unaccompanied baggage Unaccompanied baggage can be brought. GFA is not allowed onunaccompanied baggage.

Import through courier and post


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Import throughAuthorisedCourier

Import through authorised courier is treated as normal mode and usualcustoms duty is payable. Authorised Courier should be registered withcustoms. Courier has to file Courier Bill of Entry (in case of imports). Freegifts and samples upto Rs 10,000 per consignment are permitted throughcourier for imports.

Export throughAuthorisedCourier

Authorised Courier has to file Courier Shipping Bill or Bill of Export (in caseof exports). Free gifts upto Rs 25,000 per consignment permitted for export.Samples upto Rs 50,000 can be exported through courier.

Import by post In case of import by post, label/declaration on postal article is treated asEntry. Separate Bill of Entry is not required.

Assessment bycustoms

Postal articles are sent to Foreign parcel Department of Post Office. The listis handed over to Principal Appraiser of Customs. He will inspect mail.Packets suspected of dutiable articles will be opened and examined by him .He will assess the goods and then seal the parcel.

Gifts upto Rs 10,000 are free. Post parcel is exempt if customs duty is uptoRs 100.

Payment ofcustoms duty onpostal articles

Goods will be handed over by postmaster to addressee only on receipt ofcustoms duty payable on the goods.

Basics of SERVICE TAX

Service tax and GST are taxes of 21st century. Service tax was imposed for first time on 3 servicesw.e.f. 1-7-1994 and its scope is increasing every year. Highlights of service tax are as follows

Liability of service taxGeneral background Service tax comes under powers of Entry 97 of List I of Seventh Schedule

to Constitution of India. Service tax was introduced w.e.f. 1-7-1994 andits scope is being expanded every year. Service tax is not payable ifservice is provided in J&K or if provided outside India.

Taxable event inservice tax

Service tax is imposed under section 66 of Finance Act, 1994, which is thecharging section [There is no separate Service Tax Act s such]. Serviceprovided or to be provided is taxable event. Thus, service tax ispayable when advance is received.

Taxable services Service tax is payable under Finance Act, 1994; on about 117 taxable

services as defined in section 65(105) of Finance Act, 1994.Service requires twoparties

Service requires two parties. One cannot give service to himself.

Tax only on value ofservices not on valueof goods

Service tax cannot be levied on value of goods. Service tax and Vat aremutually exclusive.

Rate of service tax General rate of service tax is 10.30% (including education cess and SAHeducation cess) w.e.f. 24-2-2009 [During period 11-5-2007 to 23-2-2009, itwas 12.36%]. In some cases, abatement is available.

Education cess to beshown and paidseparately

Education cess and SAHE cess should be shown separately in invoice andshould be paid under separate accounting head.

Person liable to pay service tax


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Liability of serviceprovider

Service tax is payable by service provider. In few cases, tax is payable byservice receiver, under reverse charge method [Section 68(2)].

Reverse charge In case of Goods Transport Agency (GTA), Import of Service, Sponsorshipservice and Agent of mutual fund and insurance, service tax is payable byservice receiver.

Value for purpose of service taxService Tax on grossamount charged

Service tax is payable on gross amount charged for taxable serviceprovided or to be provided [section 67] (excluding material cost)..

Tax on reimbursementof expenses

Tax is payable on reimbursement of expenses which are part of service,but not on payments made by service provider as pure agent of servicereceiver

Service tax notpayable if amountreceived only as agentof service receiver

Service tax is not payable on amounts collected by service provider fromservice receiver which are not part of service but are paid by serviceprovider to third parties for administrative convenience and thenrecovered from service receiver, even if all requirements of definition ofpure agent are not satisfied.

Value on basis ofsimilar service or cost

If value is not ascertainable, valuation can be on basis of similar serviceoron basis of value which shall not be less than cost.

Gross amount chargedis inclusive of servicetax

Gross amount charged for taxable service is taken as inclusive of servicetax and then tax should be calculated by making back calculations.

Exemption from service taxExemption to smallservice providers

Small service providers whose total value of services provided (includingexempt and non-taxable services) is less than Rs 10 lakhs in previous yearare not required to pay service tax in current financial year till they reachturnover of Rs 10 lakhs. Clubbing provisions can apply. Registration isrequired if turnover exceeds Rs 9 lakhs per annum.

No exemption if

service provided underbrand name of other

The exemption is not available if service is provided under brand name of

other person.

No exemption whenservice tax is payableunder reverse chargemethod

This exemption is not available when service tax is payable by servicereceiver under reverse charge method.

Abatement andsimplified method ofpayment of taxes

In case of some services, abatement is available. In case of some services,simplified method of calculating value of service has been prescribed.

Services to SEZ andSEZ Developer

Services provided to SEZ unit or developer are exempt if wholly consumedwithin SEZ. In case of services consumed by SEZ outside SEZ, refund claim

has to be filed.Services provided byRBI exempt butservices provided toRBI taxable

Services provided by RBI are exempt but service provided to RBI are notexempt.

Classification of serviceService to be classified The classification of services will be determined according to terms

specified in various sub-clauses of section 65(105). [section 65A(1)].

Rules for classificationof service

Ifprima facie, a taxable service is classifiable under two or more sub-clauses of section 65(105), classification shall be effected as per followingrules

(a) Specific description to be preferred over a general description [section65(2)(a)]


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(b) Classification should be as per essential character in case of compositeservices [section 65(2)(b)](c) Service which appears earlier in list of section 65(105), if servicecannot be classified on above basis [section 65(2)(c)]

Exception in case of

port and airportservices

Exception is made in case of port services and airport services, where, if

service is rendered wholly in port or airport, the service will be classifiedas port/airport service irrespective of its classification as per section 65A,

Service should bepredominantly taxable

Service should be predominantly a taxable service. A composite contractconsisting of various services cannot be vivisected.

Composite contractconsisting of goods andservices can bevivisected

An indivisible/composite contract of goods and services can be vivisectedand service part of it subjected to service tax.

New service headmeans service was notearlier taxable

Introduction of new service head means the service was not taxableearlier.

Service excluded fromone head Service specifically excluded from one head cannot be classified underother head.Cenvat CreditCredit of tax/duty paidon input goods, inputservices and capitalgoods

Service provider can avail Cenvat credit of service tax paid on inputservices and excise duty paid on inputs and capital goods. The credit canbe utilised for payment of service tax on output services.

Any service in relationto business is inputservice

Definition of input service is wide. Any service in relation to business isinput service.

Duty paying documentfor availing Cenvatcredit

Credit can be availed on basis of proper and complete specified originalduty paying documents.

Cenvat credit whentaxable as well asexempted servicesprovided

If assessee is providing both taxable and exempt services and if inputservices are common, Cenvat credit can either be taken on proportionatebasis or 6% amount is required to be paid on value of exempted services.

RegistrationProcedure forregistration

Service provider should register within 30 days from date ofcommencement of providing taxable service. Application should be inform ST-1 [Rule 4(1)]. Income Tax PAN, address proof, evidence ofconstitution of firm/company, list of directors/partners are the mostimportant document required. Registration will be deemed to have been

granted if not received within seven days [Rule 4(5)].Application for registration is to be filed electronically. The PAN basedregistration number is generated by system immediately. However,registration certificate is issued by Superintendent in form ST-2 after thedocuments are submitted.

Centralisedregistration

Person providing services from more than one premises or offices canapply for centralised registration, if he has centralised billing system orcentralised accounting system [Rule 4(2)]

Input ServiceDistributor

Input Service Distributors (ISD) require registration. HO or branch or depotcan register as ISD and distribute credit to centres which are providingtaxable services

Procedures to be followedInvoice by service Assessee should prepare invoice in respect of his services. The Invoice


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provider should be prepared within 14 days from date of completion of taxableservice or receipt of payment towards the value of taxable service,whichever is earlier. Invoice should contain prescribed details [Rule 4A]

Payment of service tax If the assessee is an individual or proprietary firm or partnership firm, thetax is payable on quarterly basis within 5 days at the end of quarter

(within 6 days in case of e-payment) except in March. Service tax ispayable by other assessees by 5th of the month following the month inwhich payments are received toward value of taxable services (by 6th incase of e-payment) except in March [rule 6(1) of Service Tax Rules].

Payment of service taxin March

Service tax on value of taxable services received during month of March orquarter of March is required to be paid by 31st March in case of all theassessees.

Payment of service tax

Service tax payable onreceipt basis forcertain services only.

New rule

Notification No. 25/2011-ST dated 31.03.2011- recent..

Exception in case ofassociated enterprises

The exception is that in case of service provided to associatedenterprises, service tax is payable as soon as book entry is made in thebooks of service provider (when he is liable) or service receiver (when heis liable to pay service tax under reverse charge method).

Advance payment ofservice tax

A person liable to pay service tax can pay any amount in advance towardsfuture service tax liability. After such payment he should informSuperintendent of Central Excise within 15 days [Rule 6(1A)]. When headjusts the advance, he should indicate details in the subsequent returnfiled

GAR-7 challan and e-

payment

Tax is payable by GAR-7 challan using appropriate accounting code. E-

payment is compulsory to those who are paying service tax of more thanRs 10 lakhs per annum. For others, e-payment is optional.

Interest for latepayment of service tax

Mandatory interest for late payment of service tax is 13% [section 75]. Itcannot be reduced or waived.

Returns under service taxHalf yearly return Every person liable to pay service tax has to submit half yearly return in

form ST-3 in triplicate within 25 days of the end of the half-year [Rule 7].Late fees upto Rs 2,000 are payable if return is filed late.

Self Assessment Assessment is basically self assessment. Provisional assessment ispermissible.

Demands

Administration byexcise department

The service tax is administered by excise department. Adjudication orderis issued by excise officer.

Demand if tax shortpaid

If service tax was short paid, demand can be raised within period of oneyear from relevant date. If the short payment or non-payment was onaccount of suppression of facts or wilful mis-statement with intention toevade, demand can be raised within period of five years.

Rectification of order Order passed by Central Excise Officer can be rectified by him within twoyears. Only mistake apparent from records can be rectified [section 74].

Appeal against order ofdemand

Both department or assessee can file appeal before Commissioner(Appeals) against order of demand of duty and penalty of officer lowerthan Commissioner.

Penalties and appealsPenalty for late If service tax is not paid or belatedly paid, penalty will be minimum Rs.


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payment of service tax 200 per day or @ 2% per month, whichever is higher, starting with thefirst day after due date till date of actual payment of outstandingamount. Penalty cannot exceed the service tax which was payable[section 76]. Penalty can be reduced if sufficient cause is shown [section80].

No penalty if servicetax and interest paidon own before SCN

No penalty can be imposed if service tax and interest is paid before showcause notice, except in case of fraud, suppression of facts etc.[Explanation 2 to section 73(3)]

Penalty forcontravention of rules

There is heavy penalty for contravention of rules, not obtainingregistration, not maintaining books of account, not paying taxelectronically etc [section 77]. Penalty can be reduced if sufficient causeis shown [section 80]. No penalty can be imposed if service tax andinterest is paid before show cause notice, except in case of fraud,suppression of facts etc. [Explanation 2 to section 73(3)]

Penalty for fraud,suppression of facts.Wilful mis-statement

If non-payment was on account of fraud, suppression of facts etc.,penalty shall not be less than amount of service tax but can be upto twicethe amount of service tax amount of service tax not levied or not paid or

erroneously refunded. Penalty will be reduced to 25% if paid with tax andinterest within 25 days of receipt of order [section 78]. Penalty can bereduced if sufficient cause is shown [section 80].

Appeals toCommissioner(Appeals)

Appeal against order of authority lower than Commissioner lies withCommissioner (Appeals), by assessee or as well as by department [section85].

Next appeal toTribunal

Appeal against order of Commissioner (Appeals) or Commissioner lieswith Appellate Tribunal (Customs, Excise and Service Tax AppellateTribunal) [Section 86]. Further appeal lies with High Court and SupremeCourt. Appeals can be filed both by assessee and department.

Export of Service

No tax on export ofservice

No service tax is payable if taxable service is exported as per Export ofService Rules.

Refund if tax paid onexported service

No tax is payable on export of service. If paid, it is refundable.Rebate/refund of service tax paid on input services is obtained if taxableservice is exported

Conditions to treat aservice as export

Common condition in respect of all taxable services, for treating theservice as export of service is that payment for such service is received bythe service provider in convertible foreign exchange. In addition, thereare some conditions based on the category of service (e.g. immovableproperty outside India, service perfo

Customs & Service

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