Excise Duty

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Transcript of Excise Duty

1 CHAPTER - 1 CONCEPTUAL FRAMEWORK 1) Direct Vs Indirect Taxes: Taxes Direct Taxes I) Income Tax, Wealth Tax Ii) Paid directly by person concerned iii) Tax payer pays directly from his Income or wealth IV) Paid after income reaches hands of Tax payer 2) Indirect Taxes Central Excise, Customs, Service tax Central Sales Tax, VAT, State Excise Tax ii) Paid by one person but he records the same from other person iii) Tax payer pays while purchasing goods and / or services IV) Paid before goods/ services reach the tax payer I)

Advantages of Indirect Taxes Psychological advantage to tax payer Easier to collect Less tax evasion Lower collection cost Control over wasteful expenditure Channelise industrial growth Support local industry [ High Customs Duty low Excise Duty] High revenue [ 71% of tax revenue ]

3) Disadvantages of Indirect Taxes: Tax is uniform whether purchased by rich or poor Reduces demand of goods Increases project cost Shield to inefficient local industries Cost of modern imported m/c & technology Smuggling / tax evasion Inflationary 4) Laws Relating to Central Excise Central excise Act 1944 Central excise rules Central excise valuation rules (2000) Central excise tariff Act (CETA) 1985 Additional duties on goods of SP. Importance Act. 1957 Customs excise & service tax appellate tribunal (CESTAT ) procedure rules 1982 Notifications issued by central excise Deptt. Circulars issued by central excise Deptt.

2 5) Important features of Excise Duty (E.D.) Power to impose E.D. is given by constitution to Central Govt. Power to impose E.D. on liquor, opium & narcotics to S. Govt. Any article can be levied C.E. duty if all following conditions are satisfied : a) Duty is on goods [movable & Marketable b) Goods must be excisable i.e. mentioned in schedule to CETA 1985 c) Goods must be manufactured or produced d) Such mfg. or production must be in India Goods manufactured in SEZ are excluded excisable gods& no E.D. is livable on such goods Taxable event is manufacture or production in India Once duty liability is fixed, it can be collected from a person at time & place found administratively most convenient for collection Liability to pay E.D. is on manufacturer or producer of excisable goods. When goods are stored in a warehouse without payment of duty the liability to pay duty is on person who stores goods i.e. warehouse keeper. Duty payable is as applicable on date of removal Duty is payable even when Goods are used within factory Goods are captivity consumed within factory for further manufacture Goods given as free samples Goods given as free replacement Duty can be levied on Govt. undertaking also E.D. should be considered as manufacturing expenses & should be considered as an element of cost for inventory valuation Goods manufactured or produced in SEZ are excisable goods but no duty is leviable on these goods 6) Types of Excise Duty i) Basic Excise Duty : (BED) Also termed as CENVAT Levied as per rates specified in Sch. I of CETA 1985 General rate is 16% There is partial exemption to few products ii) Special Excise Duty. (SED) Charged on items given in Sch. II of CETA 1985 At present there is no SED on any product iii) National calamity contingent duty (N.C.C.D) In additional to BED Imposed only on specified goods Various for different goods from 10% to 45% If goods are exempted from Excise duty they are

3 Exempted from N.C.C.D. also. iv) v) vi) 7) Additional Excise Duty on Pan Masala & Tobaco products: Introduced w.e.f. 1-3-2005 Imposed by way of surcharge Payable @10% of aggregate of normal rate of Excise duties For Pan Masala mfd. / unmfd. Tobaco, Cigars, Cigarettes Education Cess: Payable on C.E., Customs, Service Tax, Income Tax Calculated on all duties of Excise @ 3% on duty payable. Thus if duty rate is 16% education cess is 0.48% Duties payable under other Acts: Medical & Toilet preparations Additional duty on mineral products Cess on certain products such as automobiles, Beedis, Jute sugar, Coffee, Tea, etc.

Important Definitions: i) Goods

To levy Excise Duty article is considered as goods if it satisfies following two conditions: a) It must be movable b) Must be marketable i.e. capable of being bought or sold ii) Excisable goods : These are the goods specified in schedule to CETA 1985. Only these goods can be levied Excise Duty as per the rates specified in the schedule iii) Produced The word produced covers a) b) c) d) Items like coffee, Tea, Tobaco, dairy products etc. which are produced Live products like horse, flower, fish etc. which are produced. By products, scrap etc. which are not manufactured buy they get produced. It also covers manufactured goods.



Manufacture: a) b) c) d) e) Includes any process incidental or ancillary to the completion of manufactured product Any process specified in schedule I of CETA 1985 as amounting to manufacture [ 35 process given in CETA 1985 ] In case of goods specified in 3rd schedule to CETA repacking, relabeling, putting or altering M.R.P. is treated as manufacture [Both above are deemed mfg.] As per various courts decisions manufacture takes place only when process results in a commercially different article or commodity Following are instances when mfg. has taken place Mfg. of table from wood Conversion of pulp into base paper Conversion of sugarcane to sugar


Manufacturer: a) b) c) d) e) The liability to pay duty is on manufacturer Duty cannot be recover from his purchaser Demands for Excise Duty are raised & recovered form manufacturer Manufacturer is a person who actually manufactures or produces excisable goods. Thus person who transforms commodity into another commodity having distinct name & character is the manufacturer.


Job Worker

The manufacturer can send inputs for job work. Following are eligible to send materials for job work (a) Manufactures (b) Exporters (c) Units in SEZ, FOU, and EHTP & STP (d) who are supplying final products to United Nations or international organization for their official use or to project funded by them. If job worker is actual manufacturer, he cannot avoid duty liability even if there is agreement with principal that principal would meet all duty liabilities of manufacturer Duty liability is of the job worker who actually manufacturer the goods, unless the raw materials supplier undertakes the responsibility of paying duty

5 CHAPTER 2 CLASSIFICATIONS OF GOODS 1) Once the liability of payment of excise duty / customs duty is established, the next question is what the amount of duty payable is. The two step process is (a) Correctly classify the goods, to find out rate of excise /customs duty (b) Find its assessable value to which the rate of duty is to be applied for calculating amount of duty payable. The rate of duty is found out by classifying the product in its appropriate heading under central excise tariff / customs tariff. The Central Excise Tariff Act, 1985(CETA) classifies all the goods under 96 chapters and specific code is assigned to each item. There are over 1,000 tariff headings and 2,000 subheadings. This classification forms basis for classifying the goods under particular chapter head and sub-head to prescribed duty to be charged on that particular product. Central Excise Act (CEA) and Central Excise Tariff Act. (CETA) are linked together as follows (a) Section 2 of CETA states that rate at which duties of excise shall be levied under CEA are as specified in schedule to CETA (b) Section 3(1) of CEA specifies that duty shall be levied and collected on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the schedule to the Central Excise Tariff Act (CETA). Thus both Acts are linked to each other. Both Excise and customs Tariffs contains schedules. Schedules to Central Excise Tariff Central Excise Tariff consists of three schedules the first schedule gives basic excise duties (i.e. Cenvat duty) leviable on various products, while second schedule gives list of items on which special excise duty is payable. Items included in second schedule are already covered and included in first schedule. (The second schedule has lost relevance contains item covered under MRP valuation provision, which are covered under deemed manufacture provisions. Central Excise Tariff is divided in 20 sections, while there are 21 sections in case of customs tariff. A section is a grouping of a number of chapters which codify a particular class of goods. Each of the sections is related to a broader class of goods e.g. Section I is Animal Products Section VII is Plastics and Articles thereof Section XI is Taxtile and Textile Articles, section XVII is Vehicles, Aircrafts, Vessels and associated transport equipment, etc. Section Notes are given at the beginning of each Section, which govern entries is that Section. These notes are applicable to all Chapters in that section. Each of the sections is divided into various chapters and each chapter contains goods of one class. For example, section XI related to Textile and Textile Articles and within that section, chapter 50 is Silk, Chapter 51 is wool, Chapter 52 is cotton,




5) 6)

6 and Chapter 53 is other vegetable textile fabrics, Chapter 61is articles of Apparel and so on. There are 96 chapters in Central Excise Tariff out of which Chapter 77 is blank. In customs Tariff, there are 99 chapters out of which chapter 77 is blank, which is kept reserved for future use. Some chapters are divided into sub-chapters e.g. chapter 72 (Iron and steel) is divided into I primary materials, II Iron and Non-Alloy Steel, III Stainless Steel and IV Other Alloy steel. 7) Each chapter and sub-chapter is further divided into various headings depending on different types of goods belonging to same