Overview of Central Excise Law and Procedures

7/30/2019 Overview of Central Excise Law and Procedures

1/38

Overview of Central Excise

Law & ProceduresMadhukar N Hiregange.Bcom, FCA, DISA(ICAI)


2/38

Levy of Central Excise =

Cenvat Indirect tax more than 2300 yr old in

India

Whole of India

On produce / manufacture in India

Not on Goods but Activity

Ownership immaterial

Slowly moving into a value additiontax rather than manufacturing tax


3/38

Cenvat/ ED- A duty on

-> goods

-> which are excisable

-> manufactured in India -> for home consumption

-> at rates specified

-> on value as defined -> with set off of previous duty

-> on removal


4/38

Excisable Goods

Goods movable and marketable

Immovable means permanently attached to

the ground. Now it maybe preferable to opt for making

goods liable rather than not.- credits areavailable to manufacturers/ serviceproviders.

Not to Items in State list List II VIIschedule of Constitution Of India.


5/38

Manufacture 2(f)(i)

Any process incidental or ancillary tothe completion of a manufactured

product New product with Distinct Name,

Character and Use Emerges

A converted to BA to A+ or A- may not be manufacture

( possible under Service Tax)

Trade understanding important

.


6/38

Sec. 2(f)(ii)

Specified in Chapter Notes asamounting to manufacture (84

heading an sub headings) Packing, Re-packing, Labelling, Re-

Labelling, drawing, Mixing, Diluting

etc. Trader can be called a manufacturer

Consumer products food, cosmetics,

chemicals, fabrics, breaking ships etc


7/38

2(f)(iii)- Activities of

packing etc Deems the activity of packing, labeling, affixing price

tax or alteration of the price tag or any other

processes to render the goods marketableApplicable for the goods listed in Schedule III to the

Act (96 headings)

Mainly food, chemicals, cosmetics, lubricants, tiles,white goods- pressure cookers, razors, automobileparts etc)


8/38

Classification &

Exemption Not specified in CET unworkable

machinery

Specified but no rate set out Attracting Nil rate rice, wheat

Exempted agarbattis

Left Hand side Rule Exemptions cost benefit analysis

Exemptions- conditions to be followed.


9/38

Small Scale Exemption

Not.8/2003 as amended.

One of more manufacturers from one

factory By one manufacturer from one or

more factories.

All products/ locations to beconsidered.

Not available for Branded goods unlessin rural area


10/38

8/2003

OE supplies possible within 150 lakhs

Eligible units less than 400 Lakhs of

manufactured products ( including nilrate)

Eligibility upto Rs..150 lakhs ONLY. Nocredit. Net effect saving of 0-16 lakhs or

loss of 0-12 lakhs depending oncustomer.

Exports/ Branded goods/As suchremovalsnot considered for thecalculations


11/38

Locational Exemptions

North East of India

Kutch

Jammu & Kashmir Himachal Pradesh

Chattisgarh 3 years time provided

Uttaranchal - same ++ No IT, CST 1% - in short time maybe

closed.


12/38

Options for Exports

Scheme Duty drawback of Customs and/or CE

DEPB Scheme

AdvanceAuthorisation (DEEC)

DFRC Scheme

EPCG Scheme Procurement of goods w/o payment of

duty.


13/38

Job Work- Options

Rule 4(5)(a)- Direct, JW-.> JW, DirDes. CG for JW

214/86

Loan Licensee

83 & 84/94

Govt/ Defence Not.

On payment of Duty


14/38

Self Assessment

Onus on the manufacturer to comply

Ensure that payments are made in

time

Ensure that returns are filed in time

Material movement documented well

Ready for the Visits by DeptPreventive

Ready for Audits by Dept.


15/38

Demands- Appeals etc.

Show Cause Notice

Reply/ Personal Hearing

Adjudication / Order Appeal to C(A) + Stay Appl

PH / Order

Appeal to Trib + Stay

High Court

Supreme Court

Alternative Settlement Commission


16/38

Extended Period when

not applicable Details rqd already with dept.

difference of opinion

assessee under bona fide belief

dept. aware

No deliberation proved Elements of mens rea absent

Removal took place under cover of

invoice


17/38

Audit Party

It is an audit not an investigation.

Should be after adequate notice wherein

what is the time period should bementioned.

If extension reqd another letter maybe sent.

No power to force reversal.

They are to provide info to Range whowould seek compliance and if assessee feelsdifferent and they are convinced on liability

SCN to be issued.


18/38

Self Check- Value additive

Since this area has considerable costsinvolved internal audit of this area

required. Advantages: -> Compliance with laws

-> No surprises

-> Past period demands avoided -> Benefits under law claimed

IDEALY AN INDIRECT TAX AUDIT


19/38

Cenvat Credit Rules 2004

Madhukar N HiregangeBCom, FCA, DISA(ICAI)


20/38

To Whom Credit is

available? To Manufacturers under Central Excise

To Mfr. & Taxable Service

Providers(SP)

To Mfr. & Tax. & Non Taxable SP

To Taxable SPs

To Taxable & Non Taxable SPs

To Job workers paying duty onconsumables


21/38

Credit of which duties

and taxes? Central Excise duty BED, SED,

Additional duty of customs on imports.

Additional duty of excise T & T and GSI.

Education cess & SHE Cess Credit onExcise Duties.

Service tax. Education cess & SHE Cess Credit on

Service Tax.

NCCD duty, Cess on Tea


22/38

Credit on what basis?

Excise duty credit based on exciseinvoices and bills of entry & challans

raised by the large tax paying unit Excise duty invoice of manufacturer,

dealer, depot, importer, consignment

agent. Service tax invoice, challan of input

service provider and input servicedistributor issued on or after 10.9.2004.


23/38

Conditions- Inputs

Eligible input/input service as per definition

On valid document- Invoice with details,

Banking company Advise / counterfoil From genuine sources

The connection should be established ingeneral

Account of usage maybe necessary.

Receipt into the premises of service provideris not must.


24/38

Conditions for credit-

Capital Goods Eligible as per definition

Not used exclusively in exempted goods/

service Upto 50 % in year of receipt and Balance

(50) % in any subsequent year ofpossession. Not required for moulds, dies,

tools etc.,

No depreciation on credit claimed

Receipt into the premises of service provider

is must.


25/38

Conditions Input

Services Used by manufacturer whether directly or

indirectly in or in relation to manufacture &

clearance of products upto place of removal Used by taxable service provider for

providing an output service

And includes initial services ( modernisation,

repairs, sales promotion, and activitiesrelating to businesssuch as auditing,.


26/38

Credit Bifurcation

Services exclusively used in nontaxable services ( trading) No Credit

Services exclusively used in taxableservices- 100%

Specified common services (16)100%

( AMC, Security, Construction..)

Other common servicesproportionate

As er formulae


27/38

Utilisation

Cenvat Credit on Inputs/ CG Can be usedfor paying CED, ST,Cess

ST credit on input serv Can be used forpaying the CED, ST, Cess

Additional duty of Customs @ 4% is notavailable for paying ST.

Cess Credit can be used only for CessPayment

Same for NCCD, AED


28/38

Credit in case of

exempted goods Inputs/Input service used exclusively for

exempted goods No credit

Inputs/Input service exclusively used formanufacture of excisable goods Full Credit

Inputs partially used for excisable andexempted

Option 1. Separate records - take credit onlyused for that used in excisable goods.

Option 2. No separate records take creditbased on the computations prescribed under

Rule 6


29/38

Input Service Distributor

The Head Office, Sales Office,Corporate Office may spend centrally

on services These may need to be distributed for

the credit to be availed at each of thepremises of multiple registration

entities. By way of an invoice the same can be

spread out.

Presently no norms on the % ages.


30/38

Refund for exporters

Rule 5 - Cenvat + ST credit refundavailable to manufacturer clearly

Specific refund for services specifiedunder Not 18 & 19/2009 as amended (many of the services supposedly after

removal) Not available for deemed exports


31/38

Valuation Under Central

ExciseMadhukar N Hiregange

Chartered Accountants


32/38

Valuation for Sale

Section 4A- MRP based less abatements

Different MRP for different regions

Composite of other items Transaction Value Sec 3(2) Tariff Rate- Cigarettes, Sugar

Sec 4 TV - Invoice Price if at arms length,

time and place of delivery, not relatedparties, no additional consideration


33/38

Modes of Valuation

Transaction Price - Invoice price when:

- Time of delivery is point of sale

- Place of delivery is point of sale

- Not to related person

- No additional Consideration Accrues


34/38

What is a sale ? Section 2(h) sale with its grammatical

variations and cognate expressions,

means any transfer of thepossession of goods by one personto another in the ordinary course of

trade or business for cash or deferredpayment or other valuableconsideration.


35/38

Modes of Valuation

MRP- Sec. 4A

On Goods reqd to

have printed rates-Weights &Measures Act

Specified

On MRP -Abatements

Tariff Rates-3(2)Sugar, Pan Masala,

Branded Regd.Garments

Deemed Mfr- 2(f)(ii) Chemical,

Garments,Cosmetics, Drawing.


36/38

Valuation - Not a sale

Sample

Warranty Gifts/Donations

Captive Cons

Supply of Dies/Moulds

Interest on adv Related Persons

As Per Central

At comparable

--

COP + 10 %

Add Prorated value

Duty on Notional

At Relatives SP

Valuation Rules


37/38

Valuation Job Work

Under Valuation Rules 2000

Ujagar Prints Grey Fabrics-now it is governed byRule 10A

Material Cost (FOC) + Packing material (FOC) Cost+ Job Work charges of others paid directly bycustomer + freight upto Job Worker premises +Unloading + Materials used by Job Worker +Conversion cost-now it is governed by Rule 10A

Less Cenvat credit on all the inputs-now it isgoverned by Rule 10A

PRESENTLY BEING REVIEWED


38/38

Questions??

[email protected]

[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]

Overview of Central Excise Law and Procedures

Documents

Transcript of Overview of Central Excise Law and Procedures