CENTRAL EXCISE

A BIRD’S EYE-VIEW

------- By R.K.DEODHAR

INTRODUCTION What is tax

Lord Justice Holmes of U.S. Supreme Court has defined tax as under –

“Tax is the price which we pay for the civilized society”.”

Types of taxes Taxes are broadly classified into two categories as –

Direct Taxes.Indirect Taxes.

Direct taxes are paid and borne by the same person whereas

Indirect taxes are paid by one person and borne by another person.

Examples of Direct Tax: are Income Tax, Wealth Tax, Gift Tax.

Examples of Indirect Tax: are Excise, Customs, Sales Tax, Service Tax.

In 1990-91, share of Indirect Taxes was about 80% of the total tax revenue whereas that of Direct Taxes was 20%. In 2008-09, share of Indirect Taxes was 48% and the share of Direct Taxes has increased to 52%. Share of Central Excise duty alone was 27% and share of Customs Duty was around 25%. Share of Income tax was 20% and that of Corporate Tax was 28%. In the financial year 2007-08,first time the collection from Direct Taxes exceeded Indirect Tax collection. Service tax has been introduced from 1994 and its share is 10% of the Total Tax Revenue in the year 2008-09.

Constitutional Background Constitution of India came into existence on 26th

January, 1950 and it is the Supreme Law in the country. All the laws and rules are subordinate to the

Constitution. India is a union of states. Central Governments has certain powers and State Governments/ Union Territories have certain powers.

Article 246 of the Constitution indicates the bifurcation of these powers and the details are listed in three lists of the Seventh Schedule of the Constitution.

List I.( Union List.) contains the matters which can be dealt with by Central Government. e.g. Defence. Foreign Affairs, Banking etc.

List II (State List) Contains the matters which can be dealt with by State Government. e.g Public Health, Police, Agriculture etc.

List III ( Concurrent list ) contains the matters which can be dealt by both Central Government as well as State Government. e.g Criminal Law, Trust, Trade Unions etc.

Excise Duty and Sales Tax appear in Union List as well as State List. Excise duty levied under Union List is called Central Excise duty and the excise duty levied under State List is called State Excise duty. Similarly, Sales Tax is also divided into two types viz., Central Sales Tax and State Sales Tax.

State Excise duty is levied only on three goods viz., Alcoholic Liquor, Opium and Narcotics and on all other goods manufactured in India, Central Excise Duty is levied. Central sales tax is collected on the sale of goods which takes place in the course of Inter-state trade whereas state sales tax is collected if the goods are sold within the state.

Landmark changes in Central Excise Law:

In India, Excise Duty was first levied on cotton yarn in 1894, and then gradually on other products like Motor Spirits (1917), Kerosene (1922), Silver (1930), Sugar and Matches (1934). Many more goods got covered under the net of Excise duty after 1943.

In 1944, a consolidated Act was passed, viz., Central Excises & Salt Act, 1944 which is still in force with the changed name as Central Excise Act, 1944.

Earlier each commodity was covered under the Tariff item but with the enactment of Central Excise Tariff Act, 1985, the goods are classified under various Chapter Headings based on the classification under Harmonised System of Nomenclature (HSN).

To avoid cascading effect (i.e. tax on tax) of taxation, MODVAT (Modified Value Added Tax) scheme was introduced with effect from 1.3.1986 which is now known as CENVAT (Central Value Added Tax) scheme with effect from 1.4.2000.

MODVAT was introduced only for certain inputs in 1986 but was extended to Capital Goods also with effect from 1994.Today,practically all the inputs are covered under Cenvat Credit scheme with major types of Capital Goods.

In 1992, Excise licensing (on annual basis) was scrapped and was replaced by one time registration.

In 1994, system of Excise Gatepass and submission of Price List was abolished and was replaced by Excise Invoice.

In the same year, Dealer’s Registration was introduced covering First Stage and Second Stage Dealers.

In 1995, submission of Classification List was abandoned. Self assessment procedure was introduced w.e.f. 1996.

In 1999 the rates of Central Excise Duty were reduced from 22 to only three, i.e, 8%, 16% and 24% and since 2000, most of the goods attract 16% duty.

In 2000, all statutory records were abolished and a new Section 4 and Valuation Rules were introduced for the purpose of valuation of goods

Central Excise Rules, 1944 were scrapped w.e.f. 1.4.2001 and new set of rules was introduced.

In 2004, new Cenvat Credit Rules, 2004 were introduced in which the Excise Duty as well as Service Tax were included for the first time.

Legal Framework of Central Excise Law

a) Central Excise Act, 1944: This is the basic Act providing charging of duty, valuation, offences and penalties, powers

and duties of officers, adjudication and appeals etc.b)Central Excise Rules, 2002: These deal with the detailed

procedures of Central Excise Law.c)Cenvat Credit Rules, 2004: These cover the provisions

relating to Cenvat credit on inputs and capital goods as well as on Service Tax..

d)Central Excise (Appeals) Rules, 2001: These rules cover the appellate procedure.

e)Central Excise Valuation ( Determination of Price of Excisable Goods) Rules, 2000 :- These rules deal with the valuation of goods where valuation is not possible under section 4 of the Central Excise Act, 1944.

f) Central Excise (Settlement of Cases) Rules, 2001 :- These contain the provisions where assessee wants to settle the dispute with the Government. g) Central Excise (Removal of goods at concessional rate of duty for manufacture of Excisable Goods) Rules 2001:- These relate to the procedure for removing the goods under special circumstances.h) Central Excise Tariff Act,1985:-This Act classifies all the goods into various Sections,Chapters & Chapter-Headings & rates of duties.i) CEGAT(Procedures) Rules,1982:- These provide for the procedures to be followed in CEGAT(now called CESTAT i. e. Central Excise & Service Tax Appellate Tribunal.)j) Notifications:- These are issued by Ministry of Finance & are of two types viz. C.E. Notifications & N. T.(Non-Tariff) Notifications- C.E. Notifications are issued when there are any changes in the rates of duty whereas N.T.

Notifications are issued prescribing the changes in the Central Excise Rules & Procedures.k) Board Circulars:- Central Board of Excise & Customs, the highest administrative body in Central Excise & Customs, issues Circulars giving clarifications on various matters.l) Trade Notices:-These are issued by Chief Commissioners & Commissioners of Central Excise & Customs giving clarifications & prescribing procedures.m) Case-Laws:-CESTAT, High Courts & Supreme Court gives various judgments in the Central Excise matters which are bindings on the Trade as well as on the Department.

Administrative Set-Up of Excise Department Ministry of Finance | Central Board of Excise & Customs | Chief Commissioner | Commissioner | Additional Commissioner | Joint Commissioner | Deputy Commissioner | Assistant Commissioner | Superintendent | Inspector

NATURE OF EXCISE DUTYConstitution Of India

Entry number 84 of List I (Union list) of Seventh Schedule to the Constitution of India reads as follows:“Duties of Excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol, opium and narcotics.”

Central Excise Act, 1944 Section 3(a) of the Central Excise Act, 1944 states that “there shall be levied and collected in such manner as may be prescribed duties on all Excisable goods (excluding goods produced or manufactured in Special Economic Zone

which are produced or manufactured in India and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985).”

Basic Conditions 1] The duty is on goods. 2] The goods must be excisable. 3] The goods must be manufactured or produced in India.

Goods Manufactured In S.E.Z are not “Exempted

Goods” but “excluded goods.” Taxable Event

Taxable Event is that event, which on its occurrence, creates or attracts the liability – Supreme Court –

Good Year India Ltd. Vs. State Of Haryana – (1990) 76 STC 71. Manufacture or production in India of an Excisable

article is a taxable event for Central Excise, though duty can be levied and collected at a later stage for

administrative convenience – S.C. – Shree Synthetics Ltd.

Vs. UOI – 1999 (113) ELT 774. Removal from factory is not a taxable event.

Person Liable To Pay Excise Duty Every person who produces or manufactures any Excisable goods or who stores such goods in a warehouse, shall pay the duty. [Rule 4 (1)]. In case of molasses manufactured in Khandsari Sugar

Factory, the duty is payable by the person who procures it – Rule 4 (2).

Normally, the person who actually manufactures the goods is liable to pay the duty. In case of job work, if the conditions under Not. No. 214/86 dated 25.03.86 are satisfied, the job worker is exempted form paying the duty as the raw material supplier undertakes the duty payment. Similarly, if the goods are falling under CH. No 61 or 62 (i.e, Readymade garments), the raw material supplier is liable to pay the duty – Rule 4 (3).

Duty is payable even if not collected from the customer.

Rate Of Duty Though the taxable event is ‘manufacture’, duty becomes payable on the removal of goods from the factory and the rate of duty will be the rate which is applicable on the date of removal of goods – Rule 5. In case of molasses, the rate will be the rate applicable on the date of receipt of molasses in the factory of the procurer.

Types of Excise DutyBasic Excise Duty (also known as Cenvat) is levied on all manufactured goods mentioned in First Schedule to Central Excise Tariff Act, 1985.Ad – Valorem Rate of duty is the duty which is based on the value of goods.Specific rates of duty is the duty which is fixed per unit of measurement of the goods e.g, per number, per M.Ton etc.

Other Duties In addition to Central Excise duty, following duties are also levied on certain goods – a) Excise duty in case of clearances by EOU/FTZ/SEZ: (Equal to Customs Duty) b) National Calamity Contingent Duty. c) Additional duty on goods of special importance. d) Additional duty on textile articles. e) Duty on medical and toilet preparation. f) Cess:- Cesses are of various types but

following two types are very common- i) Education Cess – 2% on Central Excise Duty. ii) Secondary & Higher Education Cess – 1% on

Central Excise Duty.

Manufacture, Goods and Excisable Goods.Definition Of Manufacture: There is no definition of ‘manufacture’ under Central Excise Law.Section 2(f) of the Central Excise Act, 1944 states as under – “Manufacture includes any process – a) incidental or ancillary to the completion of manufactured product and b) which is specified in relation to any goods in Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, or c) which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container, or labeling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.

Manufacture and Production The word production is used to cover items like tobacco, tea, coal, ores, etc i.e, basically which is made available from earth or by plantation. The word ‘manufacture’ is used to denote the goods which are brought into existence by human efforts and with the help of machines etc i.e, basically in the factories.Most of the items which are ‘produced’ are either not excisable at all or are exempt from duty.

Concept of ‘Manufacture’ as per CourtsSince there is no exhaustive definition of ‘manufacture’

in Excise Law, the definition has been emerged out of decided Case laws by the courts and the tribunals. The most

important Case regarding ‘manufacture’ is Union Of India Vs. Delhi

Cloth Mills Co. Ltd. – AIR 1963SC 791 = 1977(1) E.L.T 199.

Supreme Court has ruled out in this case that “manufacture implies a change but every change is not

a manufacture. From manufacturing process, a new and different article must emerge having a distinctive name,use and character.”

This view has been taken by Hon. Supreme Court & High Courts in many other cases and hence this has been accepted by trade as well as the Department.

-- Trade Parlance Test Trade Parlance means how the goods are regarded by

those who deal in them. For deciding as to whether a particular process is a manufacturing process or not, this Trade Parlance Test has to be applied, i.e, whether the processed commodity is known differently by the trade as compared to original commodity e.g, Assembly of components of air conditioner in car does not amount to manufacture as no distinct commodity comes into existence; or printing color & logo on glass bottle is not a manufacturing process.

– Identity of original article must be lost.– Assembly can be manufacture if different

commodity comes into existence.– There can be manufacture even if the resultant

product falls under the same Chapter Heading.

Decided Case Laws on Manufacture 1] Recording of sound on duty paid magnetic cassette tapes. 2] Making Pan Masala. 3] De-husking of paddy to rice. 4] Fruit Pulp to Fruit Drink. 5] Conversion of LDPE, HDPE granules into moulding powder.

Decided Case Laws on ‘Not Manufacture’ 1] Only cutting and sizing. 2] Testing and inspection. 3] Slitting of jumbo rolls into smaller rolls. 4] Cleaning and Washing. 5] Cutting and polishing granite stones. 6] Making a new model from old machine. 7] Reduction in size by drawing / cold rolling of wires. 8] Repairs and reconditioning. 9] Electroplating, polishing, coating. 10] Changing color of a product.

Deemed Manufacture

The processes explained in ii) and iii) in Section 2 (f) are considered as processes resulting into ‘Deemed Manufacture.’ It means that applying the principles of court cases, the processes are not actually ‘manufacturing processes’ but those are considered as manufacturing processes because law says so. Examples of Deemed Manufacture: Labelling, Relabelling, Packing, Repacking. Building a body on a duty paid chasis. Printing, decorating or ornamenting on glazed ceramic tiles, glass mirrors. Galvanizing of Articles of Iron and Steel. Recording of sound or other phenomena on audio or video tapes.

Manufacturer:

- Sec 2 (f) states that -

“the word ‘manufacturer’ shall be understood accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods but also any person who engages in their production or manufacture on his own account.”

The above definition covers two categories:

a)Persons who manufacture goods themselves on their own account &

b)Persons who get the goods manufactured through hired labour. A hired labour is one who hires himself out to work for and under control of another for wages (e.g job-worker).

– Raw material supplier is not to be considered as Manufacturer unless he undertakes to pay the duty under Not No.214/86.

– Independent contractor is a manufacturer even if he manufactures the goods in the premises of the raw material supplier.

– Brand name owner is not the manufacturer, even if he supplies the material.

– Loan Licensee is not the manufacturer.– Labour Contractor, supplying only labour, is not the

manufacturer.

GoodsDefinition: There is no definition of goods in Central Excise Law. Sale Of Goods Act, 1930 defines goods as follows: “Goods means any kind movable property other than actionable claims and money and includes stock and shares, growing crops,grass and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale.”Goods must be movable:

Immovable Property or property attached to earth is not goods and hence duty cannot be levied on it. e.g. construction of building, plants, bridges etc are immovable property and not goods.

Goods must be marketable Supreme Court has decided in many cases that the goods must be capable of being bought and sold in the market. Those must be known in the market. It is also ruled out that actual sale is not necessary. Similarly, because an item is mentioned in the Tariff, it does not become dutiable unless it is marketable e.g. Crude PVC films manufactured by the assessee for captive consumption are not marketable at that stage and hence are not dutiable. In the case of Indian Aluminium Co. Ltd, the Supreme Court has decided that only because an item is sold, it does not become goods if it is not known as a commercial product in the market e.g Dross and Skimmings arising during manufacture of Aluminium.

Some Examples of ‘Goods’ Electricity, Gas and Steam,Waste and Scrap. Drawings and Designs. Intermediate goods, if those are marketable. What are not ‘Goods’: Immovables are not goods. Plant and Machinery erected at site is immovable property and are not goods. Huge tanks, though not embedded to earth, but erected at site, stage by stage, cannot be physically moved as such without dismantling and hence are not goods. Trusses, columns and structures erected at site are not movable and hence are not Goods. Turn key projects consisting of bought out items, installation and supervision are not goods if finally the equipment is attached to earth. Goods having very short life are not goods e.g, sand moulds used in foundries.

Excisable Goods– One of the essential conditions is that the Goods must

be ‘excisable’.

Section 2 (d) of the Central Excise Act, 1944 defines Excisable goods as “Goods specified in the First and the Second schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt”.

Explanation to Section 2(d) has been added which states that Excisable goods includes any article, material or substance which is capable of being bought & sold for a consideration & such goods shall be deemed to be marketable.

– Excisable but exempt goods are those goods which are mentioned in the schedules to CETA, 1985 but exempt by a notification.

– Non Excisable Goods are those goods which are not mentioned in the schedules.

– Goods with ‘Nil’ rate of duty are those goods which are mentioned in the Schedules with a rate of duty mentioned as ‘Nil’ against them.

CLASSIFICATION Introduction:

Excise Duty is levied on all the Excisable Goods manufactured in India and hence thousands of goods attract the duty. For the purpose of proper identification and differentiation of the goods, it becomes necessary to group them in some logical method. This is called the ‘classification’ of goods. Background of Classification:

The need for classification was felt all over the world and hence World Customs Organisation developed a coding structure which is known Harmonized System Of Nomenclature (HSN). This was not followed in India till 1986. Till that time, we were having our own classification which was different for Central Excise and for Customs. This was creating lot of problems in our international trade and hence in

order to have uniformity, we also adopted HSN for the purpose of classification of goods for Central Excise as well as Customs purpose.

Earlier each group of goods used to be called Tariff Item whereas now, it is known as Chapter Heading. In 1985, Central Excise Tariff Act was passed which became effective from 28.02.1986.

Central Excise Tariff Act, 1985

This Act is one of the smallest Acts in our country which contains only 4 sections. There are two schedules to this Act which are as follows –

First Schedule: This contains a list of goods on which

Basic Excise Duty (CENVAT) is levied. This is divided into 20 Sections and 96 Chapters.

Second Schedule has been abolished.

Third Schedule: This contains a list of goods which are covered under MRP based valuation as per Section 4A of the Central Excise Act, 1944.

Sections Under CETA:First Schedule covers almost all the goods. It is divided

into 20 Sections and each Section contains various Chapters. A Section is a broad group of goods whereas Chapters contain further sub groups of the goods.Following is the list of Sections along with the broad groupings –

Section No. Section Heading Chapter No. I Animal products 2 to 5 II Vegetable products 7 to 14 III Animal or vegetable fats 15 IV Prepared food stuff, beverages 16 to 24 V Mineral products 25 to 27 VI Chemicals fertilizers soaps etc. 28 to 38 VII Plastics and rubber and articles 39 to 40 VIII Leather and articles 41 to 43 IX Wood, cork, straw and their articles 44 to 46 X Pulp, paper, paperboard and articles 47 to 49 XI Textile and textile products 50 to 63 XII Footwear, head gear, umbrellas etc. 64 to 67 XIII Articles of stone, plaster, ceramic glass 68 to 70 XIV Pearls and precious metals 71 XV Base metals and articles of base metals 72 to 83 XVI Machinery and mechanical appliances etc. 84 & 85 XVII Vehicles, aircraft, vessels etc. 86 to 89 XIII Optical, photographic, medical, clocks etc. 90 to 92 XIX Arms and ammunitions 93 X Miscellaneous manufactured articles 94 to 96 [ Note : - Chapter numbers 1,6,10,12 and 77 are blank ]

Chapters under CETA :

Each Section is subdivided into Chapters. As mentioned earlier, there are 96 Chapters out of which 5 Chapters are kept blank for future purpose. Section contains a broad grouping where as Chapter contains further classification of goods in that broad group. e.g. Section XV contains ‘ Base Metals and Articles of Base Metals’. It contains the following Chapters –

CHAPTER NO. DESCRIPTION Chapter 72 Iron and steel Chapter 73 Articles of iron and steel Chapter 74 Copper and articles thereof Chapter 75 Nickel and articles thereof Chapter 76 Aluminum and articles thereof Chapter 77 Blank Chapter 78 Lead and articles thereof Chapter 79 Zinc and articles thereof Chapter 80 Tin and articles thereof Chapter 81 Other base metals Chapter 82 Tools, implements, cutlery, spoons and forks of base metals, parts thereof of base metals Chapter 83 Miscellaneous articles of base metals

Chapter Heading and Sub-Heading number : Each Chapter is further divided into Chapter Headings and Chapter Subheadings. Chapter Heading denotes a particular class of goods within the Chapter whereas Chapter Sub-Heading denotes further classification of goods within that Chapter Heading. A sample of Chapter 78 is shown below for better understanding : - Chapter 78 Lead and Articles thereofHeadings No. Sub-Heading No. Description of goods Unit Rate of duty (1) (2) (3) (4) 78.01 Unwrought Lead 780110 00 - Refined Lead Kg. 8% -Other 7801 91 00 -- Containing by weight antimony as the principle other element Kg. 8%

Significance of Dashes :-

Single Dash ( - ) at the beginning of the description indicates a group, whereas Double Dashes ( - - ) indicates a sub – group .Triple Dashes (--- ) &

Four Dashes ( ----) indicate sub-classification of the product immediately preceding the triple or four dashes.

Tariff Rates Of Duty & Effective Rates of Duty: Column No. 4 in the schedule indicates the rate of duty applicable on the goods. These rates are suggested by the ruling Government and are approved by the Parliament. These rates are called Tariff Rates and are maximum rates at which the duty can be levied by the Government (barring emergency situations). These rates need not be effective rates of duty. If the government decides to give partial or full exemption to the goods, Government issues notifications prescribing such exemptions and then such rates become the effective rates at which the duty becomes payable by the assesses.

Rules for Interpretation C.E.T.A. 1985 contains five rules for interpretation

summary of these rules are as under –Rule 1 :- The titles of Sections and Chapters are provided for ease of reference only. For legal purpose classification shall be determined according to the terms of headings and relative Section or Chapter notes.Rule 2 (a) :- If incomplete or unfinished goods have attained the essential character of complete or finished goods, then any reference in a heading shall apply to such incomplete or unfinished goods.e.g. Motor vehicle not fitted with tyres or battery, bicycles without saddles and tyres. Chapter heading will also apply to the goods complete or finished removed unassembled or disassembled.e.g. SKD or CKD conditions.(b) :- Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material, or substance with other materials or substances e.g. Articles of gold will also include an article which is made partly of Gold.

Rule 3 (a) :- The heading which provides the most specific description shall be preferred to a heading providing a more general heading. VIP bag is a ‘Plastic Article’ (Ch.No.39) in general paralance but there is specific entry for Suitcase/Briefcase under Chapter Heading No. 4201.10 and hence it should be classified under this heading only.(b) :- Mixtures, composite goods consisting of different materials, components etc. , which cannot be classified by reference to (a) above shall be classified as they consisted of material which gives them their essential character, e.g. ‘Pen Stand with clock’ will be regarded as ‘Pen stand’ only and not as ‘Clock’. (c) :- When the goods cannot be classified in accordance to above rules, they shall be classified under the heading which occurs last in the numerical order.e.g. Electrical insulating self adhesive tape can be classified as self adhesive tape under Chapter No. 39.19 as well as Electrical insulator under chapter number 85.46. Hence it should be classified under Chapter No. 85.46.

Rule 4 :- Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin (similar).Rule 5 :- Sub-headings can be compared only at the same level i.e. if one heading contains 5 – 6 Sub-headings, these Sub-headings can be compared with each other. Similarly this rule states that Section Notes and Chapter Notes also will apply, unless the context otherwise requires.General Explanatory Notes :-

The interpretation rules are also followed by two explanatory notes viz. 1) These relates to dashes &2) This states that ‘%’ indicates % to value of the goods.

4.10 Principles of Classification :- 1] Trade Paralance :- While classifying the goods, most important test of trade

paralance must be applied i.e. how the goods are understood by the people who deal in them e.g.

a) Glass Mirror should not be classified as articles of glass but it should be considered as ‘Mirror’. b) Plastic torch is not an article of plastic but it is different commodity. 2] Statutory definitions overrides Trade Paralance. 3] H.S.N & Classification: - C.E.T.A.,1985 nowhere states that notes in HSN will be

applicable for interpreting the Tariff but Supreme Court and other have consistently taken a stand that HSN can be taken as a basis for classification unless Tariff Heading is not aligned with HSN.

4] End Use & Classification :- Generally end use is not an important criteria for

classification unless classification is related to function of goods. e.g. Laminated Safety Glass will be classifiable as ‘Laminated Safety Glass’ only even if it is used a part of Motor Vehicle. However Plastic Pipes and pipe fittings manufactured with an intention of being used as a part of irrigation system should be classified as parts of irrigation system only and not as Plastic Pipes.

5] Dictionary meaning /Technical Literature: - In absence of any statutory definition, dictionary

meanings or technical literature can be referred to for the purpose of classification.

6] Advertisement / product literature: - This cannot be considered for the classification.

6] Classification of ‘Parts’: - a) Classification of parts is relevant for the parts of

machinery, equipments, vehicles, etc. covering Chapter Nos. 82 to 96. Relevant Section Notes and Chapter Notes mention about the classification of ‘parts’ falling under the respective Section and Chapters.

b) Normally, parts suitable solely for a particular machine should be classified in the same Heading Number in which main item falls. Many Chapter Headings are specifically created for the parts e.g. C.H.No 87.08 covers “parts of motor vehicles”, C.H.No. 85.38 covers “parts of control panels, boards, etc.”

7] “Parts of general use are defined under Note 2 to Section XV which includes springs, bolts, screws, tube and pipe fittings, ropes, cables, etc. Such parts of general use should be classified in their respective Chapter Headings and not as a part of a machine or equipment in which they are used.

d) Part of part is part of whole e.g. tyre is a part of bicycle, ‘valve’ is a part of tyre, hence valve is a part of bicycle.

e) Parts are different than Accessories: Parts are essential for the functioning of the article, whereas accessories are not essential but they add to the utility of the article, e.g. Engine of a scooter is a part whereas mirror is an accessory.

VALUATION. Basis Of Calculation Of Duty: i) Assessable value under section 4 (Ad – Valorem duty) ii) Maximum Retail Price Under Section 4A iii) Specific duty iv)Tariff Value. Assessable Value under Section 4:

On most of the goods, the duty is levied on Assessable Value. This is called Ad-Valorem Duty. How to decide the Assessable Value is a matter of dispute for so many years and hence a detailed study of various provisions and case laws is required to understand the concept of valuation. Section 4 of the Central Excise Act, 1944:This Section prescribes the method of deciding the value of the goods.

Section 4 (1) reads as under – “ Where under this Act, the duty of Excise is chargeable

on any excisable goods with reference to their values, then, on each removal of the goods, such value shall – In a case of where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. Essential Conditions Under Section 4 (1)(a)

1] Goods must be sold 2] Delivery at the time and place of removal is important. 3] Assessee and buyer should not be related to each other. 4] Price is the sole consideration for the sale.

Place Of Removal: “ It means – a) a factory or any other place or premises of production or manufacture of the excisable goods; b) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty from where such goods are removed.”

Related person: The person shall be deemed to be ‘related’ if – a) they are interconnected undertakings; b) they are relatives; c) amongst them, the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor, or, d) they are so associated that they have interest, directly or indirectly, in the business of each other.

Transactional Value: “ It means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of the assessee, by reason of or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to any amount charged for, or to make provision for, advertising and publicity, marketing and selling organization, expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, Sales Tax and other taxes, if any, actually paid or actually payable on such goods.”

5.2.7. Essentials of Valid Sale: Section 2 (h) of The Central excise Act,1944, defines Sale as – “ Sale and Purchase within their grammatical variations and

cognate expressions, means any transfer of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration.” ‘Sale’ under Central Excise is different than ‘Sale’ under Sale of Goods Act,1930. Under Sale of Goods Act, 1930, the property i.e. ownership must be transferred to the buyer where as under Central Excise,‘Sale’ includes hire purchase and lease also. But the following are not ‘Sale’ under Central Excise

a) Stock transfer i.e. transfer to depot/branch. b) Job work/ processing. c) Free samples. d) Hypothecation.

a) Price must be sole consideration :- This means that apart from price, no other benefit should flow from the buyer to the seller. If there is any additional consideration other than price, then Transaction Value will not be the basis for the valuation of Goods.

Examples of additional consideration – a) buyer supplies material. b) buyer supplies moulds, dies, tools etc. b) Price Actually paid or payable :- Payment should be ‘by reason of , or in connection of

the sale’ :- As per Oxford dictionary the meaning of ‘by reason of’ is ‘motive’ or ‘cause’. This indicates cause and efect relationship. The term ‘connected with’ must be considered to imply or substantial or direct connection and not remote and doubtful connection. ‘In relation to’ is different from ‘in connection with’ Mere relation is not enough, connection is required.

Inclusions in Transaction Value :- 1] Packing charges/cost of packing material (except durable and returnable containers) 2] Cost of drawings, designs etc. 3] Compulsory after sales service charges. 4] Royalties charge

Exclusions from Transactional Value :- 1] Trade Discount 2] Cash Discount 3] Interests on advances if there is no nexus( relation) between advance and the price 4] Actual Transportation Cost 5] Transport Cost on Equalised Basis 6] Installation and Erection Expenses 7] Interest on receivable.

Central Excise Valuation (Determination of price of Excisable Goods) Rules 2000

Rule no 1 : Short Title and Commencement.Rule no 2 : DefinitionsRule no 3 :-Value of goods under clause (6) of sub section(1) of section 4 of the act should be determined as per these rules.Rule no 4 : If the goods are not sold, then the value should be taken on the basis of value of ‘such goods’ sold by the assessee at any other time nearest to the time of removal, subject to reasonable adjustment. (e.g. Free samples, goods supplied under warranty)

Rule no 5 : if the goods are sold at a different place other than the factory gate, then the value should be taken as Transaction Value, excluding the cost of transportation from that place of removal up to the place of delivery. It is clarified that the cost of transportation means either the actual cost of transportation or the equalised cost of Transportation. It is also clarified that cost of transportation from the factory and the place of removal is not excludible.Rule no 6 : If the price is not the sole consideration, the value of the goods shall be determined as the aggregate of such transaction value and the amount the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.

Examples :- 1] Value of materials, components, parts and similar items related to such goods. 2] Value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items. 3] Value of material consumed, including packaging materials, in the production of such goods. 4] Value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for production of such goods.

Rule no 7 :- If the goods are sold from Depot, premises of consignment agent or any other place from where the goods are sold and where the seller and buyer are not related, then the value shall be normal transaction value of such goods sold from such other place at/ or about the same time or at the time nearest to the time of removal.Rule no 8 : Where the goods are consumed captively, then the value shall be cost of production/ manufacture + 10% Rule no 9 : Where the goods are sold to or through related person, the value shall be normal transaction value at which the goods are sold by such related person to the buyer or if the goods are not sold, then the retail price of such goods. if the related person does not sell the goods but consumes them captively, then the value shall be determined according to Rule 8.

Rule no 10 : Where the goods are sold to or through interconnected undertaking who is also a related person or a holding company or subsidiary company, then the value shall be determined in accordance with Rule 9. in any other case, the value shall be determined as if they are not related persons.

Rule 10A :- Where the goods are manufactured by a job

worker on behalf of a person ( i.e. principal manufacturer) then – a) in a case where the goods are sold by the

principal manufacturer from the factory of the job worker & where the principal manufacturer & the buyer are

not related & the price is the sole consideration , the value shall be the transaction value of the said

goods sold by the principal manufacturer,

b) in a case where the goods are not sold by the principal manufacturer but are transferred to some other place from where the said goods are sold, the value shall be the normal transaction value of such goods sold from such other place at or about the same time or at the time nearest to the time of removal of the said goods from the factory of the job worker,

c) in any other case, the provisions of these rules shall apply.

Rule no 11 : If the value of the goods can not be determined under any of the rules, then the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and section 4 .

VALUE BASED ON MAXIMUM RETAIL PRICE Section 4A of the Central Excise Act, 1944:- This section specifies the circumstances and the conditions under which the value of the goods should be determined based on the Maximum Retail Price. These are as under: 1] The goods must be covered under the provisions of Standards of Weights & Measures Act, 1976. 2] The goods must be covered under the Third Schedule to C.E.T.A., 1985. 3] Third Schedule also mentions about the abatements from M.R.P. for each goods. 4] If more than one retail price is printed on the packing, highest of such retail prices will be considered. 5] Retail price includes all taxes, freight, commission, packing and forwarding charges etc. 6] Where different retail sale prices are declared on different packages for the sale in different areas, the sale price shall be the value for such area.

So far 92 items are covered under this scheme. Some of the examples are as follows:- ITEM ABATEMENT 1) Chocolates 30% 2) Biscuits 35% 3) Ice-Cream 30% 4) White Cement 30% 5) Tooth Paste 35% 6) Carbon Paper 35% 7) Footwear 35% 8) Glazed Tiles 40% 9) Electric Fans 35% 10) Refrigerators 35%

Certain clarifications issued by C.B.E. & C:- 1) If the provisions of Standards of Weights & Measures Act,

1976 do not apply, duty is payable on the basis of section 4. 2) If the goods are sold in wholesale, valuation should be as

per Section 4. hence, it is possible that the same commodity would be sometimes assessed under Section 4 & sometimes under section 4A.

Deemed Manufacture:- As per Section 2(f)(iii), packing or repacking of the goods

covered under Third Schedule in a unit container or labellling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer amounts to manufacture.

Confiscation of goods : Section 4(A): If the assessee removes the goods without declaring

the Retail Price on the packages or declares a price which does not constitute the sale consideration or tampers with, obliterates or alters the price after the removal of goods, such goods are liable to confiscation. Valuation under Job Work :-

Where job worker is a manufacturer (i.e. where Not. No. 214/86 is not followed), the value of the goods shall be determined on the basis of Rule 10A of The Valuation Rules, 2000.

SPECIFIC DUTY If the duty is payable on the basis of certain measurement unit like weight, length, nos. etc., it is called as specific duty. In such case value of goods has no relevance. Examples: 1) Cigarettes other than filtered cigarettes of lengthRs. 78 per Thousand not exceeding 60 mm. 2) Sugar, other than khandsari sugar-Rs. 34 per quintal

.TARIFF VALUEIn some cases, tariff values are fixed by Central Government. This is “Notional Value” for the calculation of the duty payable. This is fixed under section 3(2) of the Central excise Act, 1944.Presently, tariff Values are fixed only for two commodities viz.1] Pan Masala packed in retail packs of less than 10 grams per pack.2] Readymade garments falling under C.H. No. 6101.00 & 6201.00.

PRACTICAL EXAMPLES ON VALUATION :-1] B. Ltd. manufactures two products viz. Eye Oinment & Skin

Oinment. Skin Oinment is a specified product under Section 4A of The Central Excise Act, 1944. The sales prices are Rs. 43/- & Rs.33/- respectively. Sales Price included 8% Basic Excise Duty, 2% Education Cess & 1% Secondary & Higher Education Cess. It also included CST of 2%.

Additional information :- Units cleared :- Eye Oinment – 1,00,000 units. Skin Oinment – 1,50,000 units. Deduction under Section 4A is 30%. Calculate the total excise duty on both products.

2] An assessee sells the goods to ABC Co. Ltd for Rs. 10,000/- on 15th Dec. 2004.The buyer is a “ related person” as defined under Section 4(3) ( b) of The Central Excise Act,1944. On that date, the net price ( excluding excise duty) of related person to an unrelated buyer was Rs.12,000/-. What will be the assessable value in each of the following cases ? –

a) The related person sells the goods to an unrelated buyer on 5th Feb. 2004 at Rs. 12,500 exclusive of excise duty.

b) The related person sells the goods to unrelated buyer on 10th Feb.2004 at Rs. 11,000, exclusive of excise duty.

c) The buyer is treated as “ related person” as it is an interconnected undertaking in relation to manufacturer. However the buyer is not a holding company or subsidiary company of the assessee. Buyer & seller do not have interest in each other.

3] An assessee has a factory at Kolkata. As a sales policy, he has fixed uniform price of Rs. 2000/- per piece ( excluding taxes) for sale anywhere in India. Freight is not shown separately in his Invoice. During Financial year 2004-05, he made following sales-

a) Sale at factory gate at Kolkata – 1200 pieces – No transport charges. b) Sale to buyers in Gujarath – 600 pieces . Actual transport charges incurred – Rs. 28,000/-. c) Sale to buyer in Bihar – 400 pieces – Actual transport charges incurred Rs. 18,000. d) Sale to buyers in Kerala – 1000 pieces – Actual Transport charges Rs. 54,000/-. Find assessable value.

4] Determine the assessable value in each of the following circumstances .

Quote relevant Section/ Rule under Central Excise Law. a) A Ltd. sold the goods to B Ltd. at a value of Rs. 100

per unit & B Ltd. sold the goods to C Ltd. at a value of Rs. 110/- per unit. A ltd. & B Ltd. are related whereas B Ltd. & C Ltd. are unrelated.

b )A Ltd. & B Ltd. interconnected undertakings under MRTP Act. A sells the goods to B Ltd. at a value of Rs. 100 per unit & to C Ltd. at Rs. 110/- per unit, who is an independent buyer.

c) A ltd. sells the goods to B Ltd. at Rs. 100 per unit. The said goods are captively consumed by B Ltd. in its factory. A Ltd. & B Ltd. are unrelated. The cost of production of goods to A Ltd. is Rs. 120 per unit.

d) A Ltd. sells motor spirit to B Ltd.at Rs. 31/- per Ltr. But Motor spirit has administered price of Rs. 30/- per Ltr. fixed by Govt.

REGISTRATION SECTION 6 / RULE 9:- Every person who produces, manufactures, carries on trade, holds private store - room or warehouse or otherwise uses excisable goods, shall get registered. NOT. NO 35/2001 (N.T.) DT. 26.06.2001: A] Application for Registration: Every person who wants to get registered shall apply in the prescribed Form A-1. Broad Contents of the form are as under: 1] Name and address of the applicant. 2] PAN of the Applicant. 3] Constitution: Proprietorship, Partnership, Company 4] Boundaries of the premises. 5] Name, designation and address of the person signing the application. 6] Name, address and PAN of the Proprietor/Partner/ Director. 7] Details of the Bank Account.

8] Major Excisable Goods to be manufactured with Chapter Heading nos. 9] Major inputs used in the manufacture with Chapter Heading Nos. B] Separate Registration should be obtained for each

premises.C] Registration Certificate in the prescribed form RC containing

Registration No. shall be granted within seven days of the receipt of the application.

D] Where the registered person transfers his business to another person, the transferee shall get himself registered afresh.

E] Where a registered person is a firm or a company or an AOP, any change in the constitution shall be intimated within 30 days of such change.

F] Every person who ceases to carry on the operation shall de-register himself by making a declaration in a specified form.

G] A registration certificate shall be revoked or suspended if the holder is found to have committed breach of any provisions of Act or Rules. H] A Registration Certificate or a copy of thereof shall be exhibited in a conspicuous part of the registered premises. I] Registration is permanent.J] Each registered person is given Excise Control Code. This is 15-digit code based on PAN of the assessee. First 10 digits represent PAN. Next two digits are either XM (for manufacturer) or XD (for dealer). Last three digits are numeric codes representing the number; assessee must mention ECC No. in his Invoice, TR-6 Challans, ER-1 etc.

EXEMPTION FROM REGISTRATION: Not. No. 36/2001 – (N.T.) dated 26.06.2001 grants the exemption under the following circumstances:- a] If the goods are completely and unconditionally exempt from the duty. b] If the goods are exempt based on the value of annual turnover of Rs. 150 lakhs subject to certain conditions. (A simple declaration should be filed when the turnover reaches Rs. 90.00 lakhs.) c] If the goods got manufactured from others. d] If the goods are manufactured in the Customs Bonded Warehouse (i.e. EOU, FTZ, STP, etc.) e] Wholesale and Retail Dealers are exempt from Registration unless they want to issue Cenvatable Invoices. f] Users of excisable goods. g] Job workers are exempt if the conditions under Not. No 214/86 are satisfied

6.8 -PENALTY FOR NON – REGISTRATION:

Penalty under rule 25 (1) (c) can be levied up to Rs.2,000/- or the amount of duty of contravening goods whichever is higher. In addition, the goods can be confiscated. Imprisonment of minimum 6 months and maximum 7 years also can be imposed.

STORAGE & ACCOUNTING OF GOODSMEANING OF ‘FACTORY’ Section 2 (e): “Factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.”STORAGE OF GOODS: 1] Manufactured goods can be stored in a factory without payment of duty. 2] The duty is payable only when the goods are removed from the factory. 3] There is no separate place required to be earmarked (earlier called as BSR) where the goods can be stored. 4] There is no time limit within which the goods should be removed from the factory.

DAILY STOCK ACCOUNT a) Under Rule 10 (1), a Daily Stock Account should be maintained by every assessee. b) There is no prescribed form of Daily Stock Account. c) Daily Stock Account must contain the following particulars –

1] Description of goods manufactured or produced. 2] Opening balance 3] Quantity manufactured or produced. 4] Quantity removed (on payment of duty or without payment of duty.) 5] Assessable value of goods removed 6] Duty Amount 7] Closing Balance.

d) Daily Stock Account must be maintained on a daily basis. The postings must be completed after the end of the shift (in case factory is running only in one shift) or before the end of the first shift of the next day (if the factory is running in three shifts.) e) When entry is required to be made: As soon as the goods are completely manufactured, duly tested and packed, the entry should be made in the DSA. Hence, unless the goods are in the marketable stage, entry need not be made in DSA.

STORAGE FOR TRADINGThere is no specific Rule restricting the trading activity from the factory. But it is advisable to inform the Excise Authorities about the same. Department has clarified that trading of identical goods should not be done from the factory without the prior permission of the Commissioner.

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STORAGE OUTSIDE THE FACTORY:Rule 4 (4) of The Central Excise Rules,2002 states that The

Commissioner may allow any assessee to store the goods outside the factory without payment of duty subject to certain conditions.

REMISSION OF DUTY Once the goods are manufactured, the duty liability

arises. However, duty can be waived on the goods in the following circumstances –

a] If the goods are destroyed or damaged in the factory by natural causes, or by accident.

b] If the goods become unfit for consumption for marketing,

The remission can be given by The Superintendent if the duty is less than Rs.10,000/-, by the Assistant Deputy Commissioner.

If the duty is less than Rs.1,00,000/-, by Joint Commissioner / Deputy Commissioner if the duty is less than Rs.5,00,000/- and by the Commissioner if the duty is more than Rs.5,00,000/-DIFFERENCE IN DSA AND PHYSICAL STOCK: If the goods are found short as compared to DSA stock, the duty can be demanded and if the goods are found in excess, the goods can be confiscated. In both the cases, the penalty also can be levied.PENALTY FOR NOT MAINTAINING DSA: Under Rule 25 (1) (b), the penalty can be imposed up to the amount of duty payable on the goods and the goods can be confiscated.

CLEARANCE OF GOODS INVOICE:

Clearance means removal of goods from the factory. Rule 11 of the Central Excise Rules, 2002 makes it compulsory to prepare an Invoice when the goods are to be removed from the factory. It reads as under:

“No excisable goods shall be removed from a factory or a warehouse except under an invoice signed by the owner of the factory or his authorized agent.” CONTENTS OF THE INVOICE: 1] Serial Number 2] Registration Number 3] Description and Classification of goods. 4] Time and Date of Removal. 5] Quantity and Value of the goods. 6] Rate of Duty. 7] Duty payable on the goods.

THREE COPIES OF INVOICE:According to Rule 11, three copies of the Invoice

should be prepared as follows: Original Copy being marked as “ORIGINAL FOR BUYER.” Duplicate Copy being marked as “DUPLICATE FOR TRANSPORTER.” Triplicate Copy being marked as “TRIPLICATE FOR ASSESSEE.” ONLY ONE INVOICE BOOK:

At any time, only one Invoice Book should be in use, unless specially permitted by the Assistant Commissioner. PREAUTHENTICATION OF INVOICE:

The owner or the Working Partner or the Managing Director or the Company Secretary or any person duly authorized for this purpose shall authenticate each foil of the Invoice book before being brought into use.

Assessees paying duty more than Rs. 5 Crores from P.L.A. are exempt from the pre-authentication. In case of computer generated Invoices, authentication can be done after those are printed.INTIMATION OF THE SERIAL NUMBER:

Before making use of the Invoice Book, the Serial Numbers of the same shall be intimated to the Superintendent. DEALER’S INVOICE:

All the provisions applicable to manufacturer’s Invoice are applicable to the Dealer’s Invoice also.In addition , such Invoice should also contain the details about the manufacturer, assessable value, duty paid by the manufacturer etc.

SELF – REMOVAL AND PHYSICAL CONTROL:All goods, except Cigarettes, can be removed by the

assessee himself. This is known as Self – Removal Procedure. In case of Cigarettes, such Invoice shall be countersigned by the Inspector of the Central Excise under his supervision. This is known as Physical Control Procedure.

ROUNDING OFF OF DUTY IN INVOICE: The amount of duty shown in the Invoice should be rounded off to the nearest Rupee as provided under Section 37D of the Act, and the amount so rounded off should be indicated both in words as well as figures.COMPUTERISATION OF INVOICES: 1] Computerisation is freely permitted and no permission is required. 2] Pre – printed computer stationery is allowed. 3] Triplicate copy should be retained in bound book form..

4] Generation of serial number of Invoice by computer at the time of printing is permitted. 5] Authentication can also be done after the Invoice is printedCANCELLATION OF INVOICE: 1] Intimation of a cancelled Invoice should be sent to the Superintendent on the same date. 2] Along with the intimation, the original copy of the cancelled Invoice also should be sent to The Superintendent. 3]Triplicate copy of the invoice should be retained by the assessee in the Invoice Book.

PREPARATION OF INVOICE WHEN GOODS ARE DISPATCHED THROUGH MORE THAN ONE VEHICLE.

a) In such a case the assessee has to inform to Assistant Commissioner / Deputy Commissioner at least 48 hours prior to removal of goods.

b) Assistant Commissioner / Deputy Commissioner should verify the details.

c) A separate invoice should be made in case of each vehicle.

d) Manufacturer will pay the entire duty on the first such Invoice (Parent Invoice) on the basis of entire value of the goods.

e) The details of the removals and the duty payment shall be entered in Daily Stock Account.

f) Photocopy of the duplicate copy of the parent Invoice duly attested by the authorized signatory shall accompany each conveyance.

g)CENVAT credit shall be taken only on the receipt of Parent Invoice and the entire consignment.

WEIGHMENT OF GOODS OUTSIDE THE FACTORY:

a) In certain cases, due to non – availability of

weighbridges inside the factory, the goods have to be

loaded in a vehicle and weighed outside.

b) Prior Permission should be obtained from the Assistant

Commissioner / Deputy Commissioner.

c) Permission is granted for a period of one year.

d) A pre – printed serially numbered challan duly

authenticated by the Superintendent should be used.

e) A record of outward and inward movement should be

maintained.

f) Weighment should be done at the nearest

weighbridge.

g) Challan Number should be quoted on Invoice.

INVOICE FOR CAPTIVE CONSUMPTION: RULE 5 (2)

If the goods are used within the factory, the date of removal will be the date on which the goods are issued for such use. Only one invoice per day can be prepared.

SUPPLEMENTARY INVOICE:According to Rule 7 (1) (b) of Cenvat Credit

Rules, 2004, a supplementary invoice should be prepared for the differential duty to be paid in addition to the original duty amount. On the basis of such supplementary invoice, the consignee can avail the Cenvat credit. It is also provided that in case of fraud, suppression of facts or willful misstatement, supplementary invoice cannot be prepared.

CHAPTER NINE :PAYMENT OF DUTY

9.1 PERIOD FOR PAYMENT OF DUTY :-

Assessees who are not enjoying any exemption/ concession have to pay the duty by 5th of the next month.

Assessees who are enjoying any exemption/concession have to pay the duty by 15th of the next month.

9.2 PAYMENT OF DUTY THROUGH CENVAT

CREDIT :-

Duty can be paid by utilising Cenvat credit balance available with the assessee as on the last date of the month.Credit on Inputs,Capital Goods as well as Input Services can be utilized together for this purpose.

9.3 PAYMENT OF DUTY THROUGH P. L.A. :-

1] Personal Ledger Account is an account current in which the assessee deposits an amount for payment of duty. 2] The money has to be deposited in any branch of State Bank of India or any other nominated bank. 3] This account does not carry any interest & can be used only for paying the Excise duty. 4] The amount is to be deposited through GAR-7 Challan & the assessee gets credit for the same.When the duty has to be paid,the amount of duty should be debited.The balance does not get lapsed & the refund of the balance is possible only at the time of surrendering the Registration.P.L.A.has to be maintained in triplicate.There is no requirement of maintaining minimum balance.

5] Two copies have to be submitted to the Excise

Department alongwith the return & one copy has to be

retained by the assessee.

6] Form of P.L.A.is prescribed by the Govt.

7] Assessees paying more than Rs.50 Lakhs from P.L.A.

shall deposit the duty electronically.

9.4 GAR-7 CHALLAN :-

1] This is a challan through which the amount has to be

deposited into the bank in order to take credit in P.L.A.

2] There is a prescribed form of GAR-7 Challan.

3] It is a single page challan having a provision for the

counterfoil to be retained by the assessee.

3] GAR-7 Challan should be serially numbered for each Financial Year.

4] Account Head code has to be mentioned in GAR-7 Challan e.g.0038 is the code for Central Excise Duty,0044 is the code for Service Tax etc. 5] Payment of rent, interest, penalty etc. should be made directly through GAR-7 Challan & there is no need of taking the entry in P.L.A. 9.4 DEPOSIT OF CHEQUE IS THE DATE OF PAYMENT :- Rule 8(1) provides that the date of deposit the cheque in the Bank is considered as the date of payment of duty unless the cheque is bounced. Hence it is very important to take an acknowledgement from the Bank for the deposit of the cheque. It does not

matter even if the cheque gets cleared after few days.But if the cheque gets bounced,then it will be considered as non-payment of duty & penalty & interest will also be payable.9.5 INTEREST FOR NON-PAYMENT OR DELAYED PAYMENT OF DUTY :- Rule 8(3)of The Central Excise Rules, 2002 provides that in case the duty is not paid in time , interest will be levied at the prescribed rate ( at present the rate is 13% p.a.) Rule8(3A) of the said Rules provides that if the delay is more than 30 days, then the assessee loses the benefit of monthly payment of duty as well as of utilisation of Cenvat Credit till the date he pays the outstanding duty including interest.It means he will have to PAY the duty from PLA & that also at the time of each removal of goods from the factory.

CHAPTER 10 :OTHER PROCEDURES 10.1 :- PERIODIC RETURNS:- Rule 12 of The Central Excise Rules, 2002 provides that every assessee has to submit a monthly return called ER-1 by 10th of the next month. S.S.I units have to file a quarterly return called ER-3 by 20th of the month succeeding the quarter. Returns should be submitted to The Range Superintendent Returns should be submitted in quintuplicate (5 copies). There is a prescribed form of ER-1. The contents are follows:- A] Details of the manufacture, clearance & duty payable 1) Chapter Heading No. 2) Unit of Quantity 3) Quantity Manufactured 4) Quantity cleared 5) Assessable Value

6) Duty 7) Notification availed 8) Rate of duty 9) Duty Payable 10) Provisional Assessment No. (If any)B] Details of duty paid:- 1) Duty Code 2) Cenvat 3) Account Current 4) Total duty Paid C] Details of Cenvat credit availed & utilized:- 1) Opening Balance 2) Credit availed on Inputs 3) Credit Availed on Capital Goods 4) Total Credit availed 5) Credit utilized 6) Closing Balance

D] Details of other payment mode 1) Arrears of duty 2) Interest 3) Miscellaneous Payments There is a separate form of Quarterly Return to be submitted by the Registered Dealers. Documents required to be submitted along with the Return:- 1] Copies of GAR-7 Challans 2] Copies of P.L.A. 3] Summary of Excise Duty paid. 4] Details of Cenvat Credit availed.

10.2 ELECTRONIC MAINTENANCE OF RECORDS/ RETURNS

1] Any record/return can be maintained/prepared on computer. 2] No specific permission is required. 3] Records can be kept on any electronic media e.g. floppies, hard discs, CD’s, etc. 4] The print outs of records & documents must be taken out at the end of the month & kept in bound books, folders. 5] Proper back-ups should be taken. 6] On demand, assessee should submit the software & hardware details to the Department.

10.3:- EXPORT PROCEDURE:-

A] There are two procedures of Export:-

1) Export without payment of duty.

2) Export under Rebate (refund).

B] The goods have to be cleared under an Invoice. In addition to Invoice, a prescribed form A.R.E-1 has to be prepared by the Exporter.

C] Copies of A.R.E-1 are as follows:-

1) Original – White 2) Duplicate – Buff

3) Triplicate – Pink 4) Quadruplicate – Green

5) Quintuplicate (Optional)

D] Distribution of ARE-1 Forms:-

If the consignment is cleared under the supervision of Excise Superintendent, he will make endorsement on all the copies of ARE-1. He will return the original & duplicate copies to the exporter. Third copy will be sent to the officer with whom the letter of undertaking/Bond is submitted. Quadruplicate copy will be retained by the Superintendent. At the time of export, original, duplicate& quadruplicate (optional) copy will be submitted to the Customs Officer along with the goods. These will be examined & the export will be allowed. He will make endorsement on all copies of A.R.E-1. The duplicate copy will be returned to the exporter.

In case of self-certification, original, duplicate & quintuplicate copies of A.R.E-1 will be directly sent to the customs authorities along with the goods.

Triplicate & quadruplicate copies will be submitted to the Superintendent within 24 Hours after clearance of goods.

He will endorse both the copies & hard cover triplicate copy to the exporter in a sealed cover to be submitted to the customs authorities.

E] CT-1 Certificate :- This is required only when Bond is executed by

Merchant Exporter. He can obtain CT-1 certificate in lot of 25.Part-I of the form is certified by the Superintendent regarding the execution of Bond. The merchant exporter has to send CT-1 to the manufacturer from whom goods are to be procured for export. Before sending CT-1 certificate, merchant exporter has to debit estimated amount of duty in the Bond Register. On the basis of CT-1 certificate, the manufacturer can clear the goods for export without payment of duty by making suitable entries in Part II of CT-1.

F] Letter of Undertaking/ B-1 Bond:-

The manufacturer-exporter can furnish a letter of undertaking in Form UT-1.HE need not execute any bond.UT-1 is valid for a period of 12 calendar months. The manufacturer exporter is required to submit the proof of export. The merchant exporter has to execute B-1 Bond equivalent to the duty amount & he has to furnish a Bank Guarantee equivalent to 25% of the Bond amount.

G] Export must take place within six months from the date of removal of goods from the factory.

H] Export under rebate claim:-

As mentioned earlier, the goods can be exported first on payment of duty & then claiming the rebate of duty paid. The rebate is not available for the export made to Nepal &

Bhutan. The rebate claim can be filed with the Maritime Commissioner or with The Assistant Commissioner with whom the Letter of Undertaking/Bond is submitted. The claim has to be filed within one year from the date of export. Along with rebate claim, all the documents like ARE-1,Invoice,Bill of Lading, Shipping Bill etc. are to be enclosed. Rebate is also available of the duty paid on inputs used in manufacture of export goods.

10.4 :- RETURN OF DUTY PAID GOODS TO FACTORY :- 1] Duty paid goods can be brought back to the factory as

per the provisions of Rule 16 of The Central Excise Rules, 2002.

2] The goods can be received for repairs, reconditioning, remaking, testing or for any other purpose.

3] As soon as the goods are received, the entry should be made in a separate register recording the details like the description of goods, quantity, from whom the goods are received etc.

4] The goods must accompany the duty paying document like Invoice on the basis of which the assessee can avail Cenvat credit as if they are inputs.

5] If the process is only repairing, reconditioning, testing etc., the Cenvat credit has to be reversed at the time of removing the goods from the factory after processing.

6] If the process amounts to manufacture, the assessee has to pay the duty on the value of the goods as per the provisions of Section 4.

7] When the goods are removed from the factory, the suitable entries are to be made in the register.

8] If the above procedure cannot be followed, then a special permission is required from the Commissioner of Central Excise & Customs.

10.5 :- JOB-WORK :- 1] Definition of Job-work::-Not.No.214/86 dt.25-3-1986

defines job-work as processing or working upon of raw material or semi-finished goods supplied to job-worker so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.

2] Job worker will be exempt from the payment of duty only when the conditions under Not.No.214/86 are followed. Otherwise job-worker will be considered as a manufacturer & will be liable to pay the duty.

3] Under Not.No.214/86, following procedure is to followed- a] Raw material supplier has to give an undertaking to the Excise Department that he will be responsible for any duty liability regarding the goods manufactured on job-work.

b] He has to send the material on a separate Challan.

Challan should be in triplicate. Two copies should be

sent along with the material. Job-worker will have to

return the goods after job-work is complete on the

duplicate copy of the Challan.

c] A separate Register should be maintained by both i.e.

the supplier of the material & the job-worker in which

the entries are to be made about the movement of

material.

4] The goods must be returned within 180 days from the date of removal of material.

5] In case the supplier of the material has taken any Cenvat Credit on the material, there is no need of reversing the credit provided the goods are returned within 180 days. If

the goods are not returned, then he has to reverse the credit. He is entitled to take credit again when the goods are received in the factory.

6] If the procedure under Not.No.214/86 is not followed, then the job worker is considered as a manufacturer & he will have to pay the duty on the assessable value which will be calculated on the basis of Transaction Value i.e.the price at which the goods are sold by the principal manufacturer to his customer.

7] Only by supplying the material, the supplier does not become a manufacturer. His liability arises only when the undertaking is given by him under Not.No.214/86.

8] Use of own material by the job-worker is no bar under Central Excise Law.

9] Material can be directly sent to job-worker from the supplier of the manufacturer & the goods after job-work also can be directly sent to the customer from the job-worker’s premises.

CHAPTER 11 : CENVAT

11.1 : Background of CENVAT

CENVAT (Central Value Added Tax) has its origin in VAT (Value Added Tax) which is common in other parts of the world for a long time. In India, it was first introduced with the name of MODVAT (Modified Value Added Tax) in 1986. In the modern production methodology, raw material passes through various processes till it reaches finally to the ultimate user. At every stage, a new commodity emerges which attracts various taxes like Central Excise Duty, Sales Tax etc. This results in tax on tax which is called ‘cascading effect’.

One of the basic principles of taxation is that tax should not be charged on tax and to avoid this cascading effect, MODVAT Scheme (now known as Cenvat Scheme) was introduced. Cenvat Credit Rules were introduced for the first time on 01.03.2000 which were revised in 2001 and 2002.At present Cenvat Credit Rules, 2004 are in force. Broadly, under this scheme, duty paid on inputs & capital goods & service tax paid on input service can be utilized for payment of Excise Duty on finished products or for payment of Service Tax on output service.

11.2: Rule No. 1: Short Title, Extent And Commencement:-

A] These Rules are called as Cenvat Credit Rules, 2004. B] These are applicable to the whole of India but nothing contained in these Rules relating to availment & utilization of credit of Service Tax apply to the State of Jammu & Kashmir. C] These Rules came into force with effect from 10th day of Sept. 2004.

11.3: Rule No. 2: Definitions:- a) Capital Goods means -

A] The following goods namely - 1] All goods falling under Chapter 82, 84, 85, 90, Heading No. 6805,grinding wheels & the like & parts thereof falling under C.H.No.6804. 2] Pollution Control Equipments. 3] Components, spares and accessories of the goods specified at (i) & (ii) above. 4] Moulds and Dies, jigs & fixtures. 5] Refractories and refractory material. 6] Tubes and pipes and fittings thereof & 7] Storage tank.

used

i) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office or

ii) for providing output service.

B] Motor vehicles registered in the name of the provider of output service for providing specified taxable services.

b) Final Products :-

Final products means excisable goods

manufactured or produced from inputs or using

input services.

c) First Stage Dealer -

First Stage Dealer means a dealer who purchases the goods directly from the manufacturer or from the depot of the manufacturer or from the consignment agent of the manufacturer under cover of an Invoice or from an importer or from the consignment agent of the importer under cover of an Invoice.

d) Second Stage Dealer -

Second Storage Dealer means a dealer who purchases the goods from the First Storage Dealer.

e) Inputs - i) ‘Inputs’ means all goods, except light diesel oil, High

Speed Diesel Oil & motor spirit (petrol), used in or in relation to the manufacture of the final products whether directly or indirectly & whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final product cleared along with the final product, goods used as paints, packing material or as fuels or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production.

Ii) All goods except LDO, HSD, Motor spirit & motor vehicles used for providing any output service.

Explanation: Inputs include goods used in the manufacture of capital

goods which are further used in the factory of production.

f) Input Service :- It means any service- a) used by a provider of taxable service for providing an output service. b) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products & clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of the provider of the output services or an office relating to such factory or premises,

advertisement or sales promotion, market research,

storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment & quality control, coaching &training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods &

outward transportation upto the place of removal.

g) Input Service Distributor :-

It means an office of the manufacturer or producer of the final products or provider of output service, which receives invoices issued under Rule 4 A of Service Tax Rules, 1994 towards purchases of input services & issues invoice

bill or as the case may be a challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider of, as the case may be.

h) Output Service :-

It means any taxable service provided by the provider of taxable service to a customer, client, subscriber, policy holder or any other person, as the case may be.

I) Job work :-

It means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process.

11.4: Rule No. 3: CENVAT CREDIT:- A manufacturer of the final products or service provider shall

be allowed to take credit of -

a) Basic Excise Duty as specified in First Schedule.

b) Additional Duty of Customs (C.V.D.)

c) Additional Duty of Excise leviable under Additional

Duties of Excise (Goods Of Special Importance )Act,

1957 & Additional Duties of Excise( Textile & Textile

Articles) Act,1978.

d)Additional duty of Customs leviable under sub-section

(5) of Section 3 of Customs Tariff Act

e) National Calamity Contingent Duty.

f) Service Tax.g) Education Cess on Excisable Goods & Taxable

Servicesh) Secondary & Higher Education Cess on Excise Duty

& Service Tax paid on- i) any input or capital goods received in the

factory of the manufacturer of the final products or premises of the provider of output Services,

ii) any input service received by the manufacturer of final products or by the provider of output services

2) Cenvat credit shall be available to the manufacturer of the final products or to the service provider, on the inputs lying in stock or in process or contained in the finished goods stock on the date on which the final products become excisable or output services become taxable.

3) Cenvat credit can be utilized for payment of –

a) Central Excise Duty on any final product,

b) Service tax on any output service,

c) Any amount equal to Cenvat Credit taken on Inputs

or Capital Goods themselves if such inputs are

removed as such or after being partially processed

or such Capital Goods are removed as such.

d) Any amount payable under Rule 16(2) of Central

Excise Rules, 2002.

4) Cenvat Credit shall be utilized only to the extent such credit is available on the last day of the month/quarter for payment of duty or tax in relation to that month/quarter.

5) When the inputs or Capital Goods, on which Cenvat Credit has been taken, are removed as such from the factory, the manufacturer shall pay an amount equal to the credit availed on such inputs or capital goods and such removal shall be made under cover of an Invoice. Such payment shall not be required to be made where any inputs are removed outside the premises of the service provider for providing output service. Such payment shall also not to be made in case of Capital Goods are removed from the premises of the service provider.

6) If the Capital Goods on which Cenvat Credit has been taken, are removed after being used, the manufacturer or the service provider shall pay an amount equal to the Cenvat Credit taken on the said Capital Goods reduced by 2.5% of each quarter of a year or part thereof from the date of taking Cenvat Credit.

7) If the Capital Goods are cleared as waste & scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. 8) The amount paid as mentioned above shall be eligible for taking Cenvat credit as if the person paying such amount has paid the duty. 9) If the value of any input or capital goods before being put to use on which Cenvat Credit has been taken is written off or where any provision to write off fully has been made in the books of account, then the manufacturer shall pay an amount equivalent to Cenvat Credit taken in respect of said inputs or capital goods. But if said inputs or capital goods are subsequently used in the manufacture of final products, the manufacturer shall be entitled to take the credit paid earlier.

10) Where on any goods , the payment of duty is ordered to be remitted under Rule 21 of Central Excise Rules, 2002, the Cenvat Credit taken on the inputs used in the manufacture of such goods should be reversed. 11) Cenvat Credit on the Inputs or Capital Goods manufactured in 100% EOU, HTP & STP can be taken as per the formula prescribed in the Rules. 12) Cenvat Credit in respect of Additional Duties of Excise & National Calamity Contingent Duty can be utilized only towards payment of Additional Duty of Excise or National Calamity Contingent Duty. 13) Credit of Education Cess & Secondary & Higher Education Cess can be utilized only for the payment of Education Cess & Secondary & Higher Education Cess respectively.

Rule No.4 :-Conditions For Allowing Cenvat Credit:- 1] Cenvat Credit in respect of Inputs may be taken immediately on receipt of the inputs in the factory. 2] Cenvat Credit in respect of Capital Goods may be taken to the extent of 50% in the financial year in which the Capital Goods are received.But credit of Additional Duty levied under sub-section(5) of Section 3 of Customs Tariff Act in respect of Capital Goods can be taken in full immediately after the receipt of Capital Goods in the factory. 3] The balance amount of credit may be taken in any financial year provided the capital goods are in the

possession and use of the manufacturer.

This condition is not applicable to components, spares, accessories, refractories and refractory materials, tools & dies.

4] Whole amount of Cenvat Credit on Capital Goods is available if the Capital Goods are removed in the same financial year in which they are received in the factory.

5] Cenvat Credit in respect of Capital Goods shall be allowed even if the Capital Goods are acquired on lease, hire purchase or loan agreement from a financing

company. 6] Cenvat Credit in respect of Capital Goods shall not be

allowed to the extent of amount claimed as depreciation under Section 32 of the Income Tax Act, 1961.

7] Inputs or Capital Goods can be sent outside to a job-worker for processing, testing, repairing, re-conditioning or for any other purpose. Such inputs or Capital Goods must be returned within 180 days from the date of removal from the factory. If they are not received back within 180 days, manufacturer has to debit the amount equivalent to the Cenvat Credit on such inputs or Capital Goods. He can avail the credit when the inputs or the capital goods are received in the factory.

8] Jigs, Fixtures, Moulds and Dies can be sent out for taking out production of goods from a job-worker.

9] Final products can be cleared directly from the premises of the job-worker provided a prior permission is taken from The Commissioner of Central Excise & Customs.Such permission shall be valid for a period of one year.

10] Cenvat credit in respect of input service shall be allowed on after the day on which payment is made of the value of

the input service & he service tax as indicated in Invoice, bill or challan.

11.6:- Rule 5 : REFUND OF CENVAT CREDIT: 1] Cenvat credit availed on inputs used in the manufacture of

goods which are cleared for export under Bond or a letter of undertaking can be utilized towards payment of duty on the goods cleared for the home consumption or towards payment of service tax on output service.

2] Cenvat credit availed on inputs used in the intermediate products cleared for exports also can be utilized towards payment of duty on the goods cleared for the home consumption or towards payment of Service Tax on output service.

3] In case such adjustment is not possible, the manufacturer can claim refund of such Cenvat credit.

4] No such refund is permissible in case the manufacturer avails duty drawback benefit or claims rebate of duty or service tax.

11.7 :- Rule 6: COMMON INPUTS/INPUT SERVICES:- 1] Cenvat credit shall not be allowed on such inputs which

are used in the manufacture of exempted goods or for provision of exempted output services, except in the following circumstances.

2] Where the manufacturer avails Cenvat Credit on inputs or input services which are used in the manufacture of dutiable as well as exempted final goods or exempted output services, then the receipt, consumption and inventory of inputs or input services meant for use in the in the manufacture of dutiable final products/taxable output services and the exempted goods/output services and shall take Cenvat credit only on the quantity of inputs /input services which are intended for use in the manufacture of dutiable goods or taxable output services.

3] The manufacturer, opting not to maintain separate

account shall follow either of the following options –

a) the manufacturer shall pay an amount equal to 5% of the total value of exempted goods & the provider of output service shall pay an amount equal to 6% of value of the exempted service or

b) the manufacturer of goods or provider of service shall pay an amount equivalent to the Cenvat Credit attributable to inputs & input services used in, or in relation to , the manufacture of exempted goods or for provision of exempted services subject to the conditions & procedure specified in Sub Rule 3(A) of this Rule.

4] No Cenvat Credit shall be allowed on the Capital Goods which are exclusively used in the manufacture of exempted goods or for providing exempted service, other than those goods which are exempted based on the value or quantity of the clearances made in a financial year.

5] The above provisions are not applicable to the exempted goods if they are –

a)Cleared to a unit in 100% E.O.U, SEZ, STP, HTP or b) Supplied to United Nations or an International organization or supplied to projects for which the exemption is granted under Not. No. 108/95 dated 28.08.95. c) Cleared for export under Bond, or d) Gold or Silver falling under C. H. No. 71 arising out of manufacture of copper or zinc by smelting.

11.8 :- RULE 7 :- MANNER OF DISTRIBUTION OF OF CREDIT BY INPUT SERVICE DISTRIBUTOR :- The Input Service Distributor may distribute the Cenvat

Credit subject to the following conditions – a) the credit distributed against a document does not exceed the amount of service tax paid thereon, b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing exempted service shall not be distributed.11.9 :- Rule 7A :- DISTRIBUTION OF CREDIT ON INPUTS BY THE OFFICE OR ANY OTHER PREMISES OF OUTPUT SERVICE PROVIDER :- A service provider shall be allowed to take credit on

inputs & capital goods received , on the basis of an invoice or a bill or a challan issued by an office or premises of the said provider.

11.10:-Rule 8:- STORAGE OF INPUTS OUTSIDE THE FACTORY:

The Deputy Commissioner/Assistant Commissioner may, in exceptional circumstances, allow the manufacturer to store the inputs on which Cenvat Credit has been taken, outside the factory premises if there is shortage of space.

Provided if such inputs are not used in the manner specified in these Rules, the manufacturer shall pay an

amount equal to the credit availed in respect of such inputs.

11.11:-Rule 9: DOCUMENTS AND ACCOUNTS:- 1] Cenvat Credit can be taken on the basis of any of the following documents –

a) An Invoice issued by – i) A manufacturer from his factory or from his depot

or from the place of his consignment agent. ii) An importer from his depot or his consignment

agent. iii) A first stage dealer or a second stage dealer.

b) A supplementary invoice issued by a manufacturer or importer, in case additional duty has to be paid except in cases where the duty is payable on account of fraud, collusion or misstatement or suppression of facts or contraventions of any provisions of Acts or Rules.

c) A bill of entry.

d) A certificate issued by an appraiser of customs in

respect of goods imported through a Foreign Post

Office.

e) A challan evidencing payment of Service Tax by the

person liable to pay Service Tax ,

f) An invoice , bill or a challan issued by Service

provider,

g) An invoice, bill or challan issued by an Input Service

Distributor.

2] Cenvat Credit shall not be denied on the grounds that any of the documents mentioned above does not contain all the particulars required to be contained if such documents contains details of payments of duty, description of the goods, assessable value and address of the factory or warehouse.

Provided the Deputy Commissioner/Assistant Commissioner is satisfied that the duty or the Service tax of which the Cenvat Credit has been availed, has been paid on input or input service& such inputs or input service have been received & accounted for in the books of account of the receiver, he may allow the Cenvat Credit.

3] The Cenvat Credit on the goods purchased from a first stage or a second stage dealer shall be allowed only if such dealer maintains proper records.

4] The manufacturer shall maintain proper records for the receipt, disposal, consumption and inventory of the inputs and capital goods containing the information regarding the value, duty paid, the person from whom the inputs or Capital Goods have been procured and the burden of proof regarding the admissibility of Cenvat Credit shall lie upon the manufacturer taking such credit.

5] The manufacturer or service provider shall maintain proper records containing the abovementioned information in case of input services also on which credit has been availed.

6] The manufacturer shall submit within ten days from the close of each month to the Superintendent a monthly return in the prescribed form. SSI unit shall file a quarterly return within 20 days from the close of the quarter.

7] First Stage /Second Stage Dealer shall submit a return in the specified form within 15 days from the end of the quarter.

8) Service provider shall submit a return in the specified form within 25 days from the end of the half year.

9) Input Service Distributor shall submit a half yearly statement giving the details of credit received & distributed during the half year within 25 days from the end of half year.

11.12 :- Rule 9A :- INFORMATION RELATING TO PRINCIPAL INPUTS

A manufacturer shall furnish to the Superintendent, annually by 30th April of each financial year, a declaration in the prescribed form,in respect of each of the excisable goods manufactured , the information about quantity of principal inputs required for use in the manufacture of unit quantity of each final product.

He shall also submit the information within 10 days of each month, about the receipt & consumption of each principal input. At present, the manufacturers who are paying the duty more than Rs.1 Crore p.a. from P.L.A. ,only have to submit the above information.

11.13:-RULE 10: TRANSFER OF CENVAT CREDIT:-

1] If a manufacturer shifts his factory to another site or the factory is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory, then, the manufacturer shall be allowed to transfer the Cenvat Credit lying unutilized in his account to such transferred, sold, merged, leased or amalgamated factory.

2] The transfer of Cenvat Credit shall be allowed only if the stock of inputs as such or in process or the Capital Goods are also transferred along with the factory to the new site or ownership.

3] Similarly, the credit of Service Tax also shall be transferred in the abovementioned circumstances.

11.14 :-RULE 11: TRANSITIONAL PROVISION:- A manufacturer who opts for SSI exemption and who has

been taking Cenvat Credit on inputs before such option is exercised, shall pay an amount equivalent to the Cenvat Credit allowed to him in respect of inputs lying in stock or in process or contained in final products lying in stock on the date when such option is exercised and if any balance is left shall lapse.

Similar provisions apply to the service provider.

11.15 :- Rule 12 :- SPECIAL DISPENSATION IN RESPECT OF INPUTS MANUFACURED IN FACTORIES LOCATED IN SPECIAL AREAS OF NORTH EAST REGIONS,KUTCH DISTRICT, JAMMU & KASHMIR & SIKKIM.

11.16 :- Rule 12A :- PROCEDURE & FACILITIES FOR

LARGE TAX PAYER :-

11.17 :- Rule 12 AA :- POWER TO IMPOSE RESTRICTIONS IN CERTAIN TYPES OF CASES.

11.18 :- RULE 13 :- POWER OF CENTRAL GOVT.TO NOTIFY GOODS FOR DEEMED CENVAT CREDIT.

11.16:- RULE 15: CONFISCATION AND PENALTY:

1] If any person takes Cenvat Credit in respect of inputs or capital goods wrongly or without taking reasonable steps or contravenes any of the provisions of these rules, shall be liable to a penalty not exceeding the duty on the excisable goods or Rs.2,000 whichever is greater.

2] In case, where a Cenvat Credit is taken wrongly on account of fraud, willful misstatement, collusion or suppression of facts, then the manufacturer shall also be liable to pay penalty as per Section 11AC of the Act.

3] If any person takes Cenvat Credit in respect of Input Service wrongly or without taking reasonable steps, then the person shall be liable to a penalty not exceeding Rs.2,000/-.

4] In case, where a Cenvat Credit in respect of Input Service is taken wrongly on account of fraud, willful misstatement, collusion or suppression of facts, then the person shall also be liable to pay penalty as per Section 78 of the Finance Act, 1994.

11.16 :- Rule 15 A :- GENERAL PENALTY :- Whoever contravenes any provision for which no penalty

has been provided in the rules, ha shall be liable to a penalty which may extend to Rs.5,000/-.

11.17 :- Rule 16 :- SUPPLEMENTARY PROVISION

CHAPTER 12 : EXCISE AUDIT12.1 CHECKS BY DEPARTMENTAL OFFICERS :- Various checks have been devised by Excise Department to reduce revenue loss. These are as under- a) Visits by officers. b) Stock Taking. c) Road checks. d) Preventive checks. e) Central Excise Intelligence. f) Excise Audits – i) Departmental Audit , ii) EA-2000, iii) CERA Audit. iv) Valuation Audit v) Cenvat Credit Audit. 12.2 DEPARTMENTAL AUDIT :- a) Audit means verification & scrutiny of records & documents in order to establish that the assessee is following all the rules & regulations & maintaining records properly.

b) Audit section works under each Commissionerate & normally headed by Assistant Commissioner/Deputy Commissioner. c) Audit party normally consists of 2/3 inspectors & one Superintendents. These Audit parties visit the factories periodically.12.3 FREQENCY OF AUDIT :- C.B.E.& C.circular No.731/47/2003 – CX. Dt.1-8-2003 prescribes as follows – a ) All EOU units – Mandatory audit every year. b) Units paying duty over Rs. 1 Crore p.a. through PLA – Audit of 10 days every year. c) Units paying duty between Rs. 10 Lakhs & Rs. 1 Crore p.a. through P.L.A. – Audit of 7 days at least once in two years. d) Units paying duty less that Rs. 10 Lakhs p.a. through P.L.A – Audit of 5 days at least once in five years.

d) Units paying duty less that Rs. 10 Lakhs p.a. through P.L.A – Audit of 5 days at least once in five years.

12.4 :- EXCISE AUDIT -2000 :- Since most of the statutory records were abolished in the year 2000, routine Departmental Audit became redundant. Hence Govt. introduced E.A.2000 in December 1999 which is based on audit system followed by Govt. of Canada. This is a very exhaustive audit covering all the aspects of the business.

12.5 :- DEPARTMENTAL INSTRUCTIONS FOR E.A.2000 :- [ C.B.E.& C.Circular No.491/57/99 dt.28-10-1999, 514/10/2000 dt.16-2-2000 & 551/47/2000 dt.27-9-2000 ] a) 15 days prior notice should be given to the assessee. b) Audit should normally completed within 5 to 7 days. c) Assistant Commissioner/Jt. Commissioner should join the audit team for few days.

d ) Audit party will not issue any summons. It will not carry

out searchor seizure.

e) Audit party will not issue show cause notice.

f) Proper data base will be created.

g) It will be carried out by trained staff.

h) Asst.Director ( Cost) must accompany the audit team if

required.

i) Audit party must check source documents/records relating

to production, storage, clearances etc.

k) Audit work shall be properly documented in working

papers.

l) Assessee profile shall be created.

m) Director General ( Audit) will monitor the work of E.A.

-2000.

12.6 :-PROCEDURE FOR E.A.2000 :- C.B.E.& C. has explained the following procedure – a) Selection of assesee – Selection of assessee is based on

“risk factors” i.e.assessees who have bad track record like evasion cases, major audit objections etc.

b) Desk Review :- Advance information is to be gathered about the assessee like published Balance Sheet, annual statements etc.

c) Gathering & documenting assessee information :- This is normally done by sending a questionnaire to the assessee.

d) Touring of premises :- Auditors actually visit the factory premises to see the running of the operations, procedures, records etc.

e) Audit Plan :- Based on the information & experience, an Audit Plan is prepared to list areas which appear to be vulnerable from revenue point of view.

f) Verification :- Verification means conduct of actual audit. g) Audit objection & Audit para :- If auditor finds instances of

short payment of duty, he is required to discuss the issue with the assessee. If he is not satisfied with the explanation, he will record the same as Audit Objection or audit Para in his report.

h) Ignore procedural lapses :- Auditor is advised not to take formal objection to mere procedural lapses. He should discuss the same with the assessee & advise him to follow the correct procedure.

i) Audit Report :- At the end of audit , auditor should prepare Audit Report incorporating all audit objections.

12.7 RECORDS WHICH CAN BE VERIFIED :-

1] Daily Production Reports 2] Daily Stock Account 3] Invoices 4] Cenvat Credit Invoices 5] Cenvat Credit Registers 6] TR-6 Challans 7] P.L.A. 8] Goods Receipt Notes. 9] Gate Registers 10] Input- Output Ratio 11] Physical Stock Taking Fi 12] Material Issue Notes 13] Scrap Records 14] P& L A/C & B/ Sheet 15] Debit Notes & Credit Notes. 16] Transport Documents 17] Power Consumption 18] Employee Records 19] Cost Records/ Cost Audit File 20] Income Tax Returns 21] Sales Tax Returns 22] Purchase Register 23] Internal Audit Reports 24] Pending Excise Cases 25] Marketing Pattern 26] Various Discounts offered 27] Fixed Assets Register 28] Job work Records. 29] Stock declared to Banks. 30] Excise Correspondence File

12.8 :- CERA AUDIT :- Comptroller & Auditor General of India also carries out audit. This is called Central Revenue Audit or CERA. This Audit Report is submitted to the President of India & laid before each house of the Parliament. Frequency of CERA is dependent upon the revenue figures i.e. CERA is conducted of large units. 12.9 ;-VALUATION AUDIT :- Section 14 A of The Central Excise Act, 1944 provides for Valuation Audit if the Commissioner is of the opinion that the value has not been correctly declared by the assessee. This has to be carried out by a practicing Cost Accountant after an order has been issued by The Assistant Commissioner/ Deputy Commissioner with the prior approval of The Commissioner. Cost Accountant will be appointed by The Chief Commissioner. The Audit fees & expenses will have to be paid by the Excise Department.

12.10 ;- CENVAT CREDIT AUDIT :- Section 14 AA of The Central Excise Act, 1944 provides for Cenvat Credit Audit when The Commissioner has reason to believe that Cenvat credit availed is not normal or the credit has been availed on account of fraud, suppression of facts etc. This has to be ordered by the Commissioner. This also has to be carried out by a practicing Cost Accountant appointed by TheCommissioner.

CHAPTER 13 :- SMALL SCALE INDUSTRIES

13.1 :- NO DEFINITION OF SSI UNIT :-

Nowhere in Excise Law, the word SSI is used.Hence there is no definition of SSI. Everywhere the words like ‘the units enjoying exemption based on the value of clearances ‘ have been used.

13.2 :- NOTIFICATION NO.8/2003 DT.1-3-2003 :-

This Notification allows the manufacturer to enjoy the exemption from the payment of duty up to a clearance value of Rs.150 Lakhs in any financial year provided he does not claim Cenvat Credit on inputs, Capital Goods & Input Services. After crossing this limit, he has to start paying the duty & then he can claim Cenvat Credit.

13.3 :- CONDITIONS FOR CLAIMING THE EXEMPTION :- 1] Manufacturer has to opt for the exemption at the

beginning of the year i.e. before the first clearance made in the financial year. He has to file a declaration to that effect with the Assistant Commissioner.

2] Once such option is exercised, it cannot be changed in that financial year.

3] The exemption is available for Basic Excise duty only. 4] The exemption is available for every financial year. 5] The Notification also exempts the goods manufactured

& captively consumed. 6] The exemption is available only to the specified goods. 7] For calculating the turnover, the value of clearances

from all the factories of a manufacturer is to be considered. 8] The aggregate value of the clearances of all excisable

goods by a manufacturer from one or more factories or from a factory by one or more manufacturers should not exceed Rs.400 Lakhs in the preceding financial year.

9] For determining the aggregate value of the clearances , the following clearances shall not be taken into account ;-

a) Clearances of exempted goods or the goods with Nil rate of duty.

b) Clearances of goods exported. c) Clearances of goods bearing Brand Name or Trade

Name of another person. d) Clearances of goods captively consumed in the factory. 10] The exemption is not available to the goods bearing

Brand Name/Trade Name whether registered or not. Brand Name/Trade Name means a name or mark such as symbol, Monogram, label, signature or invented word or writing which is used in relation to such specified goods so as to indicate a connection in the course of trade between such specified goods & some person using such trade name or mark.

Branded goods bearing a brand name of Khadi & Village Industries Commission, National Small Industries Corporation & other specified organizations shall enjoy the exemption. Similarly the branded goods being in the nature of Components & parts of any machinery or equipment or appliances & are cleared for use of original equipment or appliances are also eligible for exemption provided the procedure laid down under Central Excise (Removal of goods at concessional rate of duty for manufacture of excisable goods ) Rules,2001 is followed. The exemption is also available to the branded goods manufactured in a factory located in a rural area.

11] The aggregate value of clearances for this Notification means the value of clearance for home consumption only.These clearances include the clearances made to Nepal & Bhutan.

13.4 :- OTHER EXEMPTIONS TO SSI UNITS ;- 1] Goods manufactured in rural areas by Co-operative

societies. 2] Specified goods of Village & Cottage industries.

13.5 :- OTHER PREVILEGES OF SSI UNIT :- 1] Quarterly Return. 2] No declaration upto a turnover limit of Rs.90 Lakhs. 3] No visits of Excise officers without written permission

from the Assistant Commissioner. 4] Audit once in two years.

CHAPTER 14 :ASSESSMENTS, DEMANDS,RECOVERY & APPEALS ETC.14.1 :- ASSESSMENT :- a) Assessment means determining the tax liability. b) Assessee :- Rule 2(e) of Central Excise Rules, 2002

states that Assessee means any person who is liable to pay duty or a producer or a manufacturer of excisable goods or a registered person of a private warehouse in which excisable goods are stored & includes an authorized agent of such person.

c) Self –assessment :- Except in case of cigarettes, assessment is “self-assessment” which means assessee has to himself assess the duty payable on excisable goods. He has to prepare the Invoice on which he has to show the assessable value & the duty amount. He has to submit a monthly/quarterly return, maintain all the necessary records himself. The departmental officers will scrutinize the returns , if required, ask certain clarifications from the assessee. However, no assessment order is issued.

d) Physical control :- In case of cigarettes,the Superintendent or Inspector shall assesee the duty payable before removal of goods.Each Invoice is countersigned by the Central Excise Officer & the goods are physically removed under their supervision.

e) Provisional assessment :- Rule No.7 of Central Excise Rules, 2002 makes a provision for Provisional Assessment.It has to be requested by the assessee.He can request when he is unable to determine the value of the goods or he is unable to determine the rate of duty.He has to apply to the Assistant Commissioner giving the reasons for same. Assistant Commissioner, if he is satisfied, shall order for the provisional assessment. Assessee has to execute a Bond in the prescribed form. The Invoices & the returns should be marked as “ Provisionally assessed vide order No.--- dated ---.” The Assistant Commissioner must pass the final order within six months from the date of the provisional assessment. Extension up to one year can be

permitted by the Commissioner & beyond one year by the Chief Commissioner. After final assessment, differential duty will have to be paid or the refund can be filed.Interest also is receivable or payable from the date of final order till the date of payment of duty or refund.No penalty will be levied. Final order is appellable.

f) Best Judgment Assessment :- There is no specific provision for Best Judgment assessment in Excise Rules except Best Judgment valuation under Central Excise Valuation Rules, 2000.C.B.E.&C. in its manual has stated that that where assessee fails to provide records or information & department is unable to issue demand, best judgment method should be used to raise the demand on collateral evidence.

14.2 :- DEMAND OF CENTRAL EXCISE DUTY :- a) Demand of duty may arise in the following cases- i) Non-acceptance of assessable value by Excise authorities. ii) Exemptions, notifications claimed by the assessee are not acceptable to the Department. iii) Classification is not acceptable. iv) Goods removed without payment of duty. v) Erroneous refund of duty. b) Show Cause Notice :- Section 11A of Central Excise Act,1944 states that when the duty is not paid or short paid or not paid or short levied or not levied or any duty which has been erroneously refunded , a short Cause Notice can be issued within a period of one year from the relevant date. In case of fraud, suppression of facts etc.,

the show cause notice can be issued within a period of five years from the relevant date. The relevant date means the date on which the monthly/quarterly return is filed or if the return is not filed, then the date on which the return should have been filed. In case of erroneous refund, the date is the date on which the refund has been paid.

14.3 OTHER POINTS RELATING TO SHOW CAUSE NOTICE :-

1] Simple letter asking to pay the duty is not a Show Cause Notice. 2] No Show Cause Notice should be issued in case the assessee pays the duty before issue of Show Cause Notice. 3] Show Cause Notice covering one year period can be issued by The Superintendent if the duty amount is below Rs. 2.00 lakhs. If the duty involved is more than

Rs. 2.00 lakhs but below Rs. 20.00 lakhs, the Show Cause Notice can be issued by The Assistant Commissioner & if the demand is more than Rs. 20.00 lakhs, the same has to be issued by The Commissioner.In case of suppression of facts, fraud etc., the Show Cause Notice can be issued by The Assistant Commissioner if the demand is upto Rs. 20.00 lakhs. Above Rs. 20.00 lakhs demand, the Show Cause Notice should be issued by the Commissioner.

4] Show Cause Notice must be complete in all respects & duty signed by the proper officer.

5] Show Cause Notice must be served to the Assessee. 6] Wrong mention of Rule or Section does not vitiate Show Cause Notice. 7] Corrigendum to Show Cause Notice can be issued clarifying the earlier Show Cause Notice, but no additional charges can be made in the Corrigendum.

8] Adjudicating authority cannot go beyond the Show Cause Notice.

9] In case of charge of suppression of facts, fraud etc. the burden is on the Department to prove the same.

14.4 REPLY, HEARING & ORDER :- 1] C.B.E. & C. has prescribed a time limit of one year for

giving the reply to the Show Cause Notice. 2] Reply should be complete & exhaustive. 3] As a principle of natural justice, the assessee should be

allowed to appear in person & argue the case. This is known as personal hearing.

4] Same officer who has given personal hearing should pass an order.

5] C.B.E. & C. has clarified that the adjudication order should be issued within 6 months from the date of personal hearing.

6] Demands for the period up to one year can be adjudicated by The Assistant Commissioner. Demands beyond the period of one year have to be adjudicated by The Commissioner.

7] Order must specify the amount of duty, penalty & interest & it cannot go beyond Show Cause Notice. Order must be a reasoned order / speaking order.

14.5 APPEALS :-

1] All provisions of appeals are governed by Central Excise (Appeals) Rules, 2001.

2] Aggrieved person only can file an appeal.

3] Appeal can be filed against an order passed by The Asst. Com./ Joint Com. / Add. Com. Or Commissioner or Commissioner (Appeals) or CESTAT ( Central Excise & Service Tax Appellate Tribunal )

4] Time limit for filing an appeal :- In case of appeal to Appellate Commissioner, the time limit is two months from the date of receipt of order & in case of appeal to CESTAT & Supreme Court, the time limit is three months.

5] Appeal against the order by The Asst. Com. / Joint Com. & Additional Commissioner has to be filed with The Commissioner (Appeals). Appeal against the order passed by The Commissioner has to be filed with CESTAT & the appeal against the order passed by CESTAT has to be filed with The Supreme Court. Appeal also can be filed in High Court if any question of law is involved.

6] Department also can file an appeal in the similar way. Time limit for reviewing the orders is three months & time limit available to file an appeal is one month after the review.

7] In case of appeal to Commissioner (Appeals), appeal

should be filed in duplicate whereas the appeal to CESTAT should b filed in quadruplicate.

8] Appeal should be neatly typed & the pages should be serially numbered.

9] Appeal should be made in the prescribed proforma alongwith a copy of order appealed against, statement of facts & grounds of appeal. At least one copy of the appeal must contain a copy of the order attested by the Excise Officers.

10] There is no fee for filing an appeal to Commissioner (Appeals). Only a court fee stamp of Rs. 5/- should be affixed on one of the sets of appeal. In case of appeal to CESTAT, fee of Rs. 200/- has to be paid if the duty involved is less than Rs. 1.00 lakhs & fee of Rs. 1000/- has to be paid in case the duty amount is more than Rs. 1.00 lakh.

11] Delay in filing an appeal can be condoned in exceptional cases by the

proper authorities.12] Section 35 F of The Central Excise Act, 1944 provides that

the appellant must deposit the duty amount before filing an appeal. In case of financial hardship, he may apply for the stay for the pre -deposit of duty.

13] Such pre-deposit of duty is not a payment of duty & the provisions of refund like time bar etc. are not applicable to such pre-deposits.

14] Application for stay should be decided within a period of 30 days by The Commissioner (Appeal). CESTAT should pass the order within 180 days from the date of stay otherwise the stay gets vacated automatically.

15] C.B.E. & C. has clarified that no coercive action should be taken during the pendancy of stay.

16] Payment of pre-deposit can be made through Cenvat Credit.

17] Interest liability continues during the period of stay.18] Appellate authority can remand the case to lower

authorities in case the authority feels that more consideration is needed for proper

decision.14.6 Authorized Representative :- (Rule 12 of Appeals

Rules) :- a) Chartered Accountant b) Cost Accountant c) Company Secretary d) Post Graduate in Commerce / Business Administration. e) Person who has worked at least for 10 years in Excise, Customs or Narcotics department. f) Advocate having certificate of practice in the court. Advocate has to file Vakalatnama & in other cases,

only authorization letter is sufficient.

14.8 CESTAT :-

1] Central Excise & Service Tax Appellate Tribunal decides the appeals filed against the order passed by The Commissioner & Commissioner (Appeals).

2] There are five Tribunals in the country as under –

Northern Bench – New Delhi

Western Bench – Mumbai

Eastern Bench – Kolkata

Southern Bench – Chennai

Southern Bench – Bangalore

3] Tribunal is a quasi-judicial body & the members are equivalent to High Court judges.

4] CESTAT (Procedure) Rules, 1982 govern the procedures to be followed in CESTAT.

5] Normally CESTAT has two members viz. Member (Technical) & Member (Judicial). In case of important cases, the matter can be referred to Larger Bench consisting more number of members. CESTAT has got one President & one Vice President.

6] Orders passed by CESTAT can be appealed in Supreme Court.

CHAPTER 15 : OFFENCES & PENALTIES

15.1 :- SECTION 9 OF THE CENTRAL EXCISE ACT, 1944:-

Whosoever commits any of the following offences , namely-

a) contravenes any of the provisions of Section 8 of the

Act ( restriction on possession of excisable goods.) or

clause (xxvii) of sub-section 2 of Section 37 of The Act

( registration ),

b) evades the payment of duty payable under this Act,

bb) removes any excisable goods in contravention of any

of the provisions of this Act or any Rules made there

under or in any way concerns himself with such removal,

bbb) acquires possession of , or in way concerns himself in

transporting, depositing, keeping, concealing, selling or

purchasing, or in any other manner deals with any

excisable goods which he knows or has reason to

believe are liable to confiscation under this Act or any

Rule made there under.

bbbb) contravenes any of the provisions of this Act or the

Rules made thereunder in relation to credit of any duty

allowed to be utilized towards payment of excise duty on

final products,

c) fails to supply any information which is required by rules

made under this Act to supply, or supplies false

information,

d) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) & (b) of this section,

shall be punishable – i) in the case of an offence relating to any excisable goods, the duty leviable thereon under this Act exceeds Rs.One Lakh, with imprisonment for a term which may extend to seven years & with fine , ii) in any other case, with imprisonment for a term which may extend to three years or with fine or with both.15.2 : SECTION 9AA :- OFFENCES BY COMPANIES :- Where an offence has been committed by a company, every

person who , at the time the offence was committed was in charge of ,& was responsible to, the company , for the conduct of the business of the company, as well as the company , shall be deemed to be guilty of the offence & shall be liable to be prosecuted against & punished accordingly.

Provided that nothing in this section shall render any such

person liable to any punishment , if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

15.3 :- SECTION 11AC :-PENALTY FOR SHORT PAYMENT OF DUTY :- Where any duty has not been paid or short paid by

reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions under the Act or Rules with intent to evade the payment of duty, the person shall be liable to pay a penalty equal to the duty not paid or short paid.

Provided that where such duty & interest thereon is paid within thirty days from the date of communication of the order, the amount of penalty shall be twenty five per cent of the duty. Such reduced penalty also should be paid within thirty days.

15.4 :- RULE 25 OF THE CENTRAL EXCISE RULES,2002 :

CONFISCATION & PENALTY :- If any producer, manufacturer, registered person of a

warehouse or a registered dealer – a) removes any excisable goods in contravention of any

of the provisions of these rules or the notifications issued under these rules; or

b) does not account for any excisable goods produced or manufactured or stored by him;or

c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under Section 6 of the Act or

d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty,

then, all such goods shall be liable to confiscation & the producer or the manufacturer or registered person of the warehouse or a registered dealer shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed or Rs. Two Thousand, whichever is greater.

15.5 :- RULE 26 :- PENALTY FOR CERTAIN OFFENCES :-

Any person who acquires possession of , or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing , or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or Rules, shall be liable to a penalty not exceeding the duty on such goods or Rs. Two Thousand whichever is greater.

15.6 :-RULE 27 :-GENERAL PENALTY :-

A breach of these rules shall , where no other penalty is provided herein or in the Act, be punishable with a penalty which may extend to five thousand rupees & with the confiscation of the goods in respect of which the offence is committed.

CHAPTER 16 : POWERS OF EXCISE OFFICERS

16.1 :- SECTION 13 OF THE CENTRAL EXCISE ACT, 1944 :- POWER TO ARREST :- Any Central Excise Officer not below the rank of an

Inspector, with prior approval of The Commissioner ,may arrest any person whom he has reason to believe to be liable to punishment under this Act or the Rules made thereunder.

16.2 :- SECTION 14 :- POWER TO SUMMON :- Any Central Excise Officer duly empowered by the

Central Govt. shall have power to summon any person to give evidence or to produce a document or any other thing in any enquiry. Every such enquiry shall be deemed to be a “judicial proceeding” within the meaning of Indian Penal Code.

16.3 :- SECTION 18 :- SEARCHES & ARRESTS :-

All searches & arrests shall be carried out in accordance with the provisions of The Code of Criminal Procedure, 1898.

16.4 :- RULE 22 :- ACCESS TO A REGISTERED PREMISES :-

An officer empowered by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification & checks as may be necessary.

Every assessee shall furnish to the officer empowered , a list in duplicate, of all the records prepared & maintained by the assessee for accounting of transactions in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs & capital goods.

Every assessee shall , on demand make available to the officer ,the records maintained or prepared by him, the cost audit reports, if any & Income Tax Audit report, if any.

16.5 :- RULE 23 :-POWER TO STOP & SEARCH :-

Any Central Excise Officer , may search any conveyance carrying excisable goods in respect of which he has reason to believe that the goods are being carried with intention of evading duty.

16.6 : - RULE 24 :- POWER TO DETAIN OR SEIZED

GOODS :-

If a Central Excise Officer, has reason to believe that any goods, which are liable to excise duty but no duty has been paid thereon or the said goods were received with the intention of evading the duty payable thereon, the Central Excise Officer may detain or seize such goods.