1:56 am - Monday May 27, 2019

Taxation

Excise Duty

Excise Duty

Central Excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers.

The term "excisable goods" means the goods which are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 , as being subject to a duty of excise and includes salt.

The term "manufacture" includes any process,

  1. Incidental or ancillary to the completion of a manufactured product and

  2. Which is specified in relation to any goods in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture or

  3. 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 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.

As incidence of excise duty arises on production or manufacture of goods, the law does not require the sale of goods from place of manufacture, as a mandatory requirement. Normally, duty is payable on 'removal' of goods. The Central Excise Rules provide that every person who produces or manufactures any 'excisable goods', or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rules or under any other law. No excisable goods, on which any duty is payable, shall be 'removed' without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided. The word 'removal' cannot be necessarily equated with sale.

The removal may be for :

  1. Sale

  2. Transfer to depot etc.

  3. Captive consumption

  4. Transfer to another unit

  5. Free distribution

Thus, it can be seen that duty becomes payable irrespective of whether the removal is for sale or for some other purpose.

 

Rules for Levy of Central Excise

In India, excise duty is levied in accordance with the provisions of Central Excise Act, 1944. It is the basic Act which lays down the law relating to levy and collection of Central Excise duty. The Act empowers the Central Government to make rules in pursuance of the Act. According, the following set of rules have been framed :

  • The Central Excise Rules, 2002 (Section 143 of the Finance Act, 2002)

  • The Central Excise (Settlement of Cases) Rules, 2001

  • The Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001

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

  • Consumer Welfare Fund Rules, 1992

  • The Central Excise (Advance Rulings) rules, 2002

  • Central Excise (Compounding of Offences) Rules, 2005

The Central Excise law is administered by the Central Board of Excise and Customs (CBEC). Central Board of Excise and Customs is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs and Central Excise duties, prevention of smuggling and administration of matters relating to Customs, Central Excise and Narcotics to the extent under CBEC's purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise Commissionerates and the Central Revenues Control Laboratory.

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Classification of goods and rates of Excise duty

In order to determine the rate of excise duty on a good, classification is prerequisite. Excise duty payable is based on the classification of goods given in the Central Excise Tariff Act, 1985 (CETA). The Act gives a list of items chargeable to Central Excise duty. It is divided into 96 Chapters grouped in twenty Sections. Each of these twenty sections relates to broader class of goods such as Section I relates to Animal and Dairy Products, Section VI relates to Products of Chemical and Allied Industries, while Chapter XI relates to Textiles and Textile Articles.

The Central Excise Tariff Act was amended in 2004. Earlier there was six digits classification code for classification of the goods, which has been replaced by 8 digits classification code. With introduction of this 8 digits classification code, a detailed classification of the goods is now available. The classification of items is significant because it is only the proper classification, which leads to determination of rate of duty.

In Central Excise Tariff, against each item a rate of duty has been prescribed. These are normally termed as "tariff rates". In order to determine the rate of duty on a particular product, first find out the chapter heading under which the item is classifiable. Against that classification, the corresponding tariff rate has to be read with the exemption notification, if any. Thus, effective rate of duty on an item is obtained.

Some commodities may be subject to 'special duty of excise' prescribed under the Central Excise Tariff Act, 1985. Certain goods may also be subject to duty under some other Acts such as Additional Duty of Excise (Goods of Special Importance) Act, 1957 or certain Cess.

Different kinds of Excise Duties

Basic Excise Duty : This is the duty leviable under First Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule.

Special Excise Duty : This is the duty leviable under Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is leviable on very few items.

Additional Duties of Excise (Textiles and textile Articles) : his duty is leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles ) Act, 1978. This is leviable at the rate of fifteen percent of Basic Excise Duty payable on specified textile articles.

Additional Duties of Excise (Goods of Special Importance) : duty is leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 on the specified goods mentioned in its First Schedule.

National Calamity Contingent Duty : Normally known as NCCD. This duty is levied as per section 136 of the Finance Act, 2001, as a surcharge on specified goods.

Excise Duties and Cesses Leviable Under Miscellaneous Act : On certain specified goods, in addition to the aforesaid duties, prescribed rate of excise duty and cess is also leviable.

Education Cess on excisable goods is levied in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 or any other law for the time being in force.

 

Valuation of Goods

Generally, the Central excise duty in respect of different goods is on ad-valorem basis (i.e. the duty is fixed as a percentage of assessable value of a good). It thus becomes important to find out as to how the value of a good is to be assessed. The valuation of the goods as per Central Excise Act 1944, can be determined on the following three basis :

  • Tariff Value : the Central Government may fix tariff values of any article by way of notification. The duty is payable on the tariff value so fixed.

  • Transaction Value : This is the most common way to determination of assessable value. In most of the products, the value for the purpose of charging duty, shall be taken as the price actually paid or payable for the goods, when sold to buyer. This means the amount, which has been transacted between the seller and the buyer in normal course of business is the assessable value.

    For applicability of transaction value in a given case, for assessment purposes, certain essential requirements should be satisfied. If any one of the said requirement is not satisfied, then the transaction value shall not be the assessable value and value in such case has to be arrived at under the valuation rules notified for the purpose. The essential ingredients of a Transaction value are :

    • The goods are sold by an assessee for delivery at the time of place of removal. The term "place of removal" has been defined basically to mean a factory or a warehouse

    • The assessee and the buyer of the goods are not related and

    • The price is the sole consideration for the sale.

  • Maximum Retail Sale Price : The value is based on maximum retail sale price in terms of the Central Excise Act, 1944. This is applicable to notified commodities. The notification issued in this regard indicates the extent of abatement to be allowed for arriving at the assessable value for determination of amount of duty. Central Government can specify goods in respect of which, the value shall be deemed to be the retail sale price declared on the goods less the abatement. This provisions is applicable to those goods in relation to which, the requirement of declaration of retail sale price on the package is there under the provisions of Standards of Weights and Measures Act, 1976 or rules made there under.

 

Procedures

The Central Excise Department follows two procedures in order to enforce the central excise law and collect the Excise duty :

  • Self removal procedure : under this system, the assessee himself determines the duty liability on the goods and clears the goods. It involves, self assessment by the manufacturer himself of the excise duty payable by him. He removes goods without prior permission or physical supervision of the excise officers. The assessee is required to follow the prescribed procedure. It is applicable to all goods (except cigarettes) produced or manufactured within the country.

  • Physical control : here assessment is followed by clearance. It takes place under the supervision of Central Excise officers. Central Excise Officers check that goods are cleared only after payment of duty. Once the excise duty has been paid, goods must move from that place. Duty paid goods cannot remain in the factory unless specifically permitted. It is applicable to cigarettes only.

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MODVAT and CENVAT

Taxation of inputs, like raw materials, components and other intermediaries had a number of limitations. In production process, raw material passes through various processes stages till a final product emerges. Thus, output of the first manufacturer becomes input for second manufacturer and so on. When the inputs are used in the manufacture of product 'A', the cost of the final product increases not only on account of the cost of the inputs, but also on account of the duty paid on such inputs. As the duty on the final product is on ad valorem basis and the final cost of product 'A' includes the cost of inputs, inclusive of the duty paid, duty charged on product 'A' meant doubly taxing raw materials. In other words, the tax burden goes on increasing as raw material and final product passes from one stage to other because, each subsequent purchaser has to pay tax again and again on the material which has already suffered tax. This is called cascading effect or double taxation.

This very often distorted the production structure and did not allow the correct assessment of the tax incidence. Therefore, the Government tried to remove these defects of the Central Excise System by progressively relieving inputs from excise and countervailing duties. An ideal system to realize this objective would have been to adopt value added taxation (VAT). However, on account of some practical difficulties it was not possible to fully adopt the value added taxation.

Hence, Government evolved a new scheme, 'MODVAT' (Modified Value Added Tax). MODVAT Scheme which essentially follows VAT Scheme of taxation. i.e. if a manufacturer A purchases certain components(raw materials) from another manufacturer B for use in its product. B would have paid excise duty on components manufactured by it and would have recovered that excise duty in its sales price from A. Now, A has to pay excise duty on product manufactured by it as well as bear the excise duty paid by the supplier of raw material B. Under the MODVAT scheme, a manufacturer can take credit of excise duty paid on raw materials and components used by him in his manufacture. It amounts to excise duty only on additions in value by each manufacturer at each stage.

The modvat scheme is regulated by Rules 57A to 57U of the Central Excise Rules and the notifications issued there under (The Central Excise Rules, 2002 (Section 143 of the Finance Act, 2002).

Modvat Scheme ensures the revenue of the same order and at same time the price of the final product could be lower. Apart from reducing the costs through elimination of cascade effect, and bringing in greater rationalization in tax structure and also bringing in certainty in the amount of tax leviable on the final product, this scheme will help the consumer to understand precisely the impact of taxation on the cost of any product and will, therefore, enable consumer resistance to unethical attempts on the part of manufacturers to raise prices of final products, attributing the same to higher taxes.

Subsequently, MODVAT scheme was restructured into CENVAT( Central Value Added Tax) scheme. A new set of rules 57AA to 57AK , under The Cenvat Credit Rules, 2004, were framed and whatever restrictions restrictions were there in MODVAT Scheme were put to an end and comparatively, a free hand was given to the assesses.

Under the Cenvat Scheme, a manufacturer of final product or provider of taxable service shall be allowed to take credit of duty of excise as well as of service tax paid on any input received in the factory or any input service received by manufacturer of final product.

The term "Input" means :

  1. All goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production

  2. All goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;

Explanation 1 : The light diesel oil, high-speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.

Explanation 2 : Inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;"

The term "Input service" means any service :

  1. Used by a provider of taxable service for providing an output service; or

  2. Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal,

And includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service 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 and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

Manufacturer and service providers can avail Cenvat credit of capital goods used by them. The plant and machinery and allied items are purchased by a manufacturer. Such goods known as capital goods may be duty paid. The capital goods shall be used in manufacture of final products or for providing output service. The CENVAT credit in respect of duty paid on capital goods shall be taken only for an amount not exceeding fifty percent of the duty paid in the same financial year and the credit of balance amount can be take in any financial year subsequent to the financial year in which the capital goods were received.

Duty Paying Documents against which CENVAT credit can be availed are :

  • Invoice issued by

    • A manufacture of inputs or capital goods.

    • An importer

    • An importer from his depot or premises of consignment agent,

    • Provided the depot/ premises is registered with central excise

    • A first/second stage dealer.

  • A supplementary invoice

  • A bill of entry.

  • A certificate issued by appraiser of customs

  • An invoice/bill/challan issued by providers of input service.

  • A challan evidencing payment of service tax.

Credit of duty is allowed only if all the conditions given below are met :
  • The basic criteria for availment of credit of duty paid on inputs or capital goods is that the goods shall be used in manufacture of final products.

  • The goods shall be accompanied with proper prescribed documents.

  • The final products shall not be exempt from whole of duty or chargeable to nil rate of duty.

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Other Categories

Taxation
Taxation of Individuals
Who is liable to pay income tax
Sources of Income
Income from Salaries
Income from Capital Gains
Income from House property
Income from Profits & gains of business or profession
Income from other sources
Taxation of Partnerships
Customs Duties (Import Duty and Export Tax)
Wealth Tax
Taxation of Corporates
Taxation of Agents
Excise Duty
Permanent Account Number (PAN)
Taxation of other forms of business entities
Taxation of Trusts
Taxation of Small Scale Industries
Joint Venture Companies
Cooperative Societies
Taxation of Representative offices
Service Tax
TDS,TCS,TAN
Value Added Tax (VAT)


Introduction

India has a well developed tax structure. The power to levy taxes and duties is distributed among the three
tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that
the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income,
which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.

In the wake of economic reforms, the tax system in India has under gone a radical change, in line with the
liberal policy. Some of the changes include:- rationalization of tax structure; progressive reduction in peak
rates of customs duty; reduction in corporate tax rate; customs duties to be aligned with ASEAN levels;
introduction of value added tax; widening of the tax base; tax laws have been simplified to ensure better compliance. Tax policy in India provides tax holidays in the form of concessions for various types of investments. These include incentives to priority sectors and to industries located in special area/ regions. Tax incentives are available also for those engaged in development of infrastructure.