CENTRAL EXCISE by Prof Pravin Mahamuni

CENTRAL EXCISE
Presented by
Prof Pravin N Mahamuni

MBA (Finance & Marketing) PhD (Pursuing)
BASIC CONCEPT
Two types of taxes; Direct taxes collected by the government directly from the tax payer through levies such as income tax and wealth tax. Indirect taxes collected indirectly as a part of prices of goods and services on which these are levied. In our country these comprise of excise duty, sales tax, customs duty and value added tax. Governments Revenue Direct Tax 30% Indirect Tax 70%
Prof Pravin N Mahamuni 2
What is meant by Tax & Duty?

Duty is levied on goods
Tax is levied on other than goods
INDIRECT TAX
CENTRAL EXCISE CUSTOMS VAT and SERVICE TAX
CENTRAL EXCISE
Central Excise is a levy (tax), levied on a
commodity (manufactured within the country) by the Union Government by an Act of Parliament (usually in the Finance Bill, in the presentation of the Budget in the Parliament, generally on the last working day of February every year) by notifying under a Tariff.
Contd
It is an indirect tax paid by the manufacturer, who
passes its incidence to the customers.

Excise Duty is levied the moment the process of
manufacture is complete.
Objectives of Central Excise Act, 1944

1. To collect excise duty on manufactured goods more conveniently 2. To reduce collection costs 3. To control wasteful expenditures 4. To avoid tax evasion by appropriate control measures 5. To promote industrial growth in backward areas 6. To support local industries 7. To collect high revenues
WHAT IS EXCISE DUTY?

Excise is derived from the Latin word Excisum.
According to the Federal Court and Privy Council:
a tax attracted by the event of manufacture but collected at some convenient stage which may be after the said event, which is only for administrative convenience [Province of Madras v. Boddu Paidanna & Sons 1978 (2) E.L.T. J272].
It is a duty levied upon
Contd
goods manufactured and not upon sales or the proceeds of sale of goods [Council v. Province of Madras, 1978 (2) E.L.T. J28].
Therefore the duty of excise is levied on a manufacturer
or producer in respect of the commodities produced or manufactured by him. proceeds of sale of goods.
It is a tax upon manufacture of goods and not upon sales or Duty of excise has been renamed as Central Value Added
Tax (CENVAT). CENVAT includes duty, duties duty of excise or duties of excise.
CONSTITUTIONAL BACKGROUND
Any duty, tax etc. should be in accordance with the Constitution of
India. The levy of excise duty on goods manufactured or produced in India is in terms of Entry 84 of the Union List of the VII Schedule to the Constitution of India empowers the Parliament to levy excise duty on tobacco & other goods manufacture or produced in India
except:
Alcoholic liquor for human consumption Opium Indian hemp and Other narcotic drugs & narcotic where the State Government has the power to levy excise duty. However, in case of medicinal & toilet preparations containing alcohol or opium, Indian hemp & other narcotic drugs, the Central Government has the power to levy excise duty.
a. b. c. d.
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HISTORY OF CENTRAL EXCISE LAW

Prior to 1944 there were 16 individual Acts which levied
excise duty. Each such act dealt with one or same type of commodities. All these acts were consolidated and a consolidating Act was passed in 1944 called as Central Excises and Salt Act, 1944 which came into effect from 28th February 1944. In 1996 the Act was renamed as Central Excise Act, 1944. The Central Excise Act, 1944 (originally Central Excises and Salt Act, 1944) and Rules framed there under came into force on 28th February, 1944.
Contd
The Act applies to the whole of India. India includes Indian territorial waters. Indian territorial waters extend upto 12 nautical miles
from the Indian land mass. It also extends to areas designated in the Continental Shelf and Exclusive Economic Zone of India. The exclusive economic zone extends upto 200 nautical miles inside the sea from base line. Though originally the Act did not apply to the State of Jammu and Kashmir, its application was extended to that State since the enactment of Taxation Laws (Extension to Jammu & Kashmir) Act, 1954.
BODY OF CENTRAL EXCISE LAW

Central Excise Law includes; a) Central Excise Act, 1944 b) Central Excise Rules, 2002 c) Cenvat Credit Rules, 2004 d) Central Excise (Appeal) Rules, 2001 e) Central Excise (Advance Rulings) Rules, 2002. f) Central Excise (Settlement of Cases) Rules, 2001. g) Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of h) Excisable Goods) Rules, 2001 i) Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 j) Central Excise Tariff Act, 1985
EXCISE DUTY LIBILITY
Chapter II of the Central Excise Act, 1944 deals with
levy and collection of the duty. This chapter contains sections 3, 4 & 4A. Section 3 is the charging section, section 4 provides for the method of valuation of excisable goods and section 4A deals with valuation based on maximum retail price (MRP). Basic excise duty is levied u/s 3 of Central Excise Act, 1944 at rate provided by First & Second Schedule to Central Excise Tariff Act (CETA), 1985.
Basic condition for levy of excise duty
[Charging Section 3(1)]

All of the following conditions are required to fulfill in order to levy of excise duty.
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As per section 3
There is no levy of excise duty on goods produced or
manufactured in Special Economic Zone (SEZ). Goods cleared from 100% EOU are liable to excise duty and the method of computation is different. SEZ has the meaning assigned to it in Section 2(za) of the SEZ Act, 2005. All excisable goods other than salt, which are produced or manufactured in India, would subject to excise duty at the rate specified in the First and Second Schedule to the CETA, 1985.
Important points
Levy means
imposition and assessment but does not include collection of tax. Thus, duty is levied as soon as taxable event occurs, but collection can take place anytime - before, at the time or even after the taxable event. Taxable event is manufacture or production in India.
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Contd
Duty is payable by
the manufacturer or producer of excisable goods. In case where goods are allowed to be stored in a warehouse without the payment of duty, the duty liability is of the person who stores the goods. Rate of duty is as applicable on date of removal i.e. clearance from factory.
Contd
Goods have to be classified and valued in the state in
which the goods are removed from the factory. Any further processing done afterwards is not relevant. Duty liability arises even when goods are not sold or free replacements are given during warranty period.
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Duty is payable even when
Contd
not collected from consumers. Duty is payable even if duty was paid on raw materials. Duty can be levied on Govt. undertakings. Duty is considered as a manufacturing expense and is included as an element of cost for inventory valuation, like other manufacturing expenses.
Types of Excise Duty

Basic Excise Duty (BED) or CENVAT
Special Excise Duty (SED) Excise Duty on clearances by EOU / SEZ in Duty Tariff
Area National Calamity Contingent Duty (NCCD) Duties under other Acts Cess under other Acts
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Definitions
i. Goods, ii. Manufacture, iii. Excisable goods.
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GOODS
The word goods has not been defined in the Central
Excise Act. The word goods is defined in Article 366(12) of the Constitution of India as
goods include all materials, commodities and articles.
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Sale of Goods Act, 1930 in section 2(7) defines goods to
Contd
mean every kind of movable property other than actionable claims and money; and includes
stocks and shares, growing crops, grass and things attached to and forming part of the land which are agreed to be served before sale or under the contract of sale.
To be goods the article concerned must be movable. In other words, immovable property cannot be goods.
Contd
As per judicial interpretation for the purpose of levy of
excise duty, an article must specify two fundamental requirements of the term goods
it must be
moveable and it must be marketable

Concept of Moveable
In Union of India Vs. Delhi Cloth Mills (1977) ELT J-199 and in
South Bihar Sugar Mills Vs. Union of India (1978) ELT J-336, The Supreme Court enunciated the principal that to be called goods,
the articles must be such as are capable of being
bought and sold in the market.
the articles must be something, which can
ordinarily come or can be brought to the market to be bought and sold.
As opposed to moveable goods, immoveable goods like property cannot be brought to the market to be sold.
Contd Under section 3 (36) of the General Clauses Act of

1897, moveable goods mean property of every description except immoveable property. Section 3(26) of the General Clauses Act, 1897 defines the term immovable property as: immoveable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.
Thus excise duty cannot be levied on immoveable goods
and property. There are several case law on this aspect and they are discussed subsequently in the section Dutiability of Site Activities.
Concept of Marketable
Unless the goods are capable of being marketed, they
cannot be charged to duty. Marketability is the capability of a product of being put into the market for sale. In order to become goods, an article must be something, which can ordinarily come to the market to be bought and sold. Marketability is an essential ingredient in order to render goods dutiable under law. Whether a product is marketable or not is to be decided on the facts of each case. The burden of proving marketability of goods is on the revenue, if the assessee were to claim non-marketability.
In Union Carbide India Ltd. Vs. Union of India (1986) (24) ELT-169, the Supreme Court held that to become goods,
Contd
an article must be something which can ordinarily
come to the market to be bought and sold. Articles in crude or elementary form are not dutiable as they are merely intermediate products and are not goods.
It, therefore, held that aluminum cans or torch bodies produced by extrusion process were neither sold nor marketable and hence were not goods and not liable to excise duty. It is clear from this decision that goods must be marketable and known in the market as such, in order to be eligible to duty. Prof Pravin N Mahamuni 31
Deemed Marketability
Goods includes any article, material or substance which is capable of being brought & sold for consideration & such article shall be deemed to be marketable.
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Deemed Sales
Those which are not really sales bur have been sales. E.g. Leasing & hire purchase transaction,
Work Contract
WHYYY???
Transfer of right
to use goods are instance of deemed sales that are tax under Sales Tax Act.
In simple words
Goods must be movable - immovable property or
property attached to earth is not goods and hence duty cannot be levied on it.
Goods must be marketable - item must be such that
it is capable of being bought or sold and must be known in the market. This is the test of Marketability.
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EXCISABLE GOODS [Sec. 2(d)]

Excisable goods
means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt.
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MANUFACTURE
Manufacture derived from Latin word Manu means hand facer means to make
The word manufacture meant the making of anything by hand but over the period of time it also includes making of any article or material by the application of physical labor or mechanical power
Section 2(f)
Manufacture includes any process, i. incidental and ancillary to the completion of a manufactured product; and ii. which is specified in relation to any goods in the Section or Chapter Notes of the Schedule of the Central Excise Tariff Act, 1985 as amounting to manufacture; or iii. 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-labeling 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
Manufacturer means:
Manufacturer as specified in various Court decision
i.e. new and identifiable product having a distinction name, character or use must emerge or
Deemed Manufacturer: e.g. Manufacture of table
from wood, conversion of pulp into base paper, conversion of sugarcane to sugar, etc.
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Contd
The term manufacturer shall be construed 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.
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Contd
CASE: Delhi Cloths & General Mills Co Ltd
Manufacturer implies the change,
but every change is not manufacture and
yet every change of an article is the result of treatment, labor and manipulations.
But something more is necessary and there must be transformation; a new and different article must emerge having distinctive name, character or use.
JOB WORK
Job work means
processing or working upon raw materials or semifinished goods supplied to job worker, so as to complete a part of whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.
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In simple words..
a
Contd
the manufacture or
person engaged production of goods
in
on behalf of principal manufacturer, from any inputs or goods supplied by the said principal or manufacturer or by any other person authorized by him
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Contd
Job worker need not register with the Department of
Central Excise. He need not maintain records as required by the Act. Job worker is not required to pay duty. However, if the process amounts to manufacture, he can pay duty and this duty paid by job worker will be available as a credit to the manufacturer who has sent material for job work.
CLASSIFICATION OF GOODS
WHY REQUIRED????? thousands of varieties of manufactured goods and all goods cannot carry the same rate or amount of duty not possible to identify all products individually to identify the numerous products through groups and sub-groups and then to decide the rate of duty. This is called Classification of products, which means determining of heading or sub-heading under which the particular product will be covered.
Important Reasons
The rate of duty applicable to a commodity is based
on the tariff entry.

Exemption notifications are generally based on the
tariff entry.
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DETERMINATION OF TARIFF HEADINGS

Central Excise Tariff has four columns 1) 2) 3) 4)
Heading number (4 digit ) Sub-heading number (and 2 more digits are added whenever required) Description of goods Rate of Duty
Rules for Interpretation of Schedule are given in the Tariff
itself. These are termed as General Interpretative Rules (GIR). These rules are briefly explained in following slides-
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General Interpretative Rules (GIR)

Rule 1: Classification to be as per terms of heading and section/chapter notes Rule 2
(a) Reference to an article, to include reference to that article incomplete/unfinished or unassembled/disassembled (b) Reference to material/substance, to include reference to mixtures or combinations of that material/substance Rule 3: Classification when goods classifiable under two or more headings 3(a) Specific heading to prevail over general 3(b) Classification as if goods consisted material/components, which gives them essential character 3(c) Later the better maxim Rule 4: Akin Rule Rule 5: Additional provisions 5(a) Specific cases to be classified with article with which they are normally sold 5(b) Packing material/containers presented to be classified with the goods, if they are normally used for packing of such goods Rule 6: Classification in sub-headings to be done on the understanding that subheadings at the same level are comparable Prof Pravin N Mahamuni 47
Rule 1: Classification to be as per terms of heading and section/chapter notes

The titles of Sections and Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained. Example: In Chapter 31, the notes provide that certain Headings viz. 3102, 3103 and 3104 comprise within them only specified goods mentioned therein. Consequently, these headings cannot be extended to include goods which otherwise might fall there by reason of Rule 2(b).
Rule 2 (a) Reference to an article, to include reference to that article incomplete/unfinished or unassembled/disassembled
Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled. Examples: A motor vehicle not yet fitted with wheels or tyres, a bicycle without saddle or the tyres will be classified under the headings of Motor Vehicle or bicycle as the case may be. Under many circumstances the plant and machinery is required to be dismantled for the convenience of packing and transportation, hence they will not classified as part of plant and machinery but as a plant and machinery itself.
Rule 2(b) Reference to material/substance, to include reference to mixtures or combinations of that material/substance
Any reference in a heading to a material or a substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. Examples: The term natural rubber will cover mixture of natural rubber and synthetic rubber also. (i.e. mixture or combination of that material with other material). Just as a rubber could cover synthetic rubber, also a rubber sheet would cover a sheet made up of a mixture of natural and synthetic rubber. (i.e. goods consentingly wholly or partly of such material). Prof Pravin N Mahamuni 50
Rule 3: Classification when goods classifiable under two or more headings

When by application of sub-rule (b) of rule 2 or for any
other reason, goods are prima facie classifiable under two or more headings, classification shall be affected as given in rule 3(a), 3(b) or 3(c).
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Rule 3(a) Specific heading to prevail over general

The heading which provides the most specific
description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of materials or substances contained in mixed or composite goods or to part only of items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. Example: Heading 8215 covers Spoons, fork, ladles, skimmers, fish-knives etc while Heading 7323 covers Tables, kitchen or other household articles of iron and steel. In order to classify steel forks, obviously heading 8215 is preferred to heading 7323. Prof Pravin N Mahamuni 52
Rule 3 (b) Classification as if goods consisted material/components, which gives them essential character
Mixtures, composite goods consisting of different materials or
made up of different components, and goods put up in sets, which cannot be classified by reference to rule 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. Example: Hair dressing sets consisting of pair of electric hair clippers (Heading 8510), a comb (Heading 9615), pair of scissors (Heading 8213), a brush(Heading 9603) and towel of textile material (Heading 6304) put up in a leather case (Heading 4202) classifiable in Heading 8510.
When goods cannot be classified by reference to (a) or (b),
Rule 3 (c) Later the better maxim
they shall be classified under the heading which occurs last in the numerical order among those which equally merit consideration. Example: Consider, the case of conveyor belting used in the colliery. The top layer is vulcanized rubber as coal has a tendency to ignite and burn of its on, the central layer is that of textiles which gives strength and the bottom level is of plastic which is friction free to move on rollers. The following headings are relevant: 4010 Conveyor or transmission belting 5910 transmission or conveyor belts or belting of the textile material, whether or not reinforced with metal or other material. Even through of the above headings is equally specific, by virtue of rule 3(c), last heading 5910 will be the appropriate heading for classification.
Rule 4: Akin Rule

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.
Example: Consider plastic films used to filter or remove
glare of the sunlight, pasted on a car glass windows, window pens etc. there is no specific entry appropriate to the goods. However, considered the following tariff entry: 3925 30 00 Builders ware plastics, not elsewhere specifiedshutters, blinds (including Venetian blinds). Even though this is not a builders ware of plastics, since it is most akin to the plastic blinds, it will appropriately be classified under the above heading.
Rule 5: Additional provisions In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein:
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Rule 5(a) Specific cases to be classified with article with which they are normally sold

Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character;
Rule 5 (b) Packing material/containers presented to be classified with the goods, if they are normally used for packing of such goods
Subject to the provisions of (a), packing materials and
packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use.
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Rule 6: Classification in sub-headings to be done on the understanding that sub-headings at the same level are comparable
For legal purposes,
the classification of goods in the sub-headings of a heading shall be determined according to the terms of those sub-headings and any related subheading Notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.
VALUATION
Basis of payment of Excise Duty

As per the Central Excise Tariff Act 1985, excise duty is payable on one of the following basis Specific duty; based on some measure like weight, volume, length, etc. Duty based on value (ad valorem duty) i.e. fixed percentage of Tariff Value fixed under section 3(2) of the Central Excise Act, 1944; Transaction value determined under section 4 of the Central Excise Act, 1944; or Retail Sales Price under section 4A of the Central Excise Act, 1944; Duty based on capacity of production (Section 3A of the Central Excise Act, 1944). Compounded Levy scheme (Rule 15 of the Central Excise Rules, Prof Pravin N Mahamuni 61 2002).
TRANSACTION VALUE Section 4(3)(d)

Transaction value includes
receipts/recoveries or charges incurred or expenses provided for in connection with the manufacturing, marketing, selling of the excisable goods to be part of the price payable for the goods sold.
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Contd
Inclusions in Transaction Value Packing charges Design and Engineering charges Consultancy charges relating to manufacturing Compulsory after Sales Service / service in warranty period Pre-delivery inspection charges for vehicles Loading and handling charges within the factory Royalty charged in franchise agreement
Contd
Exclusions from Transaction Value Trade Discounts Outward handling, freight and transit insurance charges Notional Interest on security deposit / advances Installation and Erection expenses Interest on Receivables Bank charges for collection of sale proceeds
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Contd
The term place of removal has been recently
redefined to include
depot, premises of consignment agent etc. If, therefore, the transaction value is with reference to delivery at the time and place or removal, such transaction value will be the assessable value.
Section 3 Levy Collection
Goods
Excisable goods
Produced or manufactured goods
Produced or manufactured in India
As prescribed in rule 4,5..27
Exempted SSI
Duty
Rate
Value
Tariff Value Specific Duty Ad-valorem

MRP
Transaction Value
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ADMINISTRATIVE STRUCTURE OF EXCISE DEPARTMENTS

Ministry of Finance (Government of India)
Central Board of Excise and Customs (CBE&C - Board) Chief Commissioner of Central Excise Commissioner of Central Excise (for each Commissionerate of Central Excise) Additional Commissioner of Central Excise Joint Commissioner of Central Excise Deputy / Assistant Commissioner of Central Excise (for each division) Superintendent (for each range) (He is the lowest rank of Gazetted Officer) Inspector (non-Gazetted officer)
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SELF REMOVAL PROCEDURE

Self-Removal Procedure- Applicable to all other goods
produced or manufactured within the country.

liability on the goods and clears the goods. control
Under this system, the assessee himself determines the duty Today, except cigarettes which is still under physical all other products fall under the self-removal procedure The manufacturers working under Self-Removing Procedure
can remove the excisable goods by following, the under mentioned procedure Prof Pravin N Mahamuni 68
Contd
1.
The manufacturer may ensure that the goods, which are sought to be removed, have been duly intimated to the department providing the process flow chart of manufacture as well as list of critical raw materials. He shall ensure that the finished goods are all duly entered in the production register daily. The manufacturer should authenticate the first and last pages of this register. (This was called the RG-I register earlier). The invoice raised should be in line with the purchase order if any, received from the customer. Care is to be exercised in calculations in the invoice.
2.
3.
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Contd
4.
The assessable value (whether cum-duty price or otherwise) is to be arrived at accurately by applying section 4 read with Central Excise Valuation Rules, 2000. If the value is based on MRP or Tariff Value fixed under section 3(2) the same may be applied. He shall prepare an invoice under Rule 11 and calculate the assessable value and Excise duty payable. He shall make the removal entry in production register providing details of value, quantity and duty payable.
5.
6.
7.
It is to be ensured that the person / carrier who/ which carries the goods is provided with " duplicate for transporter" copy of invoice.
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He shall ensure that at the end of the month (1st to 30th ) he debits the duty payable in the Cenvat Credit a/c and if the balance is not sufficient, pay through the Personal Ledger Account (PLA) by the 5th of the next month. For the month of March, payment will be made by the end of that month itself. 9. The units claiming 8/2003 (SSI Exemption) are required to pay the monthly duty by the 15th of the subsequent month. Here also, for the month of March payment is to be made by the end of that month itself. 10. It is hereby clarified that the duty liability shall be deemed to have been discharged only if the amount payable is credited to the account of the Central Government by the specified date. The Board has clarified that the liability would be discharged only on the date of realization of the cheque and not earlier as per the CBEC Circular No.28/2002 dt. 24.5.2002.
8.
Contd
MANNER OF PAYMENT OF DUTY [RULE 8]

The sub-rule (1) provides that the duty on the goods removed from the factory or the warehouse during the month shall be paid: (i) by the 6th day of the following month, if the duty is paid electronically through internet banking; (ii) by the 5th day of the following month in any other case; (iii) by the 31st day of March in the case of goods removed during the month of March.
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Contd
However, in case of an assessee availing the exemption under a Notification based on the value of clearances in a financial year (SSIs), the duty on goods cleared during a calendar month shall be paid: (i) by the 16th day of the following month, if the duty is paid electronically through internet banking; (ii) by the 15th day of the following month in any other case; (iii) by the 31st day of March in the case of goods removed during the month of March.
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Contd
E-payment of duty
With effect from 01.04.2007, e -payment has been made mandatory for payment of duty by all assessees who have paid excise duty of rupees 50 lakh or more in cash during the preceding financial year.
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LETTER OF UNDERTAKING
In relation to Central Excise, following are the concessions /
incentives for exports:

Exemption from duty on final product (or refund or duty paid)
Exemption / refund of excise duty paid on inputs.
For exports under bond, the manufacturer exporter can
furnish a letter of undertaking (LUT) in form UT-1. The manufacturer exporter need not execute a bond. The LUT once given is valid for 12 calendar months. It is not necessary to submit LUT for each consignment. Though manufacturer exporter is not executing bond, submission of proof of export is required. The LUT will not be discharged unless proof of export is submitted or duty is paid upon deficiency in interest.
SHOW CAUSE NOTICE (SCN)

Excise Officer can ask manufacturer to pay the
difference of duty by issuing a show-cause notice.

After considering the representation from the person
concerned, the Central Excise Officer can determine the amount of duty payable and then the person chargeable to duty has to pay the amount.
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Contd
SCN is necessary but not issuing it is only irregularity Simple letter asking to pay duty is not a notice SCN is required even if assessee has admitted liability and agreed to pay duty
No notice is assessee voluntarily pays the amount

SCN has to be served on the person chargeable of duty within one year from relevant date which will be one of the following:
Return is to be filed within 5 days of close of month. The date of filing will be
relevant date. If return is not filed, then the date on which return should have been filed i.e. 10th of a month will be relevant date. If no return is required to be filed, then date of payment of duty is relevant date. If the demand is on account of erroneous refund, the relevant date is the date on which refund has been made. However, this period will extend up to 5 years if the non-payment of duty or short payment is by reason of fraud, collusion, willful misstatement or suppression of facts, or contravention of any provision of Excise Act or rules made with an intention to evade payment of duty.
Contd
Requirements of Show-cause Notice
SCN to Manufacturer only Essential details should be given Penalty or Confiscation must be mentioned if it is proposed Allegations must be mentioned Copies of documents to be given
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ADJUDICATION
Adjudicate means to hear or try and decide judicially and
adjudication means giving a decision.

Excise
authorities are empowered to determine classification, valuation, refund claims and the tax / duty payable. They are also empowered to grant various permissions under rules and impose fines, penalties, etc. this is called departmental adjudication.
Uncontrolled authority may cause great damage to an
assessee and hence opportunity of appeal against the order has been provided.
Contd
Departmental authorities have original adjudication powers as follows:
Superintendent - remission of duty for loss of goods up to Rs. 1,000/ Deputy / Assistant Commissioner - remission of duty for loss of goods
up to Rs. 2,500/- ; issuance of registration certificates; Cenvat credit / duty up to Rs. 5 lakhs.
Joint Commissioner - Cenvat credit / duty above Rs. 5 lakhs and up to
Rs. 20 lakhs; remission of duty for loss of goods up to Rs. 5,000/; matters related to export under bond or under claim of rebate; loss of goods during transit to warehouse without upper monetary limit
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Contd
Additional Commissioner - Cenvat credit / duty above Rs. 20 lakhs
and up to Rs. 50 lakhs; remission of duty for loss of goods up to Rs. 5,000/; matters related to export under bond or under claim of rebate; loss of goods during transit to warehouse without upper monetary limit
Commissioner - Cenvat credit / duty without upper limit; remission of
duty for loss of goods without any limit.

When the order is given by officer below the level of Commissioner, appeal against such order will lie with Commissioner (Appeals) and appeal against order given by Commissioner will lie with CESTAT (Central Excise Custom and Service Tax Appellate Tribunal) Appeal can be made to High Court against order of Tribunal if the case involves substantial question of law, except in cases relating to rate of duty and valuation
INTEREST
If duty is not paid when it ought to have been paid, interest is payable at the rates specified by Central Govt. by notification in official gazette. Such rate cannot be less than 10% and not more than 36%.
The interest is payable from the 1st day of the month following the month
in which the duty ought to have been paid.

The actual rate of interest is 18% w.e.f 1-4-2011 If assessee pays duty on order or instruction of CBE&C voluntarily within 45
days of such order, he is exempted from payment of interest. However, if he pays only a part of the amount but pays the amount reserving the right to appeal, the interest is payable from the month following the month in which the duty ought to have been paid.
Relaxation of payment of interest is applicable only when the CBE&C
issues a general order. This relaxation does not apply if assessee pays duty on receipt of SCN or pays duty on his own.
PENALTY
There are 3 types of penalties in Central Excise:
Civil Liability - it will arise when the provisions of the act are violated. In
this case, the penalty involves confiscation of goods and monetary penalty. It is imposed by Excise Authority as per the provisions of the Central Excise Rules.
Criminal Liability - it involves imposition of fine and imprisonment. It is granted by Criminal Court or prosecution as per the provisions of the Act. General Penalty - if goods are removed in contravention of Act, rules or notification or goods are not accounted for or goods are manufactured, produced or stored without applying for registration or excise rules and notifications have been contravened with an intention to evade the duty, general penalty is applicable.
It includes confiscation of goods and penalty up to duty payable or Rs. 10,000 whichever is higher.
CONFISCATION
Confiscation means the goods become property of Govt. and Govt. can deal with it as it wants. Following can be confiscated
Contravening goods Conveyance for transport of goods / smuggled goods Packages in which contravening excisable goods are packed Goods used for concealing contravening excisable goods Contravening of goods with form changed even if mixed without
other goods and cannot be separated Sale proceeds from sale of contravening excisable goods No confiscation of container obtained on hire
84
SEIZURE
Seizure means goods are taken into the custody by the
department. The property of goods remains with the owner.

If goods are liable for confiscation, the same can be seized
by Excise officers.
If seized goods are to be confiscated, SCN must be given
within 6 months of seizure of goods.

Panchnama must be made for seizure of goods and seized
goods must either be kept in police station or in the custody of the Excise Department.
85
PAYMENT OF DUTY UNDER PROTEST

Sometimes it happens that the classification of
goods, Assessable value determined by excise authorities in adjudication proceedings, etc. are not agreeable or acceptable to the assessee. In such cases, the assessee can file an appeal and in the meanwhile can pay duty under protest.
86
The following procedure needs to be followed:
Contd
Write a letter to Assistant / Deputy Commissioner stating that he desired to pay duty under protest and give grounds for paying duty under protest. Obtain dated acknowledgement which will be proof that assessee has paid duty under protest from that date. After submission of the aforesaid letter, he can pay duty under protest only till his appeal or revision is decided. An endorsement duty paid under protest should appear on all excise invoices or monthly / quarterly return. If lump sum is paid in respect of past demand, fact of duty payment under protest should be mentioned in PLA(Personal Ledger A/c), Cenvat Credit Account and Daily Stock Account. As per ER-1 form of monthly/ quarterly return, number of invoices on which duty is paid under protest should be indicated in the return.
REFUND
An assessee can claim refund of duty if due to him. Normally refund can be filed for various reasons like Excess payment of duty due to mistake
Forced by department to pay higher duty Finalization of provisional assessment Export under claim of rebate Duty paid under protect / pre-deposit of duty for appeal
(appeal decided in favor of assessee) Refund of Cenvat credit if final product is exported Unutilized balance in PLA
88
APPEALS
Appeal is a remedy available to the aggrieved by the
decision or order passed by the authority, wherein the higher authority decides about the correctness of the said decision or order.
89
EXCISE AUDIT
Most of factories are under Self Removal Procedure and there
is no physical control over production and clearance of goods.

Assessment is mainly based on returns submitted by assessee.
Department has evolved various checks and counter-checks to ensure that excise duty is not evaded.
For Central Excise purpose, Audit means scrutiny of the records
of the assesses and the verification of actual process or receipt, storage, production and clearance of goods with a view to check whether the assessee is paying the Central Excise duty correctly and is following Central Excise procedures.
90
Types of Audits
Departmental Audit
Audit of assessees factory is carried out by visit by audit party Audit parties visit the factories periodically Audit parties are functioning under Commissionerate headquarters
while some may function at important industrial centers where Joint Commissioner or Additional Commissioner has been posted
The Audit Party usually consists of 2 / 3 inspectors and a Deputy
Office Superintendent, headed by Excise Superintendent. AC / DC and senior officers are associated with the audit of large units.
91
Contd
Central Excise Revenue Audit (CERA)
Comptroller and Auditor General of India also carries out
audits of all assessees. These are called CERA

Audit parties audit the accounts of excise as well as customs
assessees
Report of C&AG shall be submitted to the President of India,
who causes these to be laid before each House of Parliament.

Frequency of CERA Audits as per the importance they attach
and availability of time to CERA audit parties

Assessee is required to produce to audit parties - records, cost
audit report and income tax audit report.

Special Audit (Valuation Audit and Cenvat Credit Audit)
Contd
Valuation audit can be ordered at any stage of enquiry,
investigation or any proceedings before Assistant/ Deputy Commissioner regarding assessable value of goods manufactured by assessee
Audit of Cenvat credit availed or utilized by a
manufacturer can be ordered by if Commissioner has reason to believe that Cenvat credit availed is not normal or the credit has been availed on account of fraud, willful misstatement, suppression of facts or collusion.
Duty on manufacture, it is payable even by a small unit
CONCESSION FOR SSI UNITS
manufacturing goods
Govt.s policy to encourage the growth of small units It is administratively inconvenient and costly to collect
revenue from numerous small units
A SSI is a unit having annual turnover less than Rs. 3 Cr. The SSI unit need not register with any authority. Even a large industry will be eligible for concession if its
annual turnover is less than Rs. 3 Cr

94
Contd
SSI units have been given three types of exemptions SSI Unit can avail full exemption up to Rs. 100 lakhs and pay normal duty thereafter. Such units can avail Cenvat credit on inputs only after reaching turnover of Rs. 100 lakhs in the financial year.
SSI units intending to avail Cenvat credit on inputs on
all its turnover have to pay 60% duty on first 100 lakhs and 100% duty for subsequent clearances.
SSI Unit can also pay full 100% and avail Cenvat credit.
Contd
Turnover to be included
Turnover of goods exempted under other notification Goods manufactured in rural areas with others brand
name Captive consumption not exempt if used in manufacture of final product which is exempt under any other notification Export to Nepal and Bhutan Goods cleared with payment of duty Goods cleared under Compounded Levy Scheme
96
Contd
Turnover to be excluded

Export other than to Nepal / Bhutan Export under bond through merchant exporter Deemed exports Turnover of non-excisable goods Goods manufactured with others brand name cleared on payment of duty Intermediate products when final products are eligible for SSI exemption Intermediate product when final product exempt under ant other notification Job work amounting to manufacture done under specified notifications Job work or any process which does not amount to manufacture Strips of plastic used within the factory Inputs brought by assessee and cleared Turnover as trader along with own manufactured goods.
THANK Q

CENTRAL EXCISE by Prof Pravin Mahamuni

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CENTRAL EXCISE

Prof Pravin N Mahamuni

What is meant by Tax & Duty?

Tax is levied on other than goods

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

passes its incidence to the customers.

Prof Pravin N Mahamuni

Objectives of Central Excise Act, 1944

Prof Pravin N Mahamuni

WHAT IS EXCISE DUTY?

Prof Pravin N Mahamuni

It is a duty levied upon

Prof Pravin N Mahamuni

HISTORY OF CENTRAL EXCISE LAW

BODY OF CENTRAL EXCISE LAW

EXCISE DUTY LIBILITY

Chapter II of the Central Excise Act, 1944 deals with

Basic condition for levy of excise duty

[Charging Section 3(1)]

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

Duty is payable even when

Types of Excise Duty

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

goods include all materials, commodities and articles.

Prof Pravin N Mahamuni

Sale of Goods Act, 1930 in section 2(7) defines goods to

moveable and it must be marketable

the articles must be such as are capable of being

bought and sold in the market.

the articles must be something, which can

ordinarily come or can be brought to the market to be bought and sold.

Contd Under section 3 (36) of the General Clauses Act of

an article must be something which can ordinarily

Prof Pravin N Mahamuni

Prof Pravin N Mahamuni

EXCISABLE GOODS [Sec. 2(d)]

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Prof Pravin N Mahamuni

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Manufacturer implies the change,

but every change is not manufacture and

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person engaged production of goods

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on the tariff entry.

Prof Pravin N Mahamuni

DETERMINATION OF TARIFF HEADINGS

Rules for Interpretation of Schedule are given in the Tariff

Prof Pravin N Mahamuni

General Interpretative Rules (GIR)

Rule 1: Classification to be as per terms of heading and section/chapter notes

Rule 3: Classification when goods classifiable under two or more headings

Prof Pravin N Mahamuni

Rule 3(a) Specific heading to prevail over general

When goods cannot be classified by reference to (a) or (b),

Rule 3 (c) Later the better maxim