Excise Rapid Revision Material

Rapid Revision on
Central Excise
For CA Final
(Nov 2014 Exams)
By
THARUN RAJ B.Com, ACMA
For Queries cma.tharunraj@gmail.com
CHAPTER - 1
TAXABLE EVENT FOR EXCISE
RE: WALLANCE FLOOR MILLS LTD. CASE

Goods were fully manufactured and packed when goods were exempt from duty.
These were cleared after the exemption was withdrawn and goods became liable to duty.
Held that the duty is payable.
RE: VAZIR SULTHAN TOBACCO LTD. CASE
The company was engaged in manufacture of cigarettes.
Levy of special Excise duty on cigarettes were removed between 1.3.1978 and 12.3.1978.
Cigarettes were manufactured during that period i.e., Prior to 12.3.1978
Held that the duty is on manufacture and not upon removal. When the goods were
manufactured, there was no levy of special duty so it cannot be attached at the stage of
removal.
1. DEFINITION OF GOODS UNDER EXCISE
Based on Sale of Goods Act Goods must be Movable
Based on UOI V. DCM Goods must be Marketable
Explanation to Sec. 2(d) of Excise Goods includes any article, material or substance which
is capable of being bought or sold for a consideration [I.e. Deemed Marketability]
[2]
Tharun Raj
Actual sale is not necessary to prove marketability

Either marketability/deemed marketability must be satisfied
Goods having short shelf life are excisable, if they are capable of being sold during that short
shelf life Nicholas Piramal India Ltd. Case
Waste and scrap is dutiable either if it has an established market or it is sold for consideration
Levy
Point of
Collection
payment
Sec. 3
Rule 4 of
Rule 8 of Central Excise Rules, 2002
Manufacture Central
In case of SSI
or
Excise
Normal payment - 5th of the month following every quarter
production
Rules, 2002 E Payment - 6th of the month following every quarter
of excisable Date of
In case of others
goods in
actual
Normal payment - 5th of the month following every month
India
removal of
E Payment - 6th of the month following every month
goods
Note: For the month ending march and quarter ending march, the due date of
payment is March 31st. For the purpose of e-payment ,the above amount of 10 lakhs
has been revised to 1 lakh vide notification No. 15/2013CE
[3]
Tharun Raj
1.1 Is waste and scrap goods and excise duty payable?

Taxability of Waste and scrap (4 Ms has
to be satisfied)
If Marketable
Waste and
Scrap is
dutiable
If Not Marketable
If it is Deemed
to be
Marketable (i.e.
Sold for a
Consideration)
Waste and
Scrap is
Dutiable
If it is not
deemed to be
marketable
Waste and
Scrap is Not
Dutiable.
1.2 When Deemed marketability will not be applicable?

Deemed marketability implies that goods are marketable if they are sold for consideration.
If the intermediate goods are captively consumed, it cannot be sold as such for consideration
and hence, deemed marketability does not apply.
In case of captive consumption only marketability [Not deemed marketability] test should be
applied to make intermediate product dutiable
2. DEFINITION OF MANUFACTURE
Manufacture - Sec. 2(f)
Process Incidental/
ancilliary for the
completion of
main product
Land Mark Case

- UOI V. DCM
Deemed
Manufacture
Any process
amounting to
manufacture as
specified in
section notes/
chapter notes
Labelling (or) Relabelling, Packing/

repacking from bulk
packs to retail packs
and adoption of any
other process to
make Schedule III
products marketable
and saleable
SC decision in Union of India Vs. Delhi Cloth and General Mills co. Ltd. 1977
Manufacture is a process, but every process is not a manufacture
Manufacture implies a change & every change does not amount to manufacture.
[4]
Tharun Raj
By virtue of a process, a new & different article must emerge having a distinctive name,
character and use.
The new product must be commercially different, identifiable product, and then only
manufacture has taken place.
2.1 When is it said that manufacture has taken place (not deemed manufacture)?
2 tests should be satisfied
Identity Test
Utility Test
A new and distince

commercial product
should come into
existance
Such new product

must serve a distince
purpose than that of
raw material
2.2 What is the acid test to determine, who is manufacturer?

2 tests should be satisfied
Relation ship Test
Profit test
If the relationship between

raw material supplier and
job worker is on principal to
principal basis, then JOB
WORKER is the
manufacturer
If the entire profit is

enjoyed and retained by
raw material supplier,
then the RAW MATERIAL
SUPPLIER will be the
manufacturer
2.3 Case Laws on Manufacture:

Case
Judgment
Medley
Even though Drugs and Cosmetics Act, 1940 bars the sale of physicians samples,
Pharmaceut however, excisability of a product is not dependent on its saleability. Excise duty
icals Ltd. V. is a levy on production or manufacture and is payable whether or not the goods
CCE (2011) are sold.
(SC)
Further, such prohibitions on sale of physicians samples under Drugs Act does
not affect the marketability of such samples. Restrictions under Drugs Act cannot
affect imposition of excise duty under the Central Excise Act thereby causing loss
of revenue. Therefore, physicians samples are liable to excise duty.
Nicholas
Piramal
India Ltd.
V. CCE
1. Short shelf-life could not be equated with no shelf-life and would not mean that
it could not be marketed.
2. A shelf-life of 2 to 3 days was sufficiently long enough for a product to be
commercially marketed.
[5]
Tharun Raj
(2010) (SC) 3. Shelf-life of a product would not be a relevant factor to test the marketability of
a product unless it was shown that the product had absolutely no shelf-life or
the shelf-life of the product was such that it was not capable of being brought
or sold during that shelf-life.
Hence, product with the shelf life of 2 to 3 days was marketable and hence,
excisable
Bata India
Ltd. V. CCE
(2010) (SC)
Grasim
Industires
Ltd. V UOI
(2011) (SC)
CCE V.
Solid and
correct
Engineering
works
(2010) (SC)
The mere theoretical possibility of the product being sold is not sufficient
there should be commercial capability of being sold. Theory and practice will
go together when one examine the marketability of a product.
Generation of metal scrap or waste during the repair of the worn
machineries/parts of cement manufacturing plant does not amount
manufacture.
but
not
CCE V.
Onsar
Chemical P.
Ltd. (2012)
(SC)
The process of mixing and additives to heated bitumen, which results in

emergence of Polymer Bitumen (PMB) and crumbled Rubber Modified Bitumen
(CRMB) does not amount to manufacture, as the said process did not result in
transformation of bitumen into new product having different identity,
characteristic and end use. The end use also remained the same viz. mixing of
aggregates for constructing roads.
Usha
Rectifier
Corp. (I)
Ltd. V. CCE
(2011) (SC)
Testing equipments manufactured instead of importing the same and used

captively, amount to manufacture and liable to excise duty.
out
to
The expression attached to the earth has three distinct dimensions, viz.
(a) rooted in the earth as in the case of trees and shrubs
(b) Imbedded in the earth as in the case of walls or buildings or
(c) Attached to what is imbedded for the permanent beneficial enjoyment of that
to which it is attached.
If machine is attached 1 feet deep, intended to provide stability to the
working of the plant and prevent vibration or wobble free operation does not
qualify for being described as attached to earth under any of the three clauses
above and hence not an immovable property
Commission Process of washing of iron ore for removal of foreign materials from such ore
er V. Steel
does not bring into existence a new and different article having a distinctive
Authority of name, character or use. The use of iron ore as mined or iron ore after the process
India Ltd.
undertaken by the assessee remained the same. Hence, the said process is not
(2012) (SC) manufacture.
Comment: Both Identity test and utility test not satisfied in the present case.
CCE V.
The process of stitching and fixing eyelets would not amount to manufacturing
TARPAULIN
process, since tarpaulin after stitching and eyeleting continues to be only cotton
INTERNATI
fabrics. The purpose of fixing eyelets is not to change the fabrics, even though
ONAL
there is value addition.
(2010) (SC) To sum up, the conversion of Tarpaulin into Tarpaulin made-ups would not
amount to manufacture. Therefore, there can be no levy of Central Excise duty
on the tarpaulin made-ups.
[6]
Tharun Raj
CCE V. Sony
Music
Entertainm
ent (I) P.
Ltd. (2010)
(HC)
the activity of packing imported Compact discs in a jewel box along with inlay
card would not amount to manufacture under Section 2(f) of the Central Excise
Act, 1944
Balrampur
Chini Mills
Ltd. v.
Union of
India 2014
(All.)
Bagasse which is a marketable product but not a manufactured product is not

subjected to excise duty.
The High Court concluded that though bagasse is an agricultural waste of
sugarcane, it is a marketable product. However, duty cannot be imposed thereon
simply by virtue of the explanation added under section 2(d) of the Central Excise
Act, 1944 as it does not involve any manufacturing activity.
CBEC issued a Circular dated 28-10-2009 clarifying that bagasse and other like
materials would be covered under the definition of excisable goods and
chargeable to payment of excise duty post Finance Act, 2008. The Circular
further clarified that in case, the rate of duty in respect of such products is nil or
they are exempted from duty vide any notification and if CENVAT credit has been
taken on the inputs which are used for manufacture of dutiable and exempted
goods and no separate accounts have been maintained in this regard, then in
terms of rule 6(3) of CENVAT Credit Rules, 2004 (CCR), proportionate credit
would be reversed or 5% (now 6%) amount would be paid.
However, Supreme Court in the case of Balrampur Chini Mills Ltd. in Civil Appeal
No. 2791 of 2005, decided on 21-7-2010 held that bagasse is a waste and not a
manufactured product.
The high court held that Bagasse is never manufactured, but it only emerges as a
waste from the crushing of sugarcane for the manufacture of final product,
namely, sugar and thus, rule 6(2) and rule 6(3) would not be applicable.
High court also held that Explanation added to section 2(d) deems the goods,
which are capable of being bought and sold, to be marketable. Earlier also,
bagasse was being bought and sold for a consideration and even after the
amendment in 2008 it is being bought and sold for a consideration. Hence, it was
marketable earlier also and no difference has been made about the marketability
of bagasse on account of addition of explanation to section 2(d) of CEA, 1944
inasmuch as it does not cease to be waste and it does not become a
manufactured final product for the purposes of rule 6 of CENVAT Credit Rules.
The High Court quashed the CBECs Circular
[7]
Tharun Raj
CASE LAWS ON INTERPRETATION:

How will a cream which is available across the counters as also on prescription of
dermatologists for treating dry skin conditions, be classified if it has subsidiary
pharmaceutical contents - as medicament or as cosmetics?
CCE V. Ciens Laboratories (2013) (SC)
Facts of the Case:
The assessee manufactured a cream called as
Moisturex which was prescribed by dermatologists for
treating dry skin conditions. However, the same was also
available in chemist or pharmaceutical shops without
prescription of a medical practitioner. The pharmaceutical
content of the cream included urea (10%), lactic acid (10%)
and propylene glycol (10%). The assessee classified the cream
as medicament under Heading 30.03 of the Central Excise
Tariff.
The Department contended that the product
Moisturex is mainly used for care of the skin and thus, the
same ought to be classified as cosmetic or toilet preparations
under Heading 33.04. The assessee on the other hand
contended that the very presence of pharmaceutical
substances changes the identity of the product since such constituents are not used for care of
the skin, but for cure of certain diseases relating to skin.
Decision:
When a product contains pharmaceutical ingredients that have therapeutic or
prophylactic or curative properties, the proportion of such ingredients is not invariably
the decisive factor in classification. The relevant factor is the curative attributes of such
ingredients that render the product a medicament and not a cosmetic.
Though a product is sold without a prescription of a medical practitioner, it does not
lead to the immediate conclusion that all products that are sold over / across the
counter are cosmetics. There are several products that are sold over-the-counter and
are yet, medicaments.
Prior to adjudicating upon whether a product is a medicament or not, it ought to be
seen as to how do the people who actually use the product, understand it to be. If a
products primary function is "care and not "cure, it is not a medicament.
Medicinal products are used to treat or cure some medical condition whereas cosmetic
products are used in enhancing or improving a person's appearance or beauty.
A product that is used mainly in curing or treating ailments or diseases and contains
curative ingredients, even in small quantities, is to be treated as a medicament.
The Supreme Court held that owing to the pharmaceutical constituents present in the
cream Moisturex and its use for the cure of certain skin diseases, the same would be
classifiable as a medicament under Heading 30.03.
[8]
Tharun Raj
CCE V. CONNAUGHT PLAZA RESTAURANT P. LTD. (2012) (SC)
An extract from CETA:

Heading
21.05
SubHeading
2105.00
21.08
2108.91
04.04
0404.11
0404.19
0404.90
Description of Goods
Rate of duty
Ice-cream and other edible ice, whether or

not containing cocoa
Edible preparations, not elsewhere specified
or included
Not bearing a brand name
Other dairy produce, edible products of
animal origin, not elsewhere specified or
included
- Ghee
Put up in unit containers and bearing a brand
name
Other
Other
16%
Nil
Nil
Nil
Nil
Under which heading Soft serve served at McDonalds India be classified? What is
the applicable rate of duty?
Assessees Submission
1. As per the definition of ice cream

under Prevention of Food
Adulteration Act, 1955 the milk fat
content of ice cream shall not be
less than 10%. But the fat content of
Soft serve contains 5% milk fat
Whether
supreme court
is justified
with this
submission?
No
[9]
What is supreme courts

argument?
The definition of one statute (i.e.

PFA, 1955) should not be applied
mechanically to another statute
(i.e. CEA, 1944). The object of
Excise Act is to raise revenue for
which various goods are differently
Tharun Raj
content. Hence Soft serve is not

Ice cream as per PFA Act, 1955.
2. Soft serve shall not be considered

as ice cream as it was marketed
throughout the world as Soft serve
No
3. In the matters pertaining to

classification of a commodity,
technical and scientific meaning of
the product was to prevail over the
commercial parlance meaning
No
4. As per Rule 3(a) of General

Interpretative Rules, Specific heading
should be preferred over general
heading. Therefore, Soft serve
would fall under heading 04.04 since
it was a specific entry.
No
classified in the Act whereas the

provisions of PFA are for ensuring
quality control. Hence, this
submission is not acceptable by
apex court.
The manner, in which a product
might be marketed by a
manufacturer, did not necessarily
play a decisive role in affecting the
commercial understanding of such
a product. What matters was the
way in which the consumer
perceived the product
notwithstanding marketing
strategies. Customers in general
treat the said product as Ice
cream
None of the terms in the headings
has defined ice cream or Soft
serve. SC based on various
judgments concluded that in the
absence of a statutory definition or
technical description, interpretation
ought to be in accordance with
common parlance principle and not
according to scientific and technical
meanings.
Ice cream under heading 21.05
could not be classified as dairy
product under heading 04.04.
Heading 21.05 was clearly a
specific entry
Decision: In light of the aforesaid discussion, the court decided that Soft serve was
classifiable under heading 21.05 as ice cream: and not under heading 04.04 as Other dairy
produce
[10]
Tharun Raj
CHAPTER - 2
VALUATION UNDER EXCISE
1. MRP BASED VALUATION (4A)
AV = MRP Abatement
1.1 When a product is covered under MRP based Valuation?
a) The product must be covered under third schedule to CETA, 1985
b) The product must be covered under the provisions of Legal Metrology Act, 2009
c) The product must be notified by CG under sec. 4A with a rate of abatement.
1.2 When Retail Selling Price Rules, 2008 will be applicable?
1. Clearing goods without declaring RSP
2. By declaring RSP, which is not the RSP required to be declared
3. By declaring RSP but obliterating (i.e. removing) the same after their removal
4. Tampering/ altering RSP after their removal.
Consequences:
a) Such goods are liable for confiscation.
b) RSP shall be deter-mined as per the said rules.
1.3 When MRP based valuation not applicable?
4A not applicable to institutional and industrial sales.
When different MRPs are marked on the same pack, highest MRP shall be considered.
When different MRPs are marked on different packages, every MRP w.r.to such sales
are considered.
Free samples not packed along with main product are also liable for MRP based
valuation.
MRP based valuation equally applicable for quantity discounts.
Crossed out MRP does not have any relevance in valuation.
1.4 Determination of Retail Selling Price (RSP) rules, 2008
Rule 4(i): When goods are removed without RSP or wrong RSP or obliteration of RSP, RSP
of identical goods sold within one month prior or later of the goods in question shall be
considered. [If more than one RSP is ascertained, highest RSP is taken into account]
Rule 4(ii): When RSP cannot be ascertained as per above rule, enquires in retail market
should be conducted to ascertain RSP. [If more than one RSP is ascertained, highest RSP is
taken into account]
Rule 5: When RSP is tampered/ altered after removal, such increased RSP shall be taken
as RSP of all goods removed during one month prior and after.
[11]
Tharun Raj
2. TRANSACTION VALUE [4(3)(d)]

2.1 What is the definition of transaction value?
MEANS
Price paid or payable by the buyer to the assessee or any other person on assessees behalf
The above payment should be by reason of sale (or) in connection with sale.
The above payment can be made before sale, at the time of sale, after sale.
Includes all other pay-ments made indirectly, which is charged by assessee in the form of
expenses.
But the above value does not include taxes
EXCLUSIONS:
1. All taxes, duties, cess by whatever name called.
2. Trade discount and regional discount, if these are in the normal course of business.
3. All transportation costs after place of removal and post removal expenses incurred by
assessee and later collected from buyer (i.e. Carriage outwards)
4. Interest on advance, if assessee is not charging lower price to those buyers giving advance.
5. Interest collected from buyer on account of delayed payment.
2.2 Whether all items are included in the transaction value other than those
excluded?
Special points on inclusions:
1. All packing costs will be included, except durable and return-able packing as such. [But its
amortized cost is included]
2. Optional warranty charges is not included, when buyer does not opt for warranty.
3. Dharmada charges incurred as per statutory provisions is not included.
4. Loading and unloading charges incurred by buyer on his own account is not includible.
Note: While deciding as to inclusions, check whether buyer has made any payment and it is in
by reason of sale i.e. that payment will not arise, if there is no sale.
2.3 Whether all bought out items are included in transaction value?
Bought out items
Parts/
Components
Which are
essential for the
functioning of
the main
product and are
supplied along
with the main
product
Accessories
Which are not

essential for the
functioning of
main product,
but adds value
to the main
prodcut
Optional bought
out items
These are
neither
essential parts
nor accessories
but supplied as
a trading
activity
[12]
Tharun Raj
Product Two Wheeler
Parts/components Tyres
Accessories Seat
Cover/Side stand
These are essential and These are not essential

hence INCLUDED in
and hence NOT
the Assessable value
INCLUDED in the
Assessable value
Optional bought out

items Grease/
Engine oil
These are trading activity

and NOT COVERED under
excise duty but covered
under sales tax
3. VALUATION RULES: (CENTRAL EXCISE VALUATION RULES, 2000)

Price nearest to the time of removal when goods are not sold
When goods are sold at buyers premises, transportation cost should be
deducted from TV at buyers premises
Money value of consideration to be included in AV, when price is not sole
consideration
For goods removed to depot/branch - Price prevailing there at the time of
removal from place of removal.
For, captive consumption, AV is cost of Production + 10%
When goods are sold to interconnected undertakings other than H&S, normal
TV shall be taken
When goods are sold to other related per-sons (not covered in rule 10), AV
shall be price at which such goods are sold to unrelated buyer by such related
persons, on that date.
(Related wholesale buyer is also considered as unrelated buyer)
Rule 4
Rule 5
In case of goods under job-work, AV shall be price at RM supplier place at the

time of removal from factory of JW. If goods are sold directly from JW factory,
that TV is AV.
Rule 10 A
[13]
Rule 6
Rule 7
Rule 8
Rule 10
Rule 9
Tharun Raj
4. CAS on Cost of production for captive consumption (CAS 4)

Particulars
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Total Cost
(in )
Material Consumed (See note 1 below)

Direct Wages and Salaries (see note 2
below)
Direct Expenses
Works Overheads
Quality Control Cost (see note 3 below)
Research & Development Cost (see
note 4 below)
Administrative Overheads (relating to
production activity)
Subtotal (1 to 7)
Add : Opening stock of Work - in
Progress
Less : Closing stock of Work -inProgress
Subtotal (8+9-10)
Less: Credit for Recoveries/Scrap/ByProducts / misc income
Add: Packing cost (see note 5 below)
Cost of Production (11-12+13)
Add: Inputs received free of cost (see
note 6 below)
Add: Amortised cost of Moulds, Tools,
Dies & Patterns etc received free of cost
Cost of Production for goods produced
for captive consumption
Cost per
unit (in )
XXX
XXX
XX
XX
XXX
XXX
XXX
XXX
XX
XX
XX
XX
XXX
XX
XXX
XXX
XX
XX
(XXX)
(XX)
XXX
(XXX)
XX
(XX)
XXX
XXX
XXX
XX
XX
XX
XXX
XX
XXX
XX
Notes to above computation:

1) Cost of material consumed INCLUDES Purchase cost, duties and taxes,
carriage inwards, insurance and other direct attributable expenditure, but
DOES NOT INCLUDE Discounts, rebates, Duties and taxes paid which is
available as CENVAT credit or Input tax credit or duty drawback.
2) Direct wages and salaries INCLUDES all allowances and payments to THOSE
EMPLOYEES DIRECTLY engaged in MANUFACTURING ACTIVITY.
3) Quality control costs are the expenditure incurred relating to quality control
activities for adhering to quality standard. These expenses shall include
salaries and wages relating to employees engaged in quality control activity.
4) R&D cost of existing product or improvement in the processing of existing
product should be considered.
[14]
Tharun Raj
5) If product is transferred/dispatched duly packed for captive consumption, cost

of such packing shall be INCLUDED.
6) In case any input material, whether of direct or indirect nature, including
packing material is supplied free of cost by the user of the captive product, the
LANDED COST OF SUCH MATERIAL SHALL BE INCLUDED in the cost of
production.
5. CASE LAWS ON VALUATION:
Tata Motors
Ltd. V. UOI
(2012)
(Bom HC)
The Pre delivery inspection (PDI) and free after sales service charges could be
included in the transaction value only when they were charged by the assessee to
the buyer.
Point of doubt: What about the cost of after sales service charges and predelivery inspection (PDI) charges, incurred by the dealer during the warranty
period?
Clarification: Since these services are provided free by the dealer on behalf of the
assessee, the cost towards this is included in the dealers margin (or reimbursed to
him). This is one of the considerations for sale of the goods (motor vehicles,
consumer items etc.) to the dealer and will therefore be governed by Rule 6 of the
Valuation Rules on the same grounds as indicated in respect of Advertisement and
Publicity charges. That is, in such cases the after sales service charges and PDI
charges will be included in the assessable value Circular No. 681/72/2012
CCE V.
Merely because two parties are related persons, the transaction value cannot be
Xerogrpahic rejected. In order to reject transaction value between related persons, it should be
Ltd. (2010) shown that the price at which the goods were sold to related persons was not the
(SC)
normal price at which the goods were sold to other distributors/dealers, or was less
than the market price at which it was being sold in the market, or, that there was
any extra commercial consideration in fixing the price to such related persons. In
absence, thereof, the price discharged from the related persons shall be
acceptable.
CCE V.
Advertising, insurance and other expenses of the final products shall not be added
Cadbury
to determine the value of intermediate goods.
India Ltd.
(2006) (SC)
Royal
Facts & issue involved:
Enfield V.
Whether the packing charges incurred to avoid scratch and breakage to motor
CCE (2011) cycles form part of Assessable value? Will the position be same if the said
(SC)
expenditure is separately collected from the buyer?
Decision:
Any Expenditure incurred upto the place of removal and any amount paid by the
buyer by reason of sale or in connection with sale shall be included in the value
of taxable service. Packing charges shall be included if it is necessary in the
ordinary course of trade. (My Opinion)
In case of motor cycles cleared in packed condition from the factory to the depot,
the packing charges incurred to avoid scratch and breakage to motor cycles form
[15]
Tharun Raj
Electronics
and
Controls
Power
system P.
Ltd. V. CCE
(2011) (SC)
part of the AV because such packing is necessary for putting the excisable goods
(i.e. Motor cycles) in saleable condition.
Even though such packing charges are separately reimbursed by the buyer, the
same are includible in the value for the purpose of payment of excise duty.
Facts & Issue involved:
Whether the value of bought out batteries supplied along with uninterrupted power
supply system (UPSS) as an option item should be included in the Value of UPS
system for the purpose of charging excise duty as these batteries are part of UPS
system?
Decision:
Even if UPS cannot function without battery for conditioning power, but battery is
the essential pre-requisite.
The source of power to the UPS system is the battery which is an essential and
integral part.
Hence, the value of bought out batteries is includible in the value of UPS system.
Conclusion: Battery is not an accessory but an essential part, which needs to be
included in the value of Final product (i.e. UPS system). However, the
manufacturer can take the excise duty paid on the batteries as CENVAT credit for
the purpose of payment of excise duty on UPS system as the amended definition
of Inputs.
MARUTI
Cost of after sale service and PDI charges incurred by dealer during warranty
SUZUKI INDIA period is includible. There need not be direct flow back of consideration to
LTD. V. CCE
assessee. Even indirect benefit is includible in assessable value.
2010 (TRI.
LB)
Essel
Facts:
propack
Assessee, a manufacturer of plastic tubes.
Ltd. V. CCE It was receiving supply of plastic caps from its customers and after fitting them
(2011) (SC)
onto the plastic tubes, it was supplying the cap-fitted tubes to the customers.
The assessee was paying duty on the value of plastic tubes, while the department
includes the value of caps in the value of tubes and demanded duty accordingly.
Decision:
If caps are manufactured separately and not in the same factory in which the
tubes are being manufactured, the caps cannot form integral part of the
assessable value of the tubes, manufactured and cleared from the factory, such
caps are merely accessory.
Since, in the present case, the caps are not manufactured in the factory of the
assessee but are being supplied by the customers of the assessee, the value of
caps will not form part of the assessable value of the tubes manufactured by the
assessee.
[Note: Caps is not packing material supplied by the customers]
CCE V. Fiat
When goods are sold at a price less than their cost of production, price could not
India P.
be considered as the sole consideration for sale. Supreme court held that o prudent
Ltd. (2012) business person would continuously suffer huge loss only to penetrate market.
(SC)
They are expected to act with discretion to seek reasonable income, preserve
capital and in general avoid speculative investments. Hence, the selling price could
not be accepted as transaction value
[16]
Tharun Raj
CCEx v.
Super
Synotex
(India) Ltd.
2014 (301)
E.L.T. 273
(S.C.)
Facts: Assessee was a manufacturer of manmade fibre yarns which were

chargeable to excise duty. The assessee availed the benefit of Sales Tax New
Incentive Scheme for Industries, 1989 (State Incentive Scheme) whereby he could
retain 75% of the total sales tax collected from buyer and pay only remaining 25%
to the State Government.
Point of dispute: While computing the transaction value for the purpose of
payment of excise duty, assessee claimed 100% deduction of sales tax collected
from buyer.
Department objected to this as effectively, the assessee did not pay excise duty on
the additional consideration received towards sales tax collected but not deposited
with the State exchequer.
Observations of the Court: Supreme Court observed that amount paid or
payable to the State Government towards sales tax, VAT, etc. is excluded as it is
not an amount paid to the manufacturer towards the price, but an amount paid or
payable to the State Government for the sale transaction. Accordingly, the amount
paid to the State Government is only excludible from the transaction value. What is
not payable or to be paid as sales tax/VAT, should not be charged from the third
party/customer, but if it charged and is not payable or paid, it is a part and should
not be excluded from the transaction value. This is the position after amendment
w.e.f. 01.07.2000 of section 4 of Central Excise Act, 1944, where actually paid is
significant.
Supreme Court further observed that unless the sales tax is actually paid to the
Sales Tax Department of the State Government, no benefit towards excise duty can
be given under the concept of "transaction value" under section 4(3)(d) of Central
Excise Act, 1944, for it is not excludible. As is seen from the facts, 25% of the sales
tax collected had been paid to the State exchequer by way of deposit and the
remaining amount had been retained by the assessee.
Decision: The Apex Court held that such retained amount has to be treated as the
price of the goods under the basic fundamental conception of "transaction value"
as substituted with effect from 1.7.2000 and therefore, the assessee is bound to
pay excise duty on the said sum.
Note This case establishes that retention of the specified sales tax amount under
the relevant State Sales Tax Incentive Schemes ought to be treated as additional
consideration and subjected to central excise duty since deduction of sales tax is
available only when it is actually paid to the Sales Tax Department (in terms of the
definition of transaction value as introduced from July 1, 2000). In other words, the
Apex Court has negated the idea that such amounts are in the nature of a subsidy
and do not form part of the sale proceeds.
The issue of includibility, or otherwise, of sales tax collected and retained, in terms
of Incentive Schemes, in the assessable value has been dealt in the context of both
old (existing prior to July 1, 2000) and new section 4 (effective from July 1, 2000)
in the above-mentioned case law. However, in the above summary only the
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observations and conclusion involving new section 4, based on transaction value,

have been discussed and the ones relating to old section 4, based on normal price,
have been avoided.
With effect from July 1, 2000 the definition of 'transaction value' reads as under:
(d) transaction value 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 or 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.
CASE STUDIES ON VALUATION

1
Mr. Hanuman Prasad sold excisable goods to Ram Ltd. for 28,090
(inclusive of excise duty @ 12.36%) on 19.08.2013. The buyer, Ram
Ltd., is related to Mr. Hanuman Prasad in terms of section 4(3)(b) of
the Central Excise Act, 1944. It did not sell the goods, but used the
same as intermediary product for the manufacture of final product.
The cost of production of the said goods determined as per CAS-4
was 20,000. Determine the assessable value in the given case.
What will be the assessable value, if in the aforesaid case, Ram Ltd.
is not related to Mr. Hanuman Prasad?
[RTP May 2014]
Ans:
Case a) 22,000
Case b) 25,000
M/s. Hiphop Ltd. is engaged in the manufacture and sale of Pressure

cooker Hit, notified under section 4A of the Central Excise Act,
1944. The notified rate of abatement for the pressure cooker is 25%.
Determine the central excise duty payable by M/s Hiphop Ltd. from
the following details:a) 500 pieces having retail sale price (RSP) of 1,200 per piece
are sold in retail packages to a wholesale dealer at 1,000 per
piece.
b) 100 pieces having two RSPs of 1,100 and 1,200 are sold in
retail packages to ultimate consumers.
c) 1,000 pieces having RSP of 1,200 per piece are sold in retail
packages, but buyer is charged for 900 pieces only at 1,000
per piece (100 pieces have been given free as quantity
discount).
d) 25 pieces were given away as free samples, without any RSP on
the pack.
e) 400 multi-packs were cleared at 1,100 per pack, each
containing one pressure cooker and one kg free rice (without
any RSP on it). Each Pressure cooker had RSP of 1,200, which
was scored out and each multi-pack had RSP of 1,500.
Ans:
a) AV =
4,50,000
b) AV = 90,000
c) AV =
9,00,000
d) AV = 22,500
e) AV =
4,50,000
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Tharun Raj
Make suitable assumptions wherever required and show the

calculations with appropriate notes.
[RTP May 2014]
3
Raj & Co. furnish the following expenditure incurred by them and
want you to find the assessable value for the purpose of paying
excise duty on captive consumption. Determine the cost of production
in terms of rule 8 of the Central Excise Valuation (Determination of
Price of Excisable Goods) Rules, 2000 and as per CAS-4 (cost
accounting standard)
(i) Direct material cost per unit (incl. of ED at 12%) - 1,320
(ii) Direct wages - 250
(iii) Other direct expenses - 100
(iv) Indirect materials - 75
(v) Factory Overheads - 200
(vi) Administrative overhead (25% relating to production
capacity) - 100
(vii) Selling and distribution expenses - 150
(viii) Quality Control - 25
(ix) Sale of scrap realized - 20
(x) Actual profit margin - 15%.
Thilagam Turbines Ltd. manufactured a steam turbine for Mr.Prem,
who supplied special steel purchased by him from wholesale market
(Cost 10,00,000 plus Central Excise 1,33,000).
The normal price of such material is 12,00,000 plus Central Excise
1,48,320. Mr.Prem is eligible to claim CENVAT Credit. Thilagam
Turbines Ltd. incurred manufacturing cost of 23,00,000.
What is assessable value of the turbine? Briefly touch upon the issues
involved
Surat Cloth Mills delivered 1000 meters of cloth to Purvanchal
Readymade Garments on 10.01.2012 from its depot located at
Ahmedabad @ 110 per meter. The goods were dispatched to the
depot from the factory located in Surat on 05.01.2012. Ex-factory
price on 05.01.2012 was 90 per meter. The sales of identical
variety of cloth effected from Ahmedabad depot on the two relevant
dates is as follows:On 05.1.2012
On 10.1.2012
Cloth sold in Rate
per Cloth sold in Rate
per
meters
meter ()
meters
meter ()
100
135
200
120
850
125
1000
110
500
120
550
115
450
115
375
108
Calculate the AV of 1,000 meters of cloth sold by surat cloth mills.
Having regard to the provisions of section 4 of the Excise Act, 1944,
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Tharun Raj
compute/derive the assessable value of excisable goods, for levy of

duty of excise, given the following information:
Cum-duty wholesale price incl. sales tax of
2,500
15,000
Normal secondary packing cost
- 1,000
Cost of special secondary packing
- 1,500
Cost of durable and returnable packing
- 1,500
Freight
- 1,250
Insurance on freight
- 200
Trade discount (normal practice)
- 1,500
Rate of C.E. duty as per C.E. Tariff is 12% Ad-valorem. State in the
footnote to your answer, reasons for the admissibility or otherwise of
the deductions.
7
Compute the assessable value under the Central Excise Act, 1944 in
the following case : (i) Production : 2,000 units on 1.1.2012 (ii)
Quantity sold : 450 units @ 200 per unit, 650 units @ 190 per
unit, Samples clearances 50 units (iii) Balance in Stock - 850 units (at
the end of factory day for 1.1.2012). Assume that the rate per unit is
exclusive of Central Excise duty
Cool Drinks Ltd. manufactured three health drinks viz. A, B and C. A
was sold only to M Ltd., a subsidiary company of Cool Drinks Ltd. B
was sold to N Ltd., where the Managing Director of Cool Drinks Ltd.
was a manager. C was sold to O Ltd. who was the sole distributor of
Cool Drinks Ltd. and was coming under the management of Cool
Drinks Ltd.
Determine the transaction value of the three products in the hands of
Cool Drinks Ltd. on the basis of the following information:
Price of Cool Drinks Ltd. to M Ltd.
200
Price of Cool Drinks Ltd. to N Ltd.
150
Price of Cool Drinks Ltd. to O Ltd.
120
Price of M Ltd. to Consumer
220
Price of N Ltd. to Consumer
160
[20]
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CHAPTER - 3
CENVAT CREDIT
INTRODUCTION:
For manufacturing any good (or) for providing any service, it requires inputs (Raw materials),
capital goods (machineries), input services (consultancy, etc.,)
Inputs
Capital
goods
Input
service
Process
Finished
goods
Output
service
The excise duty paid on Inputs and capital goods and service tax paid on input services is
availed (i.e. taken) as credit, which can be utilised (i.e. Setoff) for payment of Excise duty on
finished goods and Service tax on output services.
1. AVAILMENT & UTILISATION OF CREDIT
1.1 How to compute net excise duty payable?
Gross excise duty payable on finished goods
(+) Gross service tax payable on output services
(-) Excise duty paid on Inputs
(-) Service tax paid on Input services (-) Excise duty paid on capital goods
1.2 When credit is available and what is the % of credit?
Inputs
Immediately on receipt of inputs into
100% of duties paid available as credit
factory of manufacturer or any premises on the basis of invoice
by service provider
Input
Immediately on receipt of invoice, even
100% of service tax mentioned in the
Services if payment is not made by service
invoice2
1
recipient
Capital
Immediately on receipt of inputs into
Upto 50% in the first financial year of
Goods
factory of manufacturer or any premises purchase and balance in the
by service provider
subsequent years
1.3 What are the duties available as Credit?
Even Additional customs duty paid u/s. 3 (1) (known as CVD) of customs and additional duty
paid u/s. 3 (5) (known as SAD) of CTA, 1975 is available as CENVAT credit.
1
2
If payment towards invoice is not made within 3 months, credit should be reversed
If part payment is made by SR, proportionate credit is available.
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Tharun Raj
1.4 What are the restrictions on utilization of credit?

EC availed should be utilized only for payment of EC.
SHEC availed should be utilized only for payment of SHEC.
SAD cannot be utilized for payment of service tax.
NCCD should be utilized only for NCCD. As per Prag Bosimi Synthetics ltd. Case (2013), HC
held that it does not mean credit of any other duty cannot be utilised for payment of NCCD.
Therefore CENVAT Credit w.r.to BED, CVD, Service tax etc., can be utilised for payment of
NCCD.
No restrictions on utilization of CVD.
In case of SSI units, 100% credit on capital goods available in the same financial year.
2. NON AVAILMENT & REVERSAL OF CREDIT
In case the capital goods are re-moved as such, CENVAT credit of 100% can be availed
and reversed accordingly.
If inputs are destroyed/ damaged after issuing it to production, CC on inputs available.
If inputs are destroyed /damaged before issuing it to production and if it is normal loss, CC
on inputs available
If inputs are destroyed /damaged before issuing it to production and if it is abnormal loss,
CC on inputs not available.
If capital goods are destroyed, CC on capital goods available
[22]
Tharun Raj
3. INPUTS/INPUT SERVICES & CAPITAL GOODS USED FOR EXEMPTED OUTPUT

When Inputs, Input services and capital goods are exclusively used for dutiable finished
goods/ taxable services, CC available.
When Inputs, Input services and capital goods are exclusively used for exempted finished
goods/ exempted services and if they are preferential removals, CC available.
When inputs, input services and capital goods are exclusively used for exempted finished
goods/ exempted services and if they are other than for preferential removals, CC not
available.
3.1 What are preferential removals?
1. Exports to countries other than Nepal and Bhutan [Credit avail-able by way of refund]
2. SEZ/EOU/EHTP/STP/UN or International organization and to projects funded by them
3. Foreign diplomatic missions, consular missions, career consular officers
4. International competitive bidding
5. Power project through competitive bidding
3.2 What are exempted goods?
Exempted goods means goods ex-empted as per exemption notification, nil rated goods and
goods tax-able as per notification 1/2011
3.3 What are exempted Services?
Exempted services means ser-vices exempted under mega ex-emption notification, negative lost
services, Abatement services, Ser-vices under composition scheme
If output is dutiable,
credit available on
Input. If output is
exempted/not
dutiable, credit not
available on Input
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Tharun Raj
4. REVERSAL OF CREDIT IN CASE OF REMOVAL OF INPUTS AND CAPITAL GOODS

Removal of
Capital goods
Inputs - as such
Amount equal to CENVAT

credit availed shall be paid
As such
[See note below]
After use (i.e. as second

hand machinery BUT
NOT as waste and
scrap)
Amount equal to CENVAT credit taken on capital

goods
(-) percentage points calculated by straight line
method for each quarter of a year or part thereof from
the date of taking the CENVAT credit
% points calculated by straight line method
In case of Computers &

Computes peripherals
In case of other capital goods
For each quarter in 1st year - 10%
2.5% for each quarter
For each quarter in 2nd year - 8%
[See note below]
For each quarter in 3rd year - 5%

For each quater in 4th and 5th year - 1%
[See note below]
Note: The amount calculated above or duty calculated on transaction value, whichever is
higher shall be the amount to be reversed or paid accordingly.
4.1 What is the treatment in case of capital goods removed as waste and scrap?
With effect from 27.09.2013, if the capital goods are cleared as waste and scrap, the
manufacturer shall pay an amount equal to the duty leviable on transaction value.
4.2 Whether Credit is payable along with interest?
In the following cases, recovery provisions under Rule 14 (i.e. recovery of CENVAT credit
wrongly availed along with interest) will be applicable.
[24]
Tharun Raj
Inputs or capital goods removed as such from the factory/ premises of the output
service provider Rule 3(5)
Capital goods removed after being used, whether as capital goods or as scrap or waste
Rule 3(5A)
Inputs/ capital goods before being put to use written off fully or partially Rule 3(5B)
5. REFUND OF CENVAT CREDIT
The provisions are contained in new Rule 5 of CENVAT credit rules, which is as follows:
5.1 What is Net CENVAT credit?

Total CENVAT credit availed on inputs and input services as reduced by amount reversed when
inputs removed as such.
5.2 What is the meaning of export turnover of services?
Payments received in respect of services exported (+) Advance received in respect of services
to be exported and provision of services is complete (-) Advance received in respect of services
to be exported and provision of services is not complete.
5.3 Will the refund be available, if duty drawback is allowed under customs?
No refund of credit shall be allowed if the manufacturer or provider of output service avails the
drawback allowed under the customs and excise drawback rules, 1995 or claims rebate under
export of services rules, 2005
[25]
Tharun Raj
Amendments in CENVAT Credit Rules, 2004
PROCEDURE, SAFEGUARDS, CONDITIONS AND LIMITATIONS PRESCRIBED FOR REFUND OF

CENVAT CREDIT TO SERVICE PROVIDERS COVERED UNDER PARTIAL REVERSE CHARGE [RULE
5B VIDE NOTIFICATION NO. 12/2014 CE]
Services Covered under Partial Reverse Charge Mechanism (PRCM)?
The following are the services covered under Partial reverse charge mechanism in lieu of Sec.
68(2) of Finance Act, 1994
a) renting of a motor vehicle designed to carry passengers on non abated value, to any
person who is not engaged in a similar business
b) supply of manpower for any purpose or security services (or)
c) service portion in the execution of a works contract
[26]
Tharun Raj
What is available as Refund?

CENVAT Credit availed and unutilized w.r.to
Excise Duty paid on inputs used in the above mentioned services
Services tax paid on input services used in the above mentioned services
What is the periodicity of Refund claim3?
The claimant shall submit only one claim of refund under this notification for every
half year. The refund claim shall be filed after filing of service tax return as
prescribed under rule 7 of the Service Tax Rules for the period for which refund is
claimed.
What is the amount of refund available?
The refund of unutilized CENVAT credit shall not exceed an amount of service tax liability paid
or payable by the recipient of service [REMEMBER! It is not the service tax paid by the service
provider BUT the service tax paid by the service recipient] with respect to the partial reverse
charge services provided during the period of half year for which refund is claimed
How to compute unutilized CENVAT Credit?
Proportionate CENVAT
Credit on inputs and input
services
Less:
Turnover of output service under

partial reverse charge during
CENVAT Credit taken
on inputs and
the half year
X
input services
Total turnover of goods and services
during the half year
during the half year
Service tax paid by the

service provider for such
partial reverse charge
services during the half
year
Unutilised CENVAT credit
taken on inputs and input
services during the half
year for providing partial
reverse charge services
(XXX)
XXX
Accounting treatment for refund?

The service provider providing services under Purchases A/c ---- Dr.
reverse charge mechanism can claim
CENVAT Credit Receivable A/c ---- Dr.
CENVAT Credit on inputs and input services
To Accounts payable A/c
The Refund shall be admissible for the CENVAT Credit taken on input or input services received after
1/07/2012
3
[27]
Tharun Raj
The amount claimed as refund shall be

debited by the claimant from his CENVAT
credit account at the time of making the
claim
In case the amount of refund sanctioned is
less than the amount of refund claimed,
then the claimant may take back the credit
of the difference between the amount
claimed and the amount sanctioned
Service Charges A/c ----- Dr.

CENVAT Credit Receivable A/c ---- Dr.
To Accounts payable A/c
Refund Receivable A/c ---- Dr.
To CENVAT Credit Receivable A/c
Cash A/c ---- Dr.
CENVAT Credit Receivable A/c --- Dr.
To Refund Receivable A/c
What is the procedure for claiming refund?
Application in Form A (along with return pertaining

to the said half year, documents and encl.) to
jurisdicational AC/DC of excise WITHIN 1 year from
the due date of filing of return* for the half year
AC/DC may call for any document in case he has

reason to believe that information provided in the
refund claim is incorrect or insufficient and funther
enquiry is necessary to sanction refund claim
Sanction of Refund claim by AC/DC (After getting

himself satisfied about the corectness of the refund
claim)
* The last date of filing of application in Form A, for the period 1.7.2012 to 30.9.2012 shall be
30.6.2014, so that refund shall be claimed within 1 year from 30.6.2014 for the credit
pertaining to 2012.
Illustration:
Black panthers security agency is engaged in providing security services to various Companies,
business entities, Individuals and with respect to some of the services, it is liable to pay service
tax under partial reverse charge mechanism to the tune of 25% if tax liability. During the
financial year 2014-15, it has provided services to HDFC Financial Services Ltd. and to other
entities where partial reverse charge mechanism is not applicable. It is eligible to take CENVAT
[28]
Tharun Raj
credit w.r.to service tax paid on manpower supply services, telecommunication services,
Advertisement services etc.,
Category of service provider
Scenario I
Scenario - II
A
Value of service provided to HDFC
15,00,000
10,00,000
Financial Services Ltd., attracting reverse
charge, in an half year
B
Value of service provided to others,
1,00,000
1,00,000
where reverse charge is not applicable
C
Total Value of taxable services provided
16,00,000
11,00,000
by Blank panthers security agency
D
CENVAT credit availed during the half
2,00,000
1,00,000
year
E
Service tax payable by the service
15,00,000 X
30,900
provider for (A) above (25 % of the
12.36% X 25% =
liability)
46,350
F
Service tax payable by the service
12,360
12,360
provider for (B) above entire liability
G
Total service tax payable by the service
58,710
43,260
provider (D) + (E)
H
Unutilized CENVAT credit, after making
1,41,290
56,740
service tax payments as above (C) (F)
[For all services including reverse charge]
I
Unutilized CENVAT credit as per Rule 5B
1,41,150
60,009
= D X A/C E
[with respect to reverse charge]
J
Maximum amount available for refund =
15,00,000 X
56,7404
Service tax paid by service recipient
12.36% X 75% =
w.r.to partial reverse charge subject to
1,39,050
(I) above
PROVISIONS RELATING TO DISTRIBUTION OF CREDIT IN CASE OF INPUT SERVICE DISTRIBUTOR

AMENDED [RULE 7 VIDE NOTIFICATION NO. 5/2014 - CE]
With effect from 01.04.2014, rule 7 has been amended to simplify the mechanism of
distribution of CENVAT credit in case of input service distributor as under:
Even though the maximum refund is subject to proportionate unutilized credit, but the balance in CENVAT
credit is less compared to the proportionate unutilized credit.
4
[29]
Tharun Raj
S.
Position as per
Position as per the
Impact of such
No.
erstwhile rule 7
amended rule 7
amendment
In case of a unit
In case of a unit
With the substitution
exclusively engaged in
exclusively engaged in
of
manufacture of
manufacture of exempted
word IN with BY,
exempted goods/
goods/ providing
credit of services,
providing exempted
exempted services,
which
services, service tax
service tax paid on input
have been used by
paid on input services
services used BY one or
such
used IN such a unit
more such units will not
units though not
was not allowed to be
be allowed to be
actually consumed
distributed as
distributed as CENVAT
within such units,
CENVAT credit.
credit
would
also not be
distributed.
Credit of service tax
Substitution of word
attributable to service
IN
used wholly IN a unit
used wholly BY a unit
with BY would
was to be distributed
shall be distributed only to
increase
only to that unit.
that unit.
the scope of services

pertaining to which
credit could be
distributed to a unit.
Resultantly, credit for
services like good
transport agency
services, rent-a-cab
service, testing and
analysis of the
product
etc. would now be
available to the unit
[30]
Tharun Raj
availing them.
3
In case of common
input services,
used IN more than one
used BY more than one
amount
unit was to be
unit shall be distributed
of CENVAT credit
distributed pro rata on
pro rata on the basis of
attributed to a unit
the basis of the turnover
the turnover of such units
may
during the relevant
during the relevant period
be reduced as now
period of the concerned
to the total turnover of
turnover of all
unit to the sum total of
all its units, which are
operational units has
the turnover of all the
operational in the
to
units to which the
current year, during the
be taken in
service related during
said relevant period.
denominator
the same period.
instead of only the

units
to which the service
relates.
Relevant period was
Relevant period shall be
Distribution of credit
the month/quarter
the financial year
is
previous to the
preceding to the year
now based on
month/quarter during
during which credit is to
previous
which the CENVAT
be distributed for month/
financial years
credit was distributed.
quarter provided
turnover
In case of an
assessee has turnover in
instead of previous
assessee who did not
such preceding financial
months/quarters
have any total
year.
turnover.
turnover in the said
If the assessee does not
period, the input
have turnover for some/
service distributor was
all the units in the
to distribute any credit
preceding financial year,
only after the end of
relevant period shall be
such relevant period
the last quarter for which
[31]
Tharun Raj
wherein the total
details of turnover of all
turnover of its units
the units are available,
was available.
previous to the month/

quarter for which credit is
to be distributed.
CENVAT CREDIT TAKEN ON INPUT SERVICES TO BE REVERSED IF DUTY PAID ON FINAL

PRODUCT REMITTED [RULE 3(5C) VIDE NOTIFICATION NO. 1/2014]
Earlier, where on any goods manufactured or produced by an assessee, the payment of duty
was ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit
taken on the inputs used in the manufacture or production of said goods was required to be
reversed. Thus, earlier, reversal was only required in respect of inputs and not for input
services.
Rule 3(5C) has been amended to provide that CENVAT credit taken on input services used in or
in relation to the manufacture or production of said goods is also required to be reversed.
AMOUNT PAYABLE UNDER SUB-RULES (5), (5A), (5B) AND (5C) OF RULE 3 TO BE PAID ON
OR BEFORE THE 5TH DAY OF THE FOLLOWING MONTH BY UTILIZING CENVAT CREDIT OR
OTHERWISE
As per explanation 1 inserted after rule 3(5C), the amount payable under following sub-rules of
rule 3 shall be paid by the manufacturer of goods or the provider of output service
(i) Rule 3(5) Reversal of credit in case of removal of inputs or capital goods as such from the
factory/premises of the output service provider
(ii) Rule 3(5A) Reversal of credit in case of removal of capital goods after being used,
whether as capital goods or as scrap or waste
(iii) Rule 3(5B) Reversal of credit in case of full or partial writing off of the value of input or
capital goods before being put to use
(iv) Rule 3(5C) Reversal of credit in case of remission of duty on final product
by debiting the CENVAT credit or otherwise
on or before the 5th day of the following month except for the month of March, where such
payment shall be made on or before the 31st day of the month of March.
[32]
Tharun Raj
FAILURE TO REVERSE THE CREDIT TAKEN ON INPUTS AND INPUT SERVICES USED IN GOODS ON
WHICH DUTY IS ORDERED TO BE REMITTED ALSO TO ATTRACT RECOVERY PROVISIONS UNDER
RULE 14 [EXPLANATION 2 TO RULE 3(5C)]
Hitherto, as per explanation occurring after proviso to rule 3(5B), recovery provisions under rule
14 of the CENVAT Credit Rules, 2004 were applicable if the manufacturer of goods or the
provider of output service fails to pay the amount payable under sub-rules (5), (5A) and (5B) of
rule 3.
The said explanation has been omitted and a new explanation 2 has been inserted after rule
3(5C). As per the new explanation 2, in addition to sub-rules (5), (5A) and (5B) of rule 3,
recovery provisions under rule 14 will also apply to sub-rule (5C) of rule 3.
In other words, even in a case where the manufacturer of goods or the provider of output
service fails to reverse the CENVAT credit taken on inputs and input services used in goods on
which duty has been ordered to be remitted, it would be recovered, in the manner provided
under rule 14, for recovery of CENVAT credit wrongly taken.
Case Laws on CENVAT CREDIT:

KCP Ltd. V.
CCE (2013)
(SC)
Can CENVAT credit be availed on machineries purchased for being used in

setting up a sugar plant in foreign country when (i) the same are not used in the
factory premises and (ii) no duty is paid on final product viz., the sugar plant?
The Supreme Court explained that if duty is not levied on the final
product, question of grant of any relief would not arise as in that case
there would not be any cascading effect on the duty imposed on inputs.
The Supreme Court pointed out that since the sugar plant was set up in
Vietnam, it could not be said that the plant was manufactured in the
factory of the assessee. Thus, no duty was paid by the assessee on the
final product i.e., on sugar plant which had been set up in Vietnam.
Therefore, there would not be any question of availing credit of the duty
paid on the inputs
The Supreme Court further observed that the bought-out machinery was
not used by the assessee in the manufacture of the machinery (which
had been transported along with bought-out machinery to Vietnam for
[33]
Tharun Raj
CCE V. Tata
Advanced
Materials
Ltd. (2011)
(HC)
Sintex
Industries
Ltd. V. CCE
(2013)
(HC)
setting up the sugar plant) as the same was not even unpacked or
tested, and transported in exact condition along with machinery
manufactured by the assessee. The assessee, therefore, merely acted as
a trader or as an exporter in relation to the machinery purchased by it,
which had been exported and used for setting up a sugar plant in a
foreign country.
The Supreme Court held that CENVAT credit could not be allowed to the
assessee as no duty was paid on sugar plant set up in a foreign country.
Further, since the bought-out machinery was not used in the assessees
factory premises, the necessary condition for availing CENVAT credit on
capital goods could not be fulfilled.
Issue Involved:
The capital goods purchased were destroyed by fire after 3 years from the date
of purchase. The Insurance Company reimbursed the amount to the assessee,
which included the excise duty, which the assessee had paid on the capital
goods and availed as CENVAT credit. Excise Department demanded the reversal
of the CENVAT credit by the assessee on the ground that the assessee had
availed a double benefit.
HC Decision:
As per CENVAT Credit Rules, 2004, CENVAT credit taken irregularly stands
cancelled and CENVAT credit utilised irregularly has to be paid for.
In the instant case, the Insurance Company, in terms of the policy, had
compensated the assessee.
Merely because the Insurance Company had paid the assessee the value of
goods including the excise duty paid, it would not render the availement of the
CENVAT credit wrong or irregular.
It was not a case of double benefit as contended by the Department.
The High Court therefore answered the substantial question of law in favour of
the assessee and against the Revenue.
The High Court held that credit could be availed on eligible inputs utilized in the
generation of electricity only to the extent the same were used to produce
electricity within the factory registered for that purpose (textile division).
However, credit on inputs utilized to produce electricity which was supplied to a
factory registered as a different unit (plastic division) would not be allowed. The
High Court rejected the contention of the assessee that separate registration of
two units situated within a common boundary wall would not make them two
different factories.
CCE V.
Prime
health care
products
(2011)
(HC)
[34]
Tharun Raj
CCE V.
Bhuwalka
steel
Industries
Ltd. (2010)
(Tri LB)
CCE V.
Stelko
Strips Ltd.
(2010)
(HC)
Ashok
Kumar H.
Fulwadhya
V. UOI
(2010)
(HC)
CCE v.
Satish
Industries
2013 (298)
E.L.T. 188
(Bom.)
The process of packing and re-packing the input, that was, toothbrush and
tooth paste in a unit container would fall within the ambit of manufacture [as
per section 2(f)(iii) of the Central Excise Act, 1944].
Further, the word input was defined in rule 2(k) of the CENVAT Credit Rules,
2004 which also included accessories of the final products cleared along with
final product.
There was no dispute about the fact that on tooth brush, excise duty had been
paid. The toothbrush was put in the packet along with the tooth paste and no
extra amount was recovered from the consumer on the toothbrush.
Considering the definition given in the rules of input and the provisions
contained in rule 3, the High Court upheld the Tribunals decision that the
credit was admissible in the case of the assessee.
Tribunal held that each case had to be decided according to merit and no
hard and fast rule can be laid down for dealing with different kinds of
shortages. Various factors have been laid to decide the denial. Whether the
goods under question
Have been diverted to other place or received and used in the factor
Are hygroscopic (i.e. absorbs but will not evaporate) or prone to evaporation
Are countable in terms of packages or pieces and have been received and
accounted
Differs in weight on account of different scales and dispatch and receiving
ends.
Tolerances in respect of hygroscopic, volatile and such other cargo has to be
allowed as per industry norms excluding, however, unreasonable and exorbitant
claims. Similarly, minor variations arising due to weighment by different
machines will also have to be ignored if such variations are within tolerance
limits.
The high court held that CENVAT credit can be taken on the strength of private
challans provided
Same were not found to be fake AND
There was proper certification that duty had been paid
It was held that words any person used in rule 15(1) of the CENVAT Credit
Rules, 2004 clearly indicate that the person who has availed CENVAT credit
shall only be the person liable to the penalty.
The Court observed that, in the instant case, CENVAT credit had been availed
by the company and the penalty under rule 15(1) was imposable only on the
person who had availed CENVAT credit [company in the given case], who was
a manufacturer.
The petitioners-directors of the company could not be said to be manufacturer
availing CENVAT credit.
Facts of the case: In the instant case, the assessee availed 100% CENVAT
credit on capital goods in the year of purchase, i.e. in first year itself. However,
he utilized only 50% of the CENVAT credit so availed in the first year. As per
Revenue, assessee was entitled to avail 50% of the credit of duty paid on capital
goods in the first financial year and avail the balance 50% credit in subsequent
financial year.
[35]
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Decision: The High Court held that if 50% CENVAT credit on capital goods
pertaining to subsequent financial year which had been wrongly availed in the
first year had not been not utilized till the commencement of the subsequent
financial year, no prejudice was caused to the Revenue and thus, the same
could be upheld.
DEFINITION OF INPUT SERVICE - CCE V. CADILA HEALTH CARE LTD. (2013) (HC) IMP. CASE
ISSUE INVOLVED:
The assessee was engaged in the manufacture of medicaments.

Since, the medicament could be manufactured only upon approval of the regulatory
authority after the product undergoes technical testing and analysis, the assessee
availed the services of various technical testing and analysis agencies for testing of
clinical samples prior to commencement of commercial production.
These samples were manufactured in small trial batches and removed after payment of
excise duty.
The assessee availed CENVAT credit of service tax paid by it on such testing services.
Further, the assessee also availed CENVAT credit of service tax paid by it on
commission paid to foreign agents for the sale of such
medicaments. Credit was
taken as per the inclusive part of the definition of input service, which included services
in relation to sales promotion.
[36]
Tharun Raj
DECISION:
Service
Technical
Departments argument
unless goods reached
High Court Observation & Decision
The activity of testing and analysis of the trail batches
testing and the commercial
was in relation to
analysis
production stage,
unless such trail batches were tested and approval from
Services
CENVAT credit was not
regulatory authority was obtained, the final
admissible
could not be
services prior to
manufacture of final product as

product
manufactured. Hence, the said

commencement of
commercial
production are eligible for CENVAT Credit

Services
The said services of foreign commission agents neither
provided
used directly or indirectly in or in relation to manufacture
by
of final products or
foreign
the place of removal nor the sad activities are
commission
mentioned in the illustrative activities mentioned in the
agents
definition i.e. accounting, auditing etc., Hence,

CENVAT Credit not
clearance of final products upto
available on the said
activities
DEFINITION OF INPUTS - FLEX ENGINEERING LTD. CASE (2012) (SC) - V. IMP CASE
[37]
Tharun Raj
ISSUE INVOLVED:
o The assessee, was engaged in the manufacturing of various types of packaging machines,
marketed as Automatic Form Fill and Seal Machines (F&S machines).
o The machines were made to order, in as much as all the dimensions of the
packaging/sealing pouches, for which the F&S machine is required, are provided by the
customer.
o The purchase order contained following clause - Inspection/trial will be carried out at your
works in the presence of our engineer before dispatch of equipment for the performance of
the machine.
o
o
o
o
The testingmaterial to be used was

Flexible Laminated Plastic Film in roll form & Poly
Paper which were duty paid.
As the machine ordered was customer specific, if after inspection by the customer it was
found deficient in respect of its operations for being used for a particular specified
packaging, it could not be delivered to the customer, till it was re-adjusted and tuned to
make it match with the required size of the pouches as per the customers requirement.
On completion of the above process and when the customer was satisfied, the machine
was declared as manufactured, ready for clearance.
The assessee claimed the CENVAT credit of the material used for testing of the packaging
machines. However, the Department contended that credit could not be availed and
denied the CENVAT credit on the same.
DECISION:
The Supreme Court observed that the process of manufacture would not be complete if
a product is not saleable as it would not be marketable and the duty of excise would not
be leviable on it.
The Supreme Court was of the opinion that the process of testing the customized F&S
machines was inextricably connected with the manufacturing process, in as much as,
until this process is carried out in terms of the afore-extracted covenant in the purchase
order, the manufacturing process is not complete; the machines are not fit for sale and
hence, not marketable at the factory gate.
The Court was, therefore, of the opinion that the manufacturing process in the present
case gets completed on testing of the said machines.
Hence, the afore-stated goods viz. the flexible plastic films used for testing the F&S
machines are inputs used in relation to the manufacture of the final product and would
be eligible for CENVAT credit.
[38]
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CASE STUDIES:
1
Vikram, a manufacturer, purchased 40 kgs of inputs @ 500 per kg on

01.10.2012. Excise duty of 12% and 3% education cesses were paid on
the inputs over and above 500. On the day of receipt itself, inputs were
sent to the job worker for further processing. Job worker sent back 50%
of the processed inputs on 01.04.2013 and balance 50% on 31.05.2013.
Vikram received the processed inputs on the same day. He utilized such
processed inputs in the manufacture of goods X.
Vikram also purchased moulds and dies worth 1,00,000 on 01.10.2012
and paid excise duty of 12,360 on the same. Such moulds and dies were
sent to another job worker for the production of goods Y according to his
specifications. However, such moulds and dies were not received back by
Vikram.
Ans:
Net CENVAT
Credit availed
in FY 2012-13
= 6,180
Net CENVAT
Credit availed
in FY 2013-14
= 8,652
Calculate the CENVAT credit that can be availed or required to be reversed

on relevant dates and net availment and reversal in the financial years
2012-13 and 2013-14. Vikram is not entitled to the benefit of exemption
available under Notification No.8/2003 CE dated 01.03.2003.
[CENVAT Removal of Capital good after use] XYZ Ltd. Purchased
capital goods of 17,16,300 (inclusive of excise duty @ 12.36%) on
1.4.2013. CENVAT credit attributable on such capital goods was duly
accounted for on the same day. You are required to compute the amount
of CENVAT credit to be reversed in the following cases:
(a) If machinery is removed as such on 25.7.2014
(b) If machinery is being removed, after being used on 2.4.2015
(c) If machinery is removed as waste and scrap for 5,00,000 on
28.7.2016
M/S Tips and Toes Ltd. manufacture 4 nail polishes namely sweety, pretty,
beauty, tweety. The company has availed CENVAT credit of 4,00,000 on
the common inputs used in the manufacture of nail polishes. During the
financial year 2012-13, the company manufactured 1000 liters of each
type. The CENVAT availed input was used in equal proportion in all the
four types of products. The following additional data is available. Discuss
eligibility of CENVAT credit availed by him. Advise assessee what steps he
should take under CENVAT credit rules.
Product
Nature of sale
Sale price excluding
sales tax and other
local taxes
Sweety
Sale to home consumption
30 per 20ml bottle
Pretty
Sold to a 100% EOU
40 per 20ml bottle
Beauty
Fully exported
50 per 20ml bottle
Tweety
Supplied to defence canteen 60 per 20ml bottle
under exemption
Maharaja, a manufacturer of dutiable as well as exempted goods,
furnishes the following information for the month of January, 2007 :
[39]
Tharun Raj
(i) Assessable value of dutiable goods 250 lakh (rate of duty 16%);
(ii) Price of exempted goods cleared from the factory 200 lakh;
(iii) CENVAT credit of input X (used only in the manufacture of
exempted goods)10 lakh;
(iv) CENVAT credit of input Y (used only in the manufacture of dutiable
goods)15 lakh;
(v) CENVAT credit of input Z (used commonly in manufacture of
exempted as well as dutiable goods but no separate accounts are
maintained in respect of such input Z) 20 lakh; and
(vi) CENVAT credit of capital goods (used partly for manufacture of
exempted goods also) 2.5 lakh (total amount of duty).
Compute the amount of excise duty and any other amount payable by
Maharaja for the month of January, 2007.
[40]
Tharun Raj
CHAPTER - 4
SSI EXEMPTION
NOTIFICATION NO. 8/2003:
The SSI exemption during the CY is available when the turnover of the assessee during the PY
is 400 lakhs.
The exemption is upto 150 lakhs of turnover during the CY. For turnover > 150 lakhs excise
duty payable.
The credit as standing on the first day of the financial year in which the exemption is availed
shall be lapsed.
CENVAT credit on inputs purchased, Input services received not available upto the date when
turnover is 150 lakhs. Thereafter, credit available.
CENVAT credit on capital goods is available but can be utilized only when turnover crosses 150
lakhs.
The assessee can opt to pay normal duty and can avail CENVAT credit.
Manufacturer of excisable goods (other than Tea, pan masala, some tobacco products, sandal
wood oil, weapons, travel sets for toiletries etc.) are eligible for SSI exemption.
The option once availed, will be applicable for entire turnover of a financial year.
Computation of Small Service provider Exemption for the year _________:
Dutiable goods
With SSI
Without SSI Exempted
S.No
Particulars
exemption Exemption
goods
Clearance of goods for domestic
1
XXX
consumption
Clearance of goods with own
2 brand
name
for
domestic
XXX
consumption
Clearance of goods with the
3 brand name of others - In urban
area (not eligible for exemption)
Clearance of goods with the
4 brand name of others - In Rural
Area
Non
dutiable
goods
XXX
XXX
[41]
Tharun Raj
Clearance of plastic bottles and

plastic containers manufactured
under the brand name of others
(Even though manufactured with
5
the brand name of others,
exemption available provided
they are used as packing
material)
Export to countries other than
6
Nepal and Bhutan
Exports to Nepal and Bhutan
(Though exports to Nepal is
7 treated as normal exports, the
SSI exemption notification has
not been amended)
8 Sale to SEZ/EOU/EHTP/STP/ UN
or International organisations
Outright sale to a buyer, who
then exports i.e. Penutimate sale
9 - Sale before export sale is
exempted under CST but not
under excise
Export under bond to merchant
10
exporter
11 Sale of non exsiable goods
Value of intermediate product
when final product is eligible for
SSI exemption (If final product is
eligible for SSI exemption, it is
12
dutiable before SSI exemption
and as per notification no. 67/95,
intermediate
product
is
exempted)
Value
of
goods
captively
consumed for manufacture of
13 final product which is exempted
under a notification other than
SSI Exemption notification.
Value of job work done under
notification no. 214/86, 83/94
14 and 84/94 (In this case, the raw
material supplier will pay excise
duty)
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
15 Job work or any process which

does not amount to manufacture
Total
XXX
XXX
XXX
XXX
XXX
[42]
Tharun Raj
Less: Small Service provider

exemption
Turnover on which excise
duty payable
(XXX)
Not available
XXX
XXX
Already
Exempted,
hence no
duty
payable
Not
dutiable,
hence duty
not leviable
Notes to above:
When the goods are already exempted/not taxable, it is not considered for SSI exemption.
When final product is covered under SSI exemption, intermediate product is already included
in it, so don't include again for exemption. When final product is exempted under other
notifications, intermediate product is taxable as per Notification. No. 67/95, but assessee can
avail SSI exemption on such intermediate product.
If the manufacturer has more than one factory, the clearances of all such factories will have
to be clubbed together.
If more than one manufacturer clears goods from the same factory, all clearances from the
factory will have to be clubbed together.
CASE LAWS ON SSI EXEMPTION:

CLUBBING PROVISIONS - CCE V. DEORA ENGINEERING WORKS (2010) (HC)
Decision of the case:

The High Court held that indisputably, in the instant case, that the partners of both the firms
were common and belonged to same family. They were manufacturing and clearing the
goods by the common brand name, manufactured in the same factory premises,
[43]
Tharun Raj
having common management and accounts etc. Therefore, High Court was of the
considered view that the clearance of the common goods under the same brand name
manufactured by both the firms had been rightly clubbed.
COMPUTATION OF SSI EXEMPTION - BONANZO ENGG. & CHEMICAL P. LTD. CASE (2012) (SC)
The Supreme Court opined that the value of clearances in the SSI exemption
notification needs to be
computed after excluding the value of exempted goods.
Merely because the assessee by mistake paid duty on the goods which were exempted
from the duty payment under some other notification, did not mean that thegoods
would become goods liable for duty under the Act.
Further, merely because the
assessee had not claimed any refund on the duty paid
by him would not come in the way of claiming benefit of the SSI exemption.
Accordingly, the high court allowed assessee to exclude exempted goods for
computation of SSI exemption.
BRAND NAME RESTRICTIONS - ELEX KNITTING MACHINERY CO. (2010) (HC)
ISSUE INVOLVED:
The assessee was engaged in the

manufacture of flat knitting machines. They had
been availing the SSI exemption.
They were found using the brand name ELEX on those machines. The said brand
name belonged to M/s. Elex Engineering Works. The proprietor of Elex Knitting
Machinery Co. was a partner in M/s Elex Engineering Works.
The Department denied the benefit of the SSI exemption notification solely on the
ground that they had manufactured and cleared the goods under the brand name
ELEX which belonged to M/s. ELEX Engineering Works.
DECISION:
Held that the appellant was eligible to claim benefit of the SSI exemption as the
proprietor of Elex Knitting
Machinery Co. was one of the partners in Elex
Engineering Works.
Thus, being the co-owner of the brand name of ELEX, he could not be said to have
used the brand name of another person, in the manufacture and clearance of the goods
in his individual capacity.
[44]
Tharun Raj
CCE V. Australian Foods India (p) Ltd. (2013) (SC)
Facts & Issues involved:

The assessee was engaged in the manufacture and sale of cookies from branded retail
outlets of "Cookie Man".
The assessee had acquired this brand name from M/s Cookie Man Pvt. Ltd, Australia.
The assessee was selling some of these cookies in plastic pouches/containers on which
the brand name described above was printed.
No brand name was affixed or inscribed on the cookies. Excise duty was duly paid, on
the cookies sold in the said pouches/containers.
However, on the cookies sold loosely from the counter of the same retail outlet, with
plain plates and tissue paper, duty was not paid.
The retail outlets did not receive any loose cookies nor did they manufacture them. They
received all cookies in sealed pouches/containers.
Those sold loosely were taken out of the containers and displayed for sale separately.
The assessee contended that SSI exemption would be available on cookies sold loosely
as they did not bear the brand name.
Decision:
(i) Physical manifestation of the brand name on goods is not a compulsory requirement. Goods
would continue to be branded good, as long as its environment conveys so viz.,
packaging/wrapping, accessories, uniform of vendors, invoices, menu cards, hoardings and
display boards of outlet, may convey that goods is a branded one.
(ii) The test of whether the goods is branded or unbranded, must not be the physical presence
of the brand name on the good, but whether it is used in relation to such specified goods for
the purpose of indicating a connection in the course of trade between such specified goods and
some person using such name with or without any indication of the identity of the person.
(iii) Once it is established that a specified good is a branded good, whether it is sold without
any trade name on it, or by another manufacturer, it does not cease to be a branded good of
the first manufacturer. Therefore, soft drinks of a certain company do not cease to be
manufactured branded goods of that company simply because they are served in plain glasses,
without any indication of the company, in a private restaurant.
(iv) The supreme court held that it is not necessary for the goods to be stamped with a trade
name or brand name to be considered as branded goods for the purpose of SSI exemption. A
scrutiny of surrounding circumstances is necessary to decide. In the present case, the SSI
exemption not available on account of brand name restrictions.
[45]
Tharun Raj
Where clearances of a dubious company are clubbed with clearances of the original
company, whether penalty can be imposed on such dubious company if all the
clearances have been made by the original company?
CCEx v Xenon 2013 (Jhar.)
Facts & Issue Involved:
The Department found that the assessee had set up a dubious company of another
company to mis-utilize the benefits of SSI exemption notification.
It was established that the dubious company did not manufacture and clear any goods
and that all the transactions shown by it were, in fact, the transactions undertaken by
the original company.
Thus, the manufacture and clearances shown by the two units separately were clubbed
together as manufacture and clearances of a single unit viz. original company in terms
of the applicable SSI exemption notification and the differential duty and penalty was
imposed on such original company.
At the same time, penalty was also imposed on the dubious company.
Decision:
The High Court observed that merely because the dubious company was in existence, it
could not be said that it undertook the transactions.
Its existence could not itself create any liability; the liability could arise only when the
transactions were actually undertaken by the dubious company.
If the transactions shown by the dubious company were not undertaken by the same
but by the original company, then such transactions would be taken to be the
transactions of the original company and clubbed with the transactions of the original
company.
The High Court held that when it had been established that dubious company did not
undertake any transactions, penalty could not be levied on the same for the transactions
undertaken by the original company. The High Court emphasized that penalty could not
be imposed upon the company who did not undertake any transaction.
CASE STUDIES:
1
Chinu Ltd. started manufacturing excisable goods in June, 2013. It

availed small scale exemption in terms of Notification No. 8/2003 C.E.
dated 1-3-2003 as amended for the financial year 2013-14. The
following details are provided by Chinu Limited:
18,000 kg of inputs purchased @ 985.60 per kg
1,77,40,800
(inclusive of central excise duty @ 12.36%)
Capital goods purchased on 24.07.2013 (inclusive of
45,15,000
excise duty at 12.36%)
Finished goods sold [at uniform transaction value
3,00,00,000
(exclusive of excise duty) throughout the year]
Ans:
Excise duty
payable in cash
after availing
CENVAT Credit is
3,81,558
[46]
Tharun Raj
Calculate the amount of excise duty payable by Chinu Ltd. in cash, if

any, during the year 2013-14. Rate of duty on finished goods sold
may be taken at 12.36%. There is neither any processing loss nor
any inventory of input and output. Show your workings and notes
with suitable assumptions as required.
[SSI Exemption] SSI & Co. is eligible for exemption in terms of
Notification No. 8/2003 for the year 2010-11. It provides the
following particulars with regard to the clearances of goods effected
during the said year. Determine the duty payable in respect of the
year 2010-11:
Value of domestic clearances of goods 120 lakhs
with own brand name
Value of clearances of goods with the 100 lakhs
brand name of others (including30
lakhs in respect of goods manufactured
in a rural area)
Value of clearances for exports
50 lakhs
Value of clearances for captive 40 lakhs
consumption
Value of clearances of exempted goods
20 lakhs
Show your workings with explanations where required
[Computation of eligibility for SSI exemption]Aggarwal&
Company is a manufacturing company. In the financial year 2011-12,
the details of its clearances of excisable goods are as follows:Total exports (including for export to Bhutan 600 lakhs
50 lakhs)
Clearances of excisable goods without 10 lakhs
payment of duty to a 100% EOU
Job work under Notification No. 84/94-CE 50 lakhs
dated 11.4.94
Job work under Notification No. 214/86-CE 50 lakhs
dated 25.3.86
Clearances of goods bearing brand name of 100 lakhs
National Small
Industries Corporation
Clearances of corrugated boxes bearing the 200 lakhs
brand name of Sugar & Spice Confectioners.
Sugar & Spice Confectioners use these
corrugated boxes for packing the bakery
products produced by them.
On the basis of above information, you are required to ascertain the
eligibility of Aggarwal and Company for exemption based on value of
clearances in terms of Notification No. 8/2003-CE dated 1.3.2003 as
amended for the financial year 2012-13.
[May 12 CA RTP]
[47]
Tharun Raj
CHAPTER - 5
PROCEDURES UNDER EXCISE
1. REGISTRATION
Who is
Every person who produces, manufactures, carries on trade, holds private
required to get
store room or warehouse or otherwise uses excisable goods
registered?
Who are
exempt from
registration?
Notification No.
36/2001
What is to be
Manufacturers of exempted goods

SSI Units availing exemption and having a turnover < 90 lakhs
Exemption notification no. 214/86, were in raw material supplier is
required to get registered
Persons manufacturing goods under customs warehousing procedures,
if all their products are exported
Dealers in excisable goods who do not issue CENVATable invoice
Unit in SEZ
EOU having no inter-linkage with domestic economy through sale or
purchase of goods
Temporary exemption has been granted from registration under excise
for premises used solely for affixing a sticker/ re-printing/ re-labelling/
re packing of pharmaceutical products falling under chapter 30 to
comply with the notification issued under Drugs (Prices control) Order,
2013
Premises - Factory/Warehouse (But not the name of manufacturer)
registered?
Procedure for
registration?
1.
2.
3.
4.
Application in Form A-1 along with appropriate documents

Within 30 days from the date of commencement of business
With Jurisdicational AC/DC in duplicate
A Certificate of Registration will be generated which contains 15 digit code.
First 10 digits PAN
Next 2 digits Word XM in case of manufacturer, XD in case of dealer
Next 3 digits character numeric code (001,002,003 etc.).
[48]
Tharun Raj
2. ASSESSMENT UNDER EXCISE:

Assessment
Self-Assessment [Rule 6]
What is
Assessment?
What is self
assessment?
What is
provisional
assessment?
Provisional Assessment [Rule 7]
Assessment means determining the tax liability. It is of two types

a) Self assessment
b) Provisional assessment
The assessee himself has to determine classification and valuation of goods and pay duty
accordingly.
But in case of cigarettes, the superintendent or inspector shall assess the duty payable
before removal of goods
The return submitted by assessee has to be along with Self Assessment Memorandum,
in which assessee declared that
a) The particulars in ER-1/ER-2/ER-3 are correctly stated
b) Duty has been assessed as per the provisions of the Act.
When,
a) Assessee is unable to determine the value of excisable goods on account of non
availability of any document or information or
b) Assessee is unable to determine rate of duty applicable
He will pay the duty on provisional basis and later on pay/receive the differential duty, if any
2.1 PROCEDURE FOR SELF ASSESSMENT:

Assessee shall submit return along with 'Self assessment memorandum'
Scrutiny of returns by 'Proper officer'
Scrutiny of assessment
(Some returns will be selected on minirisk parameter basis)
Every assessee shall make available to proper officer all documents and records for
verification as and when required
If assessment is found to be in
order
'Self assessment' is final
If the officers are of opinion that there is

short payment, show cause notice cum
demand will have to be issued.
The officers will not assess the duty i.e.
assessment order is not issued
2.1.1 What is scrutiny of return?

To check whether the information contained in the return is complete, prima facie valid and internally
consistent. Required action will be taken based on the scrutiny by superintendent, to safeguard the
revenue. A detailed check list for the scrutiny has been given in Annexure-1 of the circular No.
818/15/2005.
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2.1.2 Are all returns to be scrutinized?

Circular No. 818/15/2005, provided manner of scrutiny of ER-1/ER-3 returns.
2.1.3 Who will do scrutiny of returns?
Range superintendent and will be assisted by Inspectors.
2.1.4 What is scrutiny of assessment?
After initial scrutiny of returns, 5% of returns will be selected for detailed scrutiny i.e. Scrutiny of
assessment. This will be done on the basis of Negative impact on revenue for the maximum number of
parameters.
The modus operandi will be such that in annexure-2 of circular No. 818/15/2005, specifies 8 parameters.
Units having maximum number of negative parameters showing abnormal trends will be selected for
detailed scrutiny of assessment.
2.1.5 What is the time limit for completion of this scrutiny?
Both scrutiny of returns and scrutiny of assessment should be completed within 3 months from the date
of receipt of return.
1.2 PROCEDURE FOR PROVISIONAL ASSESSMENT:

Assessee has to request for provisional assessment in
writing and also giving reasons thereof to AC/DC
AC/DC shall specify the rate or value at which the

duty will be paid on provisional basis
AC/DC may by order allow payment

of duty on provisional basis
Assessee has to execute a bond for

payment of differential duty
Within 6 months from the date of order of provisional assessment, AC/DC should pass order for
final assessment
(The period can be extended by further 6 months by commissioner and further without any
timelimit by cheif commissioner)
Interest is payable, in case differential

amount is payable by assessee
If excess amount was paid, it is refundable with

interest. The refund is subject to provisions of
unjust enrichment
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2.2.1 Can department order for provisional assessment?

If central excise officer finds that self assessment is not in order, he can as assessee to produce
additional documents, records and other information and then issue demand notice.
If the above is not possible, Best judgement assessment is resorted. But the department cannot
order provisional assessment.
2.2.2 If AC/DC is of the opinion that provisional assessment is not necessary. What
is the guideline available?
AC/DC may ask assessee to appear before him on the appointed day. After the hearing, he may
order that provisional assessment is not necessary.
2.2.3 What is the value for which bond is executed?
The difference has to be calculated on the basis of probable duty payable applying the highest
rate/ value applicable to such goods for a period of 3 months.
2.2.4 The return should be usually accompanied with self assessment
memorandum. What if, in case of provisional assessment?
The monthly/ quarterly return and invoices should be marked as PROVISIONALLY ASSESSED
vide order No. ____ dated ____. There is a declaration in ER-1/ER-2/ER-3 where assessee has
to mention the goods under Provisional assessment.
2.2.5 AC/DC is required to pass order of final assessment within 6 months. If
assessment cannot be finalised within 6 months, what is the remedy available?
The cases must be submitted to commissioner with request letter of assessee, through AC/DC
indicating reasons for non-finalisation and amount of differential duty for future clearances
before the expiry of period of 6 months.
2.2.6 Explain the phrase Refund subject to provision of unjust enrichment?
Refund will be granted to manufacturer if he has not passed on incidence of duty to another
person.
2.2.7 What is the rate of interest payable in case of differential duty payable?
Interest as specified in Sec. 11 AA (i.e. 18%) will be payable by assessee
FROM First day of the month succeeding the month for which such amount is determined.
TILL Date of payment of differential duty.
Note: Interest is payable from first day of next month after clearance of goods, as the word
used is for.
Eg: If goods were cleared in July 2000, entire duty is paid in September 2001 and assessment
is finalised in March 2007, interest will be payable from 1st august 2000 to September 2001.
ILLUSTRATION ON PROVISIONAL ASSESSMENT:
Value of goods cleared during July 2014 = 10 lakhs
Duty provisionally assessed on 8th August 2014 @ 10.3% = 1,03,000 and the said duty is paid
immediately.
Duty finally assessed on 25th Jan 2015 @ 12.36% and the differential duty paid on 5th Feb 2015.
Amount of differential duty = 1,23,600 - 1,03,000 = 20,600
Period for which interest payable = 1st August 2014 to 5th Feb 2015 = 189 days
Interest = 20,600 X 18% X 189/365 = 1,920
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2.2.8 What is the rate of interest receivable in case of refund of differential

amount?
The rate is as specified in Sec. 11 BB (i.e. @6%) will be receivable by assessee.
FROM The date immediately after the expiry of 3 months from the date of receipt of refund
application5
TILL The last date of refund.
Note: The interest is payable by department not from the date of finalisation of provisional
assessment, but from the month next to the month on which duty was provisionally paid.
G.I.S Cotton mills Ltd. case (2013) (HC) Refund would arise only after provisional
assessment has been finalized and not prior thereto. Thus, until AC/DC passes an order for
final assessment, no refund application can be filed by the
assessee.
In the above example, if refund is available and refund application can be filed only after 25th
Jan 2015 and if application is made on 31th Jan 2015, Interest will start from 1st May 2015
only i.e. after expiry of 3 months from the date of filing refund application.
CASE STUDY:
1
M/s Sharda Zarda Makers is engaged in manufacturing zarda with the

brand name Aanand. It clandestinely cleared Aanand zarda and
stored the same with Balram Trading Co. for further sales. Balram
Trading Co. were allegedly the related concerns of M/s Sharda Zarda
Makers.
The Commissioner of Central Excise has imposed a penalty under rule
25(1)(c) of the Central Excise Rules, 2002 on Balram Trading Co. on
the ground that it has engaged in the storage of excisable goods
without having applied for the required registration certificate.
Examine with the help of a decided case law whether penalty under
rule 25 of the Central Excise Rules, 2002 can be imposed on such
firm?
[RTP May 2014]
Ans:
Penalty under
Rule 25 could not
be imposed on
Balaram Trading
Co.
The facts of the
case is similar to
the case of Balaji
Trading Co. (2013)
(HC)
OTHER AMENDMENTS IN CENTRAL EXCISE RULES, 2004:

Rule 20 The facility of removal without payment of duty provided under rule 20(1) of the
Central Excise Rules, 2002 has been extended to all excisable goods intended for storage in
godown/retail outlet of a Duty Free Shop in the Departure Hall/Arrival Hall of International
Notification No. 02/2013 dated 1.3.2013
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Airport, appointed/licensed as warehouse under sections 57 or 58 of the Customs Act, 1962

and for sale therefrom, against foreign exchange to passengers going out of India or to the
passengers or members of crew arriving from abroad.
Note: Hitherto only foreign goods were sold in Duty Free Shops located in the International
Airports. A passenger going abroad or coming from a foreign country could buy foreign goods
without customs duty and the incoming passenger could clear those goods without duty within
his available limits as per the baggage rules.
The Central Government has now allowed excise duty-free sale of goods manufactured in India
to international passengers or crew arriving from abroad at the DFS located in the arrival halls
of international airports. Such exemption from excise duty is subject to limitations, conditions
and safeguards as may be specified by the CBEC. Therefore, now a passenger arriving from
abroad shall have the choice to buy either duty-free imported goods or duty-free indigenous
goods within his overall permissible baggage allowance.
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EXPORT PROCEDURE:
Where any goods are exported, rule 18 of the Central Excise Rules, 2002 empowers the Central
Government to grant by way of a notification a rebate of duty paid on such excisable goods or
on materials used in the manufacture or processing of such goods. The rebate is subject to
such conditions or limitations, if any, and the fulfilment of such procedure as may be specified
in the notification. Notification No. 19/2004 CE (NT) dated 06.09.2004 as amended has been
issued by the Central Government to grant rebate under rule 18.
The procedure prescribed under the said notification in relation to preparation of ARE-1, its
distribution and filing of rebate claim is summarized below:
Export under a claim of rebate Under supervision of superintendent or Inspector
(Rule 18 read with Notification No. 19/2004)
Step - 1
Step - 2
Step - 3
Preparation of Invoice
The Invoice should be in Triplicate
The assessable value should be mentioned in the Invoice
The Invoice should be prepared which can be from same series from which goods for home
consumption are cleared.
A separate series of Invoice can also be maintained for export
Preparation of ARE-1 form

ARE-1 form has to be prepared in quadruplicate and should be as follows
ORIGINAL White
TRIPLICATE Pink
DUPLICATE Buff
QUADRUPLICATE Green
QUINTUPLICATE - Optional
(It is sufficient if there is colour band on the top or right hand corner as per aforesaid
colour scheme)
It should be signed by manufacturer
The Assessable value should be mentioned in the ARE-1 forms
Sealing of goods for export at factory
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Export goods are examined before despatch by central excise officers

Sealing normally done by Inspector, Superintendent under export schemes and AC/DC in
exceptional cases
The sealing of each package or container shall be as specified by commissioner.
The excise officer will make endorsement on all copies of ARE-1
The excise officer may send the triplicate copy either by post or by handing over to the
exporter in a tamper proof sealed cover.
Step - 4
Clearance of goods for export by customs officer (At the place of export)
The goods after Sealing by excise officers are taken to customs port.
When export goods are examined before despatch by excise officers, the goods are not
examined by customs officer at port or airport of shipment, unless seals are found to be
tampered.
The DUPLICATE copy can be sent either by post or by handing over to exporter in tamper
proof sealed cover
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Tharun Raj
Step - 5
Filing rebate claim

It must be filed within 1 year from the date of export.
Application on letter head claiming rebate along with
a) Original ARE-1
b) Invoice
c) Self attested copy of shipping bill
d) Self attested copy of bill of lading
e) Disclaimer certificate where claimant is other than exporter.
The market price of excisable goods at the time of exportation should not be less than the
amount of rebate of duty claimed
Rebate claim below Rs. 500 is not acceptable.
Rebate will be granted

Note: Where the rebate is claimed by EDI system, the duplicate copy of ARE 1 is sent to the Excise Rebate Audit
section at the place of export. The officer for rebate claim could be AC/DC or Maritime commissioner.
Can export rebate claim be denied merely for non-production of original and
duplicate copies of ARE-1 when evidence for export of goods is available?
UM Cables Limited v. Union of India 2013 (293) ELT 641 (Bom.)
The High Court, therefore, held that the procedure cannot be raised to the level of a mandatory
requirement. Rule 18 itself makes a distinction between conditions and limitations subject to
which a rebate can be granted and the procedure governing the grant of a rebate. It was held
by the High Court that while the conditions and limitations for the grant of rebate are
mandatory, matters of procedure are directory.
The High Court ruled that non-production of ARE-1 forms ipso facto cannot invalidate rebate
claim. In such a case, exporter can demonstrate by cogent evidence that goods were exported
and duty paid and satisfy the requirements of rule 18 of Central Excise Rules, 2002 read with
Notification No. 19/2004 CE (NT).
Rule 18 of the Central Excise Rules, 2002 provides that where any goods are exported,
the Central Government may, by notification, grant rebate of duty paid on such excisable goods
OR duty paid on materials used in the manufacture or processing of such goods and the rebate
shall be subject to such conditions or limitations, if any, and fulfilment of such procedure, as
may be specified in the notification.
In case of export of goods under rule 18 of the Central Excise Rules, 2002, is it
possible to claim rebate of duty paid on excisable goods as well rebate of duty paid
on materials used in the manufacture or processing of such goods?
Rajasthan Textile Mills v. UOI 2013 (298) E.L.T. 183 (Raj.)
Decision: Under rule 18 of the Central Excise Rules, 2002, grant of rebate of duty paid is
available either on excisable goods or on materials used in the manufacture or processing of
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such goods i.e. on raw material. Thus, it is open to claim the benefit of rebate either on
manufactured/finished goods or on raw material, but not on both.
[57]
Tharun Raj

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RE: WALLANCE FLOOR MILLS LTD. CASE

Actual sale is not necessary to prove marketability

1.1 Is waste and scrap goods and excise duty payable?

1.2 When Deemed marketability will not be applicable?

Land Mark Case

Labelling (or) Relabelling, Packing/

A new and distince

Such new product

2.2 What is the acid test to determine, who is manufacturer?

Relation ship Test

If the relationship between

If the entire profit is

2.3 Case Laws on Manufacture:

The process of mixing and additives to heated bitumen, which results in

Testing equipments manufactured instead of importing the same and used

Bagasse which is a marketable product but not a manufactured product is not

CASE LAWS ON INTERPRETATION:

CCE V. CONNAUGHT PLAZA RESTAURANT P. LTD. (2012) (SC)

An extract from CETA:

Ice-cream and other edible ice, whether or

1. As per the definition of ice cream

What is supreme courts

The definition of one statute (i.e.

content. Hence Soft serve is not

2. Soft serve shall not be considered

3. In the matters pertaining to

4. As per Rule 3(a) of General

classified in the Act whereas the

2. TRANSACTION VALUE [4(3)(d)]

Which are not

Product Two Wheeler

These are essential and These are not essential

Optional bought out

These are trading activity

3. VALUATION RULES: (CENTRAL EXCISE VALUATION RULES, 2000)

In case of goods under job-work, AV shall be price at RM supplier place at the

4. CAS on Cost of production for captive consumption (CAS 4)

Material Consumed (See note 1 below)

Notes to above computation:

5) If product is transferred/dispatched duly packed for captive consumption, cost

Facts: Assessee was a manufacturer of manmade fibre yarns which were

observations and conclusion involving new section 4, based on transaction value,

CASE STUDIES ON VALUATION

M/s. Hiphop Ltd. is engaged in the manufacture and sale of Pressure

Make suitable assumptions wherever required and show the

compute/derive the assessable value of excisable goods, for levy of

1.4 What are the restrictions on utilization of credit?

If inputs are destroyed/ damaged after issuing it to production, CC on inputs available.

If capital goods are destroyed, CC on capital goods available

3. INPUTS/INPUT SERVICES & CAPITAL GOODS USED FOR EXEMPTED OUTPUT

4. REVERSAL OF CREDIT IN CASE OF REMOVAL OF INPUTS AND CAPITAL GOODS

Amount equal to CENVAT

[See note below]

After use (i.e. as second

Amount equal to CENVAT credit taken on capital

% points calculated by straight line method

In case of Computers &

In case of other capital goods

For each quarter in 1st year - 10%

2.5% for each quarter

For each quarter in 2nd year - 8%

[See note below]

For each quarter in 3rd year - 5%