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EXCISE DUTY
Central excise duty is an indirect tax, levied in goods manufactured in India. The
tax is administered by the central government under the authority of entry 84 of
the union list (list 1) under 7 schedule, read with article 256 of the
constitution of India. The word “excise” is derived from a Dutch term “acise” ,
which itself is derived from the Latin word “accensay” , which means to tax
“excise” is a word of wide import any & according to dictionary meaning, denotes
“an in direct tax on commodity manufactured ,produced ,sold ,used or transported
by the country”. Excise duty is a duty levied on the goods that are indigenously
manufactured. Excise duties having been defined in this manner in sec. 3 of the
that act, it immediately follows from the very defined that for anything to be
liable to excise duties, it must fulfill all the following conditions.
(A) It must be “goods”. (B) It must be “excisable goods”. (C) It must be either
produced or manufactured in India. While the duty no doubt is on goods as such,
still goods themselves cannot pay duty. This takes us to the next concept of
“taxable event”. For every tax, whether direct or indirect, there is a “taxable
event”. That is the event or situation which gives rise to the liability which he
has created, which would mean that he should be the person to pay the duty. Since
the taxable event is production/manufacturer. Excise duty is today the most
important source of revenue in India. It constitutes about 1/5 of the total yearly
receipts of the central government.
The finance act, 2000 has renamed the ‘duty of excise’. The ‘central value added
tax’ (CENVAT), which term is the term ‘duty’, ‘duties’, ‘excise duty’ or ‘duties
of excise’.
The Webster’s New International Dictionary defines “excise duty” as :(A) Any duty,
toll or tax ; (B) An inland duty or imposed, levied upon the manufacture, sale or
consumption of commodities within the country. (C) A tax upon the pursuit or fall
of certain sports, trades or occupation, usually taking in this case, the form of
exactions for licenses. The supreme court of India has defined “Excise duty” as “a
tax on the production or manufacture of excisable goods produced or manufactured
within the country” Nature of Excise Duty A few special features describing the
nature of excise duty are as follows:1. The duty of excise is not levied on
directly on the goods but is levied on the manufacture or production of a new
commodity. Hence it is called an ‘indirect tax’. 2. Excise duty is payable by the
manufacturer or the producer, not by the consumer. However the incidence of duty
is always indirectly on the consumer. 3. Excise duty is levied on goods &the
taxable events is manufacture or production if a new commercial commodity. The
levy collection of excise duty is practically made at a stage next to the
manufacture of goods, i.e. removal of goods.
4. The taxable event is not independent of liability to pay duty from levy of
duty. Therefore there cannot be different taxable events for different purposes.
5. The method of collection does not effect the essence of excise duty, but only
relates to the machinery of collection for administration convenience. Excise
differentiated from other duties: Excise v/s custom duty :Excise duty is levied on
manufacture or production of goods within the country. Thus it is related to
industrial activity. Custom duty, on the other hand, is attracted on the movement
of goods across the custom frontier. Excise duties are the duties, payable on
goods produced at home, where as custom duties on goods imported into country from
abroad. Excise v/s sales tax :Excise duties are the duties levied upon a
manufacture or producer of specified goods, in respect of their manufacture &
production in a factory within the country. It is not related to sale of goods or
proceeds of such sale. Sale tax , on the contrary is levied on the vendor of
goods, in respect of his sale. The taxable event in case of excise duty is the
coming into existence of a commodity. However in case of sale tax , the taxable
event is the sale of a commodity. The event of a sale of a commodity is immaterial
for levy of excise duty. In 1939, the duty of excise included the tax on sales as
well. However, when the government of India Act 1985, delegated powers to levy tax
on sale to another authority, it was distinguished from excise duty.
Excise v/s service tax :Service tax is a tax on the services provided by the
specified category of person to their clients & customers. On the contrary, excise
duty is a tax on removal of goods from the place of manufacture or production,
irrespective Of whether the same are used by customer or not. Excise v/s octroi
:Octroi is charged on the entry of goods & a specified area. This is generally
levied & collected by the local governments. While excise duty is levied on the
goods manufactured &produced &the country. Octri is a kind of entry tax. The levy
of excise duty is therefore not conflict with the levy & imposition of octroi.
Types of excise duty:Central excise duties can be classified into the following
categories:(A) Basic excise duty (BED):- BED is levied under the central excise
act 1994, on specified goods manufactured or produced in India at the rates
specified in the Central Excise Tariff Act 1985. The basic excise duty may be:(1)
Ad Valorem Duty i.e. duty levied at the specified rate on the volume of goods. (2)
Specific Duty i.e. duty levied at the specified rate on the unit, weight, volume,
length or area of goods. There is a fixed rate of duty @ 16% is charged. The basic
excise duty is shared between the Union & the States. (B) Special duties also
known as auxillary duties, are the regulatory duties, which are levied as
surcharge on certain specified goods. The purpose of special duties to raise
additional resources for some specified objects. Special excise duty is the
percentage of effective basic duty is calculated & relief exemptions & rebates is
granted. Thus, if the basic excise duty is nil the special excise duty would also
be nil. The special duties were first introduced in India in 1963 at the time of
Chinese aggression. Special excise duties are generally announced through the
Finance Bill. (C) Additional duties:- Additional duty is collected on certain
specified goods & products under the provisions of separate status. The additional
duty is levied with the object to, either curb the demand or consumption of the
particular commodity or to generate revenue sources from the commodity, which can,
for the time being, bear the extra load of taxation. These additional duties are
in addition to the basic excise duty & special excise duty. (D) National calamity
contingent duty [finance act 2001]:- A national contingent duty is imposed by a
finance act 2001. This duty shall be in addition to any another duties of excise
chargeable on such goods under the Central Excise Act 1944 or any other law for
the time being in force. This duty is imposed on Pan masala, Cigarettes, Bidies &
other tobacco products. (E) Special Additional Excise Duty [finance act 2002]:- In
the case of goods specified in the 8th schedule, beings goods manufactured, there
shall be levied and collected for purpose of the union by surcharge, a duty of
excise to called the special additional excise duty at the rates specified in the
said schedule, This duty shall be in additional to any other duty on such goods
under central excise duty 1944 or any other law for the time being in force. The
8th schedule:1. Motor Spirit (Petrol), 2. High Speed Diesel Oil
State excise duty:- It is imposed on manufacturing or production of items listed
in state constitution. According to list 2nd of 7th schedule entry 51 the state
governments are authorized to levy excise duty on the production & manufacture of
the followings goods:1. Any alcoholic liquor meant for human consumption. 2.
Opium, bhang, narcotics drugs and other narcotics. The duty by the Central
government on the production & manufacture of goods in India is called excise duty
while the duty levied by the state government on the production & manufacture of
narcotics in order to get for the sake of convenience called state excise. (G)
Cesses:- Cess is a tax imposed for specified purpose with reference to some goods.
The cess is collected separately & the collecting autority is under obligation to
utilize the same for the specified purpose only. BASIS OF EXICE DUTY: The basic
conditions of excise liability are:1:- The duty is on goods. 2:- The goods must be
excisable 3:- The goods must be produced 4:- Such manufacture must be in India
Excise is levied on the following basis; 1:- Specific duty 2:- Ad-valorem duty 3:-
Compounded duty
(F)
1:- SPECIFIC DUTY:It is the duty payable on the basis of certain units like
weight, length, volume, thickness etc. for example duty on cigrattes is payable on
the basis of its length. Duty on sugar is based on per kg. etc. In such cases
calculation of duty is payable in comparatively easy. In view of simplicity many
goods were earlier covered under specific duty. However this disadvantage is that
even if the selling price of product increases and the revenue earned by the
government doesn’t increase accordingly. Frequent revision of the rates have to be
done which is slow and time consuming process hence now most of the goods are
covered under Ad-valorem duty. Presently specific rates amended for:1:- Cigrattes
on the basis length, match box on the basis of per hundred boxes/ packs. 2:-
Marbles slabs and tiles on the basis of square mt.basis 3:- Colour t.v. based on
screen size in centimeter. 4:- Sugar per quintal basis. 5:- Cement on ton basis.
2:- AD-VELORAM DUTY:Fixing specific duty or tariff value is possible only for few
selected items like sugar pan masala consumer goods etc. Generally it is not
practically possible to charge specific duty. Similarly paying duty on the basis
of mrp is possible only in respect of few selected commodities. In other case
central excise is payable on the basis of value and this is called ad-veloram
duty. On a few commodity excise duty is levid on fix price or rate per unit. For
eg. Cement is levid @ 350 per ton and on sugar is levid on @ 340 per ton. However
on the majority of goods the duty is levid on the adveloram basis. In such case
duty is payable should be worked out on percentage basis of the assessable value
of the goods clearly. This percentage of duty is specified in the CEPA from 1994-
1995. the gatepass system has been replaced by invoice system. The manufacturer
under self removal procedure( under chapter vii a rule 173 A to 173 Q) can clear
goods by payment of duties, on the value shown in there invoice.there is no need
of
filing price list ( except whenever the clearance are taking place from as well as
depot / consignment agents of factory) The value shown in the invoice should be
arrived at after considering the provision of section 4 and section 4a of central
excise act 1944 as well as central valuation rule 1975.
LEVY OF SLABS
1:- CENTRAL RATE – 16 % 2:- MERIT RATE – 8 % 3:- DEMERIT RATE – 24 % ( With effect
from 20th feb 1999 as per the budget of 1999 ) Earlier these were 11 various ad-
veloram rates, some commodities were earlier fixed rates at 30 % 32 % 40 % but now
maximum excise duty has been lower to maximum of 24% .
LEVIABILITY
The duties of excise which shall be levied and collected on any excisable goods
which are produced or manufactured:1:- In a free trade zone and brought to any
other place in India 2:- By a hundred per-cent export oriented undertaking and
allowed to be sold in India. Shall be an amount equal to the aggregate of the
duties of customs which would be leviable ( under the customs act,1962 c52 of
18962) or any other law for the time being in force on like goods produced or
manufactured outside India if imported into India and where the said duties of
customs are chargeable by reference to their value the value of such excisable
goods shall notwithstanding anything contceined in any other provision of this act
be determined in accorndance with the provisions of the customs act,1962 (52 of
1962)and the customs tarrif act 1975 (51 of1975).
WHO IS LIABLE TO CHARGE THE DUTY LEVIABILITY:CONSTITUTION IS SUPREME
LAW:Legislative powers emanate from the provisions enshrined in the constitution
adopted by the respective country. INDIA IS UNION OF STATES:India being a union of
various states has a quasi federal constitution in which the powers of legislation
are shared between the union and states. Article 246 and the seventh schedule
mentioned therein which lay down the division line, are specifically relevant for
this purpose. It shall be seen therefrom that both the union and the state
government have powers to legislative in regard to the levy and collection of
excise duty.
AN OVERVIEW OF CENTRAL EXCISE RULE 1944:As per usual scheme of any act sec 37 of
the CEA grants power to govt. to frame rules for prescribing procedures form etc.
accordingly central excise rules have been notified by central excise rules have
been notified by central govt. ammended from time to time. These rules provided
for various procedures t be followed for clearance storage of goods accounting of
goods licensing procedures refund procedures, appeal procedures etc. rules are
generally important as the prescribed procedure have to be followed by the
assessee. In case of central excise, the rules are more important because excise
is a very procedure oriented. Many time such substantive benefits are lost or
penalties are imposed merely because proper procedure were not followed. Moreover
rules often provide for granting concession reliefs hence they must be studied
thoroughly. These rules contains the procedure for collection of duty. These rules
interalia detail the procedure for appointment and power of officers time manner
of payment of duty execution of bonds etc. detailed procedure regarding on levy of
duty on un manufactured products manufactured tobacco, tyre, cotton fibers tea
vegetables products medicine etc. has been given. They also contain the procedure
for availing the benefit of MODVAT.
AN OVERVIEW OF CENTRAL EXCISE & SALT ACT 1944:To improve the body of excise duty,
the British Govt. framed the central excise and salt act 1944. there were separate
excise act, number 16 all these were consolidated and consolidating act was passed
in 1944. In the year 1996 the word ‘salt’ was omitted from the name of the act,
now this act is known as central excise act 1944. This act is applicable till date
but with various amendments made in it from time to time. Time is a basic act for
excise duty collection, there are 40 sections in this enactment. This act provides
for charging of duty, valuation
powers of officer provision of arrest and penalty etc Sec 37 of the act empowers
the central government to frame rules for this purpose.
AN OVERVIEW OF CENTRAL EXCISE TARIFF ACT 1985:This act provides for tariff for
central duty of excise. The central excise rules 1984 and central excise tariff
act 1985 form the body of law of central excise. Recommendation made by the study
group constitute to review the central excise tariff a new central excise tariff
act has come into force with effect from 28 feb 1986. the tariff act replaces 1st
schedule of the central excise and tariff 1944, this is very important development
in excise taxation. When the central excise act was passed in 1944 the act itself
included various items ( called tariff items ) into which goods were classified.
However, as more and more goods were covered under central excise. The tariff
began complicated and unsystematic. Hence, CETA 1985 was passed which comes into
effect from 1st april 1986. the CETA 1985 classified all goods under 96 chapters
and specific court is allotted to each item. There are over 1000 tariff headings
and 2000 sub-headings in this act. This classification forms the basis for
classifying the goods under particular chapter and sub-head to prescribed duty to
be charged on particular product. The excise act and tariff act are thus being
separated.
Main features of tariff are as follows;1:-LINKING OF CETA:-CEA and CETA are link
together as follows:I:-Section 2 of CETA states that rate at which duties of
excise shall be levied under CEA are specified in schedule to CETA. II:-Section 3
(1) of CEA specifies that the duty shall be levied collected on all excisable
goods which are produced as manufactured in India, as and at the rates, prescribed
in schedule to the CETA thus both acts are link to each other. 2:-CETA IS BASED ON
HSN:-CETA is based on harmonize system of nomenclature called harmonized community
description coding system. This is an international nomenclature and standard
adopted by the most of the countries to insure uniformity in classification.
International trade through CETA generally follows HSN. Often there are wide
variations in HSN and CETA.
3:-CETA CONTAINS 2 SCHEDULE:-CETA consist of 2 schedule the
first schedule gives basic excise duties leviable on various products while 2nd
schedule gives list of items on which special excise duty is payable. 2nd schedule
contains only few items. It has been cleared that tariff heading given in 2nd
schedule will be interpreted in the same way as those in 1st schedule. Items
included in 2nd schedule are already covered in 1st schedule.
5:-GROUPS AND SUB GROUPS WITHIN THE CHAPTER:Each chapter is further divided into
various headings depending on different types of goods belonging to same class of
products. The headings are sometimes divided into further sub-headings. All
excisable goods are classified using 2 digit system 2 more digits are added for
further sub classification.
IMPORTANT COURT DECISION ARE AS UNDER:1:- New substance having different name
character or use must emerge:-In union of India v/s Delhi cloth mill. Air 1963 sec
791 for eg.
Cutting of wood in small pieces or making small pieces of long steel bar would not
amount to manufacture as no new product emerge.
3:- Identity of original article should be lost:- Case law PIO food
packers 1980. Commonly, manufacture is end result of one or more process when the
change occurs to a point where commercially it can be identified as a new separate
article manufacture is said to have taken place.
5:- Manufacture even if final product falls under same tariff:- There
can be manufacture even if both input and final product fall under same tariff
heading if a different idenficable commercially known product comes into
existence. Case Law:- Laminated packing pvt. Ltd. V/s CCE 1990 (i.e. ELT 326)(sc)
WHO IS THE MANUFACTURER:Sec. 2(f ) which defines the word manufacturers after
defining the word manufacturer states that the word manufacturer shall be
understood accordingly and shall include not only a person who employs hired
labour in the production or manufactures at excisable goods but also any person
who involves in their production and manufacture on his own account. Here again
the definition is not exhaustive the definition contains two categories of
manufacturer namely. I:- Persons who manufacture goods themselves on their own
account. II:-Persons who gets the goods manufactured through hired labor.
Since the definition is not exhaustive the word ‘manufacturer’ has to be
understood in its natural meaning. Manufacturer is a person who actually
manufacture of produce excisable goods.
RECORDS IN DAILY STOCK REGISTER:A:- Quantity deposited in the store room or other
place of storage. B:- Quantity removed after payment of duty from such store room
or other place of storage or from the place or premises specified under rule 9.
C:- for recording the date of storage of loose goods in the finishing room. D:-
The date of subsequent transfer of pacted goods from finishing room to the
finished goods store room E:- Process waste and scrap which are excisable under
the tariff. F:- Quantity delivered form the factory without payment of duty for
export or other purpose and the rate of duty the amount of such duty.