30180 62397 Excise Basics Classification Valuation Cenvat

8/21/2019 30180 62397 Excise Basics Classification Valuation Cenvat

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GOVINDMISHRA9911613608www.goacademy.in 1

CONCEPTOFEXCISEDUTY

ExcisedutyisadutyonProductionorManufactureofexcisablegoodsinIndia.TheCentralGovernment

haspower to levyexcisedutysince thesubjectmatter iscoveredunderEntry84ofUnionListwhich

reads as under "Duties of excise on tobacco and other goods manufactured or produced in India

except

(a) alcoholicliquorsforhumanconsumption;

(b) opium, Indianhempandothernarcoticdrugsandnarcotics,but includingmedicinalandtoilet

preparationscontainingalcoholoranysubstanceincludedinsubparagraph(b)ofthisentry.

Thus, thepower to levyexcisedutyonalcoholic liquors forhumanconsumptionopium, Indianhemp

and other narcotic drugs and narcotics, vests with the State Government as the subject matter is

coveredunderEntry51oftheStateList.

However, in caseofmedicinaland toiletpreparations containingalcoholoropium, Indianhempand

othernarcoticdrugs,theCentralGovernmenthasthepowertolevyexciseduty.

CONDITIONSFORLEVYOFDUTYunderSection3oftheCentralExciseAct

ThechargingSectioni.e.,SECTION3 oftheCentralExciseAct,19M,containstheprovisionsforlevyof

excisedutydutiesspecified intheFirstScheduleandsecondscheduletotheCentralExciseTariffAct,

1985tobelevied/ChargingSection[Section3]:

Thereshallbeleviedandcollectedinsuchmannerasmaybeprescribed,

(a)

adutyofexcisetobecalledastheCentralValueAddedTax(CENVAT),

onallexcisablegoods(excludingthegoodsproducedormanufacturedinSEZ)

whichare

produced

or

manufactured

in

India

as,andattheratessetforthintheFirstScheduletotheCentralExciseTariffAct,1985.

(b) aSPECIALDUTYOFEXCISE,inadditiontothedutyofexcisespecifiedinclause(a)above,

onexcisablegoodsspecifiedintheSecondscheduletoCentralExciseTariffAct,1985;

which are produced or manufactured in India ( excluding the goods produced or

manufacturedinSEZ)as,andattheratessetforthintheSecondSchedule.

Basicconditionsforlevyofexciseduty:

(a) Theremustbegoods.

(b) Suchgoodsmustbeexcisable.

(c) Suchgoodsmustresultoutofproductionormanufacture.

(d)

SuchproductionormanufacturemusttakeplaceinIndia(otherthanspecialeconomiczones).

ExtentandscopeofCentralExciseLaw

CentralExciselawextendstowholeofIndia:TheCentralExciseLawextendstothewholeofIndia

includingthestateofJammuandKashmir.IndiaincludestheterritorialwatersofIndia.


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NolevyongoodsmanufacturedinSEZ Aspersection3,thereisnolevyofexcisedutyonthegoods

producedormanufacturedinSpecialEconomicZones.

Rateofexciseduty:ThegeneralrateofCENVAT(BED)aspertheFirstScheduletoTariffActis16%,

however,byexemptionnotificationsitisl2%[email protected]%and

Secondary&[email protected]%isalsoleviableonallexciseduties.

Hence,ifbasic

excise

duty

is

12%,

then,

effective

rate

thereof

will

be

12.36%

(including

EC

&

SHEC).

PROVISIONSRELATINGTOTAXABLEEVENT

TAXABLEEVENT:TaxableEventisthatevent,whichonitsoccurrence,createsorattractstheliability

totax.ThetaxableeventinthecontextofCentralExciseisproductionormanufactureofexcisable

goodsinIndia.

Levyonmanufactureand collectionasperRules:Thus, levyofexciseduty isonmanufactureof

excisablegoodsinIndia.LevyisgovernedbytheStatutei.e.theCentralExciseAct,1944.Collection

ofduty

is

in

accordance

with

the

rules,

after

manufacture

takes

place.

Duty payable on removal: According to Rule 4 of Central Excise Rules, 2002, unless otherwise

provided,noexcisablegoodsonwhichdutyispayableshallberemovedwithoutpaymentofduty

fromanyplacewheretheyareproducedormanufactured.Thusexciseduty ispayableonremoval

ofexcisablegoodsfromfactoryorregisteredwarehouse.

Date fordeterminationof rateofdutyand tariffvaluation:AccordingtoRule5ofCentralExcise

Rules,2002, therateofdutyortariffvalueapplicabletoanyexcisablegoods,shallbetherateor

value in forceon thedatewhensuchgoodsare removed froma factoryorawarehouse,asthe

casemaybe.Thus, imposition isonmanufacturebutduty ispayableattherateprevalenton the

datewhentheexcisablegoodsareremovedfromfactoryorregisteredwarehouse.

(Imposition=Dateofmanufacture;

Rateofduty=dateonwhichgoodsareremoved)

Goodstobeexcisablemustbemoveable,marketable

Movability:Thefirstaspectofgoods isthattheyshouldbemoveable. lnUnionof Indiav.DelhiCloth

MillsandinSouthBiharSugarMillsv.UnionofIndia,theSupremeCourtenunciatedtheprinciplethatto

becalledgoods,thearticlesmustbesuchasarecapableofbeingboughtandsold inthemarket.The

articlesmustbesomethingwhichcanordinarilycomeorcanbebroughttothemarkettobeboughtand

sold.Thus, incaseof immovablepropertiesthatareattachedtoearth,noexcisedutycanbeleviedas

theylackmovability.

Marketability:Marketability isthecapabilityoftheproductofbeingboughtandsold intothemarket.

TheSupremeCourt in,Bhor Industriesv.CCEx.held thatmerelybecauseanarticle isspecified in the

Tariffscheduleitwillnotbeliabletodutyofexciseunlessitismarketableintheconditioninwhichthe

departmentwantstolevyexciseduty.


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EXCISABLE GOODS, NON-EXCISABLE GOODS, NON-DUTIABLE

GOODS

Excisablegoods[Section2(d)]:

"Excisablegoods"meansgoodsspecifiedintheFirstScheduleandtheSecondScheduletotheCentral

ExciseTariff

Act,

1985

as

being

subject

to

aduty

of

excise

and

includes

salt.

Meaningof goods [Explanation] :For thepurposesof section2(d)of theCentralExciseAct, "goods"

includeanyarticle,materialorsubstancewhichiscapableofbeingboughtandsoldforaconsideration

andsuchgoodsshallbedeemedtobemarketable.

Nonexcisablegoods

GoodswhicharenotlistedinTariffE.g.water(thereisnoentryinTariff),orgoodswhicharementioned

inTariffbutthecolumnofrateofdutyisblank,arenonexcisablegoods.Exciselawisnotapplicableon

nonexcisablegoods.

Nondutiablegoods

NondutiablegoodsareexcisablegoodslistedinExciseTariff.Exciselawisapplicabletothem,butthey

arenotliabletoexciseduty.Nondutiablegoodsmaybe

(i). Nildutygoods:Tariffrateforsuchgoodsisnil,and

(ii).Exemptedgoods:100%exemptionisavailableunderSection5AoftheCentralExciseAct,1944

forsuchgoods.

MANUFACTURE

[Section2(f)]

:"Manufacture"

includes

any

process

(a) incidentalorancillarytothecompletionofamanufacturedproduct;

(b) whichisspecifiedinrelationtoanygoods,intheSectionorChapternotesoftheFirstSchedule

totheCentralExciseTariffAcf,1985,asamountingtomanufacture(DeemedManufacture);or

(c)

whichinrelationtothegoodsspecifiedintheThirdSchedule,involvespackingorrepackingof

suchgoodsinaunitcontainerorlabellingorrelabellingofcontainersincludingthedeclaration

oralterationofretailsalepriceonitoradoptionofanyothertreatmentonthegoodstorender

theproductmarketabletotheconsumer(DeemedManufacture),

and theword"manufacfurer"shallbeconstruedaccordinglyandshall includenotonlyapersonwho

employshired labour in theproductionormanufactureofexcisablegoods,butalsoanypersonwho

engagesin

their

production

or

manufacture

on

his

own

account.

ManufactureVisaVisProcessing:

Wheretheoriginalcommodity losesitsexistenceandanewcommoditycomesintoexistencehaving

separatename,characteranduse, itwillamount tomanufacture.Anyprocesswhich is incidentalor

ancillarytothecompletionofamanufacturedproductiscoveredwithinthedefinitionofmanufacture.


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CAPTIVECONSUMPTION

MeaningofCaptiveconsumption:AsperCostAccountingStandard4issuedbytheInstituteofCost

Accountants of India "captive consumption" means consumption of goods manufactured by one

division or unit and consumed by another division or unit of same organisation or related

undertakingfor

manufacturing

another

product(s).

For example, Clinkers produced from lime stone is consumed within the factory of production for

productionofcement,suchtypeofconsumptionisknownascaptiveconsumption.

Intermediategoodsliabletodutyonlyifmoveableandmarketable:Intermediategoodswhichare

captivelyconsumedshallbeliabletoexcisedutyonlyifsuchgoodsaremoveableandmarketableor

deemedmarketableintheconditioninwhichthedepartmentwantstolevyexciseduty.

Therefore articles captively consumed shallbe liable toexcisedutywhen theyhave reached the

stagewheretheycanbeidentifiedasgoodsi.e.iftheyaremarketableandmoveable.

TheSupremeCourtinMotiLaminatesPvt.Ltdvo.CCEx.hasheldthatArticlesincrudeandelementary

formarenotdutiable,astheyaremerelyintermediateproducts,notmarketableinthatcondition.

Valuationincaseofintermediategoods:I{heretheexcisablegoodsarenotsoldbytheassesseebut

areusedforconsumptionbyhimoronhisbehalfintheproductionormanufactureofotherarticles,

thevalueshallbe110%ofthecostofproductionormanufactureofsuchgoods.

Datefordeterminationofrateofduty:Asperrule5oftheCentralExciseRules,2002theapplicable

rateofdutyisofthatdatewhentheexcisablegoodsareremovedfromafactoryorawarehouse,as

thecasemaybe.

Ifanyexcisablegoodsareusedwithinthefactory,thedateofremovalofsuchgoodsshallmeanthe

dateonwhich thegoodsare issued for suchuse.Hence,captivelyconsumedgoodsare liable to

excisedutyattherateinforceonthedateonwhichtheyareissuedforsuchconsumption.

Exemption notification in respect of intermediate goods: At present there are exemption

notifications in forceexempting intermediateproducts fromexciseduty, if the finalproductsare

chargeable to duty. If the final product is wholly exempt or chargeable to NIL rate of duty, the

intermediateproductsshallnotbeexemptthesameshallbechargeabletoduty.

Paymentofdutywheremorethanoneprocessinvolved:Wheremorethanoneprocessarecarried

outongoods,eachprocess independentlyamountingtomanufacture,thedutymaybepaidafter

completion of the last stage of such processes i.e. at the final stage. CCEx. v. Textile Corpn.

MarathwailaLtd.


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DUTIABTLITYOFWASTE&SCRAP

Dutiabilityofwaste&scrap

The issue relating to dutiability of waste and scrap was settled by the Supreme Court through its

decisionin

Khandelwal

Metal

&

Engineering

works

v.UOI,

by

holding

that

notwithstanding

that

process

wasteandscraparoseasintermediateproductsorbyproductsoutoffinalproducts,suchprocesswaste

and scrap, if marketable, would be chargeable to duty in view of the incorporation of the specific

subheadingsinvariouschaptersofthetariff.

TheApexcourthasheldthatprocesswasteandscrapisacommerciallydistinctandidentifiableproduct

andhascommercialvalue.Hence,suchwasteandscrapischargeabletodutyifcoveredintheTariff.

Conditionforlevyofdutyonwasteandscrap:Thus,ifprocesswasteandscrap

(a) arisesduringcourseofmanufacture;and

(b)

itis

moveable,

marketable;

and

(c)

listedintariffthesameshallbeliabletoexciseduty.

Wasteofexemptedgoods Exempt[NotificationNo,88/9SCE,dated1851995]:Waste,paringsand

scraparising inthecourseofmanufactureofexemptedgoods isexempt fromduty, ifonlyexempted

goods(i.e.fullyexemptedor'NIL'ratedgoods)aremanufacturedinthatfactory.

Wasteofcontainers Notexcisable:Containersinwhichinputsarereceivedcannotbetreatedtobea

wastearisingoutofmanufacturingprocessandtherefore,nodutyisleviableonsuchcontainersatthe

timeoftheirclearancefromfactory

MANUFACTURER?

AsperRule4,themanufacturerofexcisablegoodsorthepersonwhostoressuchgoodsinawarehouse

shallbeliabletopaythedutyleviableonsuchgoodsinthemannerprovidedunderRule8orunderany

otherlaw.

Thetermmanufacturerhasbeendefinedundersection2(f)toincludenotonlyapersonwhoemploys

hiredlabourintheproductionormanufactureofexcisablegoodsbutalsoapersonwhoengagesintheir

productionormanufactureonhisownaccounti.e.forhiscaptiveconsumption.


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[Typethecompanyname]9911613608www.goacademy.in 1

1

CHAPTER2

CLASSIFICATION

(1) Classification:choosingtherightheadingorsub headingoftheTariffanddeterminingtheapplicablerate

for theparticular goods is commonly referred to as classification of goods. Thus, classification of goods

consistsofdeterminingtheheadingsorsubheadingsoftheCentralExciseTariffunderwhichthesaidgoods

arecovered.

(2) Needforclassification:

(a) Determinationof rateofduty :Theactualamountofexcisedutypayableonexcisablegoods is, inter

alia,dependentupontherateofduty.Therateofdutyisdeterminableonthebasisofclassificationof

goods.

(b) Determinationofeligibilityofexemption:Theclassificationofgoods isalsorequiredtobedecidedfor

the Purposeofdetermining eligibility toexemptions,mostofwhich arewith reference to theTariff

headingsorsubheadings.

(c) Determination of deemed manufacture: Certain processes are specified in relation to goods falling

underaparticulartariffheadingasamountingtomanufacture.Forthatpurposeproperclassificationof

goodsin

the

tariff

is

necessary.

(3) Relevanttimeforclassification:Classificationisdoneatthetimeofremovalofgoods.

**************************************************

EmergencyPowerofCentralGovernmenttoincreasethedutyofexcise:section3oftheCentralExciseTariff

Act, 1985, empowers the Central Government to increase the duties of excise by amendment to the First

Schedule,bynotificationintheofficialgazette,inthefollowingmanner:

case Increasedupto

a WheretherateofdutyspecifiedinFirstand

SecondSchedule

as

in

force

immediately

before

theissueofsuchnotificationisNIL

A rate of duty not exceeding 50% ad Valorem

expressedin

any

form

or

method.

b Inanyothercase A rateofdutynotexceeding twice the rateofduty

specified in respect of such goods in First Schedule

andSecondScheduleas in force immediatelybefore

issueofthesaidnotification.

Nosecondincreaseunlessthefirstapproved:However,theCentralGovernmentshallnotissueanynotification

forsubstitutingtherateofdutyinrespectofanygoodsasspecifiedbyanearliernotification,beforesuchearlier

notificationhasnotbeenapprovedbytheparliamentwithorwithoutmodifications.

**************************************************

MAINFEATURESOFTHECENTRALEXCISETARIFF

(a) Detailedandcomprehensive.


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2

(b) BasedonHSN:ItisbasedonHarmonisedCommodityDescriptionandCodingSystem(HarmonisedSystem

of Nomenclature), which is an internationally accepted product coding system formulated under the

auspicesoftheGeneralAgreementonTariffs&Trade(GATT).

(c) Sameclassofgoodsgroupedtogether:

(d) Section Notes/Chapter Notes: It contains Section/Chapter Notes and Chapter SubNotes giving detailed

explanationas to the scopeandambitof the respective chapter.Thesenoteshavebeengiven statutory

backing

and

have

been

incorporated

at

the

top

of

each

Chapter.

(e) Eightdigitcodingsystem:NeweightdigitcodeshavebeenintroducedatparwithCustomsTariffassigning

first fourdigits to theChapterHeading, first sixdigits to theChapter subheadingandeightdigits to the

TariffItemNo.tofacilitatemoreitemsinthechapter.

(f) No separate residuary Chapter: Residuary items have been provided separately for each class of goods

undereachChapter.

(g) Rules for interpretation: Interpretative ruleshavealsobeenprovided to serveas statutoryguidelines for

interpretingtheTariffSchedule.

(h) ResiduaryEntries:Residuaryentrieshavebeenincorporatedundermostoftheheadingsandsubheadings.

**************************************************

HARMONISEDCOMMODITYDESCRIPTIONANDCODINGSYSTEM(HSN)

(1) The term Harmonised Commodity Description and Coding System (HSN) is used with reference to

categorisationandclassificationofcommodities forthepurposeof fixationofratesoftariff for levyingof

dutiesof excise and customs.Harmonised SystemofNomenclature (HSN) is an internationally accepted

product coding system formulated under the auspices of the General Agreement on Tariffs and Trade

(GATT). ItformsthebasisofthesystemofclassificationintheCentralExciseTariffAct,1985.

(2) ExplanatoryNotestotheHSN

(a) Officialnotes issuedby theCustomsCooperationCouncil:TheExplanatoryNotes to theHSNare the

officialnotes

issued

by

the

Customs

Co

operation

Council,

Brussels.

(b) ExplainandclarifythescopeofheadingsofHSN:Theyexplainandclarifythescopeandextentofeach

and every heading of the HSN, on the basis of which the present Central Excise Tariff has been

patterned.

(c) Donothavea legalbackingareonlyofpersuasivevalue: It istoberememberedthattheExplanatory

Notesdonothave legalbacking,unlike theChapterNotesandSectionNotescontained in theTariff.

Consequently, these Explanatory Notes are only of persuasive value and can be used as an aid to

classificationofgoodswhenthereisambiguityastothescopeoftheentry.

(d) CanberesortedtoonlyincaseofambiguityintariffitemsinCentralExciseTariff.

**************************************************

RULESOFINTERPRETATION

SectionandChapterTitleshavenolegalvalidity[Rule1]


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3

[RULE2(a)]:ClassificationofIncompleteorunfinishedarticles ClassificationasComplete/Finishedgoods

[RULE2(b)]ClassificationofMixture/CombinationsofaMaterial/SubstancewithotherMaterials/Substances

TobeclassifiedasthatMaterialorSubstance.

The classification of the goods consistingofmore thanonematerialor substance shall be according to the

principleofRule3.

[RULE3]:Classificationwhengoodsclassifiableundertwoormoreheadings

Whenby

application

of

Rule

2(b),

or

for

any

other

reason,

goods

Ne

prima

facie

classifiable

under

two

or

more

headings,classificationshallbeeffectedasfollows:

(a)MostSpecificdescriptionshallprevailovergeneraldescription[Rule3(a)]:Theheading,whichprovides

themostspecificdescription,shallbepreferredtoheadingsprovidingamoregeneraldescription.

(b)Classification on basis of essential character [Rule 3(b)]: Mixtures, composite goods consisting of

differentmaterialsormadeupofdifferentcomponentsandgoodsputup insetsforretailsale,which

cannot be classified by reference to (a), shall be classified as if they consisted of the material or

componentwhichgivesthemtheiressentialcharacter,sofarasthiscriterionisapplicable.ThisRulewill

beapplicableonlyonthefailureofRule3(a).

(c) Latterthe

better

maxim

[Rule

3(c)]:

When

goods

cannot

be

classified

by

reference

to

(a)

or

(b)

they

shall

beclassifiedundertheheading,whichoccurslastinnumericalorderamongthose,whichequallymerit

considerations.Thisruleisalsoknownaslatterthebettermaxim.

[RULE4]AKINRULE:Goods,whichcannotbeclassifiedinaccordancewiththeaboverules,shallbeclassified

undertheheadingappropriatetothegoodstowhichtheyaremostakin.

[RULE5]ClassificationofPackingmaterials:Inadditiontotheforegoingprovisions,thefollowingrulesshall

applyinrespectofthegoodsreferredtotherein

(a) Classification of cases/containers used for packaging of goods: Camera cases, musical instrument

cases,guncases,drawing instrumentcases,necklacecasesandsimilarcontainers,speciallyshapedor

fitted tocontainaspecificarticleorsetofarticles,suitable for longtermuseandpresentedwith the

articlesforwhichtheyare intended,shallbeclassifiedwithsucharticleswhenofakindnormallysold

therewith.Thisruledoesnot,however,applytocontainerswhichgivethewholeitsessentialcharacter.

(b) Classification of packing materials and packing containers: Subject to the provisions of (a) above,

packingmaterialsandpackingcontainerspresentedwiththegoodsthereinshallbeclassifiedwiththe

goodsiftheyareofakindnormallyusedforpackingsuchgoods.However,thisprovisiondoesnotapply

whensuchpackingmaterialsorpackingcontainersareclearlysuitableforrepetitiveuse.

RULE6

Onlysubheadingsatthesamelevelarecomparable[Rule6]:Forlegalpurposes,theclassificationofgoodsin

thesubheadingsofaheadingshallbedeterminedaccordingtothetermsofthosesubheadingandanyrelated

subheadingnotesand,mutatismutandis,totheaboveRules,ontheunderstandingthatonlysubheadingsat


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4

thesamelevelerecomparable.Forthepurposesofthisrule,therelativeChapterandSectionNotesalsoapply,

unlessthecontextotherwiserequires.

**************************************************

TRADEPARLANCETHEORY

Accordingto

the

Trade

Parlance

theory,

the

goods

are

to

be

classified

as

they

are

known

in

trade

and

commerce.IfaproductisneitherdefinedinScheduletoCentralExciseTariffAct,1985norintheCentralExcise

Act, 1944, then it should be classified according to itspopularmeaningormeaning attached to itby those

dealingwithiti.e.initscommercialsense.But,wheretheTariffheadingitselfuseshighlyscientificortechnical

terms,theyaretobeclassifiedinscientificortechnicalsense.

Trademeaningandthecommercialnomenclaturewouldbeapplicableifaparticularproductdescriptionoccurs

by itself in a Tariff entry and there is no conflictbetween the Tariff entry and anyother entry requiring to

reconcileandharmonisethatTariffentrywithanyotherentry.


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GOVINDMISHRA |9911613608www.goacademy.in 1

CHAPTER3

VALUATION

Basisonwhichexcisedutyispayable

Asper

the

Central

Excise

Tariff

Act,

L985,

excise

duty

is

payable

on

the

following

basis

(1).SpecificDuty;

(2).Dutybasedonvalue(advaloremduty)i.e.fixedpercentageof_

(a)Tariffvaluefixedundersection3(2)oftheCentralExciseAct,1944.

(b)TransactionvaluedeterminedunderSection4oftheCentralExciseAct,1944.

(c) RetailSalePricedeterminedunderSection4A,oftheCentralExciseAct,1944.

(3).Dutybasedonannualcapacityofproduction(Section3AoftheCentralExciseAct,1944).

(4).CompoundedLevyscheme(Rule15ofthecentralExciseRules,2002).

(5).Specificdutycum Advaloremduty.

SPECIFICDUTY:aSpecificDuty ispayableon thebasisof length,area,volume,etc.Thegreatest

advantageofthismethodofvaluationofexcisablegoodsisitssimplicity.Thoughthisdutyissimple

to calculatebut the government revenuedoesn't changewith the change in thepriceof goods.

Henceitdemandsfrequentrevisiontoincreasetherevenuewiththeincreaseinthesellingprice.

ADVALOREMDUTY:whendutyofcentralexciseorcustomsisleviedbyapplyingthegiven%ageof

thevalueofgoodsthen, it isknownasAdvalorem rate.Advalorem ratesare the ratesbased

uponthevalueofgoods.Theincidenceoflevyinthiscaseisdifferentfromproducttoproductand

frommanufacturertomanufacturer,withgoodsofhighervaluebeingsubjecttogreateramountof

dutyand

so

on.

Ad

valorem

rates

have

in

built

elasticity

and

change

with

the

change

in

the

value

of

item. The quantum of duty levied automatically varies between superior varieties and inferior

varietiesofthesamegoods.

CONCEPTOFTARIFFVALUE

ProvisionsofCentralExciseAct,1944relatingtoTariffValue:

1.

PowertofixtariffvaluesvestswithCentralGovernment[Section3(2)]:

TheCentralGovernmenthaspower to fix tariff valuesof any articleenumerated in the First

Schedule and the Second Schedule to theCentral Excise TariffAct, 1985. If tariff values are

fixed,the

duty

shall

be

payable

on

the

basis

of

such

tariff

values.

The

Central

Government

may

alterthetariffvaluesforthetimebeinginforce.

2.

Differenttariffvaluesmaybefixedinrespectofexcisablegoods[Section3(3)]:

Differenttariffvaluesmaybefixed

(a) fordifferentclassesordescriptionsofthesameexcisablegoods;or

(b) forexcisablegoodsofthesameclassordescription


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Producedormanufacturedbydifferentclassesofproducersormanufacturers;

Soldtodifferentclassesofbuyers.

3.

Differenttariffvaluesmaybefixedhavingregardtosalepricesofsuchgoods:

In fixingdifferent tariffvalues in respectofexcisablegoods, regard shallbegiven to the sale

priceschargedbythedifferentclassesofproducersormanufacturersor,asthecasemaybe,the

normalpractice

of

the

wholesale

trade

in

such

goods.

DUTYONBASISOFANNUALCAPACITYOFPRODUCTIONAND

COMPOUNDEDLEVYSCHEME

Power of Central Government to charge excise duty on the basis of capacity of

productioninrespectofnotifiedgoods[Section3A]

(1).

Section3Ahasanoverridingeffectoversection3:

Section3A isan independentcode for levyandcollectionofexciseduty inrespectofnotified

goods.Theexcisedutyinrespectofnotifiedgoodsshallbeleviedandcollectedonthebasisof

annual capacityofproductionasper theprovisionof this section.This sectionoverrides the

charging Section 3 i.e. normal provisions of the Actwill not apply for levying excise duty in

respectofnotifiedgoods.

(2).

ExcisableGoodstobenotifiedhavingregardtonatureofmanufacturingprocess,evasionof

dutyandprotectinginterestofrevenue:

IftheCentralGovernment,afterhavingregardto

Thenatureoftheprocessofmanufactureorproductionofexcisablegoodsofantspecified

description;

Theextentofevasionofdutyinregardtosuchgoods;or

Suchotherfactorsasmayberelevant.

Isoftheopinionthat it isnecessarytosafeguardthe interestofrevenuethen,itmayspecify,by

notificationintheOfficialGazette,suchgoodsasnotifiedgoods.

Levy and collection of duty: The duty of excise shall be levied and collected on such goods in

accordancewiththeprovisionsofthissection.

(3).Rulestobeframedfordeterminationofannualcapacityofproductionwhichshallbedeemed

annualproduction:

TheCentralGovernmentmay,byrules,

(a)(i)Providethemannerfordeterminationoftheannualcapacityofproductionofthefactory,

inwhichsuchgoodsareproduced.

(ii).TheannualcapacitysodeterminedshallbedeemedtobetheannualPRODUCTION.

(iii).The capacity will be determined by an officer not below the rank of Assistant

CommissionerofCentralExcise.


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(b)(i)Specify the factor relevant to the production of such goods and the quantity that is

deemedtobeproducedbyuseofaunitofsuchfactor;

(ii).Provide for thedeterminationof theannualCAPACITYofproductionof the factory in

whichsuchgoodsareproducedonthebasisofsuchfactor,byanofficernotbelowthe

rankofAssistantCommissionerofCentralExcise;and

(iii).Suchannualcapacityofproductionshallbedeemedtobetheannualproductionofsuch

goodsby

such

factory.

(4). Annual production to be calculated on PROPORTIONATE BASIS if factory is inOPERATION

DURINGPARTOFYEAR:

Wherea factoryproducingnotifiedgoods is inoperationduringapartoftheyearonly,the

annualproductionthereofshallbecalculatedonproportionatebasisoftheannualcapacityof

production.

(5).

REDETERMINATION of annual capacity of production on proportionate basis if RELEVANT

FACTORALTEREDORMODIFIED:

Incasewherethefactorrelevanttotheproduction isalteredormodifiedatanytimeduring

theyear,

the

annual

production

shall

be

re

determined

on

aproportionate

basis

having

regardingsuchalterationormodification.

(6). Levyandcollectionofdutyasperrules:

Thedutyofexciseonnotifiedgoodsshallbe

(a) levied, at such rate,on theunit of production or, as the casemaybe, on such factor

relevanttotheproduction,astheCentralGovernmentmay,bynotificationintheOfficial

Gazette,specify,and

(b) Collectedinsuchmannerasmaybeprescribed.

(7).

ABATEMENTOFDUTYincaseofcontinuousclosureforperiodof15daysormore:

Whereafactory

producing

notified

goods

did

not

produce

the

notified

goods

during

any

continuousperiodoffifteendaysormore,thedutycalculatedonaproportionatebasisshall

beabatedinrespectofsuchperiod,ifthemanufacturerofsuchgoodsfulfillssuchconditions

asmaybeprescribed.

(8). ProvisionnottoapplytoclearancesinIndiaby100%EOU:

Theprovisionsofthissectionshallnotapplytogoodsproducedormanufacturedbyahundred

percentexportorientedundertakingandbroughttoanyotherplaceinIndia.

(9).

ADDITIONALDUTYOFCUSTOMS(ADC)tobecalculatedaspernormalprovisions:

The exciseduty for the purpose ofADC in respect ofnotified goods shall be calculated in

accordancewith

normal

provisions

i.e.

Section

3of

Central

Excise

Act,

1944

and

not

Section

3A

ofthesaidAct.Thedutyofexcise leviableonthenotifiedgoodsshallbedeemed tobethe

duty of excise leviable on such goods under the 1st Schedule and the 2

nd Schedule to the

CentralExciseTariffAct,1985,readwithanynotificationforthetimebeinginforce.

(10).PanMasala,Gutkha,Brandedunmanufacturedtobacco&Chewingtobacco,notifiedunderthis

section:PanMasalacontainingmorethan15%betelnutPanmasalacontainingtobacco(i.e.

gutkha);Unmanufacturedtobaccobearingabrandname;ChewingTobacco;and]ardascented


13/52


tobaccomanufacturedwiththeaidofpackingmachineandpackedinpouchesshallbeliable

todutybasedonproductioncapacity.Thedeclarationofretailsalepriceismandatoryincase

ofsuchnotifiedgoods.ThedutyisfixedPERMONTHPERPACKINGMACHINEbasedonretail

salepriceofthepouches.TheamountofdutyspecifiedinthenotificationisinclusiveoftheEC

andSHEC.

COMPOUNDEDLEVY

SCHEME

(1). Compounded levy scheme is anoptional scheme and is coveredunderRule 15 of Central

ExciseRule,2002.Thisschemeismeantforsmallscaledecentralisedsectorsandatpresent,it

coversstainlesssteelpattis/pattasandaluminumcircles.Dutyisfixedonthebasisofnumber

andtypesofmachines.Paymentofsuchdutyabsolvesthemanufacturerfrommaintenanceof

daytodayexciserecordsandotherexciseformalities.

(2).

Specialprocedure forpaymentofduty [Rule15ofCentralExciseRules,2002]:TheCentral

Governmentmay,bynotification,specifythegoodsinrespectofwhichanassesseeshallhave

theoption

to

pay

the

duty

of

excise

on

the

basis

of

such

factors

as

may

be

relevant

to

productionofsuchgoodsandatspecifiedratesubjecttospecifiedlimitationsandconditions,

includingthoserelatingto interestorpenalty.TheCentralGovernmentmayalsospecifythe

mannerofmakinganapplicationforavailingofthespecialprocedureforpaymentofduty,the

abatement,ifany,thatmaybeallowedonaccountofclosureofafactoryduringanyperiod,

andanyothermatterincidentalthereto.

(3).

Rateofexciseduty:Therateofexciseduty forthesectorscoveredunderthecompounded

levyscheme hasbeenfixedasfollows,

(a) IncaseofStainlessSteelPattis/PattasRs.40,000(notificationno.5/2013)permachineper

month.(+

EC

&

SHEC)

(b) In case of Aluminium Circles produced from sheets manufactured on cold rolling

machinesRs.12,000permachinepermonth.(+EC&SHEC)

(4). Abatement on closure of factory: The Central Governmentmay also allow abatement on

accountofclosureoffactoryduringanyperiod.

(5). CenvatCreditnotadmissible:Nocreditofdutypaidonanyrawmaterial,componentpartor

machinery or finished products used for cold rolling of stainless steel pattis/pattas or

aluminiumcircles,isallowedundertheCENVATCreditRules,2004.

TRANSACTIONVALUE SECTION4

Theessential featuresofvaluationofexcisable goodsunder section4of theCentralExciseAct,

1944areasunder


14/52


(1).

ApplicabilityofTransactionValue Conditionstobesatisfied:Aspersectiona(f)(a)ofthe

CentralExciseAct,19M,wheredutiesofexcise is leviablewithreferencetovalue,thenon

eachremovalofsuchgoods,thevalueshallbetheTRANSACTIONVALUEifthefollowing

conditionsaresatisfied

(i). Thereshouldbesaleofexcisablegoodsbytheassessee;

(ii). Thegoodssoldshouldbefordeliveryatthetimeandplaceofremoval;

(iii). Theassessee

and

the

buyer

of

the

goods

should

not

be

related

persons;

and

(iv). Thepriceshouldbesoleconsiderationforthesale.

Theaboveconditionsmustbesatisfiedinrespectofeachremovalofexcisablegoods.

(2).

Valuation in accordance with Rules: As per section 4(1)(b), in case any of the above

conditionisnotsatisfiedthenvaluewillbedeterminedinaccordancewiththeCentralExcise

Valuation(DeterminationofPriceofExcisableGoods)Rules,2000.

ASSESSEE[Section4(3)(a)]:

Assesseemeansthepersonwho is liabletopaythedutyofexciseunderthisActandincludeshis

agent.

RELATEDPERSON[section4(3)(b)]:

Personsshallbedeemedtoberelatedif

(i). theyareinterconnectedundertakings;or

(ii). theyarerelatives;or

(iii). amongstthemthebuyerisarelativeandadistributoroftheassessee,orasubdistributor

ofsuchdistributor;or

(iv). theyare soassociated that theyhave interest,directlyor indirectly, inbusinessofeach

other.

Note:Relativeshallhavethemeaningassignedtoitinsection2(41)oftheCompaniesAct,L956.

PLACEOFREMOVAL[Section4(3)(c)]:

Placeofremovalmeans

(i). A factoryoranyotherplaceorpremisesofproductionormanufactureof theexcisable

goods;

(ii). Awarehouse

or

any

other

place

or

premises

wherein

the

excisable

goods

have

been

permittedtobedepositedwithoutpaymentofduty;

(iii). Adepot,premisesof a consignment agentor anyotherplaceorpremises fromwhere

excisablegoodsaretobesoldaftertheirclearancefromfactory,fromwheresuchgoods

areremoved.

TIMEOFREMOVAL[Section4(3)(cc)]:


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Timeofremovalinrespectoftheexcisablegoodsremovedfromtheplaceofremovalreferredtoin

section4(3)(c)(iii) above i.e. (depot,premisesof consignment agentor anyotherplace) shallbe

deemedtobethetimeatwhichsuchgoodsareclearedfromthefactory.

TRANSACTIONVALUE[Section4(3)(d)]:

Transactionvaluehasfollowingingredients

(a)Transactionvalue

is

the

price

actually

paid

or

payable

for

the

goods

when

sold.

(b) Itincludes,inadditiontotheamountchargedasprice,anyamountthatthebuyer is liableto

paytotheassesseeortoanyotherpersononbehalfoftheassessee.

(c) Suchamountispayablebyreasonoforinconnectionwithsale.

(d)Suchamountispayableatthetimeofsaleoratanyothertime.

(e) Itincludesanyamountchargedfor,ortomakeprovisionforthefollowing

(i). AdvertisingorPublicity;

(ii). Marketing,sellingandorganisationexpenses;

(iii). Storage;

(iv). Outwardhandling;

(v). Servicing;

(vi). Warranty;

(vii). Commission;

(viii).Anyothermatter.

(f) ItDOESNOTINCLUDEtheamountof

(i). Dutiesofexcise;

(ii). Salestax;

(iii). Anyothertaxes,

actuallypaid

or

payable

on

such

goods.

CENTRALEXCISEVALUATION(DETERMINATIONOFPRICEOFEXCISABLEGOODS)

RULES,2000

RULE2(b)

NORMALTRANSACTIONVALUE

Normaltransaction

value

means

the

transaction

value

at

which

the

greatest

aggregate

quantity

of

goodsissold.

[RULE4]

ValueofgoodsinacasewheretheVALUEOFGOODSISNOTKNOWNatthetimeandplaceof

removal?


16/52


Thevalueoftheexcisablegoodsshallbebasedonthevalueofsuchgoodssoldbytheassesseefor

deliveryatanyothertimenearesttothetimeoftheremovalofgoodsunderassessmentsubjectto,

ifnecessary,suchadjustmentonaccountofthedifferenceinthedatesofdeliveryofsuchgoodsand

oftheexcisablegoodsunderassessment,asmayappearreasonabletotheproperofficer.

(Removaloffreesamplesorfreereplacementunderwarrantyclaimswillbecoveredunderthis

rule).

[RULE5]

ValuationincaseexcisablegoodsareSOLDFORDELIVERYATAPLACEOTHERTHANPLACEOF

REMOVAL:

Where any excisable goods are sold in the circumstances specified in Section4(1)(a)of theAct,

exceptthecircumstancesinwhichtheexcisablegoodsaresoldfordeliveryataplaceotherthanthe

placeof removal, then thevalueof suchexcisablegoods shallbedeemed tobe the transaction

valueexcludingthecostoftransportationfromtheplaceofremovaluptotheplaceofdeliveryof

suchexcisablegoods.

Thus,Assessablevalueshallbearriveasunder

Transactionvalueofsuchgoods

Less:Costoftransportationfromplaceofremovaluptoplaceofdeliverythereof***

xxx

xxx

Assessablevalueofexcisablegoods xxx

***Iffactoryisnottheplaceofremoval,then,costoftransportationfromthefactorytotheplace

ofremoval,shallnotbeexcluded.

1. COSTOFTRANSPORT:includes

(a) theactualcostoftransportationand

(b) incasewherefreight isaveraged,thecostoftransportationcalculated inaccordancewith

generallyacceptedprinciplesofcosting.

Thus,exclusionshallbeavailablenotonlyonaccountofactualcostoftransportationbutalsoon

averagefreightorequalisedfreightfromtheplaceofremovaltotheplaceofdelivery,providedthe

same iscomputedasper theprinciplesofcosting.Moreover,costof transportation isexcludible

fromthe

transaction

value

irrespective

of

whether

the

same

is

separately

shown

in

the

invoice

or

not.

2.

COSTOFTRANSPORTFROMFACTORYTOPLACEOFREMOVAL INCLUDIBLE:

Thecostoftransportationfromthefactorytotheplaceofremoval,wherethefactoryisnotthe

place of removal, shall not be excluded for the purposes of determining the value of the

excisablegoods.


17/52


Thus,wherethegoodsaretransferredfromfactorytoadepot,premisesofconsignmentagent

or anyotherplaceorpremises fromwhere the goods are sold after the clearance from the

factory, thecostof transportation from the factory to suchdepot,where thegoodsare sold,

shallbeincludedinthetransactionvalue.

3.

TRANSPORTATIONBYASSESSEE'SVEHICLE: Incasetransportation isbyassessee'svehicle,the

costof

transportation

can

be

calculated

through

costing

method

following

the

accepted

principles of costing. A cost certificate from a certified Cost Accountant/Chartered

Accountant/CompanySecretarymaybeaccepted.

4. TRANSIT INSURANCE Deductible/Not includible: Transit insurance is excludible in same

manner as costof transport. The transit insurance should eitherbe shown separately in the

invoiceorcanbeincludedinthetransportationcostshownseparately.

5.

COSTOFRETURNFARE Notincludible

Iftheassessee isrecoveringanamount fromthebuyertowardsthecostofreturn fareofthe

empty vehicle from the place of delivery, this amountwill also be excluded.When onward

freightis

not

includible

in

the

assessable

value

of

the

excisable

goods,

there

is

no

question

of

return freight be included in the assessable value, whether or not the return freight is

mentionedintherelevantinvoices.

ILLUSTRATION

ComputationofassessableValue Average/equalisedcostoftransport:

AmanufacturerhavingafactoryatJaipurhasuniformpriceofRs.1,000perunit(excludingtaxes)

forsaleanywhereinIndia.Duringthefinancialyear201314,hemadethefollowingsales:

(a)SaleatfactorygateinJaipur:1,000units notransportcharges.

(b)Sale

to

buyers

in

Delhi:

500

pieces

actual

transport

charges

incurred

t12,000.

(c)SaletobuyersinChennai:600pieces actualtransportchargesincurredT48,000.

(d)SaletobuyersinMumbai:900pieces actualtransportchargesincurredT30,000.

(Findassessablevalueperunitunderthecentralexcise.(CSJune2005)

SOLUTION

Inthisquestion/sincethegoodsaresoldatuniformpriceofRs.1000perunit(excludingtaxes)for

sale anywhere in India, hence the manufacturer will get deduction on account of cost of

transportationonaverageorequalisedbasisasperRule5ofCentralExciseValuationRules,2000.

Theassessable

value

per

unit

shall

be

[Price

per

unit

Cost

of

transport

on

average

basis]

i.e.

[Rs.1000 Rs.30]=Rs.970.

Thecostoftransportationonaveragebasisshallbecomputedasunder,

Totalactualtransportchargesincurredduringtheyear(Nil+Rs.12,000+Rs.48,000+

Rs. 30,000)

90,000

Totalnumberofunitssold(Rs.1,000+Rs.500+Rs.600+Rs.900) 3,000

AverageorEqualisedFreight(TransportCharges)perunit(Rs.90,000+Rs.3,000) 30


18/52


[RULE6]

valuewhenPRICEISNOTSOLECONSIDERATIONforsale

Thevalueofsuchgoodsshallbedeemedtobetheaggregateof

(a)Suchtransactionvalue;and

(b)the amount ofmoney value of any additional consideration flowing directly or indirectly

fromthebuyertotheassessee.

Apportionedvalueofgoodsandservices suppliedby thebuyerFREEOFCHARGEORAT

REDUCED COST to be added to TV, to the extent such value has not been included in

transactionvalue

(a)valueofmaterials,components,partsandsimilaritemsrelatabletosuchgoods;

(b)valueoftools,dies,moulds,drawings,blueprints,technicalmapsandchartsandsimilar

itemsusedintheproductionofsuchgoods;

(c) value ofmaterial consumed, including packagingmaterials, in the production of such

goods;

(d)value of engineering, development, art work, design work and plans and sketches

undertaken

elsewhere

than

in

the

factory

of

production

and

necessary

for

the

production

ofsuchgoods.

NOTIONALINTERESTonadvancenottobeaddedunlesspriceinfluenced

Whereanassessee receivesanyadvancepayment from thebuyeragainstdeliveryofany

excisablegoods,nonotionalinterestonsuchadvanceshallbeaddedtothevalueunlessthe

CentralExciseOfficerhasevidence to theeffect that theadvance receivedhas influenced

thefixationofthepriceofthegoods,

(a)bywayofchargingalesserpricefrom;or

(b)byofferingaspecialdiscounttothebuyerwhohasmadetheadvancedeposit.

[RULE7]

Valuing excisable goods that are to be SOLD FROM DEPOT/BRANCH or PREMISES OF a

CONSIGNMENTAGENT

1.

AssessableValue=NormalTransactionValueofidenticalgoodsprevalentatdepot,etc.

2.

Incase,the"normaltransactionvalue"fromthedepotorotherplaceisnotascertainableon

theday identicalgoodsarebeingremoved fromthe factory/warehouse, thenearestday

whenclearancesofthegoodswereaffectedfromthedepotorotherplaceshouldbetaken

intoconsideration.

3. First time depot transfer Goods to be provisionally assessed: In case the goods are

transferredto

depot

for

the

first

time,

there

is

no

normal

transaction

value

prevalent

at

the

depot. Hence themanufacturer has to apply for provisional assessment under Rule 7 of

Central Excise Rules, 2002.On ascertainment of normal transaction value at depot, such

assessmentshallbefinalisedbyCentralExciseOfficer.

[RULE8]

ValuationincaseOFCAPTIVECONSUMPTION


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Valueshallbe110%ofthecostofproductionormanufactureofsuchgoods.

CostofproductiontobecomputedasperCAS4issuedbyICWAI

Theamortization**costofmoulds,tools,dyes&patternsetc.receivedfreeofcostshallbe

included inthecostofproduction.** (thereductionofthevalueofanassetbyproratingitscostovera

periodofyears).

Interest

and

financial

charges

being

a

financial

charge

shall

not

be

considered

to

be

a

part

ofcostofproduction.

Thematerialcostshallbetakenasnetofexciseduty ifCenvatcredit isavailedofexcise

dutypaidonrawmaterial.

If goods are captively consumed, there isno requirementofdeclarationofRSP.Hence,

section4AshallnotapplyincaseofCaptivelyconsumedgoods.

[RULE9]

ValuationincaseofsaleofgoodstoorthroughRELATEDPERSON,OTHERTHANCONNECTED

UNDERTAKINGS

1. Thevalueofthegoodsshallbethenormaltransactionvalueatwhichthesearesoldbythe

relatedpersonatthetimeofremoval,

Tobuyers,i.e.,relatedpersontounrelatedbuyers;or

Wheresuchgoodsarenotsoldtosuchbuyers,relatedpersontorelatedretaildealer

2.

Consumptionofgoodsbyrelatedperson:valueshallbeasperRule8 i.e.110%ofcostof

productionofassessee.

[RULE10]

ValuationincaseifgoodssoldonlythroughINTERCONNECTEDUNDERTAKING

1.

Meaning of Interconnected undertakings [Explanation to Section 4(3)(b)]: Twoormore

undertakingswhichare interconnectedwitheachother inanyof the followingmanners,

namely:

(a) ifoneownsorcontrolstheother;

(b) wheretheundertakingsareownedbyFIRMS,ifsuchfirmshaveoneormorecommon

partners;

(c)

wherethe

undertakings

are

owned

by

BODIES

CORPORATE

(i). ifonebodycorporatemanagestheotherbodycorporate;or

(ii). ifonebodycorporateisasubsidiaryoftheotherbodycorporate;or

(iii).ifthebodiescorporateareunderthesamemanagement;or

(iv).

ifonebodycorporateexercisescontrolovertheotherbodycorporateinanyother

manner;


20/52


(d) whereoneundertaking isownedbyaBODYCORPORATEandtheother isownedbya

FIRM,ifoneormorepartnersofthefirm,

(i). hold, directly or indirectly, not less than fifty per cent of the shares,whether

preferenceorequity,ofthebodycorporate;or

(ii).

exercisecontrol,directlyor indirectly,whetherasdirectororotherwise,overthe

bodycorporate;

(e)

ifone

is

owned

by

abody

corporate

and

the

other

is

owned

by

aFIRM

HAVING

BODIES

CORPORATE AS ITS PARTNERS, if such bodies corporate are under the same

management

(f) if theundertakingsareownedor controlledby theSAMEPERSONORBY THE SAME

GROUP;

(g) if one is connected with the other either DIRECTLY OR THROUGH any number of

undertakingswhich are interconnected undertakingswithin themeaningof one or

moreoftheforegoingsubclauses.

2. When the assessee sells the excisable goods only to or through an interconnected

undertaking,the

value

of

goods

shall

be

Case: Valueshallbe:

When interconnectedundertaking is related in

termofsection4(3)(b)(ii)/(iii)/(iv)orbuyer isa

holdingorsubsidiarycompanyofassessee.

DeterminedasperRule9.

Inanyothercase Determinedasiftheyarenotrelatedpersons.

[RULE10A]

ValuewhenthegoodsaremanufacturedonJOBWORKBASIS:

(i).

Goods

SOLD

by

the

principal

manufacturer

directly

From

The

Job

Worker

Premises:

Inacasewherethegoodsaresoldbytheprincipalmanufacturerfordeliveryatthetimeof

removalofgoods from the factoryofjobworker,where theprincipalmanufacturerand

thebuyerofthegoodsarenotrelatedandthepriceisthesoleconsiderationforthesale,

thevalueoftheexcisablegoodsshallbethe

transactionvalueofthesaidgoodssoldbytheprincipalmanufacturer;

(ii). GoodsTRANSFERREDbyprincipalmanufacturerTODEPOT/CONSIGNMENTAGENT,ETC.

FORSALE:

In

a

case

where

the

goods

are

not

sold

by

the

principal

manufacturer

at

the

time

of

removalofgoodsfromthefactoryofthejobworker,butaretransferredtosomeother

place fromwherethesaidgoodsaretobesoldaftertheirclearance fromthefactoryof

jobworkerandwheretheprincipalmanufacturerandbuyerofthegoodsarenotrelated

andthepriceisthesoleconsiderationforthesale,thevalueoftheexcisablegoodsshall

bethe


21/52


normaltransactionvalueofsuchgoodssoldfromsuchotherplaceatoraboutthe

sametimeand,

wheresuchgoodsarenotsoldatoraboutthesametime,atthetimenearesttothe

timeofremovalofsaidgoodsfromthefactoryofjobworker;

(iii).

ANYOTHERCASE:

In a case not covered under (i) or (ii), the provisions of foregoing rules, wherever

applicable,shall

mutatis

mutandis**

apply

for

determination

of

the

value

of

the

excisable

goods.

(**"changing[only]thosethingswhichneedtobechanged")

Transportationcostaftertheplaceofremoval Notincludible

(iv).

ComputationofvalueofGOODSNOTIFIEDu/s4A

In case the excisable goodsmanufactured onjobwork are covered underMRP based

exciseduty,thenthevaluewillbedeterminedinaccordancewithSection4AoftheCentral

ExciseAct,1944.

(v). IfnoneoftheRules4to10apply,thenvaluetobedeterminedasperRules11readwith

Section(1)inaccordancewithUjagarPrintsv.UOI[7989]38ELT535(SC).

RETAILSALEPRICEBASEDVALUATION SECTION4A

1. ThissectionappliesifthefollowingCONDITIONSarefulfilled:

(a)Thegoodsmustbeexcisablegoods.

(b)Thegoodsmustbechargeabletodutywithreferencetovalue.

(c)

Thegoods

must

be

sold

in

package.

(d)Thedeclarationofretailsalepriceonthepackageofsuchgoodsismandatoryasperthe

provisionsoftheLegalMetrologyAct,2009ortherulesmadethereunderorunderany

otherlawforthetimebeinginforce.

(e)ThesaidgoodsarenotifiedbytheCentralGovernmentforthepurposeofthissection.

2.

ProvisionsofSection4AhasoverridingeffectoverSection4

ThissectionhasoverridingeffectoverSection4,sinceitiswordedas"Notwithstandinganything

contained inSection4.But,thissectiondoesn'thaveoverridingeffectoversection3(2)tariff

value.

3.

Valuationof

goods

to

which

Section

4A

applies

:Such

goods

shall

be

valued

as

follows

Retailsaleprice(RSP)declaredonsuchgoods

Less:Suchamountofabatement, ifany, fromsuch retailsalepriceastheCentral

GovernmentmayallowbynotificationintheOfficialGazette.

xxx

xxx

AssessableValueforthepurposesoflevyofexciseduty Xxx


22/52


4.

Abatement tobe givenhaving regard to the amountofdutyofexcise, sales taxandother

taxes : The CentralGovernmentmay, for the purpose of allowing any abatement, take into

account,theamountofdutyofexcise,salestaxandothertaxes,ifany,payableonsuchgoods.

5.

ConfiscationofgoodsandRSPtobedeterminedinaccordancewithrules:Whereanynotified

goodsareexcisablegoodsandthemanufacturer

(a)removes suchgoods from theplaceofmanufacture,withoutdeclaring the retail sale

priceof

such

goods

on

the

packages

or

declares

aretail

sale

price

which

is

not

the

retail

salepriceasrequiredtobedeclaredundertheprovisionsoftheAct,rulesorotherlaw

asreferredabove;or

(b)tamperswith,obliteratesoralterstheretailsalepricedeclaredonthepackageofsuch

goodsaftertheirremovalfromtheplaceofmanufacture.

Then,suchgoodsshallbeliabletoconfiscationandtheretailsalepriceofsuchgoodsshallbe

ascertainedintheprescribedmannerandsuchpriceshallbedeemedtobetheretailsaleprice

forthepurposesofthissection.

6.

RetailSalePrice(RSP):Forthepurposesofthissection,"retailsaleprice"meansthemaximum

priceat

which

the

excisable

goods

in

packaged

form

may

be

sold

to

the

ultimate

consumer

and

includes all taxes, freight, transport charges, commission payable to dealers, and all charges

towards advertisement, delivery, packing, forwarding and the like and the price is the sole

considerationforsuchsale.

7. IncreaseofRSPatthetimeofclearancefromtheplaceofmanufacture SuchincreasedRSPto

beconsidered.

8.

ValuationincasewhenmorethanoneRSPdeclaredMaximumRSPtobeconsidered.

9.

Valuation when area wise different RSP declared on different packages Each RSP to be

considered.

VALUATIONINCASEOFMULTIPIECEPACKAGES

Thereisnouniformityinvaluationofmultipiecepackagesconsistingof2ormoreconsumeritems

of thesamekind,withMRPprintedonboth the individual itemsand themultipack.Forvaluing

suchmultipacks,itisclarifiedthat

(i). Iftheindividualitemscomprisingthemultipackhaveclearmarkingsthattheyarenotto

besoldseparatelyorarepackedinsuchawaythattheycannotbesoldseparately,then

theMRP

indicated

on

the

multi

pack

would

be

considered

for

payment

of

duty

under

section4A.

(ii). If the individual itemsdonot containany such inscription (that theyarenot tobe sold

separately)andarecapableofbeingsoldseparatelyattheMRPprintedontheindividual

pieces,thentheaggregateoftheMRPsofthepiecescomprisingthemultipackwouldbe

consideredforpaymentofdutyonthemultipackundersection4A.


23/52


(iii). If the individual items haveMRPs printed on them but are scored out, then theMRP

printedonthemultipackwillbetakenforPurposesofvaluationundersection4A.

(iv). Ifan individualitemissuppliedfree inthemultipackandhasnoMRPprintedonit,the

MRPprintedontheMultipackwillbetakenforpurposesofvaluationundersection4A.

VALUATIONAUDIT

SECTION

14A

AudittobedirectedbyAssistantCommissionerorDeputyCommissionerifvalueisnotproperly

declaredbyassessee.

NominatedCost/CharteredAccountant, to submit audit report toCentralExciseofficer,Total

periodcannotexceed180days.

Accountstobeauditedeveniftheyhavebeenalreadyauditedunderanyotherlaw.

Opportunitytotheassesseeofbeingheard


24/52

GOVINDMISHRA|Error!Notextofspecifiedstyleindocument. 1

CHAPTER4

CENVAT

ValueAddedTaxas thename implies, isa taxonvalueadditionValueadditionmeans thevalueof the

outputasreducedbythevalueofboughtout inputs. Inapurevalueaddedtaxsystem,alltaxespaidon

boughtoutinputsareallowedtobesetoffagainstthetaxespaidontheoutput,inordertosubjectonlythe

valueadditionateachstagetotaxation.

CENVATistheabbreviatedformofCentralValueAddedTax.UnderCENVATschemethecreditoftheexcise

duty/additionaldutyofcustomspaidontheinputsandcapitalgoodsandservicetaxpaidoninputservices

is allowed tobeutilised for thepaymentof excisedutyon the finalproductsor service taxonoutput

servicesinordertoavoidcascadingeffectoftheduty/tax.

CONCEP OF CASCADING EFFECT: Cascading effect in simple terms means duty on duty. When a raw

materialpassesthroughvariousstagesofmanufacturebeforebeingavailabletotheultimateconsumeras

afinished

good,

at

every

stage

duty

is

levied

and

this

results

in

cascading

effect

of

duty

i.e.

duty

on

duty

Theultimateburdenofsuchcascadingeffectofduties isontheconsumer.Therefore, inordertoavoid

thiscascadingeffectofdutyCENVATschemewasintroduced.Sincecreditisallowedofthedutiespaidon

inputsandcapitalgoodsandservicetaxpaidoninputservices,hencethesamedonotformthepartofthe

costofproductionandhenceitpreventscascadingeffect.

BasicfeaturesofCENVATscheme.

1.

Objective Topreventcascadingeffect:It isintroducedwiththeobjecttopreventcascadingeffectof

dutyon

final

products

and

service

tax

on

output

services.

For

this

purpose,

Cenvat

Credit

Rules,

2004

havebeenframed.

2. Persons eligible Manufacturer aswell as service providers: A manufacturer or producer of fina

productortaxableserviceprovidercantakeCenvatcredit.Theschemeappliestoallexcisablegoods

manufacturedorproduced fromeligible inputs,orbyusing input service. Similarly the scheme also

appliestoalloutputservicesprovidedbyusingeligibleinputsorinputservice.

3.

Credit is allowed of duties paid on inputs, capital goods and taxes paidon input services:Cenvat

schemeisdevisedtoallowcreditofdutiesofexciseandadditionaldutiesofcustomspaidoninputsand

capitalgoodsandservicetaxpaidon inputservices.Inputs,capitalgoodsandinputservicehavebeen

definedin

the

Cenvat

Credit

Rules,

20O4.

4. Crosssectionalcreditisallowedamongstgoodsandservices:TheCenvatCreditisallowedofdutiesof

excisepaidon inputsandcapitalgoods.Thesaidcreditcanbeutilisednotonlyforpaymentofexcise

dutyonfinalProducts,butalsoforpaymentofservicetaxonoutputservices.Similarly,creditofservice

taxpaidoninputservicesisallowed,whichcanbeusednotonlyforpaymentofservicetaxonoutput

servicesbutalsoforpaymentofexcisedutyonfinalproducts.


25/52


5.

Creditonly if finalproductsaredutiable/servicesprovidedaretaxable:TheCenvatcredit isallowed

only forpaymentofdutiesofexciseon finalproductsorpaymentof service taxonoutput services

Thus,iffinalproductsareexemptedoroutputservicesareexempted,noCenvatcreditshallbeallowed.

6.

TimelimitfortakingofCenvatcredit:TheCenvatcreditcanbetakenimmediatelyonreceiptofinputs

Inrespectofcapitalgoods,creditcanbetakennotexceeding50%inthefinancialyearinwhichcapita

goodsarereceivedandbalancecreditcanbetakeninsubsequentyears.Inrespectoftaxpaidoninput

services,Cenvat

credit

can

be

taken

on

receipt

of

invoice

provided

payment

of

such

invoice

is

made

within3monthsofthedateofinvoice.

7.

Refund of Cenvat Credit: The Cenvat credit can be refunded to manufacturer/service provider if

inputs/inputservicesareusedformanufacturingfinalproductsorforprovisionoutputserviceswhich

areexported.

8. DocumentsandAccounts:TheCenvatcreditcanbetakenonlyonthebasisofspecifieddocumentsand

maintenanceofproperrecordsinrelationtosuchinputs,capitalgoodsandinputservices.

9.

Burden of proof: The burden of proof regarding admissibility of Cenvat credit shall be on the

manufacturerorserviceprovider.

10.

Penaltyand

confiscation:

Penalty

provisions

have

been

made

in

case

the

manufacturer

or

seryice

providerviolatestheprovisionofsaidrules.

11.Applicability:TheCenvatcreditRules,20Mcameintoforcewitheffectfrom1092004.Theyextendto

thewholeof India.Howevernothingcontained in these rules relating toavailmentandutilizationof

creditofservicetaxshallapplytotheStateof JammuandKashmir.Servicesprovided in J&Karenot

liabletoservicetax.

CAPITALGOODSRule2(a)

CapitalGoodsmeans:

(A)

thefollowinggoods,namely:

(i) allgoodsfallingunderChapter82,Chapter84,Chapter85,Chapter90,headingNo.68.05grinding

wheels and the like, andparts thereof fallingunderheading6804of the First Schedule to the

ExciseTariffAct;

(ii)

Pollutioncontrolequipment;

(iii) Components,sparesandaccessoriesofthegoodsspecifiedat(i)and(ii);

(iv) Mouldsanddies,jigsandfixtures;

(v) Refractoriesandrefractorymaterials;

(vi)

Tubesandpipesandfittingsthereof;and

(vii)

Storagetank,

(viii)Motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 & their

chassisbutincludingdumpersandtippers,

used:

(1)

INTHEFACTORYofthemanufacturerofthefinalproducts,butdoesnotincludeanyequipmento

applianceUSEDINANOFFICE;or


26/52


(1A) outsidethefactoryofmanufactureroffinalproductsforgenerationofelectricityforCAPTIVEUSE

withinthefactory;or

(2) forprovidingoutputservice;

(B)

MotorVehicledesignedforTRANSPORTATIONofgoodsincludingtheirchassisregisteredinthename

oftheserviceprovider,whenusedfor

(i)

providingan

output

service

of

renting

of

such

motor

vehicle;

or

(ii)

transportationofinputsandcapitalgoodsusedforprovidinganoutputservice,or

(iii) Providinganoutputserviceofcourieragency.

(C)

MotorVehicledesignedtoCARRYPASSENGERS includingtheirchassis,registered inthenameofthe

providerofservice,whenusedforprovidingoutputserviceof

(i) transportationofpassengers;or

(ii) rentingofsuchmotorvehicle;or

(iii) impartingmotordrivingskills.

(D)

components,sparesandaccessoriesofmotorvehicleswhicharecapitalgoodsfortheassessee.

INPUTRule2(k)

Inputmeans

(i) allgoodsusedinthefactorybythemanufacturerofthefinalproductor

(ii) anygoodsincludingaccessories,clearedalongwiththefinalproductthevalueofwhichisincludedin

thevalueofthefinalproductandgoodsusedforprovidingfreewarrantyforfinalproducts;or

(iii)

allgoodsusedforgenerationofelectricityorsteamforcaptiveuse;or

(iv) allgoodsusedforprovidinganyoutputservice;

BUTEXCLUDES

(A). lightDieseloilhighspeeddieseloilormotorspirit,commonlyknownasPetrol;

(B). anygoodsusedfor

(a) constructionorexecutionofWorksContractofabuildingoracivilstructureorapartthereof;or

(b)layingoffoundationormakingofstructuresforsupportofcapitalgoods,exceptfortheprovision

ofservice

portion

in

the

execution

of

aworks

contract

or

construction

service

as

listed

unde

clause(b)ofsection66EoftheAct.

(C).

CapitalGoodsexceptwhenusedaspartsorcomponentsinthemanufactureofafinalproduct;

(D).

Motorvehicles;

(E). anygoods,suchas food items,goodsused inaguesthouse, residentialcolony,cluborarecreation

facility and clinical establishment when such Goods Are Used Primarily For Personal Use Or

ConsumptionOfAnyEmployee;and


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(F). anygoodswhichhavenorelationshipwhatsoeverwiththemanufactureofafinalproduct.

***(Forthepurposeofthisclause,"freewarranty"meansawarrantyprovidedbythemanufacturer,the

value of which is included in the price of the final product and is not charged separately from the

customer).***

INPUTSERVICERule2(l)

meansanyservice,

(i) usedbyaproviderofoutputserviceforprovidinganoutputservice;or

(ii) usedbyamanufacturer,whetherdirectlyor indirectly inor in relation to themanufactureof fina

productsandclearanceoffinalproductsuptotheplaceofremoval

andincludesservicesusedinrelation

to

modernisation,

renovation

or

repairs

of

a

factory

premises

of

provider

of

output

service

or

an

officerelatingtosuchfactoryorpremises,advertisementorsalespromotion,marketresearch,storageuptothe

placeof removal,procurementof inputs, accounting auditing financing recruitment andquality control

coaching and training, computernetworking, credit rating, share registry, security, business exhibition

legalservices,inwardtransportationofinputsorcapitalgoodsandoutwardtransportationuptotheplace

ofremoval

BUTEXCLUDES

(A).

ServicePortion in theExecutionOfAWorksContractAndConstructionServices includingservice

listedunder

clause

(b)

of

section

66E

of

the

Finance

Act

(hereinafter

referred

as

specified

services)

in

sofarastheyareusedfor

(a)constructionorexecutionofworkscontractofabuildingoracivilstructureorapartthereof;or

(b)layingoffoundationormakingofstructuresforsupportofcapitalgoods,exceptfortheprovision

ofoneormoreofthespecifiedservices;or

(B). ServicesprovidedbywayofRentingOfAMotorVehicle insofarastheyrelatetoamotorvehicle

whichisnotacapitalgoods;or

(BA) ServiceofGeneralInsuranceBusiness,servicing,repairandmaintenance,insofarastheyrelatetoa

motorvehiclewhichisnotacapitalgoods,exceptwhenusedby

(a)

amanufacturer

of

amotor

vehicle

in

respect

of

amotor

vehicle

manufactured

by

such

person;

or

(b)aninsurancecompanyinrespectofamotorvehicleinsuredorreinsuredbysuchperson;or

(C). Suchas thoseprovided in relation tooutdoor cateringbeauty treatment,health services,cosmetic

andplasticsurgery,membershipofaclubhealthandfitnesscentre, life insurance,health insurance

and travelbenefitsextended toemployeesonvacationsuchasLeaveorHomeTravelConcession

whensuchservicesareusedprimarilyforpersonaluseorconsumptionofanyemployee.


28/52


EXAMPLES

Assesseewouldnotbeentitled toCENVAT creditofdutypaidonmachinerypurchased fromother

manufacturerswhensuchmachineryhadnotevenbeenunpackedbyassesseeinhisownfactoryandit

hadbeen

transported

in

the

exact

condition

along

with

the

machinery

manufactured

by

himself

to

foreigncountry.KCPLTD.V.CCEX [2013]

Twodifferentunitsofamanufacturer,adjoiningeachother,setupwithinacommonboundarywall

having a common PAN but separate Central Excise registration, shall be treated as two different

factories.Credit canbeavailedoneligible inputsutilised for the generationofelectricityonly to the

extentthesameisutilisedintheunitregisteredforthatpurposebutnottotheextentitwassupplied

totheotherunithavingseparateregistration.SINTEXINDUSTRIESLTDV.CCEX.[2013]

Structural components of Boiler are classified under Heading 8402 and eligible as inputs. Circula

No.9t5QX7/2072CX,dated242012andCircularNo.966/09/2012

Inputsused

for

tests

or

quality

control

check:

have

relationship

with

manufacture

of

final

product

and

eligibleforCenvatcredit.Allowed

Inputscontainedinwasteetc.:Creditshallbeadmissible.

Inputsconsumedanddonotretainidentityinthefinalproduct:thesameshallbeeligibleforcredit.

Materials used for repairs of capital goods:All the goodsusedwithin the factoryofmanufacturer

whichhaverelationwhatsoeverwithmanufactureoffinalproducts,shallbeeligibleforCenvatcredit.

Inputsarepilferedfromthestoreroom:Notallowedsincecreditoninputsisavailableonlyforinputs

usedinthefactoryofmanufactureroffinalproducts.

Finalproduct iscleared indurableandreturnablepackingmaterial:Allowed,Thedefinitionof input

coversall

goods

used

in

the

factory

of

production

by

the

manufacturer

and

such

packing

has

relationshipwiththemanufactureofthefinalproducts.

An input becomes awaste and is sold as scrap: In case the inputshavebecomewasteduring the

manufacturingprocess,thentheCENVATcreditshallbeallowedonsuchwaste,even ifsuchwaste is

exemptedorchargeablewithnilrateofduty.

Whetherthetoolkitsorthefirstaidkitsoldalongwiththetwowheelersareinputstobeeligiblefor

Cenvatcredit:CentralMotorVehicleRules,1989hasmadeitmandatorythateveryvehicleclearedby

themanufacturermustcarryasetoftoolkitandafirstaidkit.Thedefinitionof 'Input'asgivenunde

Rule2(k)(ii)ofCenvatCreditRules,2004,includeswithinitsambitaccessoriesoffinalproductcleared

along

with

the

final

product.

ELIGIBLE

OUTPUTSERVICE[Rule2(p)]

Outputservicemeansanyserviceprovidedbyaproviderofservice located in the taxable territory,but

shallnotinclude


29/52


(i) aservicespecifiedinSection66DoftheFinanceAct;or

(ii)aservicewherethewholeofservicetaxisliabletobepaidbytherecipientofservice.

NOTE:

(i) Theproviderofservicemustbelocatedinthetaxableterritory(i.e.IndiaexcludingStateofJammuand

Kashmir)

for

provision

of

any

service

to

be

output

service

therefore

if

a

provider

of

service

located

injammuandKashmiroroutsideIndiaprovidesanyservices,suchserviceswillnotbeoutputservice.

(ii)UnderSection66DoftheFinanceAct,194,servicesspecifiedintheNegativelistarecoveredwhichare

notchargeabletoservicetax.Hence,suchservicesarenotoutputservice.

(iii)Ifunderreversechargemechanism,100%ofservicetaxispayablebyrecipient,suchservicewillnotbe

regardedas "output service" for serviceprovider.Therefore,hewillnotbeallowed to takeCENVAT

creditofInputs,InputServicesandCapitalgoodsusedforprovisionofsuchservices.

JOBWORK[Rule2(n)]

Job work means processing or working upon raw material or semifinished goods supplied to thejob

worker,soastocompleteaPartorwholeoftheprocess,resulting inthemanufactureor finishingofan

articleoranyoperationwhich isessentialforaforesaidprocess,andtheexpression"jobworker"shallbe

construedaccordingly.

EXEMPTEDGOODS[Rule2(d)]Exemptedgoods,means

Excisablegoodswhichareexemptfromthewholeofthedutyofexciseleviablethereon,and

includesgoodswhicharechargeabletoNILrateofduty;and

goodsin

respect

of

which

the

benefit

of

an

exemption

under

Notification

No.

1/2011

CE

or

unde

entriesatserialNumbers67and128ofNotificationNo.12/2012CE,isavailed.

NOTE:

(i) Notification 1/2011CE, those goods are listed which are chargeable with 2% duty of excise

subjecttoconditionthatCenvatcreditshouldnotbeavailed.

(ii) Notification12/2012CE,serial67isofcoal,serial128isoffertilizers.Thedutyis1%subjectto

conditionthatCenvatcreditshouldnotbeavailed.

EXEMPTEDSERVICES[Rule2(e)]

Exemptedservicesmeans

(i) taxableservicewhichisexemptfromthewholeoftheservicetaxleviablethereon;or

(ii) service,onwhichnoservicetaxisleviableundersection66BoftheFinanceAct;or

(iii)

taxableservicewhosepartofvalue isexemptedontheconditionthatnocreditof inputsand input

services,usedforprovidingsuchtaxableservice,shallbetaken;

butshallnotincludeaservicewhichisexportedintermsofRule6AoftheServiceTaxRules,1994.


30/52


NOTE:

(1) AservicewhichisexportedintermsofRule6AoftheServiceTaxRules,1994,shallnotberegardedas

exemptserviceandcreditwillbeavailableinrespectofinputs/inputservicesusedforprovisionofsuch

service.

(2)Serviceswhicharecoveredinthenegativelistundersection66DoftheFinanceAct,1994areexempted

servicessincenoservicetaxisleviableundersection66BoftheFinanceAct,1994onsuchservices.

(3)

Servicesprovided

outside

the

taxable

territory

(i.e.,

services

provided

in

J&K

or

outside

India)

are

exemptedservicessincenoservicetaxisleviableu/s66BoftheFinanceAct,1994onsuchservices.

CENVATCREDIT RULE3

VariousTYPESOFDUTIES/TAXESonwhichCenvatcreditcanbetakenintermsofRule3(1)ofCenvatCredit

Rules,2004.

[RULE3(1)]

Amanufacturerorproduceroffinalproductsoraproviderofoutputserviceshallbeallowedtotakecredit

ofthefollowingdutiespaidonany inputorcapitalgoodsreceived inthefactoryofmanufactureroffina

product or by the provider of output service or taxes paid on any input service received by the

manufactureroffinalproductorbytheproviderofoutputservices.

(i) ThedutyofexcisespecifiedintheFirstScheduletotheExciseTariffAct,leviableundertheExcise

Acti.e.BasicExciseDuty(BED);

However,CENVATcreditofsuchdutyofexciseshallnotbeallowedtobetakenwhenpaidonany

goods,

(a) InrespectofwhichthebenefitofanexemptionunderNotificationNo.1/2011CE,datedthe1

s

March2011isavailed;or

(b)

Specified inserialnumbers67and128inrespectofwhichthebenefitofanexemptionunde

NotificationNo.12/20L2C.E.,dated17th

March,2012isavailed.

(ii) ThedutyofexcisespecifiedintheSecondScheduletotheExciseTariffAct,leviableundertheExcise

Acti.eSpecialExciseDuty[SED];

(iii) Theadditionaldutyofexciseleviableundersection3oftheAdditionalDutiesofExcise(Textileand

TextileArticles)Act,1978i.e.AED(TTA).

TherestrictionisthatthecreditofsuchdutycanbeutilizedonlyforpaymentofAED(TTA)leviable

onfinalproductsoroninputsremovedassuchoronpartiallyprocessedinputs.

(iv) Theadditionaldutyofexcise leviableundersection3oftheAdditionalDutiesofExcise(Goodsof

SpecialImportance)Act,1957i.e.AED(GOSI).

TherestrictionisthatthecreditofsuchdutycanbeutilizedonlyforPaymentofBEDorSED.

(v) TheNational Calamity Contingent duty leviable under section 136 of the FinanceAct, 2001 i.e

NCCD.


31/52


TherestrictionisthatthecreditofsuchdutycanbeutilizedonlyforpaymentofNCCDleviableon

finalproductsoroninputsremovedassuchoronpartiallyprocessedinputs.

Incaseofmobilephones,creditofotherdutiescannotbeutilized forpaymentofNCCDonsuch

mobilephones.

(vi)

TheEducationCessonexcisablegoodsleviableundersection93readwithSection93oftheFinance

(No.2)Act,2004.Therestrictionisthatthecreditofsuchcesscanbeutilizedonlyforpaymentof

EducationCess

leviable

on

final

products

or

on

inputs

removed

as

such

or

on

partially

processed

inputsoranyoutputservice.

(via) TheSecondaryandHigherEducationCessonexcisablegoodsleviableundersection136readwith

section138oftheFinanceAct,2007.Therestriction isthatthecreditofsuchcesscanbeutilized

only forpaymentofSHEC leviableon finalproductsoron inputs removedassuchoronpartially

processedinputsoranyoutputservice.

(vii) Theadditionalduty leviableundersection3of theCustomsTariffAct,equivalentto thedutyof

excisespecifiedunderclauses(i),(ii),(iii),(iv),(v),(vi)and(via).

(viia) Theadditionalduty leviableundersection3(5)oftheCustomsTariffAct.However,aproviderof

outputservice

shall

not

be

eligible

to

take

credit

of

such

additional

duty.

(viii) Theadditionaldutyofexcise,leviableundersection157oftheFinanceAct,2003.Therestrictionis

thatthecreditofsuchdutycanbeutilizedonly forpaymentofAdditionalDutyofexciseon fina

productsoroninputsremovedassuchoronpartiallyprocessedinputs.

(ix) Theservicetaxleviableundersection66oftheFinanceAct.

(ixa) Theservicetaxleviableundersection66AoftheFinanceAct.

(ixb) Theservicetaxleviableundersection66Bof.theFinanceAct.

(x) TheEducationCessontaxableservicesleviableundersection91readwithSection95oftheFinance

(No.2)Act,20O4.

(xa)

Secondaryand

Higher

Education

Cess

on

taxable

services

leviable

under

section

136

read

with

Section140oftheFinanceAct,2007.

Therestriction isthatthecreditofsuchcesscanbeutilizedonlyforpaymentofSHEC leviableon

finalproductsoroninputsremovedassuchoronpartiallyprocessedinputsoranyoutputservice.

(xi) Theadditionaldutyofexciseleviableundersection85oftheFinanceAct,2005.

RULE

3(2)

ThemanufactureroffinalproductsshallbeallowedtotakeCENVATcreditofthedutypaidon

inputslyinginstockor

inprocessor

inputscontainedinthefinalproductslyinginstock

onthedateonwhichsuchfinalgoodsceasestobeexemptedgoods.


32/52


RULE3(3)

Inrelationtoaservicewhichceasestobeanexemptedservice,theprovideroftheoutputserviceshallbe

allowedtotakeCENVATcreditofthedutypaidonthe inputsreceivedand lying instockonthedateon

whichanyserviceceasestobeexemptedservicesandusedforprovidingsuchservice.

UTILISATION

OF

CENVAT

CREDIT

[RULE

3(4)]

TheCENVATcreditmaybeutilizedforpaymentof,

(a) Anydutyofexciseonanyfinalproduct

(b) AnamountequaltoCENVATcredittakenoninputsifsuchinputsareremovedassuchorafterbeing

partiallyprocessed;

(c) AnamountequaltotheCENVATcredittakenoncapitalgoods ifsuchcapitalgoodsareremovedas

such

(d)

AnamountunderRule15(2)ofCentralExciseRules,2002;

Note:

Rule

16

of

Central

Excise

Rules,

2002

contains

provision

regarding

sales

return

of

duty

paid

goodsWhensuchreturnedgoodsaresubsequentlyremovedfromfactory,themanufacturerisrequiredto

payanamountequaltoCenvatCreditavailed inrespectofdutypaidgoods(incasesuchgoodsare

notsubjectedtoprocessamountingtomanufacture)orpayexcisedutyontransactionvalue(incase

suchgoodsaresubjectedtoprocessamountingtomanufacture).Thus,forpaymentofsuchamount

underRule16,Cenvatcreditcanbeutilised.

(e) Servicetaxonanyoutputservice.

ServicetaxpayableunderreversechargeCenvatcannotbeusedforsuchpayment

CONDITION:

1. Whilepayingdutyofexciseorservicetax,asthecasemaybe,theCENVATcreditshallbeutilizedonly

totheextentsuchcreditisavailableonthelastdayofthemonthorquarter,asthecasemaybe,for

paymentofdutyortaxrelatingtothatmonthorthequarter,asthecasemaybe.

2. CENVATcreditshallnotbeutilisedforpaymentofanydutyofexciseongoodsinrespectofwhichthe

benefitofanexemptionundernotificationNo.1/2011CE,datedthe1stMarch,2011isavailed.

3. Nocreditoftheadditionalduty leviableundersubsection(5)ofsection3oftheCustomsTariffAct

shallbeutilisedforpaymentofservicetaxonanyoutputservice.

4. CENVAT credit cannotbeused forpaymentof service tax in respectof serviceswhere theperson

liabletopaytaxistheservicerecipient.

RULE3(5)

Removal

of

inputs/capital

goods

as

such

without

use

100%

credit

to

be

paid

Wheninputsorcapitalgoods,onwhichCENVATcredithasbeentaken,

areremovedassuchfromthefactory,ofpremisesoftheproviderofoutputservice,

themanufacturerofthefinalproductsorproviderofoutputservice,asthecasemaybe,

shallpayanamountequaltothecreditavailedinrespectofsuchinputsorcapitalgoodsand


33/52


suchremovalshallbemadeunderthecoverofaninvoicereferredtoinrule9.

ProvidedthatsuchPaymentshallnotberequiredtobemadewhereany inputsorcapitalgoodsare

removedoutsidethepremisesoftheproviderofoutputserviceforprovidingtheoutputservice.

ProvidedfurtherthatsuchPaymentshallnotberequiredtobemadewhereany inputsareremoved

outsidethefactoryforprovidingfreewarrantyforfinalproducts.

ComputationofamountofCenvatcredittobereversed Rule3(5);

PQRLtd.,Ghaziabadpurchasedplasticgranulesvaluedt1,15,000(inclusiveofcentralexciset10000)for

manufactureofplasticmouldedchairs.ItavailedCENVATcreditofexcisedutyoft16,000paidonthesaid

inputs.Itsubsequentlyclearedthesaidinputsassuchfromthefactoryinthefollowingmanner

(a)SalestoSansarLtd.(purchaseprice:Rs20,000) Rs.40,000

(b)SalestoKrishnaTradingCo.(purchaseprice:Rs10,000) Rs.10,000

(c)ClearancetoPQRLtd.'sownfactoryatKanpur(purchaseprice:Rs.70,000) Freeofcost

PQRLtd.hassoughtyouradviceontheexcisedutypayablebyitontheaboveclearances.

Giveyouradviceinthematter.(CSlune2006)

Solution;Rule3(5)oftheCENVATCreditRules,2004,when inputsareremovedassuchfromthefactory

theamountofdutypayableshallbeequivalenttothecreditavailedinrespectofsuchinputs.Thesaleprice

hasnobearingonthedutypayableiftheinputsareclearedassuchfromthefactory.

ComputationofexcisedutypayablebyPQRLtd.

(a)ExcisedutypayableonsalestoSansarLtd.[Rs20,000xRs16,000+Rs1,00000]

(b)ExcisedutypayableonsalestoKrishnaTradingco.[Rs10,000xRs1.6,000+Rs1,00,000]

(c) Excise duty payable on clearance to own factory at Kanpur [{Rs70,000 x Rs 15,000 + Rs

1,00,000]

Rs.3200

Rs.1600

Rs.11200

[RULC3(5A)]

Rule3(5A)(a) REMOVALOFCAPITALGOODSAFTERUSE

Amendedvide

Notification

No.12/2013

CE

(NT):

As

per

Rule

3(5A)(a)

of

the

Cenvat

Credit

Rules,2004

whereamanufactureroffinalproductoraproviderofoutputserviceremovescapitalgoodsafterusefrom

his factoryorpremises,thenheshallbe liable topayhigherofthe followingtwoamounts i.e. (I)or (II)

whicheverishigher

Computers&computerperipherals Othercapitalgoods


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(I) AmountofCenvatcredittakenasreducedby

the followingpercentagepointscalculatedby

straightlinemethodforeachquarterofayear

or part thereof from the "date of taking the

Cenvatcredit''

foreachquarterinthe1st year:@10%;

foreach

quarter

in

the

2nd

year:

@

80%;

foreachquarterinthe3rd

year:@50%;and

foreachquarterinthe4th

and5th

year:@1%.

(II). Amount equal to the duty leviable on

transactionalvalueofsuchcapitalgoo{s.

(I) AmountofCenvatcredittakenasreduced

by the following percentage points

calculated by straight line method for

each quarter of a year or part thereof

fromthe"dateoftakingtheCenvatcredif

@2.5%foreachquarter.

(II)

Amount equal to the duty leviable

transactionalvalueofsuchcapitalgoods.

[RULE3(5A)(b)]REMOVALOFCAPITALGOODSASWASTEANDSCRAP:

W.E.F. 27092013 in case the capital goods are removed aswaste and scrap, themanufacturer or

serviceproviderwillbeliabletopaydutyleviableontransactionvalue.

Amountpaidby themanufactureror serviceprovidereligible asCenvat credit to thebuyerof such

capitalgoods:Rule3(6)

Ifthemanufacturerofgoodsortheproviderofoutputservicefailstopaytheamountpayableunde

Rule3(5A), itshallberecovered, inthemannerasprovided inrule14,forrecoveryofCENVATcredit

wronglytaken.[insertedbyCENVATCredit(Amendment)Rules,2013w.e.f.132013]

RULE3(5B)

Inputs/Capitalgoodswrittenoff 100%credittobereversed:

Ifthevalueofany,

(i) input,or

(ii)

capitalgoods

before

being

put

to

use,

onwhichCENVATCredithasbeentakeniswrittenofffullyorpartiallyorwhereanyprovisiontowrite

offfullyorpartiallyhasbeenmadeinthebooksofaccountsthenthemanufacturerorserviceprovider

asthecasemaybe,shallpayanamountequivalenttotheCENVATcredittaken inrespectofthesaid

inputorcapitalgoods.

Creditadmissibleifinputorcapitalgoodsissubsequentlyputtouse:

Providedthatifthesaidinputorcapitalgoodsissubsequentlyusedinthemanufactureoffinalproducts

ortheprovisionofoutputservices,themanufactureroroutputserviceprovider,asthecasemaybe

shallbeentitledtotakethecreditoftheamountequivalenttotheCENVATCreditpaidearliersubjectto

theotherprovisionsoftheserules.

If themanufacturerofgoodor theproviderofoutputservice failstopay theamountpayableunde

subrules (5)(3B), it shallbe recovered in themanner asprovided in rule ld for recoveryofCENVAT

creditwronglytaken.[insertedbyCENVATCredit(Amendment)Rules,2013w.e.f.132013]

[RULE3(5C)]


35/52


Remissionofdutyon finalproductsandCENVAT reversalon inputs [Rule3(5C)]:Where,onanygoods

manufacturedorproducedbyanassessee,thepaymentofdutyisorderedtoberemittedunderrule21of

the Central Excise Rules, 2002 the CENVAT credit taken on the inputs used in the manufacture or

productionofsaidgoodsshallbereverse

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NOTIFICATION FOR INTRODUCTION OF CERTIFICATE IN … · i) Background of Cenvat ii) Cenvat on Inputs / Input Service and Capital Goods iii) Availment &Utilization of Cenvat Credit

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Technical Guide to CENVAT Credit - Amazon Web Servicesidtc-icai.s3.amazonaws.com/download/CENVAT-24Jun16.pdf · “Technical Guide to CENVAT Credit” with inclusion of changes made

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