CENTRAL EXCISE

CA. Abhay DesaiPartner, M/s Yagnesh Desai & Co.

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AGENDAo COMPONENTSo TYPES OF EXCISE DUTIESo BASIC CONDITIONS FOR LEVY OF EXCISE DUTYo WHO PAYS THE DUTYo CLASSIFICATIONo VALUATIONo CENVAT CREDITo INPUT SERVICE DISTRIBUTORo BENEFITS OF SSIo STEP BY STEP AJUDICATION PROCESSo INTEREST & PENALTIES

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COMPONENTSo CENTRAL EXCISE ACT, 1944o CENTRAL EXCISE RULES, 2002o CENTRAL EXCISE VALUATION (DETERMINATION OF PRICE OF

EXCISABLE GOODS) RULES, 2000o CENTRAL EXCISE TARIFF ACT, 1985o CENVAT CREDIT RULES, 2004o CENTRAL EXCISE (APPEALS) RULES, 2001o NOTIFICATIONSo CIRCULARSo TRADE NOTICESo CASE-LAWS

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TYPES OF EXCISE DUTIESo Basic Excise Duty (BED)o Special Excise Duty (SED)o Education Cess on Excise Dutyo Excise duty in case of clearances by EOUo National Calamity contingent Duty (NCCD)o Additional Duty on Goods of Special Importance (AED [GSI])o Additional Duties of Excise (Textiles and textile Articles)

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BASIC CONDITIONS FOR LEVY OF EXCISE DUTY (SEC. 3)o EXCISABLE GOODSo MANUFACTURED IN INDIA (EXCLUDES SEZ)

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EXCISABLE GOODSo MEANING OF “EXCISABLE GOODS” (SEC. 2(d))o TWIN TESTS: MOVABILITY & MARKETIBILITYo EFFECT OF EXPLANATION TO SEC. 2(d)

“goods include any article, material or substance which is capable to be being bought and sold for a consideration and such goods shall be deemed to be marketable”

WHETHER COMMERCIALLY CAPABLE ?

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MANUFACTUREo THREE TYPES: (SEC. 2(f))

A) ORDINARY MANUFACTURE (INCLUDES INCIDENTAL OR ANCILLARY PROCESS)

B) PROCESS MENTIONED IN CETA (FIRST SCHEDULE)

C) DEEMED MANUFACTURE (THIRD SCHEDULE)

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Typical caseso WASTE & SCRAP – IS IT MANUFACTURE (CIRCLUAR NO. 904/24/2009

– DROSS, SKIMMINGS, BAGASSE, RESIDUES, ETC. IN VIEW OF EXPLANATION IS LIABLE)

o BALRAMPUR CHINI MILLS LTD [2013] 30 TAXMANN.COM 175 (ALL.) – BAGASSE THOUGH DEEMED MARKETABLE NOT MANUFACTURED

o MANUFACTURING AT SITE – IF IMMOVABLE – NO DUTY (CBEC ORDER NO. 58/1/2002-CX DATED 15.01.2002

o MANUFACTURE OF FURNITURE AT CUSTOMER’S SITE – TAXABLE – MEHTA & CO. 264 ELT 481 (SC)(2011)

o CONSTRUCTION SECTOR – CEMENT MANUFACTURED AT SITE – NOT TAXABLE – NOT. NO. 05/2006-CE DATED 1/3/2006

o RMC – TAXABLE

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STAGE OF COLLECTION OF EXCISE DUTYo UOI v. BOMBAY TYRE INTERNATIONAL LTD. [1983] 14 ELT 1896 (SC)o PLACE OF REMOVAL (RULE 4 OF CENTRAL EXCISE RULES, 2002) –

FACTORY OR WAREHOUSEo RATE OF DUTY WHEN GOODS ARE REMOVED (RULE 5)

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WHO PAYS DUTYo MANUFACTURERo JOB-WORKER (NOT UNDER NOT. 214/86)o GOODS STORED IN WAREHOUSE (RULE 20)o PROCURER IN CASE OF MOLASSES PRODUCED IN KHANDSARI

SUGAR FACTORY

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RATE OF DUTYo GENERAL: 12%o ON 130 ITEMS: 1%o LARGE CARS,MUV,SUV: 22% + Rs. 15,000o CESSo OTHERS (NCCD, AED, Etc.)

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CLASSAFICATION OF GOODSo CETA (HSN)o RULES FOR INTERPRETATIONo Rule 1 – Titles only for referenceo Rule 2(a) – Incomplete/unfinished/ckd/skdo Rule 2(b) – Mixtures/combinationso Rule 3 – If cannot be determined by aboveo Rule 3(a) – Specific over generalo Rule 3(b) – Essential Charactero Rule 3(c) – Whichever comes lattero Rule 4 – Residual Rule – Akin theoryo Rule 5 – Packing Materialo Rule 6 – Only sub-headings at same level are comparableo TRADE PARLANCE THEORY

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VALUATIONo TRANSACTION VALUE (SEC. 4)o MRP BASED VALUATION (SEC. 4A)o OTHER MODES

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TRANSACTION VALUEo REQUIREMENTS FULFILLED – SALE PRICEo VALUATION RULESo INCLUSIONS/EXCLUSIONS

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Central Excise Valuation ( Determination of price of excisable goods) Rules, 2000o APPLICABILITY – WHEN NORMAL SALE VALUE CANNOT BE

CONSIDEREDo The rules are used for ascertaining the “normal transaction value” at

which the greatest aggregate quantity of goods are soldo 11 Rules in all

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RULESo Rule 1 – name & entry into force from 1-7-2000o Rule 2 – definitionso Rule 3 – exhortation to decide the value (when the transaction value

is unavailable or unacceptable)o Rule 4 – Value not known - ascertainable equivalent price of such

goods – nearest in time to the time of removal of goods from the factory – margin adjustment on account of differences in dates of delivery allowed – free sample/warranty

o Rule 5 – cases when the delivery of goods is at a place other than the factory – cost of transportation to be added

o Rule 6 – when there is additional consideration to the sale not reflected in the transaction price charged – solution: monetize the additional consideration and add it up to the tax value (Fiat’s case)

o Rule 7 – Depot / branch sales – solution: adopt the nearest prevailing depot price

o Rule 8 – captive /self consumption/use – solution: tax value is 110% of the cost of production of the goods (as per CAS 4)

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RULES (CONTD.)o Rule 9 – sales to related persons – solution: resale price of related

person / 110% of the cost where the related person does not resell but consumes or uses for self

o Rule 10 – sales to inter-connected undertakings /holding company /subsidiary company – solution:: do as per rule 9 above.

o Rule 10A – job work on behalf of a principal manufacturer – solution: resale price of the principal manufacturer

o Rule 11 – residual methodo Valuation in case of job-worker manufacturing intermediates –

Ujagar Prints 1989 38 ELT 535 (SC)

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EXCLUSIONS

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o By Statuteo Excise Duty.o Sales Tax.o Other taxes such as Octroi, entry taxo By Court / Tribunal Decisionso Trade Discount.o Cash Discount/ Prompt Payment discount.o Turn over discount.o Quantity discount.o Year – end bonus/discount.

EXCLUSIONS Freight and Freight insurance, including equalised Freight. Bought – out items [not integral/ critical to Product] – CENVAT not

available Third party Inspection charges at the instance of and borne by the

buyer. Interest on receivableso Erection, Commissioning charges if products emerge as immovable

property.o Erection, commissioning charges after the product is cleared from

factory. (however if parts are removed and machine (excisable) comes into existence - it will be included)

o Advertising charges borne by the client – buyer on his own account.o Additional warranty charges. (Compulsory/optional charges are

included).o Notional interest on Advances/ deposits from buyers not influencing

the price.

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inclusionso By Statuteo Advertising.o Publicity.o Marketing/ Sales Promotion.o Storage/ Outward handling.o Servicing.o Warranty.o Commission.o By Tribunal/ Court Decisionso Dharmada.(ITC) (158 ELT 286 – Tata Motors)o Design/ Development/ Engineering

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inclusionso Royalty.o Amortised Cost of tools/ dies/ moulds received from buyers.o Commission to agents.o Interest on inventory.o Packing.o Cost of material supplied by Customer.

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VALUATION IN TURN-KEY PROJECTSo EXCISE DUTY ON PARTS/COMPONENTS MANUFACTURED

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MRP BASED VALUATIONo Conditions:o A) Excisableo B) Sold in packageo C) Declaration of MRP is mandatory under LEGAL METROLOGY ACTo D) Mentioned in Notification

Assessable value: MRP less abetment

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OTHER MODESo PRODUCTION CAPACITY (Pan Masala, Gutkha, etc.)o SPECIFIC DUTY (Marble tiles, cigarettes, etc.)o TARIFF VALUE (Jewellery, etc.)o COMPOUND LEVY SCHEME (Stainless steel pattis/pattas and

aluminium circles)

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PROCEDURESo REGISTRATION (Rule 9)o PAYMENT (Rule 8)o INVOICE (Rule 11)o MAINTANENCE OF RECORDS (Rule 10)o RETURN FILING (Rule 12)

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WHAT SHOULD INVOICE CONTAINo The Invoice shall be serially numbered & shall contain:-o (a). Registration Numbero (b). Description of goodso (C). Classificationo (d). Time & Date of Removalo (e). Mode of Transport & Vehicle Registration No.o (f). Rate of dutyo (g). Qty. & Value of goodso (h). Amt. of dutyo (i). Address of concerned Central excise Division.

o It shall be prepared in Triplicate (Buyer/Transporter/Assesee).

o Before using Invoice book, the serial no. should be intimated to Superintendent.

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RECORDSo RG-23A- Part I (Stock Account of Input Goods)o RG-23A- Part II (Credit on Input Goods)o RG-23C- Part II (Credit on Capital Goods)o RG-1 (Daily Stock Account)o PLA (Personal Ledger Account)o Credit Register for Input Services

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RETURNSo ER 1 – monthly – due by the 10th of the following montho ER 2 – monthly, for EOU – due by the 10th of the following montho ER 3 – quarterly for SSI units – due by the10th of the following

quartero ER 4 – Annual financial statement for units paying INR 1 crore in

excise – due by the 30th of April of the following yearo ER 5 – CENVAT – Annual Return of information relating to principal

inputs – due by 30th April of the following year – some class of manufacturers given exemption

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RETURNSo ER 6 – monthly return of principal cenvat inputs due by the 10th of

the following month – some class of manufacturers given exemptiono ER 7 – Annual Installed capacity statement – due by the 30th April of

the following year

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OTHER ISSUESo PROVISIONAL ASSESSMENT UNDER RULE 7o REMISSION UNDER RULE 21

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CENVATo CENTRAL VALUE ADDED TAXo BASIC WORKING

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ELIGIBLE FOR CREDITo CAPITAL GOODS (Rule 2(a))o INPUTS (Rule 2(k))o INPUT SERVICES (Rule 2(l))

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CAPITAL GOODS o All goods falling under the following chapters –o Chapter 82 – tools etco Chapter 83 – miscellaneous articles of base metalso Chapter 84 – machinery, equipment etco Chapter 85 – electrical / Electronic machinery & equipment etco Chapter 90 – optical, photographic, medical , checking, measuring

equipment etco Abrasives under heading no 6805o Grinding wheels & the like under heading 6904

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CAPITAL GOODS o Pollution control equipmento Components, spares & accessories of the goods for (i) & (ii)o Moulds, dies , jigs and fixtureso Refractories, and Refractory materialso Tubes, pipes and fittings thereofo Storage tanko Used in the factory of the manufacturer of final products, but does

not include any equipment or appliance used in the office ORo Outside the factory for generation of electricity for captive use

within the factoryo Or, used for providing output serviceo Motor vehicles registered in the name of the following service

providers are allowed – courier agency, GTA, Rent a cab operator , tour operator, outdoor caterer

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CAPITAL GOODSo Ownership of capital goods is not required for a manufacturer or

service provider except for the motor vehicle credito Credit to be taken for 50% of the duty in the first year and the rest

in any subsequent year o Depreciation under Income tax prohibitedo The 50% restriction does not apply to special CVD of 4% paid on

imported capital goodso Removal of capital goods after use requires reversal of credit – 2.5%

depreciation on credit for every quarter of use or duty on transaction value, whichever is higher (Rule 3(5A)) (other capital goods)

o Removal of capital goods as waste and scrap – Duty leviable on transaction value

o Written off BEFORE use – 100% to be reversed (also applicable to inputs)

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CAPITAL GOODSo Provision for removal of capital goods for test, repair etco Moulds, dies , jigs and fixtures can be deployed at the premises of

the job workero Capital goods can be produced and used in the factory of production

for manufacture of excisable goods – duty exempto Capital goods on which credit is taken should not be solely used in

the manufacture of exempted goods

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INPUTSo Wide definition in the CCRo "input" means—(i) all goods used in the factory by the manufacturer

of the final product; oro (ii) any goods including accessories, cleared along with the final

product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or

o (iii) all goods used for generation of electricity or steam for captive use; or

o (iv) all goods used for providing any output service;

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INPUTSo but excludes—(A) light diesel oil, high speed diesel oil or motor

spirit, commonly known as petrol;o (B) any goods used for—(a) construction or execution of works

contract of a building or a civil structure or a part thereof; or(b) laying of foundation or making of structures for support of capital goods, except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;]

o (C) capital goods except when used as parts or components in the manufacture of a final product;

o (D) motor vehicles;o (E) any goods, such as food items, goods used in a guest house,

residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and

o (F) any goods which have no relationship whatsoever with the manufacture of a final product. 39

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INPUTSo Input credit can be availed immediately on receipt of the goods

accompanied by the relevant invoiceo No one-to-one correlation between input and output

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INPUT SERVICESo For manufacturers:o Any service used by a manufacturer o Whether directly or indirectlyo In or in relation to the manufacture of final productso And clearance of final products upto the place of removal

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INPUT SERVICESo For service providers:o Any input service used by a provider of output service for providing

an output service

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SPECIFIED LISTo Services used in relation to –o Modernizationo Renovationo Repairso Of a factory or the premises of the service providero Or an office relating to such factory or the premiseso Advertisemento Sales promotiono Market researcho Storage upto the place of removalo Procurement of inputs

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SPECIFIED LISTo Accountingo Auditingo Financingo Recruitment and quality controlo Coaching and trainingo Computer networkingo Credit ratingo Share Registryo Securityo Inward transportation of inputs & capital goodso Outward transportation upto the place of removal

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Exclusionso Service portion in works contract used for construction of building or

civil structure or part thereof or laying foundation or structural support for capital goods

o Renting of motor vehicleo service of general insurance business, servicing, repair and

maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by—(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

o such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;

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Cenvat credit available foro BEDo SEDo AED (Textile & Textile Articles) – can be used only against payment

of same dutyo AED (Goods of Special Importance) – Can be used only for payment

of BED & SEDo NCCD – Only for payment of NCCDo Education Cess – Only for payment of Education Cesso Secondary and Higher Education Cess – Only for payment of SHECo Additional Duty u/s 3(5) of Customs – Not available for service

providero Service Tax u/s 66A/B

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UTILIZATIONo Duty on Finished producto As such removal of inputs & capital goodso Re-credit on sales return (Rule 16(2))o Service Tax on output serviceo CANNOT be used for RCM

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TIMEo ON ACCRUAL (IF PAYMENT MADE WITHIN 3 MONTHS) ORo ON PAYMENTo RCM – ON PAYMENT BASIS

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JOB WORKo Optionso 1) Not. 214/86 – Exempto 2) Clearance on payment of duty

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INPUT SERVICE DISTRIBUTORo PURPOSEo PROCESS

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MANUFACTURING TAXABLE/EXEMPTED GOODSo RATIONALE OF RULE 6o Options there undero Maintain separate accountso Or pay 6% on the value of exempted goods and value of exempted

services and take full CENVATo Or take credit proportionate to the taxable turnover as per formula

prescribed (payment before 30th June)o Inputs & capital goods & input services should not be exclusively

utilized in the manufacture / provision of exempted goods or exempted services

o Clearances to EOU/SEZ/BTP/STP/EHTP & exports will not require reversal of credit

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BENEFITS FOR SSIo Notification no: 8/ 2003 as amended.o Basic ceiling Rs.1.5 Cr.o Outer ceiling Rs. 4 Cr.o Only listed goods benefit.o Use of Trademark/ symbol/ brand of another person disentitles.o Excludes: Manufacture in rural area, supplier to OEM, printing

material

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RECOVERY PROCESSo PERIODICAL AUDITSo PREVENTIVE

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STEP-BY-STEP PROCESSo COLLECTION OF INFORMATIONo SHOW-CAUSE NOTICE – TIME LIMIT FOR ISSUANCEo AJUDICATIONo ORDER IN ORIGINALo COMMISSIONER (APPEALS)o CESTATo HIGH COURTo SUPREME COURT

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INTEREST & PENALTIESo Interest for delayed payment under section 11AA – 18%o Penalty equal to duty under section 11AC in cases involving

suppression of facts. – 100% - 50% (if details available in specified records) – 1% p.m. max. 25% (if payment made before SCN) (also avbl if pmt made within 30 days of OIO)

o Penalty under Rule 25 – maximum upto duty or Rs 2000/-whichever is greater, with confiscation of the goods

o Tax default beyond 30 days – penalty under rule 8 – daily clearance on payment of duty in cash, plus prohibition of using cenvat credit, till dues are paid up.

o Rule 26 – penalty for abettors , transporters, issuers of false invoices – max upto duty or Rs 2000/- whichever is greater (Personal penalty)

o Rule 27 – general penalty where no penalty is specified for any offense in the rules, max of Rs 5,000/- with possible confiscation of the goods

o Sec. 9 & 9A – Power to arrest – (Above Rs. 50 lacs – cognizable & non-bailable) – 7 years imprisonment & fine.

o Culpable mental state is presumed – Sec. 9Co Wrong Credit – Rule 15 of CCR – equal to credit claimed 55

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If You Accept Every Moment With Deep Gratitude, Nothing Ever Goes Wrong - OSHO

CA. ABHAY DESAIM) 7874668953

EMAIL) ABHAYDESAI86@GMAIL.COM

ADD.) 819, SIDDHARTH COMPLEX,

BESIDE EXPESS HOTEL,

R.C. DUTT ROAD, ALKAPURI,

VADODARA

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