CENTRAL EXCISE RULES, 2002 - DG Educationdgfundas.in/books/06 CER 2002.pdf · Presence of Excise Inspectors not at all necessary for the clearances of goods. The assessee himself

© DG Education (P) Ltd [CX : Central Excise Rules, 2002]

CENTRAL EXCISE RULES, 2002: RULE 4: ED PAYABLE ON REMOVAL 1. Is there any exception to the Rule that Central Excise Duty is payable by a producer of manufacturer of goods on removal from the

factory and duty is payable by someone else? (2 Marks) Rule 4(1) of the CER, 2002 specifies the person who shall be held liable for payment of duty. As a general rule it has been provided

that the manufacturer or producer of the goods shall be liable for payment of excise duty. However, an exception has been made out by Rule 4(2) of the CER, 2002 in respect of molasses. In respect of molasses produced in

a Khandsari Sugar Factory, Central Excise Rules, 2002 makes the procurer of the molasses liable for payment of duty. 2. Explain whether a person who is neither a producer nor a manufacturer of excisable goods, but he only stores such goods in a

warehouse, can be called upon to pay the duties of excise on such goods? (May 2007 3 Marks) Rule 4 (1) of the CER, 2002 specifies the person who shall be held liable for payment of duty. As a general rule it has been provided

that the manufacturer or producer of the goods shall be liable for payment of excise duty. But in relation to certain goods as notified under Rule 20 of Central Excise Rules, 2002 the liability for payment of excise duty has been casted upon the warehouse-keeper (the person storing the goods).

3. Discuss briefly the provisions of Rule 4(4) of the Central Excise Rules, 2002 regarding storage of non-duty paid goods outside the

factory. (Nov 2008 4 Marks)

Generally, excise duty is payable at the time of removal of goods from the factory. Thus, removal of goods to a storage place outside factory attract excise duty liability. But, Rule 4(4) permits removal without payment of duty in exceptional cases and thus, allows storage of non-duty paid goods outside the factory. It empowers CCE to allow storage outside the factory without any payment of duty considering the following factors: a) Nature of goods (i.e., goods by nature are those whose production is seasonal) b) Shortage of storage space within the factory. While so permitting, CCE is also empowered to put any condition as he may consider necessary to safeguard the interest of

revenue.

M/s SULZER INDIA PVT LTD- 2015-Tribunal Revenue cannot insist upon the assessee for expansion of the factory space. -- if that is accepted then it is for every industry and then, Rule 4(4) will become redundant.

RULE 5: RELEVANT DATE 4. What are the dates for determination of rate of central excise duty under the Central Excise Rules, 2002? (3 Marks) Rule 5 of the Central Excise Rules, 2002 provides for the relevant date for determination of applicable rate of excise duty. It provides

for different dates for different situations as stated below: i) In respect of molasses produced/manufactured in a Khandsari Sugar Factory, relevant date is the date of receipt of molasses in

the factory of the procurer. ii) In respect of goods other than molasses produced/manufactured in a Khandsari Sugar Factory, relevant date is either of the

following : a. If the goods are those which have been notified under Rule 20 of the CER, 2002 (i.e., in respect of which facility of removal

to warehouse without payment of duty has been extended) --- the date of removal from the warehouse; b. In case of other goods --- the date of removal from the factory;

Further in respect of goods manufactured and utilized in the same factory for further manufacture of other articles, the relevant date

specified is the date of issuance of such goods to the next manufacturing process.

RULE 6: SELF ASSESSMENT PROCEDURE

5. Describe the procedure of removal of excisable goods on payment of duty under the “Self Removal Procedure”. (5 Marks)


Under “Self-removal Procedure”, there is no interference on the part of Dept. as regards to manufacturing, storing, accounting and removal of goods. Though rules & procedures have been specified, compliance with them has been made the responsibility of the manufacturing unit.

Presence of Excise Inspectors not at all necessary for the clearances of goods. The assessee himself assesses the duty payable on the goods. (Rule 6 of Central Excise Rules, 2002) & SELF-ASSESSMENT

MEMORANDUM to that effect is enclosed by the assessee with the E.R.1 return filed under Rule 12 of Central Excise Rules, 2002. [Under the Self-removal procedure, routine assessment & checking of returns alongwith Invoices is not done. Instead a system of

selective audit is employed. The Excise Officer doesn’t assess each & every return. More trust is shown on the assessee. It is only in case of doubt, the proper officer makes inquiries, calls for any documents etc. to verify the correctness of assessment done by the assessee.]

Goods are removed from the factory/warehouse under the cover of an Invoice signed by the owner/his duly authorized agent. Such invoice needn’t be counter signed by the Inspector/SCE. (Rule 11 of CER, 2002)

At present, all goods other than cigarettes are covered under self-removal procedures. 6. What is the remedy available with the Department when the Central Excise Officer does not find the self assessment by the assessee

in order?

Where the CEO during scrutiny or otherwise find that self-assessment is not in order, they may ask the assessee to provide all necessary documents, records or other information for issue of duty demand for differential duty, if any, after conducting inquiry. If the assessee fails to provide such records or information and the Department is unable to issue demand, ‘Best Judgment’ method, may be used to raise the demand based on collateral evidences. In such a case, the burden will be on the assessee to provide information for appropriate re-determination of duty.

RULE 7: PROVISIONAL ASSESSMENT 7. (i) Whether provisional assessment can be initiated by the department of excise? (2 Marks) (ii) What is the remedy available with the Department in case Assessing Officer does not find self-assessment filed by the assessee

in order? (3 Marks)

(i) Rule 7 of the Central Excise Rules, 2002 provides for the facility of provisional assessment to assessee in a case where he is unable to determine either the assessable value or the applicable rate of duty on the goods under assessment. For that purpose, a request shall be made to AC/DC and provisional assessment order shall be obtained specifying the period for which provisional assessment is allowed. The provisional assessment facility in only at request of assessee. Rule 7 doesn’t confer any power to the department for resorting to provisional assessment on its own (i.e., suo-moto).

(ii) The basis system of assessment under excise is self-assessment, i.e., assessee shall himself assessee the duty payable in respect of his clearances for the month. He shall pay that duty by due date and shall submit excise returns with the department. In case on scrutiny of such returns, the self-assessment is found to be not in order, then the department is empowered to re-assess the goods initiating re-assessment proceedings by sending a show-cause notice (SCN) in terms of Sec 11-A of the Central Excise Act. After considering the representations of the assessee, the demand can be adjudicated and demand order can be passed. Thereafter, assessee shall pay the demand as determined in the order.

8. Explain briefly the provision made for payment of interest on refund under Rule 7(5) of CER, 2002, where the assessee is entitled to

a refund consequent to finalization of provisional assessment. (Nov 2013 3 Marks)

Rule 7(5) of the Central Excise Rules, 2002 provides that where the assessee is entitled to a refund consequent to an order of final assessment, interest shall be paid on such refund as provided under section 11-BB of the Central Excise Act, 1944.

Thus, post finalization of assessment, assessee shall be required to submit refund application in terms of Sec 11-B of CEA, 1994 and interest will be paid if refund is not sanctioned within 3 months from the date of receipt of refund application. In case of grant of refund beyond 3 months from date of receipt of refund application, interest @6% p.a. shall be payable for delay beyond 3 months.

LATEST FROM JUDICIARY

• Assessment could be termed as provisional only if it is so requested by assessee and allowed by Department Where assesse sold goods with ‘price escalation clause’, assessment could not be deemed to be provisional just due to the reason that price is not final at time of sale. There is no provision of ‘deemed provisional assessment’. [PRE-STRESSED UDYOG (INDIA) (P.) LTD.- 2015-JHARKHAND HC]

• Provisional Assessment is a ‘request based facility’ – CEO may reject the request for provisional assessment. But the power


conferred on CEO is coupled with a duty on the authority to exercise such power in fit and appropriate cases.. Where requested by assessee, provisional assessment facility must be allowed, if value is dependent upon discounts, which are quantifiable later on based on targets [SHYAM STEEL INDUSTRIES- 2015- CALCUTTA HC]

(Expected) • Provisional assessment requested for and allowed, but duty paid before finalization of assessment

- WHETHER INTEREST SHALL BE PAYABLE ON THE DIFFERENTIAL DUTY ELEMENT PAID VOLUNTARILY BY ASSESSEE AND NOT CONSEQUENT TO ORDER OF PROVISIONAL ASSESSMENT?

Consider following situation: • Assessee sells goods with price escalation clause • Price at time of sale transaction is not full and final • Provisional assessment requested for allowed • Assessee pays duty on provisional basis (on price charged at time of sale) (say, Provisional duty paid for April, 2016= Rs 10,000) • Later on, escalation element is determined (say, on 27th Sep) • But before finalization of assessment by CEO, assessee himself computes the duty on escalation element and pays differential duty

thereon. (say, Differential Duty element of Rs 2,000 paid on 27th Sep, 2016. Final assessment order passed on 30th Sep, 2016 – Actual duty payable upon finalization of assessment= Finally Assessed duty (12,000) less duty actuall paid (provisionally 10,000 on 6th May, + 2,000 on 27th Sep) = Nil)

.

Issue: Whether assessee is liable to pay interest in terms of Rule 7(4) of CER, 2002? • (Demand of interest on Rs 2,000 from 1st may, 2016 till 27th Sep, 2016 whether justified or not?)

Rule 7(4) of CER, 2002: Rule 7(4): The assessee shall be liable to pay interest on ANY AMOUNT payable to CG, consequent to* order for final assessment

under sub-rule (3), at the rate specified by the CG by notification issued u/Sec 11AA (i.e., 18% p.a.) from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereon.

Assessee: • Interest liability under Rule 7(4) of the Rules arises only after passing of final assessment order. Therefore, interest can be charged only for

the period subsequent to the finalization of the assessment. • The amount of differential duty on which demand of interest is proposed was paid well before the date of finalization of the assessment order. • On a plain reading of Rule 7(4) of CER, 2002, the liability to pay interest would arise only if an amount payable is determined

consequent to the final assessment. Thus, the first part of the Rule has to be attracted and if that is attracted and is applicable, then, alone there is an obligation to pay interest. In other words, the liability to pay interest does not arise unless the finalization of the assessment results in any additional or differential liability. Once that assessment is determined, then, on that the interest is leviable and in terms of the later part of the Rule. This is how the Rule must be read. Since the assessee has paid even the differential duty prior to the finalization of the assessment. Therefore, it is not as if the liability arises on finalization of the assessment. Thus, Revenue cannot recover interest and which is not provided by law.

• A liability to pay interest arises only if there is a specific provision in a taxing statute. SC in case of J.K.SYNTHETIC- 1994-SC held that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments.

Department: • Interest shall be payable on equitable consideration. If there is a liability to pay interest and which relates back to the date of

determination, then, any process or method by which such tax, which is due and legitimately recoverable, is paid belatedly, the interest on the same must be charged. The interest is, therefore, payable in the present case and merely because the Assessee has preempted the recovery by making the payment of differential duty before finalization of the assessment does not mean the liability to pay interest ceases. It still very much subsists and that is how Rule 7(4) must be read.

• Differential duty paid even prior to finalization of assessment was liable to interest under Rule 7(4) from ‘first day of the month succeeding month for which such amount is determined till date of payment’.

CEAT LTD. – 2015- BOMBAY HC • A liability to pay interest arises only if there is a specific provision in a taxing statute. Interest is not payable merely on equitable

consideration. • Words ‘such amount is determined’ appearing in Rule 7(4) (interest payable by assessee) are crucial and thus, determination of

finalization of assessment is a relevant factor. • If interest was payable on the date on which assessee made payment of differential duty prior to finalization of assessment, Rule

would have specifically said so. • Thus, in terms of Rule 7(4), liability to pay interest arises only on differential amount becoming payable to the CG after order of final

assessment under Rule 7(3). • No interest can be demanded under Rule 7(4) in instant case as amount determined as payable on finalization is ‘NiL’.

© DG Education (P) Ltd [CX : Central Excise Rules, 2002] RULE 8: MANNER OF PAYMENT OF ED

EASIEST e-payment (Electronic Accounting System in Excise and Service Tax)

[CA Final, Nov 2015- 4 marks] • What is the procedure for entering the required data on the screen for paying tax online?

Follow the steps as under to pay tax online:- Step 1

o Log on to NSDL-CBEC site website (cbec-easiest.gov.in) o Click on the menu e-Payment o Enter 15-digit valid Assessee Code o Select the respective type of Duty / Tax (accounting code) o Select the Bank name from the drop down provided o After entering all the above detail, click on PROCEED button

Step 2 o You can now verify the details entered by you. Click on EDIT in case of rectification o Click on SUBMIT to the Bank button. You will be directed to the net-Banking site provided by your Bank

• What is the procedure after being directed to the net-Banking site of the Bank?

The system will direct you to net-Banking facility of your Bank. You will have to log on to the net-Banking site of your Bank using your login ID and password/PIN provided by the Bank. The particulars entered by you at NSDL-CBEC website will be displayed again. Y ou w ill now be required to enter the amount of tax you intend to pay for each accounting code selected and also select your Bank account number from where you intend to pay the tax. After verifying the correctness, you can proceed with confirming the payment.

• What will happen after I confirm the payment of tax at my Bank's site? Your Bank will process the transaction online by debiting the Bank account indicated by you and generate a printable acknowledgment indicating the Challan Identification Number (CIN). You can verify the status of the challan in the Challan Status Inquiry at NSDL-CBEC website using CIN after a week, after making payment. o CIN consist of 7-digit BSR code of Collecting Bank Branch, Date of Tender (ddmmyyyy format) and Challan Serial Number (five digits).

(Imp) 9. Explain briefly the following with reference to the provisions of the Central Excise Rules, 2002 and relevant notification issued there

under with regard to e-payment of duty: (i) The threshold limit for mandatory e-payment of duty (ii) How and in what manner the time of payment would be reckoned under the e-payment system? (iii) The due dates for payment of duty under the e-payment scheme in respect of an assessee? (May 2008 3*2 = 6 Marks)

(i) Threshold limit for mandatory e-payment: At present, there is no threshold limit for mandatory e-payment. Every assessee shall make payment of excise duty electronically. [Rule 8 of CER, 2002]

.

Tutorial Note: Manual payment can be made by assessee only if AC/DC permits him. While allowing any assessee to make manual payments, the reasons for giving special permission shall be recorded by AC/DC.

EASIEST e-payment (Electronic Accounting System in Excise and Service Tax)

[CA Final, Nov 2015- 4 marks] • What is the procedure for entering the required data on the screen for paying tax online?

Follow the steps as under to pay tax online:- Step 1

o Log on to NSDL-CBEC site website (cbec-easiest.gov.in) o Click on the menu e-Payment o Enter 15-digit valid Assessee Code o Select the respective type of Duty / Tax (accounting code) o Select the Bank name from the drop down provided o After entering all the above detail, click on PROCEED button

Step 2 o You can now verify the details entered by you. Click on EDIT in case of rectification o Click on SUBMIT to the Bank button. You will be directed to the net-Banking site provided by your Bank

• What is the procedure after being directed to the net-Banking site of the Bank?

The system will direct you to net-Banking facility of your Bank. You will have to log on to the net-Banking site of your Bank using your login ID and password/PIN provided by the Bank. The particulars entered by you at NSDL-CBEC website will be displayed again. Y ou will now be required to enter the amount of tax you intend to pay for each accounting code selected and also select your Bank account number from where you intend to pay the tax. After verifying the correctness, you can proceed with confirming the payment.

• What will happen after I confirm the payment of tax at my Bank's site? Your Bank will process the transaction online by debiting the Bank account indicated by you and generate a printable acknowledgment indicating the Challan Identification Number (CIN). You can verify the status of the challan in the Challan Status Inquiry at NSDL-CBEC website using CIN after a week, after making payment. o CIN consist of 7-digit BSR code of Collecting Bank Branch, Date of Tender (ddmmyyyy format) and Challan Serial Number (five digits).


(ii) Time of payment: The e-payment facility is 24 * 7 facility. Payment can be made anytime from anywhere. All payments effected upto 8 pm will be accounted for the day as that days receipt. Payments effected after 8 pm will be accounted for as the next working day’s receipt [This is RBI banking guideline].

(iii) Due dates for payment: Following are the due dates for payment in case of e-payment by assessee:

a) Payment for any month of Financial Year (except March): a. Payment by Eligible SSI: Due date for payment of excise duty is 6th of month following the quarter for which duty is to

be paid. b. Payment by Other units: Due date for payment of excise duty is 6th of month following the month for which duty is to

be paid. b) Payment for March Month or quarter ending on March Month: Due date for payment of excise duty is 31st March.

Note: Due dates for SSI Unit: Quarterly payment system is available to a unit which is “eligible” to claim SSI exemption regardless of the fact whether the concerned unit actually claims it or opts to pay duty. Further, the above relaxation is available to an “eligible” unit for the entire financial year even if it crosses the limit of ̀ 400 lakh (aggregate value of clearances) in the current financial year

10. Please discuss the manner of payment of duty under Central Excise Rules, 2002. (4 Marks) Rule 8 of the CER, 2002 provides on a general basis the manner of payment of excise duty. It provides for payment of duty on

aggregated basis (aggregated on monthly/quarterly basis) instead of payment on each and every individual removal of goods. It specifies the following due dates for payment of duty: i) An eligible SSI unit shall pay the duty electronically on quarterly basis by 6th of the following month. In case the assessee is

allowed to make manual payment, then he shall pay excise duty by 5th of following month. However, for the quarter ending on March, the duty in any case shall be paid by 31st March itself.

ii) Other assesses shall pay the duty electronically on monthly basis by 6th of the following month. In case the assessee is allowed to make manual payment, then he shall pay excise duty by 5th of following month. However, for the month of March, the duty in any case shall be paid by 31st March itself.

The duty payment shall be effected through PLA (Personal Ledger Account). The duty payment can be effected in Cash or through Cheque. In case of payment of cheque, it has been specifically provided that the date of presentation of cheque in the designated banks shall be taken as date of payment, subject to the actual realization of cheque.

Tutorial Note: Central Excise Rules, 2002 provides for different manners of payment of duty for different categories of assessee. Rule 8 of the CER, 2002 provides the manner of payment of duty on general basis. But apart from this rule, the other two rules are Rule 17 & 15. Rule 17 of the CER, 2002 provides for payment of duty by 100% EoU. EOU shall pay duty on monthly basis. Rule 15 of the CER, 2002 provides for payment of duty by those availing the benefit of “Compounded Levy Scheme (CLS)” in advance

for a particular period as notified in the Scheme. 11. What is “Personal Ledger Account (PLA)”? How is it maintained? (5 Marks) PLA is an account for payment of excise duty. It is also referred to as Account Current. The provisions relating to its maintenance have

been stated below: i) It shall be maintained in the specified form. ii) The PLA must be prepared in Triplicate by writing with indelible pencil and using double-sided carbon --- original and duplicate

copies of the PLA should be detached by the manufacturers and sent to the Excise Officer in charge along with the Excise Return. Thus, triplicate copy is retained. [Author: Presently, under electronic maintenance of records and e-filing of returns, many such annexures have become outdated]

iii) In PLA (account current), credit is taken by depositing money in the banks on GAR-7 Challan. iv) Debit entry should be made in PLA for effecting payment of excise duty. v) No restriction exists with regard to the minimum amount, which should be necessarily remain in balance to the credit of an

assessee in his PLA. With the monthly payment system, there should be enough credit at the time of payment of duty for the month.

12. With reference to Rule 8(3) and Rule 8(3A) of the Central Excise Rules, 2002 explain in brief the consequences, if duty is not paid

fully on the due date or within 1 month of the due date. (4 Marks)

Rule 8 of Central Excise Rules, 2002 provides for payment of duty on quarterly basis (by eligible SSI) within 6 days (in case of non-SSI units) or on monthly basis (in case of other Units) within 6 days. In case manual payment of duty is allowed to assessee by AC/DC, duty can be paid within 5 days of the month or quarter, as the case may be. If the duty is not paid within the said due dates, then the consequences of non-payment of duty have been provided in Rule 8(3) and 8(3-A) respectively. The said consequences are as follows:


(a) Interest Liability [Rule 8(3)] : If the assessee fails to pay the duty by due date, then he shall be liable to pay interest @ 18% p.a. for the period starting with the expiry of due date and ending on date of payment of the outstanding amount.

(b) Penal Liability [Rule 8(3-A)] : If the assessee defaults in payment of duty beyond 1 Month of due date, then he shall be liable to pay penalty @ 1% per month or part of the month calculated from due date. [In terms of explanation to Rule 8(3-A), for purposes of computation of ‘penalty’, ‘month’ means the period between the 2 consecutive due dates for payment of duty also]

13. XYZ Ltd. (Non-SSI unit) paid Central Excise duty of Rs. 15,00,000 for the goods cleared in the month of December 2015 on Jan 26th,

2016. Arrive at the penalty under rule 8 of the Central Excise Rules, 2002 which is leviable in this case.

The penalty shall be computed as follows (amount in Rs.) — Excise duty payable 15,00,000 Due date of payment of excise duty for the month of December 2015 6th Jan, 2016 Date of actual payment 26th Jan, 2016 Interest under Rule 8(3) • Period = (20 days of Jan) = 20 days • Interest = 51,00,000 * 18% p.a. * 20/ 366

14,754 (rounded off to the nearest of rupee)

Penalty under Rule 8(3A): • (6th Jan, 2016 to 26th Feb, 2016) = 20 days • Penalty not leviable as default is not beyond 1 month

Nil

14. XYZ Ltd. (Non-SSI unit) paid Central Excise duty of Rs. 15,00,000 for the goods cleared in the month of December 2015 on

February 26th, 2016. Arrive at the penalty under rule 8 of the Central Excise Rules, 2002 which is leviable in this case.

The penalty shall be computed as follows (amount in Rs.) — Excise duty payable 15,00,000 Due date of payment of excise duty for the month of December 2015 6th Jan, 2016 Date of actual payment 26th Feb, 2016 Interest under Rule 8(3) • Period = (25 days of Jan + 26 days of Feb) = 51 days • Interest = 51,00,000 * 18% p.a. * 51/ 366

37,623 (rounded off to the nearest of rupee)

Penalty under Rule 8(3A): • (6th Jan, 2016 to 6th Feb, 2016) + (20 days extra makes next month) = 2 months • Penalty leviable as default is beyond 1 month • Penalty = 15,00,000 * 1% * 2 Months

2 months

30,000

[Based on amended Sec 11-A read with Rule 8(4)] 15. Mr A failed filed excise return without actual payment of excise duty. Whether excise duty admitted in return but not paid can be

recovered without issuance of SCN u/Sec 11-A? Non-payment of duty duly reflected in a Return is a case of admitted liability. Provisions of section 11A(16) (as introduced in FA, 2015) are relevant in this regard wherein it has been provided that provisions of section 11A do not apply for duty which has been self assessed, reflected as payable in the Return but has not been paid. The implication of this sub-section is that for admitted liabilities no SCN and adjudication proceedings need to be undertaken. For such liability, provisions of Rule 8(4) of the CER, 2002 apply. This rule provides that provisions of section 11 of the Act shall be applicable for recovery of duty, interest and penalty in case of default. To put it simply, recovery of admitted liability thus can be initiated forthwith once the return has been filed and duty shown payable has not been paid.

16. Briefly state the provision of the Central Excise Rules, 2002 relating to ELECTRONIC PAYMENT OF EXCISE DUTY and ELECTRONIC

FILING OF RETURNS. (Nov 2010- 4 Marks)

E-payment of Excise duty: a) Rule 8 of CER, 2002 makes e-payment mandatory for every assessee. b) Rule 17 of CER, 2002 which governs 100% EoU requires EoU to make payment as per manner specified in Rule 8. Thus, even for

EoU e-payment is mandatory.


E-filing of Excise Returns: a) Rule 12 of CER, 2002 makes e-filing mandatory for every assessee (except those who are availing area-based exemption under

E/N 49/2003 & 50/2003). b) Rule 17 of CER, 2002 which governs 100% EoU makes even e-filing mandatory for every EoU.

Late submission of return will make assessee liable to pay an ‘amount’ (late fee) of Rs 100 per day (maximum Rs 20,000) per return.

17. Is it mandatory to pay duty and / or file various returns ELECTRONICALLY under Central Excise? Also mention the exceptions to it,

if any. i. Is there may provision for submission of revised return under Central Excise? If yes, how can it be submitted and if no, what has

to do ? ii. How can the adjustments be made for over / under payment of duty or non-availment of CENVAT Credit?

(Nov 2013 -6 Marks) (i) E-payment of duty and exception, if any

Yes, it is mandatory to pay duty electronically under Central Excise

Exception – For special reasons, AC/DC may allow assessee to make manual payment. The reasons for giving special benefit shall be recorded by AC/DC.

E-filing of return and exception, if any Yes, every assessee is mandatorily required to file various returns electronically under central excise. Exceptions - Assessees availing certain area based exemption [vide E/N 49/2003 or E/N 50/2003 CE] with respect to specified goods cleared from a unit in the State of Uttrakhand or Himachal Pradesh

(ii) There is no specific provision for submission of revised return under central excise law. If the assessee finds that he has made short payment of duty, he should pay the amount by GAR-7 challan and inform the Department suitably [Sec 11-A contains specific provisions for payment of duty short-levied or short-paid]. In case of excess payment of duty, he can file a refund claim.

(iii) Adjustments for over/under payment of duty Self adjustment cannot be made for over / under payment of duty under central excise. Adjustments for non-availment of credit If the assessee has not availed the cenvat credit, he can avail the same in any subsequent period subject to time limitation of ‘1 year from the date of supporting document’.

RULE 9: REGISTRATION

ACES (AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX): Online Registration at http://www.aces.gov.in

1. The user needs to log onto the system, through internet at http://www.aces.gov.in 2. He/she chooses the Central Excise/Service Tax button from the panel appearing on the top of the webpage. 3. Fills in and submits the form ―Registration with ACES, by furnishing a self-chosen user ID and e-mail ID. User ID, once chosen is final and

cannot be changed by the assessee in future. 5. The system will check for availability of the chosen User ID and then generate a password and send it by e-mail, mentioned by him/her in the

Form. 6. ACES provides assistance of ―Know your location code for choosing correct jurisdictional office. 7. The user then re-logs-in and proceeds with the statutory registration with Central Excise/Service Tax, by filling-in the appropriate

Form namely A-1 or ST-1 etc. by clicking the ―Reg link in the Menu bar that appears on the top of the screen. It is mandatory to use the PAN allotted to the business entity to be registered.

For seeking excise registration, PAN is mandatory. • Government Departments are exempt from the requirement of quoting the PAN in their online application. Applicants other than

Government Departments shall not be granted registration in the absence of PAN. • Registration No. for non-PAN based assessees

[1-4 digits TEMP] + [5-10 Systems generated alpha numeric number] + [11-12 EM (Excise Manufacturer) or ED (Excise Dealer), SD (Service Tax)] + [13-15–Systems generated alphanumeric serial number]

8. The system instantaneously generates an acknowledgement number after which the registration request goes to

… the jurisdictional Superintendent, in case of Service Tax, and … to the Assistant or Deputy Commissioner (AC/DC), in case of Central Excise. If the department needs any clarification, the registration applications can be sent back by the department to the applicants. Similarly, before registration certificate is issued, the applicant can also withdraw his/her application.


After the approval for issuance of a Registration Certificate is given by the competent authority, a message to this effect is sent to the assessees electronically. … In case of Central Excise, the Registration Certificate is issued by the AC/DC, after due processing, and a message to this effect is sent

to the assessees electronically. … Thereafter, the range Officer carries out physical verification of the declared premises and verifies the documents. A message regarding

physical verification is sent electronically. The assessee can view and take a print-out of this.

9. Depending on the option chosen by the assessee, the signed copy of the RC can be sent by post or can be collected by assessee in person. Registration Number

Prior to ACES Post ACES Manufacturer’s Registration No PAN – XM- 001 PAN – EM- 001 Trader’s Registration No PAN – XD- 001 PAN – ED- 001 Service Tax Registration No PAN – ST- 001 PAN – SD- 001

. 18. Explain briefly the provision relating to Registration under Central Excise where a person has more than one premises requiring

registration. (May 2010 4 Marks)

Rule 9 of CER, 2002 requires assessee to get himself registered under excise. It provides that where a person is operating from more than one factory, then each factory shall be required to be registered separately. The registration number is PAN based 15-digit no.

Registration no of 1st factory will be – PAN – EM- 001 Registration no of 2nd factory will be – PAN – EM- 002 & so on.

SAHKARI CHINI- 2014-ALLAHBAD HC Facts Assessee is engaged in manufacture of sugar, molasses and its by-products ‘rectified spirit and denatured spirit’.

It applied for a SINGLE REGISTRATION to cover both ‘distillery unit’ and ‘sugar unit’ Both the units were working under same factory premises and management and staff was also common.

Issue Whether single registration can be obtained in respect of both the units? Held YES

… Separate registration is required when there are more than one premises, meaning thereby, different premises … In instant case, premises are common and, therefore, requirement of separate registration is not applicable. … Assessee is entitled to single registration.

19. Briefly mention any four categories of persons who are exempted from obtaining Registration under Rule 9(2) of the Central Excise

Rules, 2002. (Nov 2012 3 marks) (Nov 2009 2 Marks) (May 2009 4 Marks)

Sec 6 read with Rule 9(1) of CER, 2002 makes registration mandatory for every person who is engaged in manufacture, storage, trade or otherwise use of any excisable goods. However, Rule 9(2) empowers CBEC to grant exemption from registration. In exercise of that power, CBEC has exempted following persons from registration: 1) Manufacturer of 100% Exempted goods or Nil Duty goods (subject to the declaration to be made in the specified form);

Small scale units availing the slab exemption based on value of clearances under a notification. However, they have to give a declaration when their clearances touch Rs 90 lakh.

2) R/M Supplier getting goods manufactured on Job-Work (where ED liability is at the end of job-worker only); 3) Manufacturer doing manufacturing process in Customs Warehouse (following the warehousing procedure under the Customs

Act, 1962 subject to certain prescribed conditions); 4) Trader of excisable goods (other than First Stage Dealer and Second stage dealer) 5) User of excisable goods (when he is not availing end-use based exemption)

Further, following entities are deemed to be registered under excise:

1) An 100% EoU which is having no inter-linkage (neither in terms of sale nor in terms of purchase) with the Domestic Tariff Area; 2) A godown or retail outlet of a Duty Free Shop appointed/licenced under Customs Act, 1962.

20. Briefly mention the categories of persons who are required to take registration under the Central Excise law.

The following persons are required to take registration under the Central Excise Law: 1) Every manufacturer of excisable goods (including Central/State Government undertakings or undertakings owned or controlled by

autonomous corporations) on which excise duty is leviable. 2) First stage or second stage dealers (including manufacturer’s depot) desiring to issue cenvattable invoices. 3) Persons holding private warehouses for storing non-duty paid goods.


4) Persons who obtain excisable goods for availing end-use based exemption notification. 5) Exporter-manufacturers under rebate/bond procedure; and Export Oriented Units, which have interaction with the domestic

economy (through DTA sales or procurement of duty free inputs). .

6) IMPORTER who issues an invoice on which cenvat credit can be taken. 21. State in brief the penal provisions under the Central Excise Act and rules made thereunder if a manufacturer of excisable goods does

not apply for registration. (Nov 2008 4 Marks)

As per Section 9 of the Central Excise Act, 1944, non-registration is an offence under excise. Sec 9 provides that any person who contravenes the provisions of rules regarding registration of a unit shall be punishable with imprisonment upto 7 years and fine (without limit) if the duty leviable on the excisable goods exceeds Rs. 50,00,000. The imprisonment should be minimum for six months unless there are special and adequate reasons for granting lesser punishment. However, if the duty leviable on goods is less than or equal to Rs. 50,00,000, imprisonment upto 3 years or fine or both can be imposed.

Under Rule 25 of the Central Excise Rules, 2002, where any manufacturer or producer engages in manufacture, production or storage of any excisable goods without having applied for registration, all such goods shall be liable to confiscation. Moreover, such manufacturer/producer shall also be liable to a penalty not exceeding the duty on such excisable goods or Rs 5,000 (*Amended in 2015), whichever is greater.

22. With reference to the Central Excise Act, 1944 and the rules thereunder, whether the following persons require registration or not?

Explain briefly: (i) Persons, who manufacture excisable goods chargeable to “nil” rate of duty; (ii) Central Government undertakings manufacturing excisable goods; (iii) 100% EoU

(3*2 = 6 Marks) Rule 9 of the Central Excise Rules, 2002 specifies the various categories of person that require registration under Central Excise. CBEC

has via notification number 36/2001 has exempted certain persons from registration in certain situations. Based upon that registration requirements in the given situation has been explained briefly: (i) Persons, who manufacture excisable goods chargeable to “nil” rate of duty: Though every manufacturer of excisable goods

require registration, a manufacturer manufacturing such excisable goods on which no duty is payable has been exempted from registration subject to the condition of submission of prescribed declaration. Thus, such person need not get themselves registered.

(ii) Central Government undertakings manufacturing excisable goods: Sec 3(1-A) of the Central Excise Act, 1944 provides that excisable goods produced or manufactured by or on behalf of Government shall be treated in the same manner as these are treated when produced or manufactured by some other person. Thus, even Central Government undertakings producing or manufacturing any excisable goods are equally liable for payment of excise duty. That being so, they will be required to obtain central excise registration.

(iii) 100% EoU: 100% Export Oriented Units have been exempted from the requirement of obtaining central excise registration as it is they are treated as deemed registered unit under Central excise provided they have no inter-linkages with the domestic tariff area (DTA) either by way of purchase of inputs or sale of goods. If they have any inter-linkage with the DTA, then they shall be required to obtain separate central excise registration.

23. Briefly examine the correctness or otherwise of following statement:

(i) Exemption from duty does not mean exemption from registration. (3 Marks)

The given statement is “correct”. While exemption from duty is governed by Sec 5-A of the Central Excise Act, 1944 and is the prerogative (*exclusive right) of Central Government, exemption from registration is governed by Rule 9(2) of the Central Excise Rules, 2002 and is the prerogative of CBEC. Since exemption from registration can be granted by CBEC only, exemption from duty by Central Government will not automatically lead to exemption from registration also. Though, at present, CBEC has exempted registration for those manufacturing units which are exempt from payment of excise duty and submits prescribed declaration.

24. State the obligation of a SSI unit to file declaration under the following circumstances:

Year Turnover (Rs in lakhs) 2006-07 45 2007-08 80 2008-09 100

(Nov 2008 3 Marks) Rule 9 of Central Excise Rules read with N/N 36/2001 contains provisions relating to registration of excise assessee. In relation to SSI

unit, it has been provided that SSI unit shall be exempted from taking registration subject to the condition that it filed a declaration. It


shall be even exempted from filing a declaration if the aggregated value of clearances in the previous year is upto 90 lakhs. Keeping in mind these provisions, the obligation of SSI unit in the given situation are as follows:

Year Turnover Registration Declaration Filing 2006-07 45 lakhs Not Required

(as final product is exempted from duty)

Not Required (as in PY 2005-06 aggregate value of clearances is not exceeding Rs 90 lakhs –taking FY 2006-07 as the first year of operation)

2007-08 80 lakhs Not Required (as final product is exempted from duty)

Not Required (as in PY 2006-07 aggregate value of clearances is not exceeding Rs 90 lakhs)

2008-09 100 lakhs Not Required (as final product is exempted from duty)

Not Required (as in PY 2007-08 aggregate value of clearances is not exceeding Rs 90 lakhs) Tutorial Note: However, in next year 2009-10 declaration need to be filed.

25. Answer the following:

(i) Whether an applicant can make manual application for excise registration? (ii) Whether an applicant can apply for temporary registration, pending allotment of PAN to him? (iii) Within how many days registration certification is granted to applicant – 2 days or 7 days? (iv) Whether physical verification of premise is must before grant of registration certificate?

As per amended provisions relating to the notification, the answer to above questions are as follows:

(i) Manual application is not allowable. Registration application shall be submitted online at www.aces.gov.in.

(ii) Without PAN no registration can be granted to the applicant. Only Government Department can get registration without PAN.

(iii) Registration Certificate shall be granted within 2 days of submission of complete registration application.

(iv) Physical verification of premises is done after grant of registration certificate and not before. FOR KNOWLEDGE PURPOSE ONLY

General rule: Each manufacturing premise (i.e., factory) shall be registered separately. Special Registration requirements: .

1) Single registration for all premises in jurisdiction of same Principal Chief CCE / Chief CCE • CNG manufacturers 1. CNG manufacturer can obtain a single registration for all premises within the jurisdiction of single

Principal Chief CCE / CCE. 2. Registration shall be taken from Principal CCE / CCE.

. 2) Centralized Registration facility (by exempting multiple premises and registering centralized billing premise) .

Exemption from reg. Conditions to be fulfilled • Mines producing coal, coke or Tar (i.e. goods

falling under chapter heading 2701, 2702, 2703, 2704 and 2706)

Multiple mines 1. Centralized billing or accounting system is in existence and

2. Premise from where centralized billing or accounting is done is registered.

• Manufacturer of recorded smart cards

Multiple manufacturing units

1. Centralized billing or accounting system is in existence and


• Manufacturer of aluminum roof panels

[w.e.f. 8th June, 2015] Multiple manufacturing units

1. Such roofing panels are consumed at the site of manufacture for execution of the project.

2. Centralized billing or accounting system is in existence and


3) Deemed Registration .

Registered under Deemed Registration • 100% EoU Licensed or appointed under Customs Act, 1962 as ‘customs

warehouse’ and having no inter-linkage (neither in terms of sale nor in terms of purchase) with the domestic tariff area.

Such unit shall be deemed to be registered as ‘factory’.

http://www.aces.gov.in/


• Duty free Shop at International Airport

Licensed or appointed under Customs Act, 1962 as ‘customs warehouse’

Such duty free shop shall be deemed to be registered as ‘warehouse’.

.

ED PAYMENT BY 100% EOU - RULE 17 [Amended in Year 2015] 26. Briefly explain the procedure for removal of goods by 100% Export Oriented Unit for domestic tariff area?

(Nov 2007 4 Marks) EoU is liable to pay excise duty, but the quantum of ED shall be determined differently. In terms of proviso to Sec 3(1), a 100% EoU

shall be liable to pay excise duty of an amount equivalent to aggregate of Customs Duties leviable on importation of like article into India. It shall following procedure as laid down in Rule 17 of Central Excise Rules, 2002: 1) Goods shall be removed under cover of excise invoice. 2) It shall pay excise duty on monthly basis by 6th. Duty shall be paid electronically. However, for the month of March, duty shall be

paid by 31st March. [in exceptional situations, AC/DC may permit manual payment of duty. In that case, due date shall be 5th of following month]

3) It shall maintain accounts of production and removal of goods in Form AC-1. 4) It shall submit monthly returns (in Form ER-2) within 10 days from close of month. At present, the return shall be submitted

electronically. 5) If ER-2 return is filed late by EOU, an ‘amount’ (late fee) of Rs 100 per day (subject to maximum Rs 20,000) per return is payable

[Rule 17(6) inserted w.e.f. 1-3-2015].

RULE 10: RECORDS [Amended in Year 2015] 27. Briefly explain: Daily Stock Account

(May 2008 2x2=4 Marks) Daily Stock Account: Rule 10 of Central Excise Rules, 2002 contains the provisions relating to daily stock account. It is an account in which stock position of final product is recorded on daily basis. It contains details as to opening stock, production of day, clearances during day and closing stock at the end of the day. No statutory format has been prescribed under present CER, but it is continued to be maintained in Form: RG-1 which was prescribed earlier. It is statutory record for purposes of excise and shall be preserved for a period of 5 years from the end of the period for which it is maintained.

DSA can be maintained/preserved in electronic form and in that case, every page shall be duly authenticated by means of a digital signature.

[For KNOWLEDGE PURPOSES] [Similar discussion is there in Service Tax also] CBEC Notification No. 18/2015 dated 6th July, 2015

.

• Digital Signature (Class 2 or Class 3 level) Every assessee proposing to use digital signature shall use Class 2 or Class 3 Digital Signature Certificate (DSC) duly issued by the Certifying Authority in India.

• Advance Intimation to AC/DC as to intended use of Digital Signature Every assessee proposing to use digital signatures shall intimate the details such as

… name, e-mail id, office address and designation of the person authorized to use the digital signature certificate, … name of the Certifying Authority, … date of issue of Digital Certificate and validity of the digital signature etc., to the jurisdictional AC/DC at least 15 days in advance.

In case of any change in the details submitted to the jurisdictional AC/DC, complete details shall be submitted afresh within 15 days of such change.

Assessees already using digital signature shall intimate the above details within 15 days of issue of the notification.

• Electronic Records maintenance: Separate electronic records for each registered factory Every assessee opting to maintain records in electronic form, who has more than one factory, shall maintain separate electronic records for each factory.

• Demand of records by CEO – by letter or email & Submission of e-records either through e-mail or on Storage device (like Pen Drive)

CEO may request/ call for such specified records and invoices by letter or e-mail; and On such request, assessee shall produce the specified records in electronic form and invoices through e-mail or on a specified storage device in an electronically readable format

• Department may summon printouts and may also require physical authentication by assessee: During an enquiry, investigation or audit, vide summons under Sec 14 of the CEA, 1944, the CEO,

… may direct an assessee to furnish printouts of the records in electronic form and invoices and


… may resume printouts of such records and invoices after verifying the correctness of the same in electronic format and after the print outs of such records in electronic form have been signed by the assessee or any other person authorised by the assessee in this regard, if so requested by such CEO.

• Assessee to keep back-up [for a period of 5 years] Every assessee who opts to maintain records in electronic form shall ensure that appropriate backup of records in electronic form is maintained and preserved for a period of 5 years immediately after the financial year to which such records pertain.

Summarization of Excise and ST provisions

Central Excise Assessee ST assessee E-Records (authentication by digitally certified signature)

Rule 10 of CER, 2002 (separate record for each factory)

Rule 5 of STR, 1994 (separate record for each ST registration)

Class 2 or 3 level of DSC to be used.

E-Invoicing (authentication by digitally certified signature)

Rule 11 of CER, 2002 (Transporter shall be handed over hard copy)

Rule 4A of STR, 1994


Consignment Note issued by GTA (authentication by digitally certified signature)

------- Rule 4B of STR, 1994


.

RULE 11: INVOICING 28. Is it required to issue INVOICE for removal of goods even for captive consumption. If so, why?

[CWA Final, June 2009] Captively consumed goods are deemed to be removed from the factory on the date of their issuance to the next process. Though

captively goods have been exempted from payment of excise duty in terms of E/N 67/95, still invoice is required as Rule 11 of CER, 2002 makes it mandatory to issue invoice with each and every removal of EXCISABLE GOODS.

Author: Contrary Judicial opinion 1) In case of DALMIA CEMENTS – 2008- TRIBUNAL held that if the goods are not physically removed from the factory and duty is not

payable, then invoicing is not required under Rule 11 of CER, 2002. In other words, if duty is not payable on captively consumed goods, then invoicing is not required.

RULE 12: EXCISE RETURN [Amended in Year 2015]

ACES (AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX): Online Registration at http://www.aces.gov.in .

• ACES is a software application / online portal application developed by CBEC so as to improve tax payer services and ensure transparency, accountability and efficiency in the administration of central indirect taxes.

• It helps the users in … online registration, e-filing of returns, … e-filing of claims, intimations and permissions, … e-filing of requests for provisional assessment, … online tracking of documents etc.

29. What do you mean by scrutiny of assessment in view of the self-assessment procedure under Central Excise?

(Nov 2008 3 Marks) In view of the self-assessment procedure wherein the assessee himself assesses the duty liability, the Departmental officers have been

entrusted with the responsibility of scrutinizing the assessment for verification of its correctness. For this purpose, the proper officer may on the basis of information contained in the return filed by the assessee and after such further

enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee on the goods removed, in the manner to be prescribed by the Board [Rule 12(3) of CER, 2002]. So as to facilitate scrutiny, it shall be the responsibility of every assessee to make available to the proper officer all the documents and records for verification as and when required by such officer.

[For KNOWLEDGE PURPOSES] [Similar discussion is there in Service Tax also (with slight differences] .

RETURN - GUIDELINES FOR DEATILED SCRUTINY OF EXCISE RETURNS CIRCULAR NO. 1004/11//2015-ST dated-21ST JULY, 2015

http://www.aces.gov.in/


• PRELIMINARY ONLINE SCRUTINY (It is done online in ACES) The purpose of preliminary scrutiny of returns includes ensuring the completeness of the information furnished in the return, arithmetic correctness of the amount computed as duty and its timely payment, timely submission of the return and identification of non-filers and stop-filers. On the basis of the validation checks incorporated in ACES, preliminary scrutiny of all returns is done online in ACES and the returns having certain errors are marked for Review and Correction (RnC) on an observation sheet generated by the system. The returns marked for review are to be validated in consultation with the assessee and re-entered into the system.

• DETAILED MANUAL SCRUTINY (to be done by CEO on selective basis) o SCOPE of scrutiny

The purpose of detailed manual scrutiny of returns is to ensure the correctness of the assessment made by the assessee. In doing this, the proper officer must rely mainly on assessment-related documents like agreements/contracts and invoices.

Detailed financial records should not be called for in a routine manner

Audit under ST is different from detailed manual scrutiny, • The scope of audit is to inspect the financial records of a company for a complete financial year in order to identify non-

compliance issues and to evaluate the assessee's internal control system. .

• However, a detailed scrutiny programme will typically supplement the audit programme. • At present, detailed manual scrutiny will be done only in respect of those assesses whose accounts are not audited. .

o Selection of Assessees (FOCUS on those ASSSESSEE WHOSE ACCOUNTS HAVE NOT BEEN AUDITED):

o Detailed scrutiny of a minimum 2% and maximum of 5% of the total returns received in a month shall be mandatorily performed by the proper officer.

o Selection of returns for detailed scrutiny shall be based on risk parameters and the risk tools (which have been developed). o The focus of detailed manual scrutiny of the returns would be on the returns of those assessees which are not being audited. o Once return of the assesse has been selected for detailed scrutiny, the return of the assesse shall not be selected again for detailed

scrutiny for the next 12 months.

o METHODOLOGY: (Scrutiny Process) o Scrutiny to most recent return: Once an assesse is selected for detailed scrutiny, most recent return filed by that assesse should be

used for conducting scrutiny. o Documents and returns may be called for by the officer.

30. Briefly state the provisions under the Central Excise Rules, 2002 with respect of filling of ‘Annual Installed Capacity Statement’.

(Nov 2011 Marks 3) (May 2010 2 Marks) Rule 12 of Central Excise Rules, 2002 requires filing of ‘Annual Installed Capacity Statement’. The following are relevant points in this

regard: a) Every assessee shall file this statement except the manufacturer of following goods:

i) Biri (when manufacturer without use of power); ii) Match (when manufacturer without use of power); iii) RCC Pipe

b) This statement shall be filed on annul basis by 30th April of succeeding year. c) This statement shall be submitted electronically. d) If such statement is filed late, an ‘amount’ (late fee) of Rs 100 per day (subject to maximum Rs 20,000) per statement is payable

Time limit for filing of Annual Installed Capacity Statement: Rule 12 of CER, 2002 requires specified assesses to file Annual Installed Capacity Statement [Form ER-7] by 30th April of the succeeding financial year.

31. Explain briefly “Annual Financial Information Statement” under the Central Excise Rules 2002.

(May 2011 3 Marks) AFI (Annual Financial Information) Statement: Rule 12 of Central Excise Rules, 2002 provides for submission of ‘Annual Financial Information (AFI) Statement”. This statement shall

be submitted on annual basis. The due date shall be 30th Nov of the succeeding year. Following assesses have been exempted from the requirement of filing AFI:

(i) Indian Ordnance Factory (ii) Assesses whose ED payment in the year is less than 100 lakhs

Further, this statement shall be submitted electronically. Also, if such statement is filed late, an ‘amount’ (late fee) of Rs 100 per day (subject to maximum Rs 20,000) per statement is payable

[w.e.f. 1-3-2015].

© DG Education (P) Ltd [CX : Central Excise Rules, 2002] 32. With reference to Rule 12(2) of the CER, 2002 explain in brief the provisions of the Return in form E.R.-4, to be filed with the

Central Excise Department by an assessee. What is the maximum penalty / LATE FEES leviable for non-submission or late submission of E.R.-4 return? (4 Marks) “E.R-4” is the excise return which shall be furnished by assessee in addition to normal excise returns. E.R.-4 return is an annual return

which shall be furnished by 30th November of the succeeding year. For example, E.R.-4 relating to the year 2015-16 shall be furnished by the assessee latest by 30th Nov, 2016.

E.R-4 contains details of financial information relating to the assessee. At present, in relation to any FY it needs to be submitted by those assesses only paid total ED (PLA + CCr) of Rs 100 lakhs or more in that FY.

Penalty of LATE submission of E.R.-4 Return: Late submission of E.R.-4 return will attract LATE FEES (@100/- day) in terms of Rule 12 of CER, 2002. The maximum amount prescribed therein is Rs 20,000/-.

Penalty of NON-submission of E.R.-4 Return: Non-submission of E.R.-4 return will attract residuary penalty in terms of Rule 27 of CER, 2002. The maximum penalty prescribed therein is Rs 5,000/-.

RULE 15: COMPOUNDED LEVY SCHEME ON NOTIFIED GOODS 33. Distinguish between compounded levy scheme and duty based on Annual Production capacity under Central Excise.

(Nov 2009 4 Marks) Following are the notable differences between Compounded Levy Scheme and Annual Production capacity based ED scheme:

Compounded Levy Scheme Charging Duty based on Annual Production Capacity Governing Provision Rule 15 of CER, 2002 Sec 3-A of CEA, 1944 Coverage 2 products:

1) Aluminum Circles; 2) Stainless Steel Pattis and Patta

4 products 1) Pan Masala, containing tobacco; 2) Pan Masala, not containing tobacco; 3) Unmanufactured Tobacco (Branded); 4) Chewing Tobacco; 5) Jarda Scented Tobacco;

Nature of Scheme Optional Mandatory Objective of Scheme To provide an alternative method of payment

of ED to manufacturers belonging to unorganized sector

To plug the massive tax-evasion prevailing in these commodities

RULE 16: RETURN OF DUTY PAID GOODS INTO FACTORY 34. On March 15, 2012 XYZ Co Ltd., manufacturer of excisable goods,, cleared a consignment on payment of appropriate duty of

excise from its factory. The said consignment cleared from the factory to PQR Ltd was returned on Dec 20, 2013 as they were found to be surplus to the requirement of buyer. XYZ Co Ltd has accepted the sales return and received back the duty paid finished goods into the factory. It intends to book credit of duty paid as it is permitted by Rule 16 of CER, 2002. Whereas, in terms of Rule 4 of Cenvat Credit Rules, 2004, the manufacturer shall not take Cenvat credit after one year of the date of issue of any of the supporting documents (as specified in Rule 9 of Cenvat Credit Rules, 2004). Whether such sales return being much after period of 1 year, it is entitled to book credit as per Rule 16 of CER, 2002?

OR Whether restriction of 1 year (as stipulated under CCR, 2004) shall be applicable to credit booked on finished goods returned to the factory for being remade, reconditioned etc in terms of Rule 16 of CER, 2002?

Rule 16 of Central Excise Rules, 2002 deals with receipt for goods produced in the same factory brought back for being re-made,

reconditioned etc. To make the credit eligible on such receipt, the rule creates a deeming fiction as if these goods have been received are inputs and allows credit after entering the particulars of such receipt in the records. Credit is thus taken by making appropriate entry in records and not on the basis of documents issued by a seller. Further, there is no bar of time in the rule 16 itself for receipt of the goods back in the factory. When rule 16 does not provide for any time limit, the same cannot be read into the rules indirectly through rule 4. Taking into consideration the intent behind the amendment, scope of Rule 9 of the CCR, 2004 and scope of rule 16 of the CER, 2002, it was concluded that the time-limit prescribed in Rule 4 of the CCR, 2004 CCR, 2004 would not apply when goods are brought back to the factory for reprocessing, reconditioning etc under Rule 16 of the CER, 2002.


Author: The above stated view has been taken in recent conference of Commissionerates. 35. On March 15, 2007 XYZ Co Ltd. who are manufacturers of industrial needles cleared a consignment on payment of appropriate

duty of excise from its factory in Tiruvottiyer. The said consignment cleared from the factory to PQR Ltd was returned on Dec 20, 2008 to the same factory as they were found to be defective. Upon receipt of the defective needles as inputs in their factory at Tiruvottiyer, XYZ Co Ltd took credit of the duty already paid at the time of clearance of goods on Dec 15, 2008. On Dec 25, 2008 XYZ Co Ltd were able to rectify the defects and dispatch the goods by utilizing the credit available in the Cenvat Account of an amount equal to the Cenvat Credit taken at the time, when the defective goods were received in the factory on Dec 20, 2004. When the goods were returned back on Dec 25, 2008 to PQR Ltd, under cover of excise invoice showing payment of duty by XYZ Co Ltd, the excise authority raised 2 objections: (i) That since no manufacturing activity was involved in the rectification of the defective needles the amount paid by XYZ Co Ltd,

at the time of clearance of the rectified needles, which was the same amount taken as input credit can’t be considered as duty of excise.

(ii) XYZ Co Ltd should have made actual payment of duty in cash and was not entitled to pay excise duty by adjustments from their Cenvat Account on Dec 25, 2008.

Briefly discuss with reference to the provisions of the Central Excise Rules, 2002 and the Cenvat Credit Rules, 2004, whether the stand taken by the Central Excise Authority is correct.

(4 Marks) Return of defective goods and bringing them back into the factory for the purpose of re-processing is governed by Rule 16 of the

Central Excise Rules, 2002. It permits such receipt and also allows credit of the amount initially paid at the time of removal from the factory. If the process to which such goods are subjected doesn’t amount to “manufacture”, then on removal of processed goods the amount equal to the credit availed on their return shall be paid back. In this backdrop, the validity of the stands taken by the Central Excise Authority has been discussed below: i) Objection No. 1: payment of sum at the time of removal of needles after rectification of defect is not payment of excise duty The excise authority has raised the objection that payment of such amount can’t be said to be payment of excise duty, there being

no manufacturing activity involved. Their objection is PERFECTLY VALID as Rule 16 requires payment of an amount and not that of excise duty. Payment of each and every sum as required under the Central Excise Law can’t be said to be payment of “excise duty”, because “excise duty” is only that amount which is payable on account of a manufacturing activity.

ii) Objection No 2: payment of the said amount shall be made in cash only and not by way of adjustment from cenvat account Rule 3(4) of Cenvat Credit Rules, 2004 explicitly provides that the Cenvat credit may be utilized for payment of, inter alia, an

amount payable under Rule 16 of Central Excise Rules, 2002.

36. ‘A’ Company manufactures and sells METAL CONTAINERS. Some of the metal containers sold to Company ‘B were found to be defective and were returned to ‘A’ Company for remaking. Company ‘A’ manufactures new metal containers out of such returned defective containers and takes cenvat Credit equal to the duty paid earlier, when the metal containers were originally supplied treating these as ‘inputs’. The defective containers are de-seamed and the metal sheets obtained are sent for printing. After printing the sheets are cut to size and roiled into the size of finished metal containers. Then they are sent to the welding line for making new containers.

Company ‘A’ claims that since manufacture of a new product has taken place the defective containers should be treated as ‘inputs’ and cenvat Credit allowed on the same. The Excise Department’s view is that no new product has come into existence since the defective containers were not melted and remade. The defective containers being ‘final products’ cannot be considered as inputs.

Briefly discuss with reference to the Central Excise Act and Rules whether the stand taken by the Department is correct. The issue for consideration before us is whether defective final product returned to the factory (in this case, Defective containers)

can be considered as ‘INPUT’ within the meaning of CCR, 2004 The processes carried out by the assessee do not involve merely removing the defect in the defective metal containers; in fact, it

involves whole of the manufacturing activity of new containers. Since the goods used in the manufacture of final products are ‘inputs’, therefore, defective metal containers used in the manufacture of ‘new metal containers’ are ‘inputs’ and, accordingly, the duty paid thereon is admissible as CENVAT credit. On identical facts, it was so held in case Tin Manufacturing Co. – 2000-Tribunal – Larger Bench.

Even otherwise, at present, Cenvat credit allowable in terms of Rule 16 of CCR, 2004. Rule 16 is a special provision in respect of return of defective goods. It specifically provides that where any duty paid goods is returned to the factory, then cenvat credit of the duty already paid on such goods shall be allowed in terms of CCR, 2004 irrespective of such goods being returned for the purposes of re-making or for refining, repair or reconditioning. However, upon subsequent clearance, (a) If goods are subjected to remaking process, reassessed excise duty shall be payable and (b) In other cases, credit taken on return goods shall be reversed.

In view of the aforesaid discussion, the stand taken by department is not correct.


Tutorial Note: Some of the other related issues have also been discussed for sake of knowledge: 1) Does Rule 16 permit returned goods being cleared to person other than who returned the goods to the assessee ? or Whether the returned goods must be again cleared to the same person who returned such goods?

INDIAN ALUMINIUM CO. LTD. -2009- KERALA HC held that: Rule 16(1) (dealing with treatment of re-entry of final goods in factory) and Rule 16(2) (dealing with treatment on re-removal of returned

goods) operate differently. While Rule 16(1) entitles a manufacturer for duty credit for goods returned, Rule 16(2) provides for duty payment on clearance of goods after availing credit under sub-rule (1). The entitlement for credit under sub-rule (1) is absolute and the only condition is return of goods by the purchaser to the manufacturer for being re-made, refined, re-conditioned or for any other reason. There is no other condition that such goods must be returned/cleared back to the same party. If the original purchaser has treated the same as cancellation of sale, then, he will not take the goods back; but will claim the price. In other words, in order to avail Cenvat credit u/Rule 16(1) there is no requirement for manufacturer to clear the returned goods to the same party who returned the goods.

37. The appellant assessee were the manufacturers of rubber products. Some of the defective goods were returned by the buyers and

the appellants took Cenvat credit of the duty originally paid under Rule 16 of Central Excise Rules, 2002. Defective goods were re-processed, which activity however yielded only scrap and scrap was cleared on payment of duty. Department claimed that Cenvat credit taken by the appellants should be reserved since reprocessing did not amount to ‘manufacture’ whereas appellants argued that the process cannot be anything other than ‘manufacture’ in as much as the defective goods returned by their buyers were put to normal process of manufacture.

Offer your comments to the appellants referring to decided case law. (May 2007 5 Marks) As per the given facts, the assessee is manufacturer of rubber products. During a particular period, some of these products were found

defective and returned by the buyers, whereupon assessee took Cenvat credit of the duty originally paid on the goods, and reprocessed the goods, which activity however yielded only scrap. This scrap was cleared on payment of duty. According to the department, the activity undertaken by the appellants on their defective final products did not amount to “manufacture” as it yielded only scrap and, therefore, in terms of Rule 16 of Central Excise Rules, 2002, they should have reversed the credit taken on the defective final products and should have cleared the scrap without payment of duty. However, according to assessee, the above process cannot be anything other than “manufacture” inasmuch as the defective goods returned by their buyers were put to the normal process of manufacture.

The issue for consideration before us is that whether the process which otherwise is the normal process of manufacture would cease to be “manufacture” merely because it did not result in the production of the intended final product.

The said issue was considered by Tribunal in case of SUNDARAM INDUSTRIES LTD.- 2006. In that case, it was decided that the process would not cease to be “manufacture” merely because it did not result in the production of the intended final product. The “process” undergone by the defective/returned final product amounted to “manufacture” though it resulted in scrap. Thus, Rule 16 of CER, 2002 gets attracted and it was open to assessee to remove the scrap on payment of duty, after availing Cenvat credit on the defective/returned final product, by the processing of which the scrap was produced.

RULE 20: EXCISE WAREHOUSING 38. Write a brief note on statutory provisions in respect of warehousing.

Warehousing allows removal of specified goods from factory to warehouse or from one warehouse to another warehouse without payment of duty. Rule 20 of the CER, contains provisions relating to warehousing. Under rule 20, the CG is authorised to extend the warehousing provisions by issue of notifications for the goods specified therein. The facility shall be available subject to specified conditions, limitations, safeguards and procedure. The consignee is responsible for payment of duty on goods removed from factory to warehouse or one warehouse to another. However, If the goods dispatched for warehousing or re-warehousing are not received in the warehouse, the liability to pay duty will be on the consignor.

39. With reference to Central Excise Law, list the goods in respect of which warehousing provisions are applicable. Rule 20 of Central Excise Rules, 2002 provides warehousing facility in relation to excisable goods. As per this facility, such excisable

goods as are notified by the CG may be removed from the factory to registered warehouses without payment of excise duty. Goods Notified u/ R- 20(1) for warehousing facility - CG Procedure specified for such removal

N/N Situation N/N Permissible W/Hing period 46/2001 Goods intended for storage in a warehouse registered at such

places(as may be specified by CBEC) and export therefrom (by specified exporters) - Commissioner specify places under his jurisdiction at which

alone warehouse may be registered under Rule 9 of CER,

581/18/2001 - No period specified


2002] 47/2001 Specified Goods can be warehoused without payment of duty

[Examples: Benzene, propylene etc.] - Commissioner specify places under his jurisdiction at which

alone warehouse may be registered under Rule 9 of CER, 2002.

579/16/2001 - All goods – 3 years

17/2013 Goods intended - for storage in a godown or retail outlet of a Duty Free Shop

in the Departure Hall /the Arrival Hall of International Airport, appointed or licensed as “warehouse” under Sec 57 or 58 of the Customs Act, 1962, as the case may be, and

- for sale therefrom, against foreign exchange to passengers going out of India or to the passengers arriving from abroad,

970/04/2013 - Perishable goods – 6 months

- Other goods – 1 year [Extension can be given by AC/DC- but total period shall not exceed 3 years]

40. Write a brief note on the WAREHOUSING PROCEDURE for goods removed from the factory under the Central Excise Act, 1944

and Rules made there under. As mentioned in table, procedure in each case is different. For sake of question, procedure under 579/16/2001 (warehousing of specified goods like benzene etc) has been stated below: N/N 579/16/2001 The consignor of goods who intends to remove such goods from the factory without payment of duty shall follow the following procedure: 1) Consignor shall prepare an application in quadruplicate. 2) He shall send to the destination warehouse Original/duplicate/triplicate of application. 3) 4th copy of application shall be send to SCE within 24 hrs. 4) The consignee, on arrival of goods, shall verify the same with 3 copies. He shall :

i) Send original to his SCE; ii) Send duplicate to consignor; iii) Retain the triplicate.

5) SCE of consignee shall countersign the application and send it to SCE of consignor.

The consignor shall retain the duplicate copy of application for his record. The consignor shall receive this duplicate copy (known as Warehousing Certificate) within 90 days of removal of goods. If it is not received within 90 days, then consignor shall pay appropriate duty leviable on such goods.

EXPORT WAREHOUSING [Clearance of goods from factory without payment of duty and warehousing them in terms of Rule 20] 41. Discuss the provisions governing packing, re-packing, labelling or re-labelling within the warehouse in respect of EXPORT

WAREHOUSING. The operations of packing, re-packing, labelling or re-labelling within the warehouse in respect of excisable goods received and stored in the warehouse are governed by the procedure specified under Rule 20 of Central Excise Rules, 2002. Suitable entries must be made in the Export-Warehouse Register. In case of non-reconciliation of quantity, after adjusting any wastage or refuse, the differential quantity shall be treated as unaccounted and action for recovery of duty will be initiated. The exporter may procure packing or labelling material and bring the same into the warehouse under the warehousing procedure itself. No duty paid goods will be permitted to be brought into the warehouse. However, an exporter desirous of bringing duty paid packing material required for packaging of other material in the warehouse, may submit a written request to the jurisdictional AC/DC, who may grant the permission for a period of one year at a time. The exporter will maintain proper account of such goods and shall not claim any export benefit like rebate of duty paid on the said material. Where the process of packing, repacking, labelling or relabelling amounts to manufacture in terms of the provisions of the Central Excise Tariff Act, 1985, the goods permitted for clearance for home consumption shall be assessed accordingly.

42. Briefly discuss the provisions in respect of waiver of PHYSICAL WAREHOUSING in case of exigency. [ICAI Practice Manual / Nov 2015]

The officer-in-charge of the warehouse may permit waiver from physical warehousing (i.e. permitting export without physically storing the goods in the warehouse) where the exporter so requests in writing. However, aforementioned permission will be given only if the formalities relating to record-keeping are completed in usual manner with suitable record in the Warehouse Register: ‘Warehousing waived’. It is to be kept in mind that aforesaid permission is given in the following exceptional cases: (i) where delay occurred due to delayed supply from the factory; or


(ii) Longer transit period; or (iii) Requirement of immediate export; or (iv) Any other genuine reasons Besides, it is also essential that the entire consignment is entered for export in the original packing. Such cases of permission granted are required to be reported to the Superintendent- in-charge of the warehouse at the earliest.

43. Can the goods meant for export kept in the WAREHOUSE be diverted for home consumption? What is the procedure to be

followed in this regard? (Nov 2013 -3 Marks) (Nov 2009- 4 Marks)

Rule 20 of CER, 2002 permits duty-free warehousing for purposes of exports, i.e., any goods can be removed from factory without payment of duty and can be stored in warehouse for export therefrom. However, if the goods so taken are not exported, then these can be diverted for home consumption (i.e., sale within India) subject to compliance with following procedure in this regard: i. With the permission of concerned CEO, the goods can be cleared for home consumption on invoice after payment of duty,

interest and any other charges. Necessary entries are to be made in the export warehouse register maintained by the exporter in the warehouse.

ii. Credit will be permitted in the Running Bond Account equivalent to the duty involved in the goods so diverted. If entire quantity is not delivered, calculation shall be done on pro-rata basis.

iii. Exporter has to pay an interest @24% p.a.** on the amount of duty payable on such goods from the day of clearance from the factory of production or any other premises approved till the date of payment of duty and clearance [Circular No. 581/18/2001-CX]**

**Tutorial Notes: Rule 19 of CER, 2002 also provides for diversion of goods for home consumption. It covers following situations: a) Where goods have been cleared from factory (under cover of ARE-1) for direct export, but could not be exported; b) Where goods have been cleared from warehouse (under cover of ARE-1) for direct export, but could not be exported;

In such situations, if goods are exported, then first a request for cancellation of ARE-1 shall be made and then upon such cancellation goods can diverted for home consumption. Further, interest @18% p.a. [as notified u/s 11-AA] shall be payable.

However, Rule 20 of CER, 2002, when permits warehousing facility for export, it provides that such facility shall be available subject to compliance with procedure laid down by CBEC, i.e., Circular No 581/18/2001. CBEC circular covers a situation where goods cleared duty-free from factory and lying in warehouse are not exported, then duty with interest @24% p.a. shall be payable.

44. Mr. Subodh Mishra, manufactures electronic items for selling them within India as well as exports to Germany. He has stored his

goods in the warehouse for the purpose of export. However, on account of certain unforeseen circumstances, goods cannot be exported to Germany. Now, he wishes to divert the goods kept in the warehouse for the purpose of export for home consumption. Explain briefly the procedure under Central Excise Act, 1944 to be adopted by Mr. Subodh Mishra for diverting the said goods kept in the warehouse for the purpose of export to Germany for home consumption.

(CA Final, RTP Nov 2012) Rule 20 of CER, 2002 permits warehousing of goods without payment of duty if goods are intended for export thereform, The

goods so kept in a warehouse for being exported can be diverted by Mr. Subodh Mishra for home consumption in the following manner: Goods brought into warehouse for export, lying in warehouse but could not be exported and hence, sold into India • With the permission of AC/DC, the goods can be cleared for home consumption on invoice upon payment of duty with interest

@24% p.a. Necessary entries are to be made in the export warehouse register maintained by the exporter in the warehouse. • Credit will be permitted in the Running Bond Account equivalent to the duty involved in the goods so diverted, which shall not

exceed amount of duty debited on which such goods were received in the warehouse. Tutorial Note: A) Goods directly exported from factory, take to customs port but later on diverted – Interest @18% p.a. B) Goods deposited into warehouse (availing Rule 20 facility), later on diverted into India from warehouse itself – Interest @24% p.a

RULE 21: REMISSION OF ED 45. What are the GROUNDS on which remission of duty can be granted under Central Excise Rules, 2002? When should such

application be submitted to the Central Excise officer? Write a brief note. (May 2010 4 Marks)

Rule 21 of the Central Excise Rules, 2002 provides for remission of duty under following cases:


a) Where goods have been lost on account of natural reasons or unavoidable accident; b) Where goods have been destroyed on account of natural reasons or unavoidable accident; c) Where goods are claimed to be unfit for marketing; d) Where goods are claimed to be unfit for consumption.

In all the above cases, duty can be remitted only if such situation has happened before removal of goods, i.e., before duty has been paid. Once goods have been cleared and duty has been paid, remission cannot be granted. Thus, remission application shall be submitted only in respect of pre-removal losses and not in respect of post-removal losses.

GANGESHWAR LTD- 2015-SC • Burden of proof on assessee: Onus is on assessee to prove that fire accident in godown destroying excisable goods happened due to

natural causes on which he had no control and was unavoidable. • No remission, if fire occurred due to carelessness: Where Chief Fire Officer opined that fire accident could be due to careless smoking

of biris and cigarettes and same had not been disputed by assessee and no other evidence had been adduced to show as to what steps war taken by assessee to avoid fire accident, remission could not be granted.

Author: No assessee shall take remission as guarantee. Ones carelessness cannot be granted benefit of any sort.

46. Discuss whether remission of duty will be granted under the CER, 2002 in the following cases: (i) Loss of molasses due to auto combustion in sugar factory (ii) Normal evaporation, storage and handling losses of petroleum products (iii) There was natural calamity in the factory, but the department was not intimated in time.

(Nov 2008 3*2 = 6 Marks) Rule 21 of the Central Excise Rules, 2002 contains the provisions relating to remission of duty on excisable goods in following cases:

1) Where the goods are lost or destroyed on account of natural reasons or unavoidable accident; 2) Where goods are claimed to be unfit for marketing or for human consumption.

For claiming remission, remission application shall be submitted to proper officer. Rule 21 does not specify any time limit for submission of remission application.

Considering the above stated provisions in mind, the answers to the situations given to us are as follows: (i) Remission shall be granted. Loss of molasses due to auto combustion in sugar factory is an unavoidable accident and hence,

remission is admissible.

(ii) Remission shall be granted. Remission can be granted in case of normal evaporation, storage and handling losses of petroleum products.

(iii) Remission shall be granted. Rule 21 does not specify any time limit within which remission claim shall be submitted. Even otherwise, remission cannot be denied simply because there was delay in giving intimation to the Department. If there is a natural calamity in the factory, procedural lapse cannot come in the way of benefit.

47. Explain briefly with reference to Rule 21 of the Central Excise Rules, 2002 relating to remission of duty the following: (i) Can remission of duty be granted on goods cleared from the factory after payment of duty, but which were destroyed by fire in

transit? (ii) Upon grant of remission of duty the Cenvat credit on inputs in final product has to be reversed? (May 2008 2 x 2 = 4 marks)

i) Rule 21 of Central Excise Rules, 2002 allows grant of remission of excise duty only in respect of loss of goods prior to removal from factory. In respect of post-removal loss, remission cannot be allowed. Thus, remission not allowable.

ii) Rule 21 of Central Excise Rules, 2002 does not stipulate reversal of credit as a pre-condition for grant of remission. However, Rule 3(5-C) of the CCR, 2004 specifically provides that where duty is remitted by CEO, then assessee shall reverse the cenvat credit. Thus, cenvat credit on input and input services has to be reversed subsequent to the grant of remission of excise duty.

48. Answer briefly with reference to Rule 21 of the Central Excise Rules, 2002 (regarding remission of duty and destruction of goods)

the following : (i) The circumstances under which remission of duty may be ordered; (ii) The manner of destruction. (Nov 2007 2*2 = 4 Marks)

(i) In terms of Rule 21 of Central Excise Rules, 2002 remission of duty on final product can be claimed under following situations:

a. Where goods are lost or destroyed by natural reasons; b. Where goods are lost or destroyed by unavoidable accident; c. Where goods are claimed to be non-marketable; or d. Where goods are claimed to be unsuitable for human consumption.


(ii) The goods shall be destructed in such manner as directed by officer sanctioning remission of duty. Destruction is instructed in such manner that these become irretrievable. For example, match box shall be made wet by dipping into water, oil claimed to be non-marketable shall be dumped in earth.

49. Discuss whether remission of Central Excise duty will be granted in the following cases under the Central Excise Rules, 2002:

(i) Goods were NOT FULLY MANUFACTURED and lost by natural causes before entry in the “Daily Stock Account” (ii) Goods (FULLY MANUFACUTRED) were lost during transportation of the same to the customer’s business premises due to

unavoidable accident (iii) Goods (FULLY MANUFACTURED) were lost by fire before removal from the factory and the assessee has received a claim from

the insurance company. (3*2 = 6 Marks)

Rule 21 of the Central Excise Rules, 2002 provides for remission of duty in respect of goods lost/destroyed by natural causes or unavoidable accident or goods which are claimed as unfit for consumption or marketing at any time before removal. Keeping that rule in mind and assuming that remission application has been duly made, the answers to the given situations have been given below: (i) There arises no question of remission of duty since remission can only be there where excise duty liability stands attracted. In

respect of goods partly manufactured and not entered in DSA (Daily Stock Account), excise duty liability doesn’t stands attracted at all and hence, remission application is not required.

(ii) Remission will not be granted since remission can be given only in respect of loss occurred prior to removal of goods from the factory and not for loss at post-removal stage. There is no provision for remission of duty in respect of loss of goods in transit.

(iii) In case of ANAND CONTROL SYSTEMS (P) LTD.- 2008, Tribunal has upheld that where insurance claim received by assessee includes the element of excise duty for which remission of duty is being sought, then remission shall not be granted.

Thus, grant of remission will depend upon whether the claim received from the insurance company is inclusive of amount of excise duty element. If answer is in affirmative, then remission shall not be granted in view of aforesaid trade notice. Otherwise, remission shall be granted.

50. Discuss whether remission of duty shall be granted or not, in the following cases, under the Central Excise Rules, 2002:

(i) Excisable goods manufacture in the factory are claimed by the manufacturer as unfit for consumption or for marketing; (ii) Duty paid goods damaged due to breakage in handling; (iii) Finished goods entered in Daily Stock Account (DSA) were stolen from the factory.

(3*2 = 6 Marks) Rule 21 of the Central Excise Rules, 2002 provides for remission of duty in respect of goods lost/destroyed by natural causes or

unavoidable accident or goods which are claimed as unfit for consumption or marketing at any time before removal. Keeping that rule in mind and assuming that remission application has been duly made, the answers to the given situations have been given below:

(i) Remission shall be granted since Rule 21 permits remission where goods are claimed to be unfit for consumption or marketing at any time before removal. Assessee shall make an application for remission before the concerned authority. The concerned authority, before granting remission, shall ensure that goods claimed to be unfit for marketing or human consumption, proper officer shall ensure that the goods declared bad are destroyed under supervision of Departmental Officer. The proper officer, along with the remission order will pass destruction order.

(ii) Remission will not be granted since remission can be given only in respect of loss occurred prior to removal of goods from the factory and not for loss at post-removal stage. There is no provision for remission of duty in respect of any loss or breakage in handling during transit.

Tutorial Note: Since the question has stated damage of “duty-paid goods”, it is imperative that loss is of post-removal stage since duty is payable only at time of removal of goods from factory.

(iii) Rule 21 permits remission where goods are lost on account of “unavoidable accident. Very recently, in case of HINDUSTAN

ZINK LTD-2009-HC has held that ‘while considering admissibility or non-admissibility of remission claim, a bit liberal and more practical approach shall be taken by the officers’. Thus, even loss due to theft shall be considered as loss due to unavoidable accident and hence, officer shall admit remission claim and remission shall be granted.

(Expected) 51. Assessee is manufacturer of fruit pulp. Certain quantity of pulp was destroyed by it. No intimation was of destruction was given to

the Department. No analytical report was produced by it before jurisdictional CEO. Later on, it applied for remission of ED. The claim was rejected by jurisdictional authority on ground that no intimation of such loss was given to them. Whether rejection of remission claim is valid?

(3 Marks) Rule 21 of the Central Excise Rules, 2002 provides for remission of duty in respect of goods lost/destroyed by natural causes or

unavoidable accident or goods which are claimed as unfit for consumption or marketing* at any time before removal. In terms of Rule 21, assessee shall request for remission of duty in such cases and CEO shall after considering the genuineness of situation pass


order remitting the goods. Destruction of goods prior to submission of claim of remission left no opportunity with CEO to check/verify the authenticity of his claim. Thus, remission cannot be granted in this situation. So was held in case of VIRAT CRANE AGRITECH LTD- 2013-SC.

52. Assessee is manufacturer of product X. Dept raised SCN against assessee in respect of alleged loss of 10,8000 quintals of product X. Assessee claimed that such loss is within the normal limits and thus, eligible for remission of duty in terms of Rule 21 of CER, 2002. For this, he had relied upon departmental instruction, which provided that storage losses of product X stored in steel tanks/pucca pits can be condoned upto 2% of the product X stored. Further, assessee argued that since his loss was within normal limits of 2%, it was not necessary for the authority to enter into detailed scrutiny or to verify bona fide of the loss so caused. Discuss the validity of contentions of assessee in light of the fact that no remission application has been made by assessee in respect of alleged storage losses?

(3 Marks) As per given facts, assessee, the manufacturer of product X, has been served with SCN in respect of quantity of product X found short.

The explanation of the appellant was that the shortages were the result of natural losses and quantities involved are within the normal limit prescribed by the department itself (2%). Reliance was place upon CBEC Circular wherein limits (2%) was set within which loss shall be treated as standard permissible loss. The issue for consideration before us is whether whether the remission of duty involved on storage loss of final product be allowed even without filing of remission application though prescribed specifically in the statute u/Rule 21 of CER, 2002?

The identical issue arose for consideration before Hon’ble Allahbad HC in case of M/S U P STATE SUGAR CORPORATION LTD- 2015- ALLAHBAD HC. Hon’ble HC held the following: 1) The notification only prescribes outer limit up to which excisable goods can be said to have been lost in natural course, with

reference to the particular good. Such prescription of the outer limit will not mean that the statutory provisions for claiming such remission are to be given a go by. It is not open to the assessee to himself determine the remission because of alleged loss even if it is within the permissible limits.

2) It is settled principle of law that if law requires something to be done in a particular manner it has to be done in that manner or not at all.

3) Even if the assessee claims remission from excise duty of goods said to have been lost in natural course, within the permissible limit, as per the circulars, he has to follow the procedure prescribed under Rule 21 of the Rules. Only after an order is made granting remission in respect of the goods so lost due to natural circumstances, he could be exempted from payment of excise duty.

In light of above discussion, assessee contentions / arguments are not tenable. In absence of submission of remission application, remission is not admissible even in respect of losses within normal limits.

Author: 1. Legally, judgment is very sound. 2. What is expected from Departmental Officers is that if in remission application, assessee’s claim of loss is within permissible limit, then they

shall not challenge loss itself and shall act liberally in grant of remission order. [Detailed verifications of losses claim shall be done generally only in those where loss claimed is more than prescribed admissible limits]

RULE 25 / 26: PENALTIES [Amended in Year 2015]

Linking of amendment in Sec 37 (just for knowledge) Sec 37: Power of CG to make rules (1) The CG may make rules to carry into effect the purposes of this Act. (2) … (3) In making rules under this section, the CG may provide that any person committing a breach of any rule shall, where no other penalty is

provided by this Act, be liable to a penalty not exceeding Rs 5,000.

(4) Notwithstanding anything contained in sub-section (3), and without prejudice to the provisions of section 9, in making rules under this section, the CG may provide that if any manufacturer, producer or licensee of a warehouse— (a) removes any excisable goods in contravention of the Central Excise Rules or the notifications issued there under, or

(b) does not account for any excisable goods produced or manufactured or stored \ by him or (c) engages in the manufacture or production or storage of any excisable goods without registration of the factory; or (d) contravenes any of the provisions of the said rules/notifications issued there under with an intent to evade payment of

duty or then, all such goods shall be liable to confiscation and the manufacturer, producer or licensee shall be liable to a penalty not exceeding the duty leviable on such goods or Rs 5,000* (Substituted for "Rs 2,000" by the Finance Act, 2015, w.e.f. 14-5-2015),, whichever is greater].

(5) Notwithstanding anything contained in sub-section (3), the CG may make rules to provide for the imposition upon any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under this Act or the rules made thereunder, a penalty 61not exceeding the duty leviable on such goods or Rs 5,000* (Substituted for "Rs 2,000" by the Finance Act, 2015,


w.e.f. 14-5-2015), whichever is greater 53. Mention the circumstances where the goods are liable for CONFISCATION under the provisions of CER, 2002.

(Nov 2012 -6 marks) Under Rule 25 of the Central Excise Rule, 2002, the excisable goods are liable for confiscation if any producer, manufacturer,

registered person of warehouse or an importer who issues an invoice on which cenvat credit (Added w.e.f. 1st March, 2015) is taken or registered dealer-

(i) removes any excisable goods in contravention of the Central Excise Rules or the notifications issued there under, or (ii) does not account for any excisable goods produced or manufactured or stored \ by him or (iii) contravenes any of the provisions of the said rules/notifications issued there under with an intent to evade payment of duty or (iv) engages in the manufacture or production or storage of any excisable goods without registration of the factory.

Besides that, Rule 27 of Central Excise Rules, 2002 produces for penalty and confiscation of goods in case of breach of provisions of Central Excise Rules, 2002 where no other penalty has been provided.

Getting back confiscated goods by the assessee Confiscation of goods is effected by passing of “confiscation order” by the concerned adjudicating officer. Upon passing off such

order, property in the goods stands transferred to Central Government. However, Sec 34 of the CEA, 1944 requires the concerned adjudicating officer to grant an option to the assessee to pay fine in lieu of confiscation. This option has to be granted in each & every case. The assessee can exercise this option and can get the goods released upon the payment of such fine. (*the fine so paid is popularly known as “redemption

fine”). In addition to the fine, assessee shall also be required to pay the storage charges which have been incurred in respect of such goods and determined by the adjudicating officer.

Author Note: Penalty leviable u/Rule 25 is higher of following two : 1) ED on related excisable goods, 2) Rs 5,000 *

Linking of amendment in Sec 37 (*Author: • Sec 37(4) empowers framing of rule 25. It has been amedned by FA 2015 to provide for minimum penalty of Rs 5,000 (instead of 2,000) • Consequent to amendment made in Sec 37(4) by FA, 2015, Rule 25 has been amended Substituting ‘Rs 5,000’ for "Rs 2,000" by N/N 8/2015–

CE, dated 1-3-2015, w.e.f. 14-5-2015) .

54. M/s. Sharda Zarda makers is engaged in manufacturing zarda with the brand name 'Aanand'. It clandestinely cleared 'Aanand'

zarda and stored the same with Balram Trading Co. for further sales, Balram Trading Co. were allegedly the related concerns of M/s. Sharda Zda Makers.

The Commissioner of Central Excise has imposed a penalty under rule 25(1)(c) of the Central Excise Rules, 2002 on Balram Trading Co. on the ground that it has engaged in the storage of excisable goods without having applied for the required registration certificate.

Examine with the help of a decided case law whether penalty under Rule 25 of the Central Excise Rules, 2002 can be imposed on such firm? The facts of the given case are similar to the case of BALAJI TRADING CO. - 2013 –Delhi HC wherein the High Court concurred with the view of Tribunal and held that rule 25(1)(c) would have no application in the present case.

Rule 25 of CER, 2002 provides for imposition of penalty only for following 4 categories of person: a) producer, manufacturer, b) registered person of a warehouse, c) an importer who issues an invoice on which cenvat credit (Added w.e.f. 1st March, 2015) or d) a registered dealer. Balram Trading Co, though related person and selling goods as trader, is not covered by any of the specified category. It is neither producer or manufacturer of goods, nor registered person of a warehouse or a registered dealer. Thus, penalty as provided under Rule 25 is not imposable on them. Applying the ratio of the above-mentioned decision to the case at hand, it can be concluded that penalty under rule 25(1)(c) could

not be imposed on Balram Trading Co. for storing the clandestinely removed zarda for further sales.

Author’s Remarks: 1. Rule 25 penalty is imposable only on ‘REGISTERED DEALER (FSD/SSD)’ . From facts of case, it is clear that Balram Trading Co were not

registered dealer. 2. In fact, Balram Trading Co can be made liable to penalty under Rule 26 of CER, 2002 (reproduced below). Rule 26 of CER, 2002: Penalty for certain offences Any person who


- acquires possession of, or - is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or - in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these Rules,

shall be liable to a PENALTY not exceeding - the duty on the related excisable goods or - Rs 2,000/- *, WHICHEVER IS GREATER. .

Linking of amendment in Sec 37 (*Author: • Sec 37(5) empowers framing of rule 26. It has been amedned by FA 2015 to provide for minimum penalty of Rs 5,000 (instead of 2,000) • However, consequential amendment has not been made in Rule 26. Hence, limit of Rs 2,000 continues.

RULE 27: RESIDUARY PENALTY

55. Discuss briefly the residual penalty under Rule 27 of the Central Excise Rules, 2002 (May 2013 -2 marks)

Rule 27 of the Central Excise Rules 2002 stipulates that where no other penalty is provided in the rules or in the Central Excise Act, a breach of these rules will be punishable with a penalty which may extend to Rs. 5000 (*i.e., maximum penalty) and with confiscation of the goods in respect of which the offence is committed

Note:

Linking with Sec 37 • Sec 37(3) empowers framing of rule 27. It provides for penalty upto Rs 5,000. • Correspondingly, Rule 27 is providing for penalty upto Rs 5,000.

2. Instances where Residuary penalty under Rule 27 is leviable: 1) Manual payment of ED by assessee [Default of Rule 8 of CER, 20012 (since as per Rule 8, e-payment was mandatory)]

.

2) Non-filing or belated filing of excise return [Default of Rule 12 of CER, 2002]; [Author: Belated filing of excise return will not attract Rule 27 penalty, since that default attracts payment of late fees (upto Rs 20,000)]

PERSONAL LIABILITY OF DIRECTOR AS PER RULE 26 56. With reference to the Central Excise Act, 1944 and the Rules made there under write a brief note on the circumstances when personal

penalty could be imposed on a DIRECTOR OF A COMPANY or A PARTNER OF A FIRM or AN EMPLOYEE or A TRANSPORTER. (May 2008 4 Marks)

As per Rule 26(1) of Central Excise Rules, 2002, ANY PERSON who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or rules, shall be liable to a penalty upto the duty payable on such goods or Rs 2,000 whichever is greater. Thus, a director or partner or an employee or transporter will be personally liable to penalty if he is personally involved in clandestine removal etc.

Author Note: Rule 25 of CER, 2002 imposes penalty on manufacturer, registered person of a warehouse or a registered dealer for certain specified defaults. Thus, in case of defaults committed by company, penalty can be imposed only upon the company. Director cannot be subjected to penalty under Rule 25. However, directors can be made liable to personal penalty under Rule 26(1) being it covers ‘any person’ who is in any way concerned with removing or in any other manner dealing with goods which he knows that are liable to confiscation. Similarly, is the position of partner in relation to the firm. So far as transporter is concerned, transporter can also be booked under Rule 26, as they are concerned with transportation of goods. Regarding employees, general view of judiciary is in favour of non-imposition of personal penalty on employee as he does not stand to gain anything personally [BHARAT FORGE-2012-TRI].

MISCELLANEOUS PROVISIONS 57. State briefly the procedure to be adopted for clearance of ‘PROTOTYPES’ which are sent for trial or development test from the

factory in terms of the Central Excise Rules, 2002? (May 2008 2 Marks) There is no specific provision which deals with removal of prototypes**. In the absence of specific provision, general provision shall

prevail. In terms of general provisions, no goods can be removed from factory without payment of excise duty [Rule 4 of CER, 2002]. Thus, duty shall be payable even on removal of prototypes which are sent for trial or development tests. … However, after completion of trials, it can be brought back to the factory in terms of Rule 16 of CER, 2002. … If it needs to be destroyed, then it can be destroyed and then remission can be claimed in terms of Rule 21 of CER, 2002 [as

clarified in CBEC Manual, 2001] ** Prototype: Prototype is an early sample/model built to test a concept/process or to act as a thing to be replicated.
