Friday, May 16, 2014

Basics of Excise Duty By.GOVIND MISHRA

CONCEPT OF EXCISE DUTY, CONDITIONS FOR LEVY OF DUTY under Section 3 of the Central Excise Act, Basic conditions for levy of excise duty:
Extent and scope of Central Excise Law, PROVISIONS RELATING TO TAXABLE EVENT,EXCISABLE GOODS, NON-EXCISABLE GOODS, NON-DUTIABLE GOODS

CONCEPT OF EXCISE DUTY: 
Excise duty is a duty on Production or Manufacture of excisable goods in India. The Central Government has power to levy excise duty since the subject matter is covered under Entry 84 of Union List which reads as under  "Duties of excise on tobacco and other goods manufactured or produced in India except
  • Alcoholic liquors for human consumption;
  • Opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub paragraph (b) of this entry. 
Thus, the power to levy excise duty on alcoholic liquors for human consumption opium, Indian hemp and other narcotic drugs and narcotics, vests with the State Government as the subject matter is covered under Entry 51 of the State List.

However, in case of medicinal and toilet preparations containing alcohol or opium, Indian hemp and other narcotic drugs, the Central Government has the power to levy excise duty.

CONDITIONS FOR LEVY OF DUTY under Section 3 of the Central Excise Act

The charging Section i.e., SECTION 3 of the Central Excise Act, 19M, contains the provisions for levy of excise duty duties specified in the First Schedule and second schedule to the Central Excise Tariff Act, 1985 to be levied/  Charging Section [Section 3]

There shall be levied and collected in such manner as may be prescribed,
 
A) a duty of excise to be called as the Central Value Added Tax (CENVAT),
  • on all excisable goods ( excluding the goods produced or manufactured in SEZ)
  • which are produced or manufactured in India
  • as, and at the rates set forth in the First Schedule to the Central Excise Tariff Act, 1985.
B) a SPECIAL DUTY OF EXCISE, in addition to the duty of excise specified in clause (a) above
  • on excisable goods specified in the Second schedule to Central Excise Tariff Act, 1985; 
  • which are produced or manufactured in India ( excluding the goods produced or manufactured in SEZ)as, and at the rates set forth in the Second Schedule.
Basic conditions for levy of excise duty:
  • There must be goods.
  • Such goods must be excisable.
  • Such goods must result out of production or manufacture.
  • Such production or manufacture must take place in India (other than special economic zones).
Extent and scope of Central Excise Law

Central Excise law extends to whole of India: The Central Excise Law extends to the whole of India including the state of Jammu and Kashmir. India includes the territorial waters of India.

No levy on goods manufactured in SEZ As per section 3, there is no levy of excise duty on the goods produced or manufactured in Special Economic Zones.
 
Rate of excise duty: The general rate of CENVAT (BED) as per the First Schedule to Tariff Act is 16%, however, by exemption notifications it is l2% w.e.f. 17-3-2012. In addition Education Cess @ 2% and Secondary & Higher Education Cess @ L% is also leviable on all excise duties.

Hence, if basic excise duty is 12%, then, effective rate thereof will be 12.36% (including EC & SHEC).

PROVISIONS RELATING TO TAXABLE EVENT

TAXABLE EVENT: Taxable Event is that event, which on its occurrence, creates or attracts the liability to tax. The taxable event in the context of Central Excise is production or manufacture of excisable goods in India.

Levy on manufacture and collection as per Rules: Thus, levy of excise duty is on manufacture of excisable goods in India. Levy is governed by the Statute i.e. the Central Excise Act, 1944. Collection of duty is in accordance with the rules, after manufacture takes place.

Duty payable on removal: According to Rule 4 of Central Excise Rules, 2002, unless otherwise provided, no excisable goods on which duty is payable shall be removed without payment of duty from any place where they are produced or manufactured. Thus excise duty is payable on removal of excisable goods from factory or registered warehouse.

Date for determination of rate of duty and tariff valuation: According to Rule 5 of Central Excise Rules, 2002, the rate of duty or tariff value applicable to any excisable goods, shall be the rate or value in force on the date when such goods are removed from a factory or a warehouse, as the case may be. Thus, imposition is on manufacture but duty is payable at the rate prevalent on the date when the excisable goods are removed from factory or registered warehouse.

(Imposition = Date of manufacture;
Rate of duty = date on which goods are removed)


Goods to be excisable must be moveable, marketable

Movability: The first aspect of goods is that they should be moveable. ln Union of India v. Delhi Cloth Mills and in South Bihar Sugar Mills v. Union of India, the Supreme Court enunciated the principle that to be called goods, the articles must be such as are capable of being bought and sold in the market. The articles must be something which can ordinarily come or can be brought to the market to be bought and sold. Thus, in case of immovable properties that are attached to earth, no
excise duty can be levied as they lack movability.

Marketability: Marketability is the capability of the product of being bought and sold into the market. The Supreme Court in, Bhor Industries v. CCEx. held that merely because an article is specified in the Tariff schedule it will not be liable to duty of excise unless it is marketable in the condition in which the department wants to levy excise duty.

EXCISABLE GOODS, NON-EXCISABLE GOODS, NON-DUTIABLE GOODS

Excisable goods [Section 2(d)]:
"Excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt.

Meaning of goods [Explanation]: For the purposes of section 2(d) of the Central Excise Act, "goods" include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.

Non-excisable goods
Goods which are not listed in Tariff E.g. water (there is no entry in Tariff), or goods which are mentioned in Tariff but the column of rate of duty is blank, are non-excisable goods. Excise law is not applicable on non excisable goods.

Non - dutiable goods
Non-dutiable goods are excisable goods listed in Excise Tariff. Excise law is applicable to them, but they are not liable to excise duty. Non dutiable goods may be
  • Nil duty goods: Tariff rate for such goods is nil, and
  • Exempted goods: 100% exemption is available under Section 5A of the Central Excise Act, 1944 for such goods.
MANUFACTURE

[Section 2(f)]: "Manufacture" includes any process
  • Incidental or ancillary to the completion of a manufactured product;
  • which is specified in relation to any goods, in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Acf, 1985, as amounting to manufacture (Deemed Manufacture); or
  • which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer (Deemed Manufacture),
and the word "manufacfurer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.

Manufacture Vis-a-Vis Processing:
Where the original commodity loses its existence and a new commodity comes into existence having separate name, character and use, it will amount to manufacture. Any process which is incidental or ancillary to the completion of a manufactured product is covered within the definition of manufacture.

CAPTIVE CONSUMPTION

Meaning of Captive consumption : As per Cost Accounting Standard 4 issued by the Institute of Cost Accountants of India "captive consumption" means consumption of goods manufactured by one division or unit and consumed by another division or unit of same organisation or related undertaking for manufacturing another product(s).

For example, Clinkers produced from lime stone is consumed within the factory of production for production of cement, such type of consumption is known as captive consumption.

Intermediate goods liable to duty only if moveable and marketable : Intermediate goods which are captively consumed shall be liable to excise duty only if such goods are moveable and marketable or deemed marketable in the condition in which the department wants to levy excise duty.
Therefore articles captively consumed shall be liable to excise duty when they have reached the stage where they can be identified as goods i.e. if they are marketable and moveable.

The Supreme Court in Moti Laminates Pvt. Ltd vo. CCEx. has held that Articles in crude and elementary form are not dutiable, as they are merely intermediate products, not marketable in that condition.

Valuation in case of intermediate goods: I{here the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be 110% of the cost of production or manufacture of such goods.

Date for determination of rate of duty: As per rule 5 of the Central Excise Rules, 2002 the applicable rate of duty is of that date when the excisable goods are removed from a factory or a warehouse, as the case may be.
If any excisable goods are used within the factory, the date of removal of such goods shall mean the date on which the goods are issued for such use. Hence, captively consumed goods are liable to excise duty at the rate in force on the date on which they are issued for such consumption.

Exemption notification in respect of intermediate goods: At present there are exemption notifications in force exempting intermediate products from excise duty, if the final products are chargeable to duty. If the final product is wholly exempt or chargeable to NIL rate of duty, the intermediate products shall not be exempt the same shall be chargeable to duty.

Payment of duty where more than one process involved: Where more than one process are carried out on goods, each process independently amounting to manufacture, the duty may be paid after completion of the last stage of such processes i.e. at the final stage.- CCEx. v. Textile Corpn. Marathwaila Ltd.

DUTIABTLITY OF WASTE & SCRAP

Dutiability of waste & scrap
The issue relating to dutiability of waste and scrap was settled by the Supreme Court through its decision in Khandelwal Metal & Engineering works v.UOI, by holding that notwithstanding that process waste and scrap arose as intermediate products or byproducts out of final products, such process waste and scrap, if marketable, would be chargeable to duty in view of the incorporation of the specific subheadings in various chapters of the tariff.

The Apex court has held that process waste and scrap is a commercially distinct and identifiable product and has commercial value. Hence, such waste and scrap is chargeable to duty if covered in the Tariff.

Condition for levy of duty on waste and scrap: Thus, if process waste and scrap
  • arises during course of manufacture; and
  • it is moveable, marketable; and
  • listed in tariff the same shall be liable to excise duty.
Waste of exempted goods - Exempt [Notification No, 88/9S-CE, dated 18-5-1995]: Waste, parings and scrap arising in the course of manufacture of exempted goods is exempt from duty, if only exempted goods (i.e. fully exempted or 'NIL' rated goods) are manufactured in that factory.

Waste of containers - Not excisable: Containers in which inputs are received cannot be treated to be a waste arising out of manufacturing process and therefore, no duty is leviable on such containers at the time of their clearance from factory

MANUFACTURER?

As per Rule 4, the manufacturer of excisable goods or the person who stores such goods in a warehouse shall be liable to pay the duty leviable on such goods in the manner provided under Rule 8 or under any other law.

The term manufacturer has been defined under section 2(f) to include not only a person who employs hired labour in the production or manufacture of excisable goods but also a person who engages in their production or manufacture on his own account i.e. for his captive consumption

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