Saturday, July 11, 2015

Concept of Excise, Non Excisable goods, Duty payable on removal Etc., Tutorials

Concept of Excise
Extent and scope of central excise law
Central excise law extends to whole of India
Duty payable on removal
Non Excisable goods
Goods carrying nil rate of duty or nil rated goods

Concept of Excise
  • It is a duty on production or manufacture of excisable goods in India.

The Central Government has the power to levy excise duty, covered under Entry 84 of Union List.

Entry 84 of Union List reads as under:

Power to levy excise duty is with the CG
  • Duties of excise on tobacco & other goods m/p in India.
  • Medicinal and toilet preparations containing alcohol or any substance given under exceptions.

Power is with State government under Entry 51 of the State List Except :
  • Alcoholic liquors for human consumption.
  • Opium, Indian Hemp and other narcotics.


Extent and scope of central excise law
  • Section 3 of CEA,1944
       Central excise law extends to whole of India
  • The central excise law extends to whole of India including Jammu and Kashmir, includes the territorial waters of India.
  • The provision of central excise law extends to “designated areas” in the continental shelf and exclusive economic zone of India.
  • Therefore any goods p/m within,-
a) The territorial waters of India and
b) The designated areas of continental shelf, EEZ which are treated as part of India shall be liable to excise duty.

Basic conditions for levy of duty u/s 3 of the CEA, 1944
  • The term “levy” INCLUD ES both
 1) imposition of taxes
 2) Assessment
  • Reference “ACCEx vs. National Tobacco co. India Ltd.” 
It does not include -> COLLECTION OF TAXES
  • A special duty of excise i n addition to BED –
  • On excisable goods is specified in the second schedule to CETA, 1985.
Concept of taxable event and significance of the date of removal of goods in the context of levy and collection of duty.

Taxable event
  • Taxable event is that event which creates liability to tax.
  • In the context of central excise production or manufacture of excisable goods in India.

Duty payable on removal
  • Rule 4 Central Excise Rules,2002:
  • The excise duty is payable on removal of excisable goods from the factory or registered warehouse.
  • “No excisable goods on which duty is payable shall be removed without payment of duty from any place where they are manufactured. ”

Date of determination of rate of duty and tariff valuation.
Rule 5 of Central Excise Rules,2002:
  • The rate of duty + tariff valuation to any excisable goods = rate /value in force on the date of removal of goods from a factory or a warehouse.
A person is neither a producer nor a curer nor a manufacturer of excisable goods, but only stores such goods in a warehou se. Can he be called upon to pay the duties of excise on such goods?
  • As per rule 4(1) of the central excise rules,2002
  • Every person who p/m any excisable goods, or who stores such goods in a warehouse, shall pay duty leviable on such goods.
  • No excisable goods on which any duty is payable shall be removed without payment of duty from any place, where they are p/m / warehouse.
Where molasses are produced in khandsari sugar factory, the person who procures such molasses, directly or indirectly from factory for use in the manufacture of any commodity

Whether excisable or not shall pay the duty leviable on such molasses, in the same manner as if such molasses have been prodced by procurer.

Goods, Excisable goods, Movability and Marketability of goods.

  • The term has not been defined in CEA,1944
  • Article 366 (12) of the con stitution- M-A-C-S
-> Material, articles, commodities and substance.
  • Sale of goods Act,1930
-> Defines goods to mean every kind of moveable property other than action able claims and money includes stocks and shares, growing crops, grass and things attached to and forming part of the land, which are agreed to be severed before sale.
  • Goods can be tangible as well as intangible.
  • Judicial view in respect of goods:
  • UOI v. DCM, the Supreme Court has held that in order to be goods, the article must be capable of being brought to the market to be bought and sold.
Vendibility/ Marketability of goods
Marketability is the capability of the product of being bought and sold into the market.
  1. UOI vs. Delhi cloth & general Mills Co. Ltd.:- An article will be called GOODS if it is known to the market as such and can ordinarily come to market to be bought and sold.
  2. South Bihar Sugar Mills:Marketability is a conclusive t est but it only means saleable or suitable to sale. It NEED NOT be ACTUAL SALE.
  3. CCEx. V TISCO-: Everything which can be sold i s not necessarily a marketable commodity for example Rubbish can be sold but it is not a commercially marketable commodity.
  4. AP State Electricity board v CCExMarketability does not depend upon number of buyers, only one buyer is enough to prove the marketability of goods.
  5. Bhor industries v. CCEx.Mere mention in tariff is not eough, an Article must be satisfy the 2 basic criteria i.e. movable and marketable.
  6. CCEx v. Ambalal Sarabhai Enterprises:- Article must be known in the market as such and usage in the captive consump tion is not determinative of whether the article is capable of being sold in the market. It w as also held that burden to establish that an artile is movable and marketable is on the department.
Concept of “Deemed Marketability”

2(d) “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.

“Excisable Goods”
2(d) “Excisable goods” means goods specified in the first schedule and second schedule to the Central Excise Tariff Act, 198 5
As being subject to a duty of excise and includes salt. 

Non excisable goods:
Goods which are not listed in Tariff or goods which mentioned in Tariff but the column of rate of duty is blank, the excise law does not apply to such 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 

Exempted goods
  • Exempted goods means the goods which are exempt from whole of d uty of excise.
  • Exempted goods do no t become excisable after being fully exempted by notification, since they are listed in the schedules to the tariff as being subject to the duty of excise
  • Reference- Wallace Flour Mills Co. Ltd v CCEx
  • Note – exempted goods ->  no duty
  • Exempted goods -> Excisable
Goods carrying nil rate of duty or nil rated goods
  • CETA,1985 prescribes the rate of duty of excise for each head and su b- head
  • If the tariff itself specifies duty as “Nil", the goods are chargeable to nil rate duty.
  • Nil rate of duty is also a rate of duty & goods with nil rate of duty can not be treated as non excisable
  • Thus nil rated goods are also excisable goods.
  • Reference – CCEx v V azir Sultan Tobacco Co. Ltd.
Nil rated goods = chargeable @ nil rate + Excisable.

Medley Pharmaceuticals Ltd. V CCEx

Physician samples distributed as free samples to medicinal practitioners marketable and liable to excise duty

Q) Whether the physician samples which are distributed to medical practitioners as free samples are liable to excise duty?
Sale thereof is prohibited under the drugs and cosmetics Act, 1940?
-> Excise duty is impost on manufacture. It is leviable on m/p of Excisable goods
-> Actual Sale is not a necessary condition for charging duty
-> Marketability is important essence of chargeability.
-> Marketability means suitable for sale, actual sale is not necessary.
The prohibition on sale of physician samples under the drugs act has no bearing or effect on levy of excise duty.
Conclusion: samples distributed as free samples are chargeable to excise duty.

Bagasse & Aluminum / zinc dross & other waste products.

-> Deemed marketable and hence excisable.
  • The board has clarified that Bagasse, Aluminum /Zinc dross and other waste products, residue or refuse arise during course of manufacture and are capable of being sold f or a consideration.
-> Would be excisable + chargeable to payment of excise duty as per section 2 (d) CEA, 1944.
-> CBEC circular No.904/24/ 2009 quashed imposition of excise on bagasse. 

Bata India Ltd. V CCEx   
  • Solid Shoes company, a manufacturer of footwear, used to purchase raw material like fabric + rubber + chemicals +solvent = DRTF
  • (Double textured rubberized fabric), this was cut and stitched as per custoers requirement.
  • At times DRTF was sent to job workers for stitching purpose
  • After completion of the entire process, the vulcanization of footwear was done and then, it would be avail able for sale.
  • Some of the DRTF was us d in the manufacture of canvas shoes, which are exempt from duty 

  • The department contended that the intermediate product DRTF was a distinct product with a specific properties and was used in considerable quantities for making raincoats, holdalls, handbags, etc in the outside market. 

  • Since the DRTF was excis able and used in the Excisable goods manufacture of exempted goods final product being shoes, therefore DRTF was liable to excise duty.      
  • However, the department didn’t have any proof  marketability.       
  • Marketability is a essential ingredient of a product liable to excise.
  • Burden to prove that an article is marketable in the condition in which department wants to levy excise department itself.    

  • Marketability means it should be only suitable for sale, Actual sale is not necessary.
  • The mere fact that the product went outside for job work    is not an indication to show that the product marketable product.
  • In this case the department did not have sufficient evidence to prove marketability.
  • A mere test report from a chemical examiner would not prove commercial identity
  • On the contrary evidence shown by the Assessee would show that the product was not a commercially known prodct, hence it was not marketable -> not excisable.
  • Conclusion:
  • Since the department did not have any evidence to prove that DRTF was capable of being bought and sold for a consideration, therefore the same was not liable to excise.
Manufacture -> Ambit, Scope
What is Manufacture in Central Excise?
  • Manufacture  -> Section 2 (f)
  • Manufacture - includes any process
a) Incidental or ancillary too the completion of manufactured product
b)Which is specified in relation to any goods, in section or chapter notes of the first schedule to the CETA,1985.(as amoounting to deemed manufacture.
c) Which, in relation to goods specified in the third schedule, involves-

-> Packing and repacking of such goods in a unit container.
-> Labeling or relabeling of containers including declaration/ alteration of retail sale price on it.
-> Adoption of any treatment on the goods to render the product marketable to the consumer (Deemed manufacture)
And the word “manufacturer” shall be construed accordingly
Shall also include a person who employs hired labour in the p/m of excisabble goods

Scope and ambit of manufacture
  • The scope of the definition has be cleared by the supreme court with references to various cases-
  • Union of India vs. Delhi Cloth & General mills Co Ltd.
  1. “ Manufacture implies a change, but every change is not a manufacture
  2. And yet every change of an article is the result of treatment + labour andd manipulation.
  3. But something more is necessary and there must be transformation;
  4. A new and different articcle must emerge having a distinctive name, character or use”
Empire Industries Ltd vs. Unnion of India
  • To Constitute manufacture it is not necessary that one should absolutely make out a new thing
  • It is the transformation of a matter into something else that would amount to manufacture that is the question of degreee.
  • Whether that is commercially identified. 
CIT vs. Tara Agencies
  • In the case of tea business
  • Production takes place in teea gardens ->  manufacture happens when the tea leaves are plucked from the tea bushes and by mechanical process, they are converted into tea and blending of different flavouurs makes it marketable.
  • Hence its marketability is its process.
Processes which amount to manufacture.
  • Obtaining fine powder ammmonium nitrate from crude lumps of ammonium nitrate.
  • Purification and Filteration done to make product hydrochloric acid and Sulpphuric acid marketable 

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