WHAT IS EXCISE DUTY NATURE AND CHARGEABILITY OF CENTRAL EXCISE DUTY. ACTS AND RULES FOR THE COLLECTION OF DUTY OF EXCISE.

Transcription

1 WHAT IS EXCISE DUTY The primary and fundamental meaning of "excise duty" or Duty of excise is tax on articles produced or manufactured in the taxing country and intended for home consumption (i.e. consumption within the same country). It is an indirect duty which the manufacture or producer passes on the ultimate consumer, that is, its ultimate incidence will always be on the consumer. What attracts the duty of excise is an activity, namely, the production or manufacture of goods. NATURE AND CHARGEABILITY OF CENTRAL EXCISE DUTY. Central Excise duty is an indirect tax levied on goods manufactured in India. The taxable event under the Central Excise law is manufacture and the liability of Central Excise duty arises as soon as the goods are manufactured. The duty, though it becomes payable on the manufacture of goods, is collected at the time of removal of goods from the factory. ACTS AND RULES FOR THE COLLECTION OF DUTY OF EXCISE. The Central Excise duty is collected under the authority of the Central Excise Act, 1944 at the rates specified under Central Excise Tariff Act, This duty is commonly referred as the Basic Excise Duty. In addition to this duty a few textile items, like fiber, yarn etc. also attract Additional Excise Duty under Additional Duties of Excise (Textiles and Textile Articles) Act, The Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Miscellaneous Cess Acts provide authority for collection of Additional Excise Duty and Cess respectively on several manufactured items over and above Basic Excise Duty. PROCEDURE FOR COLLECTION OF DUTY. The following types of procedures are being followed by the Central Excise department for levy and collection of the Central Excise duties:-

2 1. Physical Control Applicable to cigarettes only. Here assessment precedes clearance which takes place under the supervision of Central Excise officers; 2. Compounded levy scheme Applicable to Stainless Steel Pattis/Pattas, Aluminium circle, Processed textile fabrics by independent processors, Embroidery in the piece, in strips or motifs, ingots and billets of non alloy steel falling under heading no and and Hot re-rolled products of non alloy steel of headings nos , , , , , , , , , , , and In this case the duty is charged at a flat rate depending upon the capacity of plant and machinery. 3. Self Removal Procedure Applicable to all other goods produced or manufactured within the country. Under this system, the assessee himself determines the duty liability on the goods he clears. CREDIT SCHEME CENVAT The CENVAT SCHEME is designed to reduce the cascading effect of indirect taxes on final products. This is a more liberal and extensive scheme than the erstwhile MODVAT SCHEME with most goods brought within its ambit and no declarations or statutory records prescribed The Scheme allows instant CENVAT Credit to be taken of duties such as Excise Duty, SED, ADE and CVD paid on inputs and capital goods received in a factory for the manufacture of any dutiable final product (except matches). This credit can be utilised to pay Excise duty on any final product. All raw materials or inputs are covered except Light Diesel oil, High Speed Diesel and Motor Spirit. Similarly, capital goods including pollution control equipment, components, spares, accessories, moulds and dies and paints, packaging material and greases/coolants are eligible goods on which credit can be availed. Credit can be availed immediately on receipt of eligible, duty paid goods in the factory. There is no need for the manufacturer to file any declaration or obtain any permission.

3 In the case of Capital Goods, only 50% of the duty paid on the goods can be availed of in the same financial year; the remaining can be availed in the subsequent financial years provided the goods are still in use (except for spares and components). Further, no depreciation should be claimed by the manufacturer under Sec.32 of the Income Tax Act, 1961 on that part of the value of these Capital Goods, which is equal to the duty, paid on the goods. A manufacturer who manufactures only exempted final products is not covered under this Scheme. However, the Scheme allows those who manufacture both dutiable and exempted final products in the same factory to avail of its benefits subject to certain conditions viz., maintenance of separate records in respect of inputs used to manufacture exempted products or payment of 8% of the total price (excluding taxes) of the exempted final products or in the case of a few specified items, on reversal of the credit availed. Similarly, credit can be availed on Capital Goods if not used exclusively for the manufacture of exempted final products. The Scheme also, inter alia, provides the following facilities:- Removal of inputs or capital goods as such on payment of an amount equal to the credit availed on such goods. Removal of goods to job-workers for processing, testing, reconditioning or any other purpose provided that the goods are received back within 180 days or are removed from the premises of the job worker if permitted by the Commissioner of Central Excise Refund of credit accumulated due to export under bond of the final products is permissible Unutilised CENVAT Credit can be transferred on account of shifting of a factory to another site or due to change in ownership by sale, merger, amalgamation, lease or transfer to a joint venture wherein liabilities are also transferred; and A special dispensation has been made in the case of goods manufactured in specified areas of the North East. No statutory records have to be maintained or duty-paying documents submitted to the department on a periodic basis.

4 The manufacturer should take reasonable steps to ensure that the appropriate duty has been paid on the inputs or capital goods on which credit is availed, as indicated in the documents accompanying the goods. These documents are prescribed in Rule 7. Similarly, the manufacturer shall maintain his own records regarding receipt, disposal, consumption and inventory of the goods containing relevant information. THE BURDEN OF PROOF REGARDING ADMISSIBILITY OF THE CENVAT CREDIT LIES UPON THE MANUFACTURER. If CENVAT Credit is taken or utilised wrongly, the same, along with interest, will be recovered. A simple monthly return in a prescribed format has to be filed by the 10th of the month following the month during which credit was availed. Manufacturers availing of the Small Scale exemptions, based on value or quantity of clearances during a financial year, need to file this return only on a quarterly basis. REGISTRATION REGISTRATION AND ECC CODE PERSONS REQUIRING CENTRAL EXCISE REGISTRATION. Every manufacturer of excisable goods other than the ones specifically exempted, is required to get himself registered under the Central Excise law. A manufacturer is exempt from the requirement of getting himself registered so long as the goods manufactured by him attract Nil rate of duty or remain exempt from the whole of the duty of excise leviable thereon. Every person who intends to issue invoices under Rule 57G or Rule 57T or who intends to procure excisable goods under bond for special industrial purposes in terms of provisions of Chapter X, is required to get himself registered under the Central Excise law. PROCEDURE OF OBTAINING REGISTRATION.

5 The application for registration is to be filed with the Superintendent of Central Excise having jurisdiction over the premises in respect whereof the registration is to be obtained. The following documents are to be submitted for obtaining the registration Duly filled in application in the form R-I in triplicate; Grounds plan of the premises in duplicate including details of plant & machinery etc.; Details of the proprietors/all partners/directors of the company including Name(s), Address(es) Official/ residential. Possession letter/allotment letter/rent deed of the premises to be registered; Article of Association of the company or Partnership deed of the firm, as the case may be; List of items with their Tariff sub-headings proposed to be manufactured; list of items with their Tariff subheadings, if any, obtained, under Chapter X procedure or dealt within; and Registration certificate issued under Shop and Establishment Act and PAN Number The application for registration in form R-I is either to be signed before the Superintendent of Central Excise or can be submitted duly attested and notarised by the notary public. GRANT OF REGISTRATION. After receipt of application for registration, the jurisdictional Superintendent is to grant registration within 30 days of the receipt of the application. Even if the registration is not granted, it will be deemed to have been granted. The registration is in respect of premises and not a person STAGE OF FILING APPLICATION FOR REGISTRATION. For the goods that attract Central Excise duty right from the beginning, the registration is to be applied for before the removal of the goods. These goods are not covered under Small-Scale Exemption notification. Even where a manufacture

6 of goods eligible for Small-Scale exemption opts for availment of Modvat credit, the registration is to be applied for before the removal of the goods. Manufacturers of Cosmetics and Refrigeration goods are to apply for registration after crossing the clearances of Rs.30 lakhs. Manufacturers of other goods are to apply for registration when the clearances exceed Rs.50 lakhs. VALIDITY OF REGISTRATION CERTIFICATE. A registration certificate is valid till the relevant unit is engaged in manufacturing of excisable goods. The registration certificate is not required to be renewed. TRANSFERABILITY OF REGISTRATION CERTIFICATE. Registration certificate is not transferable. When a registered person transfers his business to another person, the transferee has to obtain a fresh registration. REQUIREMENT OF AMENDMENT IN REGISTRATION CERTIFICATE. When a registered firm or a company or association of persons undergoes a change in Constitution, the jurisdictional Range Officer is to be intimated within 30 days of such a change for incorporation of this fact in the registration certificate. In case a registered person desires to manufacture a new product, he is to get the product endorsed on his registration certificate. REQUIREMENT OF EXHIBITION OF REGISTRATION CERTIFICATE.

7 Every registered person is required to exhibit the registration certificate or a certified copy thereof in a conspicuous part of the registered premises. WHETHER 100% EXPORT ORIENTED UNIT OR UNIT IN FREE TRADE ZONE IS REQUIRED TO BE REGISTERED. A 100% Export Oriented Unit or a unit in Free Trade Zone licenced or appointed under the provisions of Customs Act, 1962, is deemed to be registered under the Central Excise law. SURRENDER OF REGISTRATION CERTIFICATE. When the registered person ceases to carry out the operation for which he is registered, he is required to surrender his registration certificate immediately to the Range Officer. HOW TO OBTAIN DUPLICATE REGISTRATION CERTIFICATE. In case the original registration certificate is lost or destroyed, the assessee can apply for a duplicate registration certificate to the jurisdictional Range Superintendent after depositing a fee of Rs.30/- through a TR-6 challan in any nominated branch of Punjab National Bank. REQUIREMENT OF FILING DECLARATION FOR THE MANUFACTURERS EXEMPT FROM REGISTRATION. Where the goods are chargeable to nil rate of duty or where the exemption from whole of the duty of excise leviable thereon is granted on the basis of : value of goods; or process of manufacture of goods; or quantity of clearances of goods made in a financial year; or payment of appropriate duty of excise in respect of the raw material used in the manufacture of the goods; or conditions, if any, specified in the schedule to the Central Excise Tariff Act, 1985 in respect of such goods; or

8 conditions, if any, specified in any exemption notification, the manufacturer will have to file a declaration in the prescribed proforma with the jurisdictional Assistant Commissioner before 15 th of April every year. In case of exemption based on value of clearances in a financial year, only those assesees whose value of clearances in previous financial year or in current financial year has exceeded Rs.40 lakhs or is likely to exceed Rs.40 lakhs, are required to file a declaration before 15th April with jurisdictional Assistant Commissioner. ECC CODE NUMBER AND ITS UTILITY. ECC code is known as Electronic Computer Code and is allotted to all registrants of Central Excise. This code comprises of 10 digits. The first 2 digits represent the Commissionerate, next 2 digits represent the division, next 2 digits represent the range, the 7th digit indicates the sector, 8th & 9th digit represent the unit within the sector and the last digit is a check digit. The ECC code number facilitates proper accountal of assessee s records. This code number is a mandatory requirement and is given to the registrant by the Pay and Accounts officer. But the application in this regard is to be submitted to the jurisdictional Range Officer. ECC code number is required to be mentioned on all the statutory documents issued and maintained by the registrant. MANUFACTURE THE TERM MANUFACTURE EXPLAINED. The term manufacture is defined under section 2(f) of the Central Excise Act, Manufacture involves bringing into existence a new substance having different name, character or use. As the duty is on goods, manufacture must be of goods. In order to be goods, the product should be marketable, i.e. the product should be known in the market as such and should be capable of being brought and sold in the market. It does not mean that the sale of the goods is a precondition for charging duty. Goods which have capability of being bought and sold in the market, will attract Central Excise duty even if they are not marketed and may be consumed captively.

9 In addition there are certain processes, which are defined as amounting to manufacture. Such processes are specified in the Chapter notes and section notes in the First Schedule to the Central Excise Tariff Act, There is duty liability in respect of these specified processes even if they may not result in the emergence of a new and distinctive commodity. CLASSIFICATION CLASSIFICATION AND DECLARATION UNDER RULE 173B CLASSIFICATION OF EXCISABLE GOODS. The Central Excise duty is chargeable at the rates specified in the schedule to the Central Excise Tariff Act, The said schedule is divided into 20 sections and 96 Chapters. There are no Chapters with numbers 1,6,10,12 and 77. As such there are effectively 91 Chapters. Each Chapter is further divided into headings and sub-headings. In order to determine the applicable rate of duty in respect of a particular item, the positioning of that item under a particular head or sub-head is essential. The positioning of an item in the appropriate heading/sub-heading is called classification. The classification of an item is generally decided in view of how it is described in commercial parlance. However a deviation from this principle is made when the trade meaning or commercial nomenclature does not fit into the scheme of the statute. INTERPRETATIVE RULES FOR CLASSIFICATION. The Central Excise Tariff Act, 1985 incorporates five Rules of interpretation, which together provide necessary guidelines for classification of various products under the schedule. As regards the Interpretative Rules, the classification is to be first tested in the light of Rule 1. Only when it is not possible to resolve the issue by applying this Rule, recourse is taken to Rules 2,3 & 4 in seriatim. The provision of the individual Rule is as follows. RULE 1 This rule provides that section and Chapter titles are only for the ease of reference and, therefore, do not have any legal bearing on the classification of goods, which is determined according to the terms of headings and relevant section or Chapter notes and according to the other interpretative rules if such headings or notes do not otherwise require. Thus goods are to be classified in terms of the heading and relative sections or Chapter notes without recourse to any

10 interpretative rules. It is only when the goods cannot be classified on this basis, the assistance is to be sought from the interpretative rules. RULE 2(A) This rule provides classification of an article referred to in a heading, even if that article is incomplete or unfinished, or is presented in an unassembled or disassembled form. An important condition to be satisfied for classification in this manner is that in its incomplete or unfinished state, the article has the essential character of the complete of finished article. Some of the important aspects which are relevant in this regard are functional aspect, physical aspect and the degree of completion of the product. RULE 2(B) This rule relates to mixture or combination of materials or substances, and goods consisting of two or more materials or substances. According to this rule headings in which there is a reference to a material or substance also apply to that material or substance mixed or combined with other materials or substances. This rule does not apply where specific provisions exist in the headings or the sections or chapter notes excluding such classification. RULE 3 This rule lays down three steps for classifying the goods which are, prima facie, classifiable under several headings. The sequential order of the steps contemplated are Most specific description; Essential character; and Heading which occurs last in numerical order; This rule applies when goods are prima facie classifiable under 2 or more headings. In the first step, {Rule 3(a)} the general guidelines are that a description by name is more specific than the description by character and a description which identifies the goods clearly and precisely is more specific than the one which is less complete. The second step {Rule 3 (b)} relates only to mixtures, composite goods consisting of different materials or components and goods put up in sets. This rule finds applicability if rule 3(a) does not help. In all such cases the goods are to be classified as if they consist of material or components which gives them their essential character.

11 When goods cannot be classified with reference to Rules 3(a) and 3(b), they are to be classified in terms of Rule 3(c)- in the heading which occurs last in numerical order among those which equally merit consideration. This is a fall back provision for resolving the matter when no heading can be regarded as providing a more specific description than the others and when it is not possible to identify the material or component which gives the concerned goods their essential character. RULE 4 When goods cannot be classified in accordance with rules 1,2, & 3, then they are to be classified in a heading of a product which is most akin to the goods in question. Kinship can, of course, depend on many factors such as description, character, purpose etc. RULE 5 This rule postulates that the classification of any product under a sub-heading is to be contemplated after the product concerned has been properly classified under its proper four digit Chapter heading. The classification in the subheading of a heading is determined mutatis mutandis in accordance with the principles applicable to classification in the four digit headings. POWERS OF THE C.B.E.C. TO ISSUE ORDERS OF CLASSIFICATION OF GOODS. Section 37B of the Central Excise Act, 1944 empowers the Central Board of Excise & Customs to issue orders, instructions and directions, for the purpose of uniformity in the classification of goods or with respect to the levy of excise duties on such goods. PROCEDURE FOR FILING DECLARATION UNDER RULE 173B. In order that assessee knows the correct classification and rate of duty applicable to the goods manufactured by him in advance, the instrumentality of classification declaration has been prescribed. The classification declaration is to be filed in quadruplicate in a prescribed proforma with the Superintendent of Central Excise, having jurisdiction over the factory. The details which are required to be given in the declaration include The full description of

12 all excisable goods produced or manufactured by the assessee; all other goods produced or manufactured by him and intended to be removed from his factory; and all the excisable goods already deposited or likely to be deposited from time to time without payment of duty in his warehouse. The Chapter, heading no. and sub-heading no., if any, of the schedule to the Central Excise Tariff Act, 1985, under which each good falls; The rate of duty leviable on each such good ; The exemption notification availed or proposed to be availed, if any, Write up and flow chart on the process of manufacture; and List of critical raw materials. In case the assessee is availing the benefit of small scale sector exemption notification, he is to give a declaration about the total value of clearances during the preceding financial year, the details pertaining to use of brand name, if any, on the goods manufactured, availment of Modvat credit etc. The declaration is to be filed by an assessee producing or manufacturing excisable goods for the first time within 30 days of commencing the production of such excisable goods and thereafter every year at the beginning of the financial year and also when there is a change in the rate of duty or tariff classification or whenever a new item is intended to be manufactured. The correctness of the declaration should be duly certified by the assessee. The assessee should also ensure that he satisfies all the conditions, if any, prescribed in any exemption notification the benefit of which he claims and should certify to this effect. CHECK LIST FOR THE ASSESSEE. Whether the declaration is filed in the required no. of copies; Whether all particulars about the assessee i.e. name and address, location of the factory, Central Excise registration no., range, division, ECC code no. have been furnished; If it is not the first declaration, ensure that the previous serial no. of the declaration is mentioned;

13 Whether the effective date for declaration has been indicated; Whether the correct description of each excisable goods including the byproducts, waste products or intermediate products to be used for captive consumption along with brand name/trade name/ commercial name and complete specification has been mentioned. Whether the unit of assessment, heading/sub-heading no. and effective rate of duty along with exemption notification have been provided; Whether the conditions, if any, prescribed in the exemption whose benefit is claimed are duly satisfied; Whether all the enclosures as mentioned under the heading 'Procedure for filing declaration under Rule 173B' are enclosed; Whether the declaration bears the seal and signature of the assessee or his authorised signatory. ONUS FOR MAKING CORRECT DECLARATION ON ASSESSEE. The assessee is legally liable to ensure that the declaration made by him under Rule 173B is complete (i.e. no products whether dutiable or not, are omitted), factually correct and specific. Failure on this count may not only attract legal provisions but also may result in recovery of duty in respect of goods which do not discharge their duty liability correctly owing to improper declaration, by invoking extended period of limitation. The assessee cannot escape this onus by making vague declarations or on the plea that the departmental officers had been visiting the factory and were, therefore, conversant with the process of manufacture etc. VALUATION VALUATION AND DECLARATION UNDER RULE 173C VALUATION OF EXCISABLE GOODS. The valuation of the excisable goods is done in accordance with either of the two provisions enshrined in the Central Excise law. These provisions are

14 Valuation under section 4 of the Central Excise Act, 1944 based on normal price which would be applicable to all cases, where maximum retail price based valuation is not notified by the Central Govt., or where Tariff values have not been fixed for the articles under section 3(2) of the Central Excise Tariff Act, 1985; Valuation based on maximum retail price (MRP) under section 4A of the Central Excise Act, 1944, which would be applicable to those excisable goods that are notified by the Central Govt.; VALUE UNDER SECTION 4 OF THE CENTRAL EXCISE ACT, DEFINITION: - Section 4 levies duty on the normal price which has following ingredients:- The price should be one at which the goods are ordinarily sold by the assessee; The sale should be in the course of wholesale trade; The sale should be at the time and place of removal; The buyer should not be a related person; and The price should be the sole consideration of sale. This assessable value is, however, subject to four exceptions, which are set out in the proviso to section 4 (1)(a). These exceptions are FIRST EXCEPTION If the goods are sold at different whole sale prices to different classes of buyers, each such wholesale price is deemed to be an assessable value. SECOND EXCEPTION If the goods are sold at different wholesale prices for different places of removal, each such price is deemed to be the assessable value. Thus an assessee can have more than one assessable value in respect of the same goods.

15 THIRD EXCEPTION If the goods are sold in the course of wholesale trade at a price fixed by law, such fixed price is taken as the assessable value. For example the Drugs Price (Control) Order fixes the wholesale price at which schedule drugs can be sold. In such cases, the price fixed under the Drugs Price (Control) Order is taken as assessable value. FOURTH EXCEPTION If the assessee arranges to sell the goods in the course of wholesale trade only through a related person, the price at which the goods are sold by such related person is taken as the normal price or the assessable value. This proviso is obviously intended to prevent avoidance of Excise duty by an assessee who can arrange to sell the goods in wholesale to a person at a lower price and thus pay lesser amount of duty. PERMISSIBLE DEDUCTIONS FROM WHOLESALE PRICE FOR DETERMINING ASSESSABLE VALUE. Only following items can be deducted from the wholesale price Cost of packing, provided it is durable in nature and returnable to the assessee. Secondary packing necessary for making the goods marketable is includible in the assessable value. However, if any special packing is provided by the assessee at the instance of the wholesale buyer, which is generally not provided as a feature of wholesale trade, the cost of such packing shall be deducted from the wholesale cash price. The burden of proof that a packing is a special secondary packing, is on the assessee. Cost of transportation (including cost of insurance) from place of removal to the place or places of delivery. If the freight is averaged, the average freight is deductible; Excise duty, sales tax and other taxes. The quantum of excise duty is to be determined as per explanation to section 4(4)(d)(ii). Trade discount allowable in accordance with the normal practice of wholesale trade. Such trade discount should not be refundable on any account, however. No deduction is permissible in respect of post manufacturing expenses, like marketing, selling and advertisement expenses. RELATED PERSON.

16 Related person has been defined under section 4(4)(c) of the Central Excise Act, The definition is both exhaustive and inclusive. According to the first part of definition, which is exhaustive, "a person who is so associated with the assessee that they have interest, directly or indirectly in the business of each other" is a related person of the assessee. According to the second part related person includes holding company, subsidiary company, a relative and a distributor, a sub-distributor. The term holding company, subsidiary company and relative have the same meaning as in Companies Act, A person will be a related person of another if there exists mutuality of business interest. This interest refers to the interest in general between the business of two parties and does not refer to the interest which is created by sale of goods. The interest may be pecuniary or of such nature as would have the effect of promoting the business of each other. The quality and degree of interest which each has in the business of other may be different, the interest of one in the business of other may be direct, while the interest of the latter in the business of the former may be indirect. This would make no difference so long each has got some interest, direct or indirect in the business of the other. DETERMINATION OF ASSESSABLE VALUE WHEN THERE IS NO SALE BY RELATED PERSON. If the related person does not sell the goods, but captively utilises them, the proper officer can determine the assessable value. Section 4(1) contains inherent powers to determine the true value of the excisable goods after taking into account any concession shown to a favoured buyer as account of extra commercial consideration and the provisions of Rule 6(b) of the Central Excise (Valuation) Rules, DETERMINATION OF ASSESSABLE VALUE WHERE THE RELATED PERSON SELLS THE GOODS IN RETAIL. In this situation the value has to be deducted from the retail price of the goods in the manner specified in Rule 6(a) of the Central Excise (Valuation) Rules, 1975 i.e. a reasonable amount will have to be reduced from the retail price to arrive at the price at which the assessee would have sold the goods in the course of whole sale trade to a buyer other than the related person. VALUATION OF GOODS GOT MANUFACTURED ON JOB WORK BASIS.

17 If the processing results in the manufactured product, the assessable value will not be processing charges alone but the intrinsic value of the processed product which is the wholesale price at which it is sold for the first time in the wholesale market. ILLUSTRATION If the cost of raw material is Rs.50/- and the job conversion charges including job worker s profit is Rs.100/- the assessable value of the goods will be Rs.150/- as this is the value at which the goods leave the factory and enter the main stream. THE ASSESSABLE VALUE WHERE THE RAW MATERIAL IS PROVIDED BY THE CUSTOMER. The value of the raw material supplied by the customer would form a part of the assessable value. The fact that manufacturer does not pay for the raw material, is immaterial. The matter stands concluded by the judgement of the Supreme Court in the case of Burn Standard Co. Ltd. Vs. UOI (1991) 36 ECC-1(SC). In this case the assessee manufactured wagons for Railways. The latter supplied wheel sets and certain other items free of cost. The price charged for the vehicle did not include the value of the items supplied free of cost. The Supreme Court held that free supply items like wheel sets etc. form part of the complete wagon and would lose their identity. It hardly matters as to how and in what manner the components of wagons were procured by the manufacturer. The assessee would be liable to pay duty on the normal price of the wagon. THE EFFECT OF PRICE ESCALATION SUBSEQUENT TO THE REMOVAL OF GOODS, ON THE ASSESSABLE VALUE. The excess amount realised under an escalation clause would form part of the assessable value and thus attract Central Excise duty. THE EFFECT OF REDUCTION IN PRICE SUBSEQUENT TO REMOVAL ON PAYMENT OF DUTY, ON ASSESSABLE VALUE.

18 If the goods are removed on payment of duty, based on declared price, subsequent reduction of price for whatever reason, including Govt. interference, would not create a claim for refund of Central Excise duty paid on the quantum of price reduced. THE DETERMINATION OF ASSESSABLE VALUE WHEN THE GOODS ARE SOLD ONLY IN RETAIL. Even if the goods are not sold in wholesale and wholesale price thereof is not available, the assessable value is to be determined for charging Central Excise duty. The assessable value in such cases is determined in accordance with the provisions of the Central Excise (Valuation) Rules, The rules provide for arriving at the assessable value by reducing the retail price by such amount as is necessary and reasonable in the opinion of the proper officer. The quantum of deduction is to be determined after considering the nature of excisable goods, trade practice in that commodity and other relevant factors. ASSESSABLE VALUE OF GOODS CAPTIVELY CONSUMED. The assessable value of goods captively consumed is determined according to Rule 6(b) of the Central Excise (Valuation) Rules, The Rule provides for determining the value on the basis of the value of the comparable goods sold by the assessee or any other person. In case the value of comparable goods is not available, the value is based on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. This profit is only a notional profit. The gross profit of the previous years, as per audited balance sheets, is added to the cost of production. THE POSITION OF INTEREST RECEIVED ON ACCOUNT OF DELAYED PAYMENTS IN INFLUENCING THE ASSESSABLE VALUE. Within the general credit period, the price is same whether it is paid on the date of delivery or on any day within such general credit period. The interest will be included in the assessable value.

19 In cases where interest is made payable after the general credit period is over, such interest will not form a part of the assessable value. Illustration. Assessee charges Rs.100/- per unit for his goods, if the payment is made within 45 days. Rs.100/- per unit will of course include the interest component pertaining to the general credit period of 45 days. Even if the payment is made at the time of delivery Rs.100/- would be the assessable value, irrespective of the possible inclusion of interest element in the price. If the assessee charges Rs.102/- per unit after 45 days and Rs.2/- per unit is identifiable as being relatable to time lag in payment, this amount of Rs.2/- per unit will not form a part of the assessable value. ROLE OF NOTIONAL INTEREST ON THE ADVANCES/DEPOSITS TAKEN BY THE MANUFACTURER FROM THE BUYER IN INFLUENCING THE ASSESSABLE VALUE. Interest on advance deposits is includible in the assessable value only if there is a nexus between the advance deposit and the sale price. The ratio decidendi of the Metal Box case 1995 (75) ELT 449(SC) requires, before adding notional interest, establishment of the facts that the interest free advance reflected favoured or special treatment and that advances had the effect of pegging down the wholesale price. THE VALUE OF TRADE MARK AND ASSESSABLE VALUE. Where a manufacturer is the owner of the brand name, the price including the value of the brand name, at which he sells the goods in the course of wholesale trade, would constitute the normal price. But where the goods are manufactured by somebody else and then sold to a dealer who owns the brand name, the value of the brand name cannot be added for computing the assessable value for the brand name owner cannot be treated as manufacturer and the price at which the brand name owner sells the goods cannot be taken as assessable value. THE ROYALTY PAID TO ANOTHER PERSON REGULARLY FOR USING PATENTED KNOW HOW AND THE ASSESSABLE VALUE. If royalty is paid to another person regularly for using the patented know how, such a sum has direct nexus with the goods manufactured. Such royalty would be included in the assessable value.

20 CONSULTANCY /TECHNICAL SERVICES AND ASSESSABLE VALUE. The costs towards drawing, designing and technical specifications are clearly elements of machinery costs and are to be included in the assessable value. However, the cost towards project report, plant layout, civil works and training are in the nature of services and are not includible in the assessable value. Technical knowhow fee paid to the foreign collaborator is includible in the assessable value as it enhances the marketability of the product on account of improved quality. INSPECTION CHARGES AND TESTING CHARGES, WHETHER INCLUDIBLE IN THE ASSESSABLE VALUE. Where the manufacturer bears the cost towards inspection and testing of goods prior to their removal, such costs are included in the assessable value. The inspection and testing charges incurred subsequent to the clearance of the goods are also to be included in the assessable value if they form part of agreement for sale of goods. EXCESS AMOUNTS CHARGED TO CUSTOMER WHETHER DUTIABLE. If the amounts recovered from the customers is in excess of expenditure actually incurred on permissible deductions, the excess amount will form part of the assessable value. Amount charged and recovered from customers by separate bills will be considered as gross receipts or cum duty price and duty payable is to be calculated after working out the assessable value from the gross receipts. HANDLING COST AND ASSESSABLE VALUE. Handling cost incurred before the clearance of the goods from the place of removal is includible in the assessable value. WHETHER THE RENTAL CHARGES OR PAYMENT OF INTEREST ON DEPOSITS TOWARDS SAFE RETURN OF DURABLE PACKING IS A CONSTITUENT OF ASSESSABLE VALUE.

21 The retention charges/rentals and charges incurred for maintenance and service of durable and returnable containers are not to be included in the assessable value. As the cost of durable packing does not form a part of assessable value, there cannot be any rationale for inclusion of rental charges incurred in respect thereof. THE ASSESSABLE VALUE IN CASE OF REPAIR ACTIVITIES. If the assessee replaces certain parts while repairing a manufactured product, he is liable to pay duty only on value of spare parts manufactured and used in the said manufactured product. MAINTENANCE CHARGES, WHETHER, PART OF ASSESSABLE VALUE. Maintenance charges (being optional and distinct from warranty obligations), and sight service charges recovered for rendering special services are not includible in the assessable value. But if the price is marked up to cover servicing costs, prima facie such amount would form a part of the assessable value. WARRANTY EXPENSES AND THE ASSESSABLE VALUE. After sales service expenses for the warranty period are a part of the assessable value. But the expenditure incurred for after sale servicing under taken by the assessee after the expiry of the warranty period is not includible in the assessable value. THE COST OF ACCESSORIES SUPPLIED BY THE BUYER, WHETHER PART OF THE ASSESSABLE VALUE. There is a distinction between the component and the accessory. A thing is a part or a component of the other only if the other is incomplete without it. A thing is an accessory of the other if the thing is not essential for the other, but only acts to its convenience or effectiveness. The cost of accessory supplied by the buyer as a package of sale of the manufactured goods will be included in the assessable value if Modvat credit is taken in respect of the accessories. ADMISSIBLE AND INADMISSIBLE DISCOUNTS.

22 Discounts known at or prior to the removal of the goods are allowable if the discounts are actually given. Trade discounts not given uniformly can be rejected considering the circumstances of transaction. There is no reason to suppose that a trade discount is always in the form of money. A quantity discount is an accepted form of trade discount and is allowable on goods sold in wholesale, is deductible like cash discount. Turnover discount given depending upon the purchases made by each dealer is an admissible discount. Prompt payment discount is a trade discount and allowable as deduction. Free samples of medicines given to the physician constitute an admissible discount. TAC/Warranty discount is in the nature of benefit given to the customers by way of compensation for loss suffered by them on the previous sale. As it is not in accordance with the normal practice of the wholesale trade at the time of removal of goods in respect whereof the claim is made, the discount is inadmissible. Year end discount or Campaign discount are in the nature of bonus or incentive given much after the removal of goods is complete and are, therefore, not deductible. COMPUTATION OF ASSESSABLE VALUE FROM WHOLESALE PRICE. The assessable value is computed from the wholesale price by using the equation : Assessable value =Wholesale price Permissible deduction 1 + rate of duty REQUIREMENT OF FILING PRICE DECLARATION IN CERTAIN CASES (RULE 173C). 100

23 An assessee is required to file price declaration with the Superintendent of Central Excise having jurisdiction over his factory in a prescribed form in the following cases:- 1. where the assessee sells goods to or through related persons; 2. where the assessee uses such goods captively for manufacture and production of other goods; 3. where the assessee removes such goods for free distribution; 4. where the assessee removes such goods in any other manner which does not involve sale; 5. where the assessee removes goods of the same kind and quality from his factories located in the jurisdiction of different Commissioners of Central Excise or Assistant Commissioner of Central Excise The declarations are to be filed in triplicate at the beginning of each financial year and thereafter as and when there is a change in the value or marketing pattern. In case the value declared by the assessee is not found to be correct, the divisional Assistant Commissioner may cause necessary enquiry to be conducted as contemplated in Rule 173C(3) of the Central Excise Rules, CHECK LIST IN RESPECT OF DECLARATION FILED UNDER RULE 173C. Please check whether:- the declaration has been filed in the correct proforma in required number of copies; declaration date has been mentioned on the proforma; description of goods, heading, sub-heading, ECC code no. has been mentioned; the declaration contains the prices in respect of goods of each description and the excise duty, other taxes, discounts and all such deductions and addition made by the assessee to arrive at the assessable value; appropriate mention has been made in case of sales to an independent wholesaler or a related person or own depots or branches; a certificate to the effect that the price declared represents sole consideration and there is no additional consideration flowing directly from such sales, has been given in the declaration; the status of related person/depot/consignment agent and his relation with assesee has been mentioned and the copies of such agreements or contracts have been enclosed.

24 PROVISIONAL ASSESSMENT WHAT IS PROVISIONAL ASSESSMENT. Where the assessee is unable to determine the value of excisable goods in terms of section 4 of the Central Excise Act, 1944 on account of non availability of any document or any information or where the assessee is unable to determine the correct classification of goods while filing classification declaration under Rule 173B, the said assesee may request the jurisdictional Assistant Commissioner in writing for permitting provisional assessment to duty. The Assistant Commissioner after causing such enquiry as he deems fit may direct that the duty leviable on such goods shall be assessed provisionally at such value or rate as may be indicated by him. This value or rate may not necessarily be the same as mentioned by the assessee. The provisional assessment is subject to the execution of bond in proper form by the assessee, with such surety or such sufficient security or under such conditions as the Assistant Commissioner may deem fit. The security amount is taken as 25% of the bond amount. The bond binds the assessee for payment of difference between amount of duty as provisionally assessed and as finally assessed. All the excisable goods covered under such request by the assessee are deemed to be cleared on provisional assessment till the date when the direction of the Assistant Commissioner is issued and communicated to the assessee. Where the Assistant Commissioner is satisfied that the self assessment made by the assessee is not in order, he may direct the assessee to resort to provisional assessment. FINALISATION OF PROVISIONAL ASSESSMENT. As per provisions of Rule 9B(6), the Provisional Assessment is to be fianalised by the Assistant Commissioner after causing the necessary enquiries. The Assistant Commissioner is to issue a speaking order for finalisation of assessment and demand of differential duty, if any, after observing the principles of natural justice. In case the assessee is aggrieved by the order, he may appeal to the Commissioner (Appeals)

25 PAYMENT OF DUTY HOW TO PAY DUTY. The assessee can pay duty from two accounts. One account is called current account also described as PLA. The other account is called the Modvat account. CURRENT ACCOUNT OR PLA After registration of a new factory, the assessee should deposit a token amount on TR-6 challan in any of the nominated branches of Punjab National Bank. T.R. abbreviates Treasury Receipt. After depositing the amount the assessee can take credit of that amount in the PLA to be maintained by him. The assesee, thereafter, should apply to the jurisdictional Range Superintendent along with a receipted copy of TR-6 for allotment of PLA number. The PLA number is allotted by the Chief Accounts Officer and it takes normally a week s time for the allotment of the PLA number. The assessee must mention the PLA number on the TR-6. Even during the pendency of allotment of PLA number the assessee can effect clearances. The duty is to be deposited by the assessee by making a debit entry of the amount of duty in PLA account. PLA is to be maintained in triplicate using indelible pencil and double side carbon. The assessee should periodically make credit in current account by depositing on TR-6 challans. There should always be sufficient balance in the account to cover the duty on the goods intended to be removed. The debit entry towards payment of duty of an amount exceeding the balance available in the current account means removal of goods without payment of proper duty and such acts are liable to penalties under the law. PROCEDURE OF DEPOSIT OF DUTY DURING STRIKES ETC. The following procedure may be followed for deposit of duty during sudden strikes, riots, imposition of curfew or natural calamities such as floods/cyclones etc.

26 The assessee should send the cheque drawn in favour of the Chief Accounts Officer, Central Excise Commissionerate Delhi-I, C.R.Building, I.P.Estate, New Delhi by registered post acknowledgement due or through special messenger along with completed TR-6 challans in quadruplicate, with an undertaking that they have sufficient balance in their bank account and that they will bear the collection charges charged by the bank. A copy of such forwarding letter should also be handed over to the jurisdictional Superintendent. On the strength of the cheque so sent, the assessee may take credit in the PLA and clear the goods. The details with regard to the cheque and the particulars of the concerned assessee are intimated by the Chief Accounts Officer to the jurisdictional Superintendent. The duplicate and triplicate copies of the receipted challans are returned to the assessee for his reference and record and for preparing necessary monthly statements etc. Bank commission or collection charges, if any, are to be debited in the PLA. In case the cheque is dishonoured, the assesee is liable for penal action. This concession is not available to the assessees who work on overdrafts on their banks and are not able to give the declaration that they have sufficient balance in their account in the bank to meet the amount of the cheque MODVAT ACCOUNT. If the assessee is availing the benefit of Modvat scheme envisaged in Central Excise Rules, 1944 from Rule 57A to 57J and Rule 57Q to 57U, he can discharge his duty liability from the credit permissible in the relevant rules. For operating under the scheme the assessee is to maintain accounts in the form RG-23A parts-i and II for taking Modvat credit on inputs and RG-23C Parts I & II in respect of Modvat credit on capital goods. In these accounts the credit of duty paid on inputs and capital goods received in the factory, is taken and the credit is used for payment of duty on the goods manufactured and removed by the assessee. MODVAT RATIONALE OF MODVAT SCHEME.

27 Modvat abbreviates Modified Value Added Tax. The scheme is intended to avoid cascading effects of duty. Before the introduction of this scheme, barring some duty relief schemes provided to some specified goods, the inputs first suffered duty and the duty so paid became a part of the cost of the final product and the final product again suffered some duty. However, under Modvat scheme duty becomes payable at the value added at each stage of production as against on the gross value including duty paid in earlier stages of production. The scheme envisages taking of credit of duty paid on inputs as well as on capital goods. The scheme in practice provides for an alternative method for payment of duty. The duty on the final product, in terms of the scheme, gets paid from the credit of duty available on the basis of duty paid on inputs in capital goods. MODVAT SCHEME WITH REGARD TO INPUTS. AVAILABILITY OF THE SCHEME IN RESPECT OF THE DUTIES. The provisions relating to Modvat do not make available credit in respect of all the duties and taxes suffered by the inputs. The credit can be taken only of the following duties 1. the duty of excise specified in the first schedule to the Central Excise Tariff Act, 1985, leviable under Central Excise Act, 1944; 2. the special duty of excise specified in the second schedule to the Central Excise Tariff Act, 1985, leviable under Central Excise Act, 1944; 3. the additional duty of excise under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978; 4. the additional duty of excise under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957; and 5. the additional duty under section 3 of the Customs Tariff Act, AVAILABILITY OF THE SCHEME IN RESPECT OF INPUTS.