SYLLABUS. B.Com I SEM (Tax) Subject Central & Provincial Excise Duty

Transcription

1 SYLLABUS B.Com I SEM (Tax) Subject Central & Provincial Excise Duty UNIT-I Unit-II Unit-III Unit-IV Unit-V Introduction of Central Excise Duty, features and importance, types of excise duty, important definitions; goods, manufacture, manufacturer, factory, excisable goods, basic conditions, Registration, process of classification and principles. Methods of valuation of excisable goods, Items to be included and excluded to Transaction value. Practical problems relating to computation of assessable value and excise duty payable. MRP based valuation. CENVAT rebate. Exemption to small scale industries. Methods of goods removal from factory-physical control method. Self Removal method compounded and levy scheme. Removal of goods for export. Production records, depositing of duty. Excise duty authorities. Appeal and revision. Penalty and prosecution. Introduction of MP excise duty provisions relating to import. Export, transportation, manufacture, sales and licensing of introxicants. Calculation of duty on intoxicants. 1

2 Unit 1 Excise Duty is an important Central and indirect tax of India, which is levied by the Central Govt. It is a major source of Tax revenue. It is imposed on manufacturing of goods in India which is paid manufacturing but it is ultimately borne by consumers of goods. It is governed by central Excise Act and Central excise tariff Act At present it is levied upon various excisable goods under 20 sections divided in 96 chapters. During the financial year , the government of India collected Rs. 1,80,000 crores through excise duty. The Webster s New International Dictionary defines Excise Duty as a. Any duty; toll or tax b. An inland duty or import, levied upon manufacture. c. A tax upon the pursuit or following of certain sports, traders or occupation; usually taking in the case, the form of exactions for licences. Nature /Characteristics of Excise Duty 1. Tax Imposition on Manufacture/ Product of goods in India 2. It is paid by manufacture but final burden falls upon the consumer 3. It s imposed assessable value which is based on transaction value. 4. Its payment is to be made before removal from Factory. 5. Its scope is throughout in India Uniformly 6. It is imposed only once on the finished goods except it is used as raw material for production of another goods. 7. Maintenance of records regarding removing/shifting of manufactural stock and goods from the factory should bas as per the rules of excise duty. 8. At present normal general excise rate is 12% and 3% education cess on it. 9. Administration of central excise is under the central customs department 10. Most important 10 goods are on which the excise duty is imposed Cigarettes, Tyres & Tubes, plastics, motor cars, two wheelers, petroleum. 11. Additional special excise duty is levied on pan-masala, motor spirit, kerosene, diesel etc. 12. In addition to basic duty and special duty the national calamity contingent duty is also levied on some product. Merits of Excise Duty 1. Major source of Governments revenue 2. Psychological advantages of tax payer 3. Easier to collect tax 4. Balanced industrial growth 5. Less collection cost 6. Tax evasion difficult Disadvantages of Excise Duty 1. Increase the price of goods 2. The incidence is uniform 3. Reduces demand of goods 4. Increases project costs 7. Control over wasteful expenditure 8. Channelize industrial growth 9. Manufactures favours indirect taxes 10. Record keeping easier 11. No resistance by consumers. 5. Shields inefficient local Industrial 6. Modern technology becomes costly 7. Increase smuggling/tax evasion Types of Excise Duties A clear distribution of sources has been made under the constitutions of India between centre and states. The constitutions grant s power to central govt. to impose tax on goods manufactured in India except intoxicants. The right of imposing excises duty on liquors, opium and narcotics granted to states on this bases the excise duty may be classified in the two sections 2

3 1. Central Excise Duty a. Basic Excise duty 12% & education cess 3% education cess there on so, effective excise rate was 12.36%. In the Central Budget the education cess on excise duty has been withdrawn and a gross rate 12.5% shall be applicable w.e.f b. Advolerm duty on specified rate on value of goods c. Specified duty on specified rate on unit, weight, volume, length or area of goods d. Maximum Retail price based excise duty e. Tariff value based duty. Special duties also known as auxiliary duties are the regulatory duties, which were levied as surcharge on certain specified goods. At present all goods which were leviable to special Excise duty have been exempted. These have been merged with basic duty as per central excise Act. 2. Provincial Excise Duty This excise duty is imposed by central govt. Indian constitution has given rights to state governments to impose and collect excise duty on intoxicants, like, liquor, bhang, ganja, opium etc. It is an important source of revenue for states except sales tax or commercial tax. Duties under other Act 1. Education cess on excise duty 3% 2. National calamity contingent duty It is varies from 10% to 45% 3. Additional Excise Duty on pan masala and tobacco products is 10% 4. Duty on medical and Toilet preparations 5. Additional duty on mineral products. Brief History of Central Excise Duty 1. Tax on the production of salt during Mughal period 2. Indian salt Act 1882 Main Provisions of Central Excise 1. Brief History of excise Duty 2. Levy and collection of duty 3. Excise duty based on value 4. Valuation of excisable goods 3. Excise Duty on Cotton yarn 4. Inclusion of various goods 5. Central Excise Duty Act Central credit 6. Administration of excise duty 7. Appeal & Revision 8. Penalty & Prosecution Basic conditions of Excise duty Indian constitutions has given powers to central govt. and state govt. to levy various taxes and duties, powers of central to impose duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, opium, narcotizes, but including medical and toilet preparations containing alcohol, opium or narcotics. Power to purpose excise an alcoholic, liquors, opium and narcotics is granted to states and it is called State Excise. Section 3 of central excise act the charging section states that there shall be levied and collected duties an all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactures in India. This definition of changing section of central excise is vital, because it clearly signifies that there are four basic conditions for levy of central excise duty. 1. The excise duty levied on goods a. Goods must be movable b. Goods must be marketable 2. The goods must be excisable 3

4 Section 2 (d) of central excise act defines excisable goods as goods specified in the schedule to central excise tariff act 1985 as being subject to a duty of excise and includes salt. a. Goods specified in CETA b. Goods excisable even if exempt from duty c. Goods not included in CETA and not excisable goods d. Nil duty paid goods e. Goods manufactured in SEZ 3. The goods must be manufactured or Produced [Sec. 2 (f )] 4. Manufacture must be in India Section 2(f) of central excise act states that manufacture includes any process a. Incidental or ancillary to the completion of manufactures product and b. This is specified in relation to any goods in the section or chapter notes of the schedule to the central excise tariff Act 1985 as amounting to manufacture. Levy and liability of excise duty The words levy means imposition of tax, once a tax or duty is imposed, it has to be qualified (assessed) and then collected. Once a duty is levied, it has to be collected. It cannot be collected unless his duty is qualified (assessed). Hence, normally levy should cover imposition assessment and collection. Following should be kept in view regarding levy of excise duty 1. Taxable event is that on happening which the change is fixed. 2. Once duty liability is fixed person liable to pay excise duty 3. The duty liability is of the person who stores the goods in the ware house in case of ware house goods. 4. The duty liability is of actual manufacturer and not of the raw material supplier in case of job workers. 5. The duty liability is of manufacturer even if goods are consumed within the factory and not sold. 6. The duty can be levied on goods manufactures by state or central govt. undertaking 7. Rate of duty as applicable on date of removal relevant. 8. State of goods at the time of removal is relevant 9. Marketability of goods is essential Important Definitions It is important to have a conceptual clarity of the various terms used in the enactment before embarking on a detailed study of the central excise act The important terms used in the act have been definitions of various other terms given under constitution and other acts. Goods Articles 366 (12) of the constitution defines goods as Goods includes all materials, commodities and articles. Sale of goods act defines Goods means every kinds of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming park of the land which are agreed to be several before sale or under the contract of sale. These definitions are two board based to fit into the scheme of excise duty. However; case low on this aspect has crystallized two basic requirements 1. Goods must be movable a. It should be come into existence, as a result to manufacture. b. It should be capable of being moved to market to be bought and sold 4

5 2. Goods must be marketable a. Capable of being brought to the market b. Actual sale is not necessary c. Mere mention in tariff is not enough d. Even one purchaser enough e. Everything that is sold is not marketable f. Duty leviable on captive consumption g. Marketability to be decided on the basis of the state in which it is produced h. Actual open market is not necessary i. Burden of proof of marketability is on department. Excisable goods sec. 2(d) An excisable goods means goods specified in the scheduled to the central excise tariff act 1985, as being subject to a duty of excise and includes salt. Some points are important regarding the term excisable goods a. It should be specified in the tariff schedule b. Goods not included in CETA are non-excisable goods. c. Mere mention in CETA not enough d. Subject to duty e. Goods manufactures in SEZ are excluded excisable goods. f. Dutiable and non-dutiable goods. Manufacture Sec 2 (f) Section 2(f) defines the term manufacture to include any process 1. Incidental or ancillary to the completion of a manufactures product, and 2. Which is specified in relation to any goods in the section or chapter notes of the schedule to the central Excise Tariff Act, 1985, as amounting to manufacture or, 3. This is specified in relation to any goods by the central Govt., by notification in the official Gazette, as amounting to manufacture. The above definition is inclusive in nature and includes all the intermediate processes, packaging of the final products etc. Some important points related to this term 1. New substance having distinct to this term 2. Transformation or conversion 3. Identity of original article should be lost 4. Assembling can be manufacture 5. Commercially known product Processing Manufacture is the end result of one or more processes through which the commodity is made to pass. Thus manufacture involves a series of processes, whereas process in one of the activities undertaken for manufacture of a product for input material. At some point of time processing and manufacturing may merge. Manufacturing is, in fact the cumulative effect of various processes, to which raw materials are subjected and each such step towards the finished product, would constitute processing in relation to the manufacture. Manufacturer 5

6 Section 2 (f) defines Manufacturers shall be understood 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 is a person who actually manufactures or produces excisable goods one who actually brings into existence new and identifiable product. Who is not manufacturer 1. Raw material supplier 2. Brand owner is not the manufacturer 3. Franchise agreement 4. Loan licensee Assessable value sec. 4(1) (a) Assessable value when duty of excise is chargeable on excisable goods with reference to value will be following conditions are satisfied 1. The goods should be sold at the time and place of removal 2. Buyer and assessee should not be related. Transaction value Sec 4(3) (d) Transaction value as the price actually paid or payable for the goods when sold, and include in addition to the amount charged but does not include the amount of duty & taxes. Adjudicating Authority Sec 2(a) Adjudicating Authority means any authority competent to pass any order or decision under this act but does not include central Board of Excise and customs constituted under the central boards of revenue act 1963, commissioner of central Excise appeals or appellate Tribunal. Curing sec 2 (c) Curing includes writing, drying, fermenting and any process for rendering an un-manufactured product fit for marketing or manufacturer. Factory Sec 2 (e) Factory means any premises including the precincts there of, where in or in any part of which excisable goods other than salt are manufactured or where in any part of which any manufacturing process. Connected with the production of these goods is being carried or is ordinary carried on. Sales/ Purchase sec 2 (h) Sale and purchase with their grammatical variations and cognate expressions, means any transfer of the possession of goods by one person to another in the ordinary course of trade or business for case or deferred payment or other valuable considerations. Central Excise officer Sec 2 (b) Central excise officer means the chief commissioner, commissioner, appeals commissioner, additional commissioner, joint commissioner, deputy commissioner, assistant commissioner or any other officer of central excise department or any person invested by the CBSE constituted under central board of revenue act 1963 with any of the powers of this act. Registration in central excise Registration is the process of getting the under taking listed in the records of excise department. The following points are discussed in relation to registration in central excise. 1. Persons requiring registration According to the sec 6 of central excise act 1944 and rule 9 of the central excise rules 2002 the following person are required obtained registration. a. Manufacturer b. Persons who issue CENVAT invoice 6

7 c. Private warehouse holder d. End use based exemption user. e. Exporters 2. Person s exempted obtaining registration a. Persons who manufacture the excisable goods, which are chargeable to nil rate of E.Duty b. Small scale units availing slab exemption based on clearances under the notification c. The supplier of raw material who gets his goods manufacture on his account from any other person. d. The job worker need not get registration if the principal manufacture under tax to discharge the duty liability e. Persons manufacturing excisable goods by following the warehousing procedure under the customs Act 1962 f. Person who carries on whole sale trade or deals in excisable goods g. A 100% export oriented under taking or units or special economic zone under custom act 1962 h. Persons who use excisable goods for any purpose other than for processing or manufacturing of good availing goods benefit of concessional duty exemption. Procedure Making Application for Registration 1. Application in Form A 1 2. Signature on application by authorized person 3. Submission of ground plane 4. Document to be submitted 5. Verification of application & it information 6. Discrepancy on verification 7. Time limits for issue of certificate (within a 7 days of receipt of application) 8. Recording of application and grant f certificate 9. Exhibition of certification of registration. Other provisions relating to registrations 1. If registered persons transfer his business to another person then transferee shall obtain a fresh registration certificate. 2. If there are any changes or amendments in the constitution of firm/company, association, shall be intimated to the jurisdictional CE officer within 30 days of change. 3. A businessman who applies for registration should file a legal understanding jointly signed by the him and the lesser undertaking to pay the duty liability with interest for manufacturing. 4. Surrender, cancellation, suspension or revocation of registration by making an application in the prescribed form. This is subject to compliance of the statutory obligations under the excise law. 5. When the registration certificate is lost the registered person should submit a written application to the range officer for issuing a duplicate registration Certificate. 6. Once registration certificate is granted, it has a permanent status unless it is suspended or revoked by the authority. It validity of registration is upto revoked the certificated. 7. (Manufacture without applying for registration is an offence.) Under the rule of 25 (1) of CE rules penalty upto duty of contravening goods or Rs. 10,000 whichever is higher can be imposed. In addition contravening goods can be confiscated. It is also an offence under sec. 9 of CEA and imprisonment upto 7 years (Minimum 6 months) can be imposed. Excise Control Code (ECC Number) 7

8 The central excise assessee s and registered dealers have to obtain new excise control code (ECC) number Common Business Identifier and will ultimately replace the existing registration number, ECC number shall be used for revenue accounting, validation of documents, inter agency coordination and for creation of database. This number has to be quoted on the TR-6 challans covering deposit of central excise duties additional duties, cess and other dues to the government. The new ECC number is alphanumeric. The first part is the 10 character PAN issued by IT Authorities to the concerned person to whom the new ECC number is to be allotted. The second part companies of a fixed 2 character alpha code, XM for manufacturers and XD for dealers. This is followed by 3 character numeric code 001, 002, 003, etc. An application should be made in the prescribed form annexing there to a certificate copy of PAN to the jurisdictional range superintendent of central excise. The new ECC number is issued by the commissionerate and is intimated to the concerned applicant in prescribed form and a copy is also forwarded to the concerned PAO. Classification of goods in central excise Different manufacturers produce different goods and it is not possible to levy tax on all these at the same rate. Therefore different goods are categorized and excise duty is imposed on different rates. Classification of goods in central excise menas under which heading and subheading of CETA 1985, is the goods kept and which rate is applicable on it. This procedure is called HSN and coding system. Generally an assessee would like to opt for a classification that attracts lower duty. This classification forms a basis for further classifying the goods under specific chapter head and sub-head. Important provisions of CETA relating to classification of goods The central excise duty is chargeable at the rates which are determined on the basis of classification of goods 1. Sections & chapters of CETA There are so many varieties which are manufactures in India. CETA is divided in to 20sections and each section is further divided into 96 chapters. 2. Grouping of goods The tariff is determined to a group all goods relating to same industry and all the goods obtained from the same raw material under one chapter in a progressive manner as far as possible. Goods are classified beginning with raw materials and ending with finished products within the same chapter. 3. Classification of chapter under various headings and sub-headings. 4. Eight digit classification For example specified that it is related to 50 th chapter 4m heading, 11 th subheading of the chapter. 5. Division of excisable goods in 4 columns live heading No, subheading no., description of goods and rate of duty. Rules for Interpretation of CETA Rules for interpretation of schedule are given in the tariff itself. These are termed as general interpretative rules. (GIR). 5 rules are made for proper classification in CETA. These rules are legally accepted in the act. It is essential to follow the serial order while going through the rules. Rule 1 In case chapter notes clearly determine classification. Rule 2 In case of classification of incomplete or unfinished goods. a. In case of material or substance [Rule 2(a)] b. Classification of mixture or combinations [Rule 2(b)] c. If both are specific later the better [Rule 2(c)] Rule 3 Classification of goods classifiable under two or more headings Rule 4 Classification under a heading most similar to goods. Rule 5 Determination of classification under sub headings 8

9 (Rules to be applied sequentially) General principles of classification 1. Trade Parlance theory 2. HSN and classification 3. Dictionary meaning 4. Technical Literature 5. Main function of machinery 6. Machinery independent even if it can be attached to another 7. End use relevant only in limited cases 8. Limited use of ISI/BIS standards 9. Exemption notification cannot determine classification 10. Condition at the time of import/clearance relevant 9

10 Unit 2 Methods of valuation of Excisable Goods The scheme of valuation of excisable goods is governed by the provisions of sections 4 of the excise duty Act 1944 is generally termed as the Assessable value, based on which the rate of duty is applied (Prescribed in CETA) and actual duty liability is calculated. These are different basis for calculation of duty payable 1. Duty as percentage based on Assessable value (Advalorem Duty) 2. Duty based on Maximum Retail Price 3. Specific duty on the basis of certain units 4. Duty as percentage of Tariff Value. Duty Based on Assessable value It is the most applicable basis of valuation of excisable goods. It is called Advalorem Duty. A major number of excisable goods are valued on transaction value basis. Meaning of Transaction Value As per Sec. 4 (1) of the Act, the excise duty is chargeable on any excisable goods with reference to their transaction value. Section 4(3) (d) defines Transaction Value as the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of sale or at any other time. Following are main requirements or transaction value. 1. Price actually paid or payable 2. Price is for the goods 3. It includes, in addition to the price charged, any amount the buyer is liable to pay to assessee in respect of the sale. 4. It includes advertising, financing services, warrantee communication or any other amount payable by buyer to the manufacturer. 5. It does not include excise duty, sales tax and other taxes. 6. The transaction value will not be applicable for the purpose of payment of duty if the buyer and seller are related. 7. If the goods are sold to related person or if the goods are not sold, valuation will be done on the basis of rules as may be prescribed. MRP Basis of Charging Excise Duty Section 4A of CEA empowers Central Government to specify goods on which duty will be payable based on retail sale price. For the purposes of this section, retail sales price. Means the maximum price on which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packaging, forwarding and the like and the price is the sole consideration for such sale. Specific Duty It is the duty payable on the basis of certain unit like, weight, length, volume, thickness etc. for example, duty on Cigarette is payable on the basis of length of the Cigarette, duty on sugar is based on per kg basis etc. In such cases, calculation of duty payable id comparatively easy. Presently, specific rates have been announced for a. Cigarettes (length basis) b. Matches (per 100 boxes/packs), c. Sugar (per quintal basis), d. Marble slabs and tiles (sugar meter basis), 10

11 e. Colour TV when MRP is not marked on the packaging or when MRP is not the sole consideration (Based on screen size in cm.) f. Cement clinkers (per tonne basis) g. Molasses resulting from extraction of sugar (per ton basis) In the view of the simplicity, many goods were earlier covered under specific duty. Duty Based on Tariff Value In some cases, tariff value is fixed by Government from time to time. This is a Notional Value for purpose of calculating the duty payable. Once tariff value for a commodity is fixed, duty is payable as percentage of this tariff value and not the Assessable Value fixed u/s 4. This is fixed u/s 3(2) of Central Excise Act. Government can fix different classes or sold to different classes of buyers. When tariff value is fixed, provisions of section 4 will not be applicable. So, when tariff value is prescribed under the law, that value will form the basis for assessment. Presently, tariff values have been fixed for a. Pan masala packed in retail packs of less than 10 gm per pack. b. Tariff value for readymade garments has been prescribed as 60% of the retail sale price of such goods as specified on the package. Value of Goods in special cases When goods are not removed directly from the factory, shall valued in the following way- 1. Value of excisable goods determined in case of depot transfer According to Rule 7 of the Central Excise Valuation of excisable goods sold from depot, premises of consignment agent or any other place or premises, shall be as under a. The normal transaction value prevalent at the depot, premises of consignment from the factory to the depot, etc. b. The normal transaction value which is to be taken is the transaction value of the goods sold in greatest aggregate quantity to the buyers not being related to the assessee and such price is the sole consideration for sale. c. If the normal transaction value cannot be determined at the time when the goods are transferred to the depot, then, the price nearest to the time of such transfer shall be taken. 2. Valuation in case of Job work Sometimes the buyer supplies the raw material, and the manufacturing operation s are done by independent job/worker/processor and the finished goods are given to the supplier of such raw material. Accordingly, the Assessable Value = Full intrinsic cost of all raw materials = processing charges + costs and profit of the job workers. 3. Valuation on in case the excisable goods are sold at a place other than the place of removal? In case all the requirements of section 4(1)(a) are satisfied except one, that is, if the excisable goods are sold for delivery at the place other than the place of removal, then the value shall be determined as per Rule 5 of the Central Excise Accordingly, in such circumstances, the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods. 4. Captive consumption of excisable goods (personal consumption) Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in production or manufacture of other articles, then such captive consumed goods are to be valued at 110% of cost of production or manufacture so such goods. According to CAS 4, the Cost or Production shall consist of material consumed, direct wages, and salaries, direct expenses, work overheads, quality control cost, research and development cost, packing cost and administrative overheads relating to production. To arrive at cost of production of goods dispatched for 11

12 captive consumption, adjustment for stock of work-in-process, finished goods, recoveries for sales of scrap, wastage, etc. shall be made. Excise duty is payable on various basis, but most of excisable goods are levied duty on the basis of their Assessable Value such duty is called Ad-Valorem Duty Meaning of Transaction Value Assessable Value is the Value on which duty is payable as a percentage. Generally, by Value, we understand the price as mentioned in Bill or Invoice. The basic provision of new Section 4(1) (a) state that assessable value when duty of excise is chargeable of excisable goods with reference to value will be transaction value on each removal of goods, if following conditions are satisfied: 1. The goods should be sold at the time and place of removal 2. Buyer and assessee should not be related 3. Price should be the sole consideration for the sales. 4. Each removal will be treated as a separate transaction and value for each removal will be separately fixed. Basis of Assessable Value As per section 4, excise duty is payable on basis of transaction value. If the goods are sold at the factory gate to an unrelated buyer when price is the sole consideration. Transaction Value as the price actually paid or payable for the goods, when sold and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expense, storage, outward handling servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on goods. Following are main requirements of transportation value. 1. Price actually paid or payable 2. Price is for the goods. 3. It includes any amount that the buyer is laible to pay to, or on behalf of assessee. 4. The payment should be by reason of, or in connection with the sale. 5. The amount may be payable at the time of sale or at any other time. Such time may be before or after sale. 6. Advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter is included. 7. Amount of duty of excise, sales tax and other taxes, actually paid or actually payable on such goods is to be excluded while calculating transaction value. The amount may be payable any time in the future. Inclusions of Transaction Value The following items will be include in transaction value for finding out Assessable value; if these items are included in transaction value or invoice price or separately charged - 1. Advertisement publicity and marketing expenses 2. Packaging charges 3. Designs and Engineering Charges 4. Compulsory after Sales Service/service in warranty period is included 5. Loading and handling charges within the factory 6. Price reduction due to advance 7. Consultancy charges 8. Dharmada 12

13 Exclusions from transaction value Central Excise Act provides that transaction value does not include amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Moreover, any other payment made by buyer to assessee will be included only if it is by reason or sale in connection with sale. 1. Trade Discount 2. Deduction of taxes from AV 3. Outward Handling charges 4. Installation charges 5. Post removal charges Computation of Assessable Value & Duty Payable Procedure for computation of Assessable value and Excise Duty payable under Central Excise Duty. Central Excise Duty is payable on Assessable Value of the goods at specific rates. The following procedure should be adopted for determination of assessable value and calculation of Excise Duty payable- 1. Computation of Assessable Value. 2. Calculation excise duty payable on Assessable value. 3. Rebate for CENVAT. This procedure can be understood from the following table 13

14 Rates of Excise duty during the financial year Excise duty 12% + 3% Education cess = 12.36% Rates of Excise duty during the Financial Year (w.e.f ) Gross rate 12.5% (no education cess) Note- If the excise duty is included in assessable value, and then the following formula should be applied. Assessable value including Duty x Rate of Duty Rate of Duty Assessable Value including Duty x Rate of Duty Rate of Duty Important points should be kept in view 1. The following important points should be kept in view while determine Assessable value under Transaction value method 2. If different prices charged to different buyers for same goods at same time the actual price charged will be taken in each case. 3. Every packing charges will be includible either it is primary packing or secondary packing. However returnable packing will not be includible like cost of bottles supplied by the PEPSI are not includible because these are returnable. 4. Design and drawing charges are part of assessable value. Therefore includible. 5. Internal transportation and haulage within factory is also part of assessable value. 6. Advertisement expenditure and sales promotion charges incurred by the buyer on behalf of manufacturer will be added to transaction value. 7. Goods or material supplied by the buyer to manufacturer without or lower cost is includible. 8. Concession in selling price by manufacturer due to advance given by buyer will also be added to transaction value. 9. Transportation charges after clearing of goods from factory gate or depot are post removal charges, therefore will not be includible. 10. If the goods sold through depot the transportation charges from factory to depot shall be part of Assessable value, because removal place is depot. 11. Charges relating to after sales services in guarantee or warranty period are part of assessable value, though such services given in future after removal of goods from the factory. 12. Goods manufactured but not sold or cleared from factory or depot is not liable to tax; because liability of duty arises on the event of sale. 13. If the goods sold through depot the price will be considered which prevail on depot on the date of removal from factory to depot even goods sold by the depot later on lower or higher price. 14. Transit insurance charges, interest charged by manufacturer for delay payment, Bank charges for collection of bill, installation charges etc. are post removal charges, so will not includible. 15. Trade discount, cash discount and other rebate will be deducted on actual basis, but concession in price due to payment of advance money shall not be deductible. 16. Goods destroyed or damaged or shortage will not be considered, because these are post removal events. 17. Basic Excise Duty, Special Excise Duty and other duty will be calculated on Assessable Value. 18. Education 3% on Excise Duty payable. 19. Goods cleared as sample shall also be taxable as goods sold. 20. Goods manufactured for captive consumption will be valued at cost of production + 10% notional profit, i.e. 110% of cost of production will be assessable value. 21. In case of job work, the job worker will be treated as manufacturer and liable to pay duty. In such case cost of raw material supplied by principal + processing charges + transportation charges on goods supplied to job worker + profit of job worker will be assessable value. Cost of Transportation goods supplied by job worker to principal will not be part of assessable value 14

15 and price charged by the principal to its customers will be immaterial from excise duty point of view. 22. CENVAT credit will be deducted against excise duty calculated on assessable value, CENVAT credit is 100% in case of inputs, input services and 50% on capital goods used in final product. Production For captive Consumption In case of production for captive consumption, there us n actual sale to external party. In case of captive consumption, valuation should be on the basis of cost of production plus 10% notional profit will be added to actual cost from calculation of assessable value of goods manufactures for captive consumption. Cost of production shall consist of material consumed, direct wages, direct expenses, work overheads, quality control cost, research and development cost, packing cost, administrative overheads relating to production The cost of material should be net of excise duty if cenvat credit is availed in respect of such inputs. 15

16 Unit 3 MRP Based Valuation Retail Sale price The retail sale price means the maximum price at which the excisable goods in package form may be sold to ultimate consumer and includes all taxes local or otherwise, freight transport charges, commission payable to dealers and all charges towards advertisement. Delivery, packing, forwarding and the like and the price is the sole consideration for sale. Special features of the MRP Based Methods 1. Applicability of provision Provisions in respect of payment of duty on MRP are applicable only in cases where specific notification has been issued and manufacturer is statutorily required to put MRP under weights & measures Act. 2. MRP provisions are overriding provisions When Section 4A relating to MRP is applicable; provisions of section 4 for determination of assessable value are not applicable. 3. Products covered under the scheme So far, 99 articles have been covered this scheme. Some of them and abatement as a percentage of retail prices are given head. 4. Partly assessed on MRP based and partly on transaction value based When goods covered u/s 4A are supplied in bulk to large buyers, valuation is required to be done on the basis of transaction value based methods. Provisions to MRP apply only where manufacturer is legally obliged to print MRP on the packages of goods. Thus, there can be instances where the same commodity would be partly assessed on the basis of MRP and partly on basis of transaction value. Some of the situations where MRP cannot be printed are bulk supplies for personal as well as industrial uses, against contract, to canteen store depots of defence, to free with another consumer item, to free as marketing strategy or market response, for export. 5. MRP inclusive of all taxes Under Weight and Measures Act, maximum Retail Price (MRP) has to be printed on packaged commodity for retail sale. MRP has to be inclusive of all duties and taxes, including local taxes. 6. Increase in retail price after clearance from factory If retail price declared on the package at the time of removal is subsequently altered to increase the price. 7. MRP is not indicated or wrongly indicated- If retail price is not declared on the package at the time of removal, or retail price is declared which is not the retail price as required to be declared as per provisions of Central Excise Law of any other law, the goods are liable to confiscation. 8. When more than one retail price declared MRP printed on package is required to be inclusive to taxes. Rate of taxes vary from State to State hence, in some cases, a manufacturer may print different prices for different States. 9. Department cannot challenge MRP printed on package Excise officer cannot challenge or investigate into geniuseness of MRP printed on package. He can only satisfy himself that there is declaration of MRP in prescribed form. Excise Officer cannot question its correctness as that involves impracticability of finding a reasonable price throughout the country. Values Based on Maximum Retail Price Central Government can imposed excise duty on goods based on retail sale price the provisions re as follows 1. The goods should be covered under provisions of standards of Weights and Measure Act. 2. Central Government can permit reasonable abatement (deductions) from the retail sale price. While allowing such abatement, central Government shall take into account excise duty, sales tax and other taxes payable on the goods. 3. If more than one retail sale price is printed on the same packing, the maximum of such retail price will be considered. 16

17 4. The retail sale price should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc. 5. Central Government has to issue a notification in official Gazette specifying the commodities for which the provision is applicable and the abatements permissible. Products Covered Under the Scheme About 100 articles have been covered under this scheme some of them and abatement as a percentage of retail rice are given in the list of CE Act. Specific Excise Duty It is the duty payable on the basis of certain unit like weight, length, volume, thickness etc. for example, duty on cigarette is payable on the basis of length of the Cigarette, duty on sugar is based on per Kg. basis etc. In such cases, calculation of duty payable is comparatively easy. In view of the simplicity many goods were earlier covered under specific duty. Presently specific rates have been announced for 1. Cigarettes (Length basis) 2. Matches (per 100 boxes/packs) 3. Sugar (per quintal bases) 4. Marble slabs and tiles (square meter basis) 5. Colour TV when MRP is not marked on the package or when MRP is not the sole consideration (Based on screen size in cm.) 6. Cement clinkers (per ton basis) Meaning of CENVAT Cenvat scheme has been introduced w.e.f instead of MODVAT regarding Central Excise Duty. Under this scheme the assessee avails credit in relation to input services and capital goods used for production of final products. Under CENVAT, a manufacturer has to pay duty as per normal procedure on the basis of Assessable Value. However, he gets credit of duty paid on inputs. The CENVAT Scheme is a 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. Main features of CENVAT Scheme The main features of CENVAT credit Rules 2004 are as under 1. Eligible items for CENVAT credit Inputs and capital goods are eligible items for CENVAT credit. 100% credit can be taken immediately on receipts of the inputs. 100% credit is available on input services on the payment of bill. In case of the capital goods duty credit not exceeding 50% can be taken in the first year and the balance in the subsequent years provided that the capital goods are still in possession and use. 2. Scope of Scheme The scheme applies to all excisable goods except matches, manufactured pr produced from eligible inputs. Presently, CENVAT has been extended to all items included in CEAT, except matches. 3. Purpose of the CENVAT scheme The purpose of the scheme is to allow the credit of the duties to excise and additional duty of customs paid on inputs used in or in relation to the manufacture of the final product. 4. Duties eligible for Cenvat A manufacturer or producer of final products shall be allowed to take credit of the following duties The duty of excise levied under the Act; The specified duty of excise; The Additional Duties fo Excise (Goods of Special Importance) The National Calamity Contingent duty; 17

18 The additional duty levied under section 3 of the Customs Tariff Act, equivalent to the duty of excise. Service tax on input services Education cess on excise duty and service tax. 5. CENVAT credit will be allowed to manufacturer or service Provider Cenvat Credit Rules state that a manufacturer or producer of final products shall be allowed to take credit of specified duties (basic, special, AED. NCCD etc. as discussed above) paid on inputs, input services or capital goods received in the factory. 6. Cenvat available only if there is Manufacture 7. Inputs must be converted into final products 8. No credit if final product exempt from duty 9. CENVAT on capital goods upto 50% credit is available in current year and balance in subsequent financial year or years. 10. One-to-one Co-Relation not required CENVAT rules do not required input-output corelation to be establishes. One to one correlation between inputs and final products is not required. 11. CENVAT credit is indefeasible 12. Credit on basis of specified documents 13. Credit available instantly i.e. as soon as inputs reach the factory. 14. No cash refund In some cases, it may happen that duty paid on inputs may be more than duty payable on final products. In such cases, though the CENVAT credit will be available to the manufacturer, he cannot use the same and the same will lapse. There is no provision for refund of the excess CENVAT credit. 15. Utilization of cenvat credit The CENVAT credit may be utilized for payment of duty of excise on any final products or for payment of duty on inputs or capital goods themselves. 16. Burden to prove The burden to prove that the CENVAT credit that has been taken is admissible as per the Rules framed in this behalf lies on the manufacturer. Types of Cenvat credit 1. CENVAT Credit on Inputs 100% - under Rules 2(g) a. All goods used to manufacture of final products b. Lubricating oils, greases, cutting oils, coolants are classified as inputs c. Accessories of the final products cleared along with the final product d. Goods used as paint are eligible for CENVAT credit. e. Goods used as packing material f. Goods used as fuel entitled for CENVAT credit. g. Goods used for generation of electricity or steam used for manufacture eligible of CENVAT credit. Special points in relation to inputs No time limit for utilization of inputs but should be used. Use must be within the factory Inputs used in exempted products not eligible Inputs which only facilitate manufacture not eligible CENVAT available on packaging material Cenvat available even if valuation is on MRP basis Inputs required for quality control tests are eligible All inputs necessary to make product marketable are eligible 2. CENVAT Credit on Inputs services 100% under rule 2(1) a. Input service means any service Used by a provider to taxable service for providing an output service; or Used by the manufacturer, whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal 18

19 b. Activities Relating to Business c. Credit only after payment of bill of service 3. CENVAT Credit on Capital goods used in factory 50% - a. Capital goods used in factory b. Acquisition of capital goods by the manufacturer on lease, hire purchase or loan agreement c. Credit in two parts 50% of the duty paid in the year in which the capital goods are received in the factory The balance of the CENVAT credit may be taken in any financial year subsequent to the financial year. d. Credit on basis of documents e. In case of capital goods imported under Project Import Scheme 100% of additional duty of customs will be eligible for CENVAT Credit f. The CENVAT credit in respect of capital goods shall not be allowed in respect of that the manufacture claims as depreciation under section 32 of the Income tax Act Duties Eligible for Credit 1. Basic Excise Duty 2. National Calamity Contingent Duty (NCCD) 3. Service Tax 4. Education cess Procedures which are required to be followed for available of cenvat credit in respect of inputs and capital goods 1. Manufacturer should be Registered 2. Duty paying Document or Invoice etc. 3. Accounting Records and Returns must be maintained by manufacturer Documents & Accounts 1. Invoice 2. Supplementary invoice 3. Al bill of entry 4. Certificate CENVAT Credit: Practical Problems The following procedure should be adopted while computing CENVAT credit in respect of Inputs and capital goods 1. First we should find out the assessable value and calculate excise duty payable thereon 2. Then deduct cenvat credit at the following rates a. On (Inputs remaining as closing stock are not noticeable) b. On input on payment of bill of service c. On capital 50% 3. After allowing cenvat credit balance shall be net amount of duty payable Chart Calculating of Duty payable and CENVAT credit Transaction value of goods removed from factory Add Packing design expenses etc. Less Discount Assessable value Excise Duty Payable Assessable value x Rate 100 Less 1. Cenvat credit for (Inputs) 100%.... (-) (-)

20 2. Cenvat credit for input service - 100% 3. Cenvat credit for capital Excise Duty Payable Exemption to Small Scale Industries The policy of the government of India is to encourage small scale industries due many reasons. Thereon an attractive concession has been given in excise law to SSI units. The small scale sector contributes about 40% of total manufacturing [production in the country. But on the other hand only about 2% small scale units in the country pay excise duty and their contribution is only about 5 to 6% of total excise duty collection. Most of the small scale units do not contribute to Government exchequer as they are well below the exemption limit. Various concessions are given to small scale industries to encourage their growth and also on account of administrative convenience. Important points relating to Concession to SSI Units 1. SSI units eligible for SSI concession SSI unit defined on the basis of annual turnover from Excise Duty point of view. All industries irrespective of their investment or number of employees are eligible for concession. A units is entitled for exemption only if its turnover in preceding year was not exceeding Rs. 4 crores. Units whose turnover was over Rs. 4 crores in are not eligible to any SSI concession in They have to pay full normal duty from 1 st April, Though a unit whose annual turnover not exceeding Rs. 4 crore, shall be treated as small scale industry (SSI) but in case to turnover crosses Rs. 1.5 crore. Such units will liable to pay excise duty at normal rate on excess amount. 2. Gods Eligible for SSI Concession Many of goods manufactures y SSI are eligible for the concession. SSI units are eligible for exemption under different notifications. Thus, SSI exemption is available only if the item is covered in this notification. Broadly, items generally manufactured by SSI are eligible for SSI exemption. Some items like pan masala, matches, watches, some textile products, tobacco products etc. are specifically excluded even when these can be manufactured by SSI. 3. Determination of turnover of SSI Unit The following provisions have been made to determine the annual turnover of a SSI unit in respect of Excise Duty The value of clearance of excisable goods during the preceding financial year does not exceed Rs. 4 crores and where the manufacturer has more than one factory or more than one manufacturers will be clubbed together to calculate the exemption limit of Rs. 4 crores. 4. Excluded turnover for calculating exemption limit The following are not counted in the turnover of Rs. 1.5 crores or three crores for the purpose of claiming SSI exemption a. Export Turnover The limit of Rs. 1.5crore or 4 crores is of clearance for home consumption, i.e. within India. Export turnover should not be considered for the purpose of calculating the turnover of 1.5 crore or 4 crores. Exports to Nepal and Bhuttan cannot be excluded, i.e. export turnover to Nepal and Bhuttan will have to be considered while calculating limit of Rs. 1.5 crore. It will be treated as clearance for home consumption, even if actually it is export. Export to Nepal and Bhuttan will have to be included whether payment of received in Indian Rupees or in free Foreign currency. b. Turnover of Non-Excisable Goods Some goods are non-excisable, i.e. these are not included in Tariff at all. In such case, its turnover cannot be considered for purposes of exemption limit of Rs. 4 crores. c. Specified goods which are used as inputs d. Goods Manufactures with others brand name e. Clearances of goods exempted under other notification f. Goods cleared after job work g. Clearance of strips of plastics h. Intermediate Products 20