INDIRECT TAXES (PART - 11) (UNIT - I) CENTRAL EXCISE (PART - 8)

INDIRECT TAXES (PART - 11) (UNIT - I) CENTRAL EXCISE (PART - 8) 1. INTRODUCTION Hello friends, in this part of the program we are going to discuss two major problems which are in relation to determination of assessible value of the goods based on maximum retail price, at the same time we will discuss the determination of CENVAT credit in the prospect of capital goods as well as input, now in this part of the program we will also discuss those exemptions, concessions and privileges which are accorded to small scale unit. 2. PROBLEM BASED ON THE DETERMINATION OF ASSESSABLE VALUE OF GOODS BASED ON M.R.P Now first of all I would like to discuss a problem which is based on determination of assessible value or goods based on MRP means maximum retail price, now we discussed in our last meeting that so far as the goods based on MRP s is concerned we calculate assessible value only when we deduct some abetment, abetment means deduction from the maximum retail price of different product, so whenever we calculate assessible value in respect of goods based on MRP we have to deduct first of all abetment which is available in respect of different goods under central excise tariff act 1985, first is chocolate that is Rs. 10 that is retail price but this is subject to abetment so all goods are subject to abetment 1

according to the provisions of central excise tariff act 1985. So Ice cream Rs. 20, Pan masala that is without Tabaco rate is Rs. 150, toothpaste Rs. 20, foot wares Rs. 600, electric fan Rs. 1200, telephone set Rs. 600, watch Rs. 2000, perfumed hair oil Rs. 100 and face powder is Rs. 80, now whenever we calculate assessible value first of all we had to deduct abetment at the rate which are mentioned under central excise tariff act 1985, now so far as chocolate is concerned in this connection we get abetment at the rate of 35 so assessible value will be Rs. 6.50, now in case of Ice cream we get abetment at the rate of 45 therefore we get Rs. 11 as assessible value of Ice cream, now pan masala in this aspect we get 44% abetment, toothpaste we get 35% as a rate of abetment, footwear we get 40% at the rate of abetment, electric fan we get 40%, telephone set again we get 40% and watch we get 35% and perfumed hair oil we get 40% and face powder we get 40%, in this way we get assessible value of different commodities under the provision of central excise tariff act 1985 and these are assessible so that we can calculate the duty of excise. 3. PROBLEM BASED ON CENVAT CREDIT ON CAPITAL GOODS Now we discuss a problem which is based on CENVAT credit on capital goods as well as input, now we have discuss in the last meeting that so far as the CENVAT credit is available in respect of capital goods this is available to the extent of 50% of first year of the duties paid, but in the subsequent year we get the balance of the duty, but this will be available only when the capital goods are in the possession of an assessee when he get 50% we can say CENVAT in the second year, now in respect of input the CENVAT credit is given at the rate of 100% in the very year when he receives input for manufacturing purposes, now we discuss this problem, first is component and accessories of machine, this is regarded as capital goods, and in this respect excise duty paid Rs. 20,000, now moulds and dyes are also capital goods, this is subject to CENVAT credit at the rate of 50% in the first year, pollution control equipment it is also one of the capital goods as defined under the definition of capital goods, now appliances used in office, now this is not covered by the definition of 2

capital goods therefore CENVAT credit is not at all available in this connection, now accessories which are removed from factory with final product, now this is considered as input on which we get 100% CENVAT credit. Now paints is a input we get 100% in CENVAT credit, packing material is also input we get 100% CENVAT credit, lubricating oil is also subject to CENVAT credit at the rate of 100% but patrol is not covered by the definition of input, therefore there is no question of CENVAT in this connection, now we discuss a problem worked out, first of all we discuss the capital goods, now components and accessories of machine is regarded as capital goods in this connection excise duty paid is Rs. 20,000, molds and dyes is also one of the capital goods in that connection excise duty paid is Rs. 5000, pollution control equipment is also regarded as capital goods in this connection excise paid is Rs. 25,000, but appliances used for office is not regarded as capital goods therefore there is no question of CENVAT credit in this connection. Now total excise duty paid on the first year in respect of capital goods that is Rs. 50,000, but I said they will be getting 50% CENVAT credit in relation to excise paid of capital goods so in the first year the assessee will be getting CENVAT credit to the extent of 25,000 and this is 50% of 50,000, now in respect of input we will be getting 100% CENVAT credit in the very year in which these inputs are used by the manufacturer for manufacturing activities, first is accessories which are removed from factory with final product is Rs. 30,000, paints Rs. 5000, packing material Rs. 7000, lubricating oil Rs. 1000 but patrol is not considered as input as for the definition of input given under CENVAT credit rules 2004, therefore we will be getting CENVAT credit to the extent of 68,000 and we can say that in respect of input we are getting 100% CENVAT credit in the very year in which these inputs are utilized by the manufacturer for production purposes. 3

4. EXCISE EXEMPTION TO SMALL SCALE UNITS Now we discuss excise exemption to small scale units, now first of all we should know what is the place of small scale units in the Indian economy, now SSI have vital role in Indian economy as you know that so far as the small scale unit is concerned it has got significant role to play in Indian economy because it generate more employment opportunities because most of the works are done without aid of power means less machines are utilized for production purposes in respect of small scale units, now it also helps in regional development and balanced economic growth, since small scale units can be established with less amount of capital employed therefore SSI units can be established in many parts of the country, therefore in this way we can develop the country on the basis of balanced economic growth, now they also contribute significantly towards national income and it also yields more export earnings. So in light of these significance importance of the SSI it is therefore very essential that we should give special protection and favorable treatment to SSI units, so in light of these some exemptions has been accorded to SSI under central excise tariff act 1985, at the same time central excise act 1944, now first of all we discuss what is considered as small scale unit, small scale units are not defined in the central excise act 1944 so we can say they are so far as SSI unit is concerned we do not get any exact definition in central excise act 1944 but this is well defined in industries development regulation act 1951, the definition has been given in this act only for exempting registration or we can say the definition has been given of SSI under industries development and regulation act 1951, so as to get exemption from registration. But this definition is not useful whenever we provide lot of exemptions privileges to SSI units, so we can say that definition has given in that act is not applicable for getting exemptions under central excise, so first of all we should know exact meaning of SSI for the purpose of providing exemptions and concession of SSI units, now every manufacture shall be considered as SSI units to claim exemption if its value of clearance for home consumption does not exceed Rs. 400 lakhs in the preceding year, now we can say for the purpose of getting exemptions and privileges under central excise 1944 the SSI unit means 4

the unit which has got not more than 400 lakhs turnover the preceding year, or we can say any SSI unit that has got turnover that is more 400 lakhs in the preceding previous year that unit will not be eligible for getting exemption under central excise act 1944. Now these notes are very important in this connection, clearance for home consumption shall include clearance for export to Nepal and Bhutan, whenever we calculate the turnover of Rs. 400 lakhs of preceding previous year definitely we have to see whether export has taken place to Nepal and Bhutan, if the export has taken place to two countries then definitely that will be part of 400 lakhs, second is it is not required to registered with any authority. Now in order to claim exemption under central excise 1944 the unit is not required to be registered with any authority, simply you have to see whether turnover is not exceeding 400 lakh in the preceding year and third is investment in plant and machinery or number of employees are not considered to decide the status of SSI, now we can say that whenever we determine whether a particular unit is SSI unit or not, we do not given regard to the number of employee working in that SSI unit, at the same time we will not considered how much amount has been invested in plant and machinery employed in that particular SSI unit, we simply see whether turnover is not exceeding 400 lakh in the preceding year. 5. DETERMINATION OF CEILING OF RS. 400 LACS AND CLUBBING OF TURNOVER Now how to determine the selling of Rs. 400 lakhs, now following will not be included in selling of 400 lakhs or we can say whenever we determine the turnover of 400 lakhs following shall not become the part of the turnover which has taken place in the preceding year, first is clearance of assessible goods without payment of duty to 100% EOU means any goods which are sold to 100% EOU by any unit will not become the part of turnover of Rs. 400 lakhs, second is clearance of assessible goods without payment of duty to UN or international organization, if any manufacture has sold some goods without payment of duty to either United Nations or 5

any international organization that will not be considered while determining the selling of Rs. 400 lakhs in the preceding year. Next is clearance of bearing the brand name or trade name, it means if any manufacturer who is involved in selling the goods that has got some brand-name that is not the part of the turnover of Rs. 400 lakhs, it means that will be left out and next is clearance of specified goods for captive consumptions, if there is sale of any goods that is definitely for captive consumptions or which are used for the consumption by the persons who has purchase the goods from the unit that is not the part of 400 lakhs but following will be included in selling of 400 lakhs but any sale which has taken place in this manner will become the part of sale of 400 lakhs and that will be taken into consideration for this purpose. First is clearance for export to Nepal and Bhutan, second is value of exempted goods, if any manufacturer sold goods which are not at all taxable under Central excise act 1944 definitely this is also the part of turnover of Rs. 400 lakhs and last is intrastate and interstate sale, now sale may take place within the state that is called intrastate sale this is the part of 400 lakhs turnover, at the same time if sale has taken place with the dealer of another state this is considered as interstate sale but this also becomes the part of turnover of Rs. 400 lakhs, now whenever we determine the sale of 400 lakhs turnover in the preceding year following will be clubbed with the turnover, first is by manufacturer from all the factory, if a manufacturer has sold the goods from more than one factory than aggregate of the sale taken place in all the factories will become the part of the turnover. Second is by different manufacturers in the same factory during different shifts or same shift supposes there is one factory but there are so many manufacturers or are manufacturing their product now total turnover which has taken place in that factory will be taken together so as to find out whether turnover is exceeding 400 lakh or not. If sale is exceeding 400 lakh than definitely all units working in that factory will not be considered as SSI unit and next is a different manufacturers in the same factory during different parts of the year if more than one manufacturer is involved in manufacturing the product in the same factory but in different parts of the year then definitely we 6

take up the sale together so as to find out whether sale is exceeding 400 lakh or not, if sale is exceeding 400 lakh then definitely all the units of manufacturer will not be considered as SSI unit but in case of turnover to be determined following will not be taken into consideration or we can say following will not become the part of turnover of Rs. 400 lakhs. In the following cases turnover is not to be clubbed if two or more factories have common partners and common directors, suppose there is more than one factories in which production has taken place by the partners but partners are the same or common directors are working in more than one factories, in that situation the sale which has taken place in more than one factories will not be taken together for determination of turnover or Rs. 400 lakhs and second is turnover of subsidiary company that of holding company, it means while determining the sale of holding company we do not include the sale which is made by the subsidiary company, at the same time the sale of holding company will not be clubbed with the sale of subsidiary company so as to find out whether sale is exceeding 400 lakh or not and third is turnover of two factories in common wall, it means two factories are working but wall is common, now production which has taken place in both of the factories will not be taken together so as to find out whether sale is exceeding 400 lakh or not and next is turnover of two companies in which a few employees are common, now suppose two companies are working in the different factories but some of the employees are common, in that situation the production which has taken place in different companies will not be taken together so as to find out whether turnover is exceeding 400 lakh in the preceding year or not and last is units belonging to the government, any production undertaken by the units of government will not be taken into consideration for determining the sale in the preceding year. 7

6. BRAND NAME UNDER SSI SCHEME Now sale of brand-name under SSI scheme, goods bearing the brand-name or trade of others are not eligible for exemption under SSI scheme, if any manufacturer has sold the goods under the brand-name or trade name then definitely this will not be taken into consideration whether sale is exceeding 400 lakh only, now this project has been made so as to protect only unbranded or own branded goods, now in case of goods which are sold by the manufacturer which are not granted or which are we can say own branded definitely this will not be taken into consideration so as to find out whether sale is exceeding 400 lakhs only, now the moment the sale exceeds Rs. 400 lakhs then definitely that particular manufacturer will not able to get exemption under Central excise act 1944. Still there are some exceptions, exceptions applied in respect of sale of goods bearing the brand-name or we can say in some cases if goods are sold by the SSI unit of the goods bearing some brand name still that becomes the part of the turnover of Rs. 400 lakhs and these are the goods bearing the brand-name of the others will be eligible for exemptions first is components or parts of machinery cleared for use as original equipment, sometimes components and parts of machinery which are used for the plant and machinery as original equipment then definitely this is not to be considered for calculating the exemption limit and second is the goods bearing the name of the state khadi and Village industries board khadi and Village industries commission s the national small industries corporations a state is small industry development corporations or a state is small industries corporations, if any product that has got brand of these we can say commissions and corporations will not be considered for calculating the turnover of Rs. 400 lakhs and third is specified goods manufactured in factory located in a rural area that will left out for calculating the turnover of Rs. 400 lakh. Next is account books, registers, writing credits and file folders under chapters 48 of Central excise tariff act 1985, these will not be taken into consideration for determining the sale of 400 lakhs in the preceding year and next is items in the nature of packing material will left out for this purpose and finally printed laminated roles that will not be considered for this purpose. 8

7. SLABS IN SSI EXCISE EXEMPTION Now we discuss lapse in a SSI excise exemptions, as you know that so far as SSI unit is concerned it is very much eligible to get exemptions under central excise act 1944 at the same time it is very much entitled to get exemption under central excise tariff act 1985 but it does not mean that SSI unit is not at all liable to pay any excise, now how much excise is payable it is depending on the turnover taken place in the preceding years, if sale is up to 1.5 crore in the preceding year then there are two options available the first option is full exemptions shall be allowed but CENVAT credit in respect of input will not be allowed if sale is not exceeding 1.5 crore in the preceding year then definitely full exemptions will be given to the SSI unit. But at the same time the unit is not at all eligible to get any CENVAT credit in respect of input, if turnover is not exceeding 1.5 crore in the previous year definitely the SSI unit has got second option according to second option excise duty at normal rate on entire turnover is payable but CENVAT credit will be available, now in this connection first of all we have to calculate excise duty which is payable out of that CENVAT credit in relation to input will be reduced so as to find out the net excise duty payable, now what happens if turnover exceeds 1.5 crores, if turnover exceeds 1.5 crores then excise duty is payable or turnover exceeding 1.5 crore but at the same time CENVAT credit is available. Now as we discuss if sale is not exceeding 1.5 crores then we got two options the moment the sale is exceeding 1.5 crores then definitely up to 1.5 crore again we got two options but the sale which is above 1.5 crore is subject to central excise duty payable but out of that CENVAT credit in relation to input will be reduced so as to find out net excise duty payable by the SSI unit, now we discuss the problem which is based on determination of status of SSI unit, as I told you that any unit becomes SSI unit only when its turnover is not exceeding 400 lakhs in the preceding year so we have to find out whether sale in the preceding year is exceeding 400 lakhs or not. If sale is exceeding 400 lakhs then definitely that manufacturer cannot be considered as SSI unit, so this problem is based on determination of status of SSI unit, now assessee a manufacturer has total turnover of 550 lakhs including the 9

following, local sale Rs. 120 lakhs, this is the part of assessable sales, second is sale to Nepal and Bhutan of course this is export to Nepal and Bhutan but that constitutes the sale of 400 lakhs. Export to USA will not be considered for determining the sale of 400 lakhs sale bearing brandname of others will be excluded for this purpose and sale to a specific economic zones it is fully exempted therefore it does not become the part of the sale of 400 lakhs, now whether the assessee will be treated as SSI or not, now problem is worked out in this manner first of all we take up total sales that is Rs. 550 lakhs out of that export sale to USA will not be considered therefore that will be reduced from 550 lakhs after that sale bearing brand-name of another will not be taken into consideration therefore that will be reduced from total sales of Rs. 550 lakhs. Than sale to SEZ means sale to specified economic zones will also not be the part of the sale of 400 lakhs therefore it has been reduced from total sales of Rs. 550 lakhs, now turnover available for competition that whether SSI exemption is available to the assessee or not and that comes to 410 lakhs, since the sale is exceeding 400 lakhs in the preceding year therefore the manufacture cannot be regarded as SSI unit therefore it is not eligible for any sort of exemption, privileges which are available under central excise act 1944 at the same time central excise tariff act 1985, therefore assessee is not an SSI because the turnover exceeds Rs. 400 lakhs. 8. SUMMARY In this part of the program we have discussed two major problems which are in relation to determination of assessable value of goods based on maximum retail price, at the same time we discussed one of the problem that in relation to determining the CENVAT credit facility which is in respect of input and capital goods, in this part of program we also discussed the major exemptions, privileges and concession which are provided to SSI unit under Central excise act 1944 and Central excise tariff act 1985, at last we discussed a problem for determining the status of SSI as per the provision of Central excise act 1944, thank you. 10