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CENTRAL EXCISE LAW

CENTRAL EXCISE LAW. 9th August, 2014. Constitutional Powers. Power emerges from Constitution of India. Article 245: Power to Central and state legislature to enact law. Article 246: Respective authority to Union and state government for levying tax. Constitutional Powers.

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CENTRAL EXCISE LAW

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  1. CENTRAL EXCISE LAW 9th August, 2014. CA RIMA MEHTA, carimamehta@gmail.com

  2. Constitutional Powers • Power emerges from Constitution of India. • Article 245: Power to Central and state legislature to enact law. • Article 246: Respective authority to Union and state government for levying tax. CA RIMA MEHTA, carimamehta@gmail.com

  3. Constitutional Powers • 7th Schedule of Article 246 of Constitution of India : • List I List II List III • Union List State List Concurrent List • CG have exclusive power State Govt has power both CG and State govt has power to make laws. • The Excise is covered under Entry 84 of Union List. CA RIMA MEHTA, carimamehta@gmail.com

  4. Body of Central Excise Law CA RIMA MEHTA, carimamehta@gmail.com

  5. The Central Excise Act, 1944 • It consist of VII chapters spread over 40 sections. • What are the basic conditions for levy duty under Central Excise Act? • Stipulated under Sec. 3 of Central Excise Act. : Charging Section. • Duties specified in the First Schedule and second schedule to Central Excise Tariff Act,1985 to be levied; • (a) CENVAT/BED • On all Excisable Goods (Except goods produced or manufactured in SEZ) • Which are produced or manufactured in India • At the rate set forth in the First schedule to Central Excise Tariff . CA RIMA MEHTA, carimamehta@gmail.com

  6. Basic Conditions for levy of Duty • (b) Special duty of Excise in addition to duty of Excise specified in clause (a) above • On all Excisable goods manufactured in India, • Except manufactured in SEZ • At the rates set forth in the 2nd Schedule to Central Excise Tariff. CA RIMA MEHTA, carimamehta@gmail.com

  7. Basic Conditions for levy of Duty • 4 basic conditions: • There must be goods • Goods must be excisable • Goods must result out of Production or manufacture • Such production must take place in India. (Except SEZ) CA RIMA MEHTA, carimamehta@gmail.com

  8. Power of CG to charge excise duty on basis of capacity of production • Sec 3A. • It applies not with standing anything contained in Sec.3. • Where the CG having regard to nature and process of manufacture, the extent of evasion of duty in this regard or such other factors, is of the opinion that it is necessary to safeguard the interest of revenue, specify such goods as notified. On such goods duty shall be levied and collected in accordance with this provision. • CG may provide the manner of determination of annual capacity of production, • Specify the factor relevant to the production of such goods and quantity that is deemed to be produced by use of a unit of such factor. CA RIMA MEHTA, carimamehta@gmail.com

  9. Power of CG to charge excise duty on basis of capacity of production • Annual production to be calculated on proportionate basis if factory is in operation during part of year. • Re determination of annual capacity of production on proportionate basis if relevant factor is altered. • Abatement of duty in case of continuous closure for period of 15 days or more. • Additional duty of customs(ADC) to be calculated as per normal provisions. • Pan masala, gutkha, branded unmanufactured tobacco & chewing tobacco are notified under this section. CA RIMA MEHTA, carimamehta@gmail.com

  10. Taxable Event for levy of excise duty • Taxable event is that event which on its occurrence, attracts liability to tax. • In the context of central Excise the taxable event is production or manufacture of Excisable Goods. • Levy is governed by statute and collection is in accordance with rules after manufacture takes place. • Duty is payable on removal from the factory or registered warehouse or depot. CA RIMA MEHTA, carimamehta@gmail.com

  11. Taxable Event for levy of excise duty • Case study : • A manufacturing unit producing cotton sheets on which duty was not levied till Feb 2015. In the budget, 2015 CG introduced the levy. Whether duty is payable on the goods manufactured before 28th Feb and removed in the month of March? • As the goods were not excisable at the time of manufacture, duty shall not be levied at the time of removal. • Other events: • Goods were excisable but exempted by way of notification or levied at Nil rate of duty in Tariff at the time of manufacture… CA RIMA MEHTA, carimamehta@gmail.com

  12. Date of determination of rate of duty • As per Rule 5 of Central Excise Rules 2002, the rate of duty or tariff value applicable to any excisable goods, shall be the rate or value in force on the date when such goods are removed from a factory or a warehouse. • Therefore the the taxable event is that of manufacture but the rate prevalent on the date when excisable goods are removed from the factory shall be applicable. CA RIMA MEHTA, carimamehta@gmail.com

  13. “Goods” under Central Excise: • Explanation to Sec 2(d) : “goods” include any article, material or substance, which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable. • As such the term is not defined under Excise • Article 366(12) of constitution of India defines goods to include all materials, commodities and articles. • Goods can be tangible or intangible • Goods must be movable and marketable. • UOI vs. DCM 1977(1)ELT199(sc), the SC announciated the principal that to be called as goods, the article must be such as are capable of being brought and sold in the market. the article must be something, which can ordinarily come or can be brought to the marketto be bought and sold. CA RIMA MEHTA, carimamehta@gmail.com

  14. Marketability of Goods • Important aspects of mrketability : • Actual sale is not necessary • Usage captivity is not determining factor • It may not be commercially known but must be worthwhile to trade in • There need not be lot many persons demanding product to constitute marketability, a single buyer can constitute marketability. • Territory of market need not be confined, it can be any where in world. • Deemed marketability (Sec 2(d)) CA RIMA MEHTA, carimamehta@gmail.com

  15. Excisable Goods • As per sec 2(d) : Excisable goods means goods specified in the first schedule and second schedule to central excise tariff act as being subject to duty of excise and includes salt. • Non Excisable goods : Goods which are not mentioned in tariff or if the column of rate is blank in tariff. • Non dutiable goods being : • Nil duty goods: Wallace Flour Mills Co. Ltd vs. CCEx (1989) 44 ELT 598 (SC) and • Exempted goods: CCEx vs. Vazir sultan tobacco co. ltd (1996) 83 ELT 3 (SC) CA RIMA MEHTA, carimamehta@gmail.com

  16. Manufacture • Sec 2(f) of the Central Excise Act, defines Manufacture as it includes any process – • (a) incidental or ancillary to the completion of manufactured product. • (b) which is specified in relation to any goods, in the section or chapter note of the first schedule to CE tariff as amounting to manufacture (Deemed manufacture) • (c) which, in relation to the goods specified in third schedule, involves packing or repacking of such goods in a unit container or labeling or re-labeling of containers including declaration or alteration of retail sales price or adoption of any other treatment on goods to render the product marketable (Deemed manufacture) • Inclusive definition. CA RIMA MEHTA, carimamehta@gmail.com

  17. Manufacture • Scope of manufacture was discussed at length by SC in its decision in Union of India vs. delhi cloth & general mills co ltd. 1977 (1) ELT J199 (SC) it held that : • “Manufacture implies a change but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinct name, character and use.” • Transformation from one article to another is a different commercial commodity having distinct character, use and name and is commercially known as such is an important consideration in determining whether there is manufacture. CA RIMA MEHTA, carimamehta@gmail.com

  18. Manufacture • Change in tariff heading is not necessary to amt a process as manufacture. • Input and final product falling under different tariff heading, may not amount to manufacture. “Mere change in tariff does not am to manufacture CCEx vs. Markfedvanaspati (2003) 153 ELT 491 (SC). • Assembly will amount to manufacture. CA RIMA MEHTA, carimamehta@gmail.com

  19. Captive consumption • As per cost accounting standard 4 issued by Institute of cost accounting standards of India, “captive consumption means consumption of goods by one division or unit and consumed by another division or unit of the same organization. • Intermediate goods are liable to duty only if movable and marketable. • Valuation in case of Intermediate products : 110% of cost of production. • Exemption : at present intermediate products are exempt if final products are chargeable to duty. • Relevant date for applicable rate of duty as per rule 5 is date of issue of intermediate product to another unit. CA RIMA MEHTA, carimamehta@gmail.com

  20. Captive Consumption Case study • A manufacturing unit is purchasing x raw material to produce intermediate product A and the said product A is issued to another dept of same unit to produce final product B which is exempt what will be the liab of excise of a manufacturer if the cost of production of product A is 100000/- and rate applicable on product A is 12%? • Yes, unit is liab to pay excise duty on intermediate product as final product is not dutiable. • Amount of duty shall be 100000*110%*12%= 13200/- CA RIMA MEHTA, carimamehta@gmail.com

  21. Dutiability of waste and scrap • The issue is settled by SC, in its decision in Kandelwal Mehta & Engineering Works vs. UOI, (1985) 20 ELT 222 (SC) by holding that notwithstanding that process waste/scrap arouse as intermediate products or by-products, such waste/scrap if marketable, would be chargeable to duty as it is commercially distinct product. • Specific sub heading has been incorporated in various chapters of tariff in this regard. • Conditions for levy duty on waste/scrap: • (a) arising during the course of manufacture. • (b)movable and marketable. • (c) listed in tariff. CA RIMA MEHTA, carimamehta@gmail.com

  22. Dutiability of waste and scrap • Waste of exempted goods are exempt. by notification issued in 1995. • Waste of containers in which inputs are received – not excisable as not arising out of manufacturing process. • Waste/scrap out of repair and maintenance of plant and machinery - not excisable as repair and maintenance does not amount to manufacture. CA RIMA MEHTA, carimamehta@gmail.com

  23. Excise liability in case of 100% EOU • As per the proviso to Sec 3(1) of Central Excise Act, 1944, of goods are manufactured by EOU and removed at any domestic tariff ares, • Duty of excise shall be aggregate of duties of customs, which would be leviable under customs act, 1962 on like goods produced or manufactured outside India if imported into India. • Valuation as per the provisions of Customs Act, 1962. CA RIMA MEHTA, carimamehta@gmail.com

  24. Excise liability in case of 100% EOU • Exemption : • DTA Clearances by 100% EOU is exempt from • (a) 50% of basic customs duty leviable thereon • (b) additional duty of customs under sec 3(5) of customs tariff act. (if goods are not exempt from VAT) CA RIMA MEHTA, carimamehta@gmail.com

  25. Emergency power of CG to increase duty of excise under sec 3 of Central Tariff Act, 1985 • By way of amendment to first and second schedule by way of notification in the official gazette- • Where the current rate of duty is Nil : Maximum at a rate of duty 50% ad valorem expressed in any form. • In any other case : maximum at the rate twice the rate of duty as in force immediately before the issue of such notification. CA RIMA MEHTA, carimamehta@gmail.com

  26. Central Excise Tariff Schedules • The Central Excise Tariff schedules are divided in 4 columns headings of which are as follows: • (a) Tariff item • (b) Description of goods • (c) Standard unit of Quantity • (d) Rate of Duty CA RIMA MEHTA, carimamehta@gmail.com

  27. Interpretative Rules regarding Central Excise Tariff • Purpose of said interpretative rules: • To give clear direction how nomenclature in the schedules shall be interpreted. • 6 general Rules which aid in interpretation of Tariff schedule. • Rule 1 : Section and Chapter title have no legal validity. They are for ease of reference only. But classification shall be determined in terms of headings and any relative section and chapter note. CA RIMA MEHTA, carimamehta@gmail.com

  28. Interpretative Rules regarding Central Excise Tariff • Rule 2(a) : Classification of incomplete or unfinished article - classification as complete/finished goods. • Provided the incomplete or unfinished article has the essential character of complete or finished article. • Rule 2(b) : Classification of combination of material with other material : to be classified as that material or substance. CA RIMA MEHTA, carimamehta@gmail.com

  29. Interpretative Rules regarding Central Excise Tariff • Rule 3 : when by application of Rule 2(b), goods are primafacie classifiable under more than one heading, classification shall be effected as follows: • 3(a) Most specific description shall prevail over general • 3(b) classification on the basis of essential character for mixed or composite goods consisting of different components of goods. • 3(c) latter the better maxim when goods cannot be classified under sub rule (a) or (b). CA RIMA MEHTA, carimamehta@gmail.com

  30. Interpretative Rules regarding Central Excise Tariff • Rule 4 : Akin Rule : goods which are not classifiable in accordance with above rules shall be classified unde the heading appropriate to the goods to which they are most akin. • Rule 5 : Classification of packing materials: • (a) Classification of case/container used for packing of goods : Camera case, musical/drawing instrument case, necklace case, shall be classified with such article with which they are sold with. • (b) Packing materials and containers presented with goods shall be classified with such goods if they are of kind normally used for packing of such goods. CA RIMA MEHTA, carimamehta@gmail.com

  31. Interpretative Rules regarding Central Excise Tariff • Rule 6 : Only sub heading at the same levels are comparable. CA RIMA MEHTA, carimamehta@gmail.com

  32. Valuation of Excisable Goods • Following are the basis on which excise duty is payable: • (1) Specific duty based upon length, area, volume etc. • (2) ad-valorem duty based upon : • Tariff value fixed under section 3(2) of CE Act. : power to fix tariff value vest with CG. • Transaction value determined under sec 4 of CE Act. • Retail sale price determined under sec 4A of CE Act. (3) Duty based upon annual capacity of production (Sec 3A of CE Act) (4) Compounded levy scheme. CA RIMA MEHTA, carimamehta@gmail.com

  33. Valuation of Excisable Goods • Ad-valorem rate : means “to the value” when duty of excise is levied by applying the given percentage of value of goods it is called ad-valorem rate. • In built elasticity. CA RIMA MEHTA, carimamehta@gmail.com

  34. Valuation of Excisable Goods • Sec 4 : Applicability of Transaction value : • Where the duties of excise is leviable with reference to value, then each removal of such goods, value shall be transaction value if following conditions are satisfied: • (a) there should be sale of excisable goods by assessee. • (b) the goods should be for delivery at the time and place of removal. • (c) the assessee and buyer of goods should not be related persons. • (d) the price should be sole consideration for sale. • In case any of the above condition is not satisfied, then value will be determined in accordance with CE valuation (determination of price of EG) Rules, 2000. CA RIMA MEHTA, carimamehta@gmail.com

  35. Transaction Value • A price actually paid or payable for goods when sold is transaction value. • It includes in addition to amt charged as price, any amount that the buyer is liable to assessee. • Such amount is payable in connection with sale. • Such amount is payable at the time of sale or at any other time. • It includes any amount charged for: • Advertising or publicity • Marketability, selling and organisation expenses • Storage • Outward handel9ing • Servicing • Warranty • Commission • Any other matter. CA RIMA MEHTA, carimamehta@gmail.com

  36. Transaction Value • It doesnot include the amount of : • Duties of excise • Sales tax • Any other taxes • Actually paid or payable on such goods. CA RIMA MEHTA, carimamehta@gmail.com

  37. Rule 4 : Value of goods is not known • The value of excisable goods shall be based on value of such goods sold by assessee (identical goods sold by assessee) for delivery at any other time nearest to the time of removal of goods under assessment. • Applicability : • When the assessee does not sell goods at time of removal of goods • Removal of free samples (CBEC circular no. 813/10/2005-CX) • Free replacement under warrantee claim. • If more than 2 rates are available at the nearest time, valuation shall be done in line with rule 11 read with rule 4, transaction value shall be the value at which greatest aggregate quantity of goods is sold. CA RIMA MEHTA, carimamehta@gmail.com

  38. Rule 5 : Goods are sold for delivery at a place other than a place of removal • If excisable goods are sold in circumstances specified in sec 4(1)(a) of the act except specified above, Assessable shall be arrived at as under : • Cost of transportation from factory to place of removal is includible. • Cost of transportation include, actual cost of transportation or where the freight is averaged, as calculated as oer the generally accepted principle of costing. CA RIMA MEHTA, carimamehta@gmail.com

  39. Profit made on transportation includible in assessable value ? • Profit made on transportation is not includible if sale is completed at the place of removal and transportation is arranged at the request of buyer. • For eg. Goods are sold for delivery at factory gate at TV of Rs. 100 and for conviniance of buyer, transportation is arranged, Rs. 20 is charged however the cosr is Rs. 18. Profit of Rs. 2 is not includible. • Profit made on transportation includible if goods are sold for delivery at a place other than place of removal. • In the above eg. If goods are sold for delivery at customer premises and Rs. 120 is charged, deductible actual cost of transportation is Rs. 18 so TV comes Rs. 102. CA RIMA MEHTA, carimamehta@gmail.com

  40. Rule 6 : when price is not the sole consideration for sale • Value of such goods shall be deemed to be aggregate of • (a) such transaction value and • (b) amount of money value of any additional consideration flowing directly or indirectly from buyer. • If any goods or service are supplied by buyer free of charge, apportioned money value of the same shall be includible. • In case assessee receives an advance, notional interest shall be added only if the price charged is influenced to that. CA RIMA MEHTA, carimamehta@gmail.com

  41. Rule 7 : When goods are sold from depot/branch of consignment agent • Assessable value = normal transaction value of identical goods prevalent at depot. • Rule 8 : Valuation in case of captive consumption : • 110% of Cost of production. • Cost of production to be computed as per CAS 4 issued by ICWAI. CA RIMA MEHTA, carimamehta@gmail.com

  42. Rule 9 : goods sold through related person • When goods are sold by related person to unrelated buyers, value shall be normal transaction value at which goods are sold by related person to unrelated buyers. • When goods are sold by related person to related buyers, the value of goods shall be normal transaction value at which those goods are sold by related person to related buyer. • When goods are consumed by related dealer, 110% of cost of production. CA RIMA MEHTA, carimamehta@gmail.com

  43. Retail Sales Price Sec. 4A • This section has overriding effect over sec 4. • Sec applies if following conditions are fulfilled: • (a) goods must be excisable goods • (b) goods are chargeable to duty with reference to value. • (c) goods must be sold in package • (d) declaration of retail sales price on package is mandatory : Prerequisite statutory requirement to fall under this section. • (e) said goods are notified by CG for purpose of this section. CA RIMA MEHTA, carimamehta@gmail.com

  44. Compliances under Central Excise • Cenvat Credit CA RIMA MEHTA, carimamehta@gmail.com

  45. THANKS carimamehta@gmail.com RIMA MEHTA CHARTERED ACCOUNTANT AHMEDABAD CA RIMA MEHTA, carimamehta@gmail.com

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