indirect tax1

8/2/2019 Indirect Tax1

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Excise Duty

Central Excise Act, 1944 (CEA)

This is the basic Act providing for charging ofduty,valuation, powers of officers, provisions of arrests,penalty, etc.

Central Excise RulesSection 37 (1) of the Central Excise Act grants power

to Govt. to frame rules to carry into effect the purposes ofCentral Excise Act. Rules can make provision of penalty and

prosecution. Section 38 of CEA provides that the rulesshouldbe made by issue of a notification. The rules should be

placedbefore Parliament for 30 days when Parliament is in session.


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Notifications :

Central Govt. has been granted power to issuenotification for granting partial or full exemptions

from excise duty. Central Excise Rules also provide for issue of

notifications .

Each Rule and Notification has to be placed beforeeach House of Parliament for a total period of 30days.

If Parliament decides to amend any of such rule or

notification, it will have effect in modified form.Otherwise such rules or notifications will continueto be effective.

The rules and notifications are treated as part of the

Act itself and it has full legislative backing.


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Action under notification or rule can be taken even ifrule/notification is amended

Even if any rule, notification, regulation or order isamended or rescinded; rights acquired and liabilitiesincurred during the period when the rule/notification/regulation/ order was in force, will continue.

Thus, a demand can be raised for the period rule was inforce, even after such rule/ notification is rescinded.

Central Excise Tariff Act, 1985 (CETA)

CETA, 1985 classifies all the goods under 96 chaptersand specific code is assigned to each item.

This classification forms basis for classifying the goodsunder particular chapter head and sub-head to prescribe

duty to be charged on that particular product.


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CESTAT (Procedure) Rules, 1982

Customs, Excise and Service Tax Appellate

Tribunal Rules, 1982, made by CESTAT, prescribeprocedure of filling and hearing appeals to CESTAT.

NATURE OF EXCISE DUTY

Entry No.84 of list I of Seventh Schedule to theConstitution reads as follows: Duties of excise ontobacco and other goods manufactured or produced

in India, except alcoholic liquors for humanconsumption, opium, narcotics, but includingmedical and toilet preparations containing alcohol,opium or narcotics.


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Section 3 of CEA states that There shall be leviedand collected in such manner as may be prescribed

duties on all excisable goods which are produced ormanufactured in India.

Basic Excise Duty (BED) and Special Excise Duty(SED) are levied under section 3 of CETA, 1985. There

are four basic conditions for levy of Central Exciseduty.

(1) The duty is on goods

(2) The goods must be Excisable

(3) The goods must be manufactured or produced

(4) Such manufacture or production must be in India.Unless all of these conditions are Satisfied, Central

Excise Duty cannot be levied


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Goods manufactured in SEZ are

excluded excisable goods

Goods manufactured or produced in SEZ areexcisable goods but no duty is leviable, as section3(1) excludes those goods.

Thus, the goods manufactured in SEZ are notexempted goods. They can be termed as excludedexcisable goods.


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Section 3 uses the words levy and collection. Article 265 of Constitution also uses the samewords.

Levy means imposition of tax. Once a tax or duty is

imposed, it has to be quantified and then collected.Once a duty is levied, it has to be collected. It cannotbe collected unless the duty is quantified.

Hence, normally, levy should cover imposition,

assessment and collection.When goods are produced or manufactured, even if

it is not sold in market, excise duty is levied.


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Condition to Levy Excise Duty

01. Duty is on Goods:

To levy Excise Duty, goods should be movableand marketable, goods should be capable of beingbrought and sold in the market.

Actual sale is not necessary.(saleable or suitable for

sales) Actual open market is not necessary.


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When goods are consumed within the factory and

duties is levied on captive consumption,

Goods are given as free samples

Goods are given for free replacements

Excise Duty is levied only when the goods satisfythe test of movability and marketability,marketability implies regular market for a product.


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To levy Excise Duty, article must satisfy 2

requirements to be GOODS(a) it must be movable (b) it must be

marketable

e.g of goods: Gas, steam electricity, sub-standard goods, By- products, intermediategoods, drawing and design of goods.

Machinery waste and scrap will be considered asgoods, if it is marketable.

The waste and scrap should be mentioned in

CETA i.e. goods should be excisable.


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Immovable goods are not considered as goods.

For eg; Roads, bridges, dams.Goods having very short life or perishable

goods, if not marketable for.

E.g. Yeast, if it is not marketable within 8hours, it is not considered as goods.

Plant and machinery absorbed and erected atsite cannot be treated as goods, if it is notmovable and marketable as it is.

Erection and installation of plant is notexcisable.


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. xc sa e goo s:

Essential requirement is goods must be excisable.

The goods that are mentioned in CETA 1985.

The goods are excisable even if they are exempt fromduty. (duty rate is Nil)

Goods that are manufactured in SEZ called Excluded

Excisable Goods.Goods not include in CETA are called Non-Excisable

Goods. E.g flower, vegetable, fish, flour etc.

Mere mention in CETA is not enough incase(a)if it is exempt from duty. (b)If it is not marketable.

In both cases, even goods excisable, No duty levied.


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Definition of Excisable goods

Sec 2(d) of CEA 1944 defines excisable

goods as goods specified in the schedule toCentral Excise Tariff Act (CETA)1985 as beingsubject to a duty of excise and includes salt.

03. Goods should be manufactured andproduced:

Excise is a duty on manufacturer or production

of goods in India. If there is no manufacturer there is no Excise

Duty.

M f M f


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Manufacture: Manufacture means

Manufacture as specified in various court decisions i.e.new and identifiable product having a distinctive name,character or use must emerge or

Deemed manufacture

Examples : Manufacture takes place only when processresults in commercially different article. For e.g. Manf. of

table from wood, conversion of sugarcane into sugar,conversion of crude diamond into jewellery, assemblingof computer, making pan masala, conversion of pulp intobase paper.

New distinct name, character or use must emerge.

Identity of original article should be lost.

Assembly of parts and components can be manf. if newproduct emerges which is movable & marketable.

Commodity should be fit for commercial use.


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Assembly of Completely Knocked Down Packs(CKD) and Semi-Knocked Down Pack (SKD)for convenience of dispatch is notmanufacturer . For eg: unassembled ordismantled product for the purpose oftransportation is not manufacture.

For eg: cycle manufacturer dispatch cycles inunassembled condition from factory. No Manf.

Assembly at site of computer components sentas set in semi-knocked down condition is not

manufacture.Conversion of timber logs into small timber is

not manufacture as no product emerges.


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Manufacture has taken place

Processing of commercial plywood Coffee beans from raw coffee berries

Roasting,salting spicing of nuts is manufacture

Cotton seed from unginned cotton

Oil from oil seeds

Cutting of fabrics to make bed sheets

Wheat to wheat flour

Stitching of cloths

Making masala powder


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What is not manufacture

Testing/ quality control

Printing on glass bottle

Upgradation/modification is not manufacture

Cutting of steel rod

Processing fish is not manufacture


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Deemed Manufacture :

Two Types :

a) CETA specifies some processes as Amounting ToManufacturer.

b) In respect of goods specified in 3rd Schedule to CEA.

a) Processes Amounting to Manufacturer:

Labeling ,relabeling of containers and repackingfrom bulk packs to retail packs or application of anyother treatment to render the product marketable

to the consumer shall amount to manufacture.eg: Putting stickers on goods to indicate MRP ismanufacture as label is required to make goodsmarketable (i.e. stickers on imported medicines)

D i d lik ilk b h


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Dairy products like milk, cream, butter, cheese

Coffee, tea, spices

Meat, fish etc. vegetables, fruits, nuts

Pan masala, natural or artificial mineral water, yeast, soups,sauces

Tobacco, Cigar, Cigarettes

Perfumes and beauty preparation for use on the hair

Recording of sound on Audio or Video tapes

Galvanizing articles of Iron and steel

Cutting, slitting, perforation of photographic plates, films orrolls

Soap, waxes, etc

Inorganic chemicals

Readymade garments


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b) Deemed manufacture in case of Goods covered in

Third Schedule Under MRP Provisions:

Goods included in Third Schedule of CEA same as those on which Excise Duty is payable u/s 4A i.e on basis of MRPprinted on the package.

So, incase of goods on which duty is payable on basis of MRP,if any of the process as specified (i.e labeling, re-labeling,repacking in unit container, alteration of MRP etc) it will bemanufacture and Duty will become payable.

The process of packing, labeling and putting MRP is carriedout by buyer or by C & F Agent/ Depot/ Godown will bemanufacture.


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They have to be Registered under Central Excise asManufacturer.

It will have to pay Duty on the basis of MRP,

Alteration of MRP printed on wrapper is not permissible.

Simply putting Bar Code, and LOGO is not manufacturer.


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Testing, inspection, quality control, cutting and polishing of

diamond Betel nut to supari powder

Printing on glass bottle (any logo printed on glass bottle)

Plain glazed tiles to decorated tiles

Vanaspati (Dalda) from groundnut oil Up gradation or modification of computer system

Crushing of boulders into smaller stones

Repairs or Re-conditioning

Processing food or fruits

Processing fish


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Affixing brand name

Cutting or slitting of steel sheets or polyster film

(Plastic sheet)Conversion of marble blocks into marble slabs

Recharge of battery

Blending and packing Tea


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manufacturer A person who conducts a manufacturing activity on his own

account or by hiring a labour For eg: tailor stitching cloth

A person who manufactures goods themselves or on their ownaccount

A person who gets the goods manufactured through hired labour.

A person will be treated as manufacturer even if he manufacturesgoods for his own use or consumption

If there is a master- servant relationship between the raw materialsupplier and the job worker, the raw material supplier will be themanufacturer


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1) Manufacture through hired labour

A person will be treated as manufacturer if heengages hired labour who may be employee orcontractor for manufacture of excisable goods. A hiredlabour is one who hires himself out to work for and

under control of another for wages.

If there is master servant relationship between theraw material supplier and the job worker E.g HUL If

HUL hires Packers and Movers, then manufactureris HUL. If HUL outsources the process of manufacturethen manufacturer is Packer and Movers.


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2)Engage manufacture on his own account on his own account-----means as under his direction

and control.

3) Raw material supplier is notthe manufacture


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For eg:

Mr. A person was supplying raw material to the

household ladies for manufacturing agarbatti, dhoopetc in their houses. The final product was directly soldfrom the premises of the ladies and was not broughtto the factory of Mr. A. There was no supervision over

their work by Mr. A. Payment to the ladies was on thebasis of number of pieces produced. It is held thathousehold ladies are the manufacturer and Mr. A isthe raw material Supplier.

Raw material Supplier is not manufacturer e.gBajaj,Maruti.


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3)

INDEPENDENT CONTRACTOR IS MANUFACTUREEVEN IF MANUFACTURE CARRIED OUT IN THE

PREMISES OF RAW MATERIAL SUPPLIER


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WHEN RAW MATERIAL SUPPLIER WILL BE

MANUFACTURE

RELATIONSHIP IS ON AGENCY BASIS

PERSON EMPLOYED BY RAW MATERIAL SUPPLIER

TO MANUFACTURE THE GOODS AND RETURN IT

TO HIM

JOB WORKER ARE NOT MANUFACTURING ON

THEIR OWN ACCOUNT AND THEY ARE DUMMY

OR BOGUS


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Brand owner is not manufacturer e.g Bajaj Electricals

Loan licensee is not manufacturer e.g RM Suppr in Drug I

RULE 138A of drugs and cosmetic s rules.

Contractor Supplies labour & goods manfd in premises of

manufacturer with machn ,contractor is not manufacturer.

DUTABILITY OF WASTE AND SCRAP


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DUTABILITY OF WASTE AND SCRAP

Waste and scrap is practically treated as final productfor excise purposes.

Waste and scrap can be goods but dutiable only ifmanufactured and are mentioned in Tariff.

Goods rejected during testing

If finished product is rejected at testing stage, it isto be classified as scrap.

Defective products not usable as such as waste and

scrapDefective products unusable have to be taken as scrap

andwaste

No duty on scrap if final product is exempt.

Waste dutiable only if there is manufacture


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Waste dutiable only if there is manufacture

For eg: Aluminum dross is not manufacturedproduct and hence not dutiable, even if there isspecific entry in the tariff.

For eg: Coal ash (cinder) which is a residue or wasteof coal burnt in boiler is not a manufactured productand is not excisable.

Waste / scrap generated from sources other thanraw materials is not excisable.

For eg: Duty cannot be levied on empty drums orwaste packing material in which inputs were packedas these are not manufactured.

Waste arising due to dismantling of old machinery,structures etc. is not taxable as no manufacture


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Waste Oil remaining after manufacture

Waste oil does not emerge from process of

manufacture and hence is not dutiable.

Waste and scrap arising in ancillary process isnot dutiable

For eg: Coal was used as a fuel to produce steam. Thesteam was used in manufacturing process. After coal

was burnt, cinder was left.

Everything that is sold not necessarilygoods

Waste/ scrap can be excisable goods if they areknown in commercial parlance and are marketable.


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Waste and scrap not goods if not marketable

For eg: rubber scrap obtained by cutting defectiverubber tubes are not goods.

Waste and scrap excisable only if mentioned

in CETA

The waste and scrap will not be excisable goodsunless it is specified in CETA.

DISPUTED CASES OF MANUFACTURE


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DISPUTED CASES OF MANUFACTURE

Some border-line cases are discussed below

Re-melting This would normally amount tomanufacture as identity of original product iscompletely lost during the process.

If same article is produced after melting, it can beargued that new product has not emerge andhence it is not manufacture.

Re-melting of an article to remake the same articleis not a process of manufacture.

Packing Goods can be said to be fully


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Packing- Goods can be said to be fullymanufactured even before they are manufactured.Packing is not a process of manufacture.

However, it could be a process ancillary to themanufacturing process.

Eg: packing of matches in Match Box or packing of

medicine as per statutory requirements.

Mixing, blending Eg.Mixing of oxygen/ nitrogen

with inert gases does not bring about any chemicalreaction and no new product emerges.

Eg. Making of pan masala by mixing variousingredients is manufacture.


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Supplying two or more items together is notmanufacture

Purchasing various items and packing them together will not amount to manufacture if a new productdoes not emerge.

Putting together bought out plastic bottles andattached rubber nipples and packing in a printedcorrugated box is not manufacture.

Assembly of piston, piston rings, circles, gudgeonpins and rubber ring to make Liner Piston Set is notmanufacture

INCIDENTAL OR ANCILLARY PROCESS OF


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INCIDENTAL OR ANCILLARY PROCESS OFMANUFACTURE

Manufacture includes any process which is incidental

or ancillary to the completion of manufactured product. Incidental means occasional or casual process.

Ancillary means auxiliary, i.e. it is integral part ofmanufacturing. Manufacture is not complete unless all

ancillary and incidental processes are complete.

Painting or polishing may be essential process formanufacture of furniture.

Packing is a process incidental or ancillary to thecompletion of manufacture of a product.

Incidental refers to an occasional or casual process.Ancillary means a subsidiary process i.e. unless these

processes are carried out, the manufacture of product

Manufacture must be in India


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Manufacture must be in India

Excisable goods must be manufactured or producedin India.

Excise levy cannot be imposed on imported goods orgoods manufactured in Nepal.


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conclusionArticles 246(1) of Indian constitution states that

parliament has exclusive powers to make laws withrespect to any matters enumerated in the list I in the

seventh schedule to constitution( union list).As per article 246(3) , state government has exclusive

powers to make laws for state with respect to anymatter in the list II of the seventh schedule toconstitution.

List III contains entries where both union and stategovt can exercise power


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Union list relevant to taxarion Entry no 82- tax on income other than agriculture

income.

Entry 83- duties of customs including export duties

Entry 84- duties of excise

Entry 85- corporation tax

Entry 92 A taxes on the sale or purchase of goods

Entry 92 B- taxes on consignment of goods Entry 92 C- tax on services

Entry 97- any other matters


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Types of duty

Basic excise duty to be termed as (cenvat ) is levied at

the rate specified in the first schedule to centralexcise tariff Act

Special duty of excise are leviable with special duty (section 3(1) (b) of CEA.

indirect tax1

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