Sei sulla pagina 1di 26

SEMESTER

2
COURSE

13 - Taxation Laws
BLOCK

3 - Introduction to Indirect Tax


UNITS

Units 1 and 2
AUTHOR

Mr. Harish K. Chandrasekaran

Learning Objectives After you go through these Units, you will be to: Understand the terminology and the types of duties put forth in the Indian Customs Act, 1962 Appreciate the concept of excise duty and understand the steps involved in classification of excisable goods Note: All content of this Block relate to the law prevailing and effective under the Finance Act, 2011. Any changes to these provisions made or sought to be made by the Finance Bill, 2012 and subsequently by the Finance Act, 2012 are not intended to be covered in this material.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

Introduction Indirect taxes are a major source of revenue for many governments around the world. In earlier Blocksm we have looked at income tax a levy on the income or property of a person. In contrast, indirect taxes are charges levied by the State on consumption, expenditure, privilege, or right. The taxes on consumption, expenditure and so on are called indirect taxes since the burden of taxation in such instances can be transferred to a subsequent person until the goods and services are consumed by the end user, who actually bears the burden of the levy. The major form of levy of indirect taxes is in the nature of excise duty, customs duty, service tax, and value added tax. Each of these duties or taxes has a basis or an incidence that justifies such a levy. For instance, customs duty is levied on import and export of goods, while excise is a duty on manufacture of goods. We will see the incidence of levy in detail in the forthcoming units. The Central Board of Excise & Customs (CBEC) is the apex regulatory body that supervises the levy and administration of indirect taxes in India.

In this Block, we will explore the general principles and concepts that underlie the levy of indirect taxes.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

Unit 1: Introduction to customs law Customs duty is a levy or tax, which is imposed by the Central Government on the import of goods into, and export of goods from, India. It is collected from the importer or exporter of goods, but its actual incidence is borne by the final consumer of the goods and not the importer or the exporter who remits the tax to the Government.

country. The general rate of duty was ten per cent, which was subsequently revised to 7.5 per cent in 1864. Several more revisions in the customs policy and tariff took place during subsequent years, though such revisions were mainly related to textile products. In 1878, the Government passed the Sea Customs Act, and the Indian Tariff Act was passed in 1894. The Land Customs Act was passed in 1924 and the law relating to air customs was covered under the India Aircrafts Act, 1911. Considering the multiplicity of

Development of Indian customs law There is historical evidence of the imposition of import duty during the ancient and medieval era, wherein the development of organised taxation on imports and exports can be found. The first legislation in this regard can be traced back to 1786, when the British formed the first Board of Revenue in Calcutta and each province on an individual basis levied import and export duties. This system was replaced by a uniform tariff law by way of the Customs Duties Act, 1859, which was made applicable to all territories in the

legislation governing this area of law, there was an obvious need to consolidate them into a single enactment. Thus, the Indian Customs Act, 1934, was promulgated to govern all the above customs laws. Post-independence, the existing law was repealed and a consolidating and amending legislation, the Customs Act, 1962 (the Customs Act), was enacted. The Customs Tariff Act, 1975 (the Tariff Act) replaced the erstwhile customs tariffs contained in the Indian Customs Act, 1934.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

The Customs Act is the basic legislation that empowers the Central Government to levy and collect duties on import of goods from outside India as well as on export of goods from India. As we have seen before, the Customs Act consolidates various enactmentsi on the subject matter of import and export, and its scope extends across the whole of India.

and policies to levy and collect custom duties and prevent illegal transfer of goods in and out of India. The CBEC is also empowered to levy penalties for evading tax and violating the provisions of the law.

Important definitions under the customs law Legislation The Customs Act was enacted by the government pursuant to the powers conferred in Article 245 of the Constitution. The Customs Act contains provisions that detail the levy and the manner of collection of duties on imported and exported goods and lays down the procedures governing import and export. It came into force on 1 February 1963 and its scopeii extends to the whole of India, including the territorial waters of India that extend up to 12 nautical miles inside the sea from the baseline of coasts of India. The customs law comprises 161 sections and is grouped into seventeen chapters. The CBEC is entrusted with formulating rules, schemes, The Customs Actiii defines terms that are essential to interpret its provisions. The following table lists some important definitions in the context of the Customs Act that serve as a guide to understanding it.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

Term

Definition The law defines goods in an inclusive manner. Goods include vessels, aircrafts, vehicles, stores,

such goods are cleared for consumption in India after due payment of duties, the goods will cease to be called imported goods. Exported goods Any goods that are to be taken out of India to a place outside India. The customs law specifies the carrier of the goods as a person-in-chargeiv. The duties and responsibilities of such person are enumerated below: Person-incharge To ensure that conveyance or travel of goods is through a customs-approved route and that the goods land in a proper customs area. To submit import / export manifest or bill in relation to the goods being carried. To load / unload dutiable goods only after approval from customs officer in a written form.

Goods

baggage, currency and other negotiable instruments, and any other kind of movable property.

Duty Dutiable goods

Duty of customs leviable under the Act. Goods chargeable to duty and on which duty has not been paid and that can be stored in a warehouse. It can be interpreted as any dutiable goods imported by a passenger by means of a baggage that accompanies the passenger. According to the

Baggage

law, baggage also includes unaccompanied baggage, which means any dutiable goods imported without a passenger are also considered to be baggage. Any goods brought into India from a place outside India. However, it is pertinent to note that once

Imported goods

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

The Customs Actv defines a bill of entry as a bill of lading or any other receipt given by the carrier of the goods to the consignor. This is an important document from the perspective of customs law as it Bill of entry gives details about the quantity, value and provides description of the goods. Only upon submission of this document is the person-in-charge allowed to bring in the goods into the Indian customs zone or area. According to the Customs Act , a bill of export is a Bill of export receipt or shipping bill given to the buyer of exported goods. Warehouse is a storage area for dutiable goods Warehouse that is so appointed or licensed under the Customs Act
vii vi

The place in which imported as well as exported Custom area goods are housed before clearance by the Custom Authorities. Customs port, inland container depot, customs airport or land customs station are commonly Custom station known as custom station. The imported goods should be unloaded only at a custom station. Similarly, goods can be exported only form a specified customs station. A person who claims ownership over goods at any Exporter time between their entry in a custom station and their clearance till dispatch to abroad. A person who claims ownership over goods at any Importer time between their entry into India and their clearance for home consumption from a warehouseviii.

Coastal goods

Goods which are transported in a vessel from one port in India to another.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

Procedures for import of goods In recent years, India has witnessed a steady rise in imports, especially in the luxury goods segment. This can be explained by rising levels of spending among middle income groups, especially on durable consumer goods such as televisions, refrigerators, vacuum cleaners and so on. Illustration: Mr. A is an importer. He imports vacuum cleaners from China, as there is huge demand for Chinese-manufactured vacuum cleaners amongst middle-income groups in India. Normally, goods imported from overseas are carried by ship or aircraft. Mr. A imports the vacuum cleaners into India by the sea route. The following enumerates the steps for clearance of imported goods in a case such as this, for home consumption: The master of the ship should submit the import manifest within 24 hours of the goods arriving at the custom station. The import manifest is submitted in order to account for the goods as being imported legally. It contains details about the

master of the vessel and particulars of the goods carried by the vessel. After approval from the custom authorities, the goods can be unloaded in a custom station. The customs authority will examine and count the number of vacuum cleaners on the vessel and will verify whether the count matches with the number mentioned in the import manifest. A penalty will be levied if there is mismatch in the count of goods. Mr. A is then required to submit a bill of entry for importing the vacuum cleaners. There are three types of bills of entry, namely, bill for home consumption, bill for warehousing and bill for ex-bond clearance for home consumption. The color of bill varies according to type of bill as white, yellow, green respectively. If the importer wants to clear goods immediately without warehousing it for home consumption, he is

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

required to submit the white bill of entry. The goods will be cleared upon payment of customs duty. If the importer doesnt want the goods immediately, he can store them in a warehouse after notification of, and obtaining requisite approval from, custom authorities. In such cases, he is supposed to submit the yellow bill of entry. The importer need not pay customs duty at this juncture. When an importer clears the goods for home consumption after warehousing, he is supposed to submit a green bill of entry and pay the requisite customs duty. The rate of duty applicable in all these cases will be the rate prevailing on the date of the clearance of the goods. Assuming that Mr. A submits a white bill of entry for direct home consumption to the customs authorities, the authorities will then check this bill against the import manifest to validate the appropriateness of the goods, its

count, and value. In other words, the authorities will ensure that particulars such as the description of the vacuum cleaners, their count, their per unit cost, and their total cost matches with the amounts stated in the import manifest. After validation, the authorities will levy and collect the duties. The amount of duty to be paid is equal to the rate of duty charged on such goods, multiplied by the value of the goods. The Tariff Act mentions the rate applicable for importation of each class of goods. You will learn more about valuation of imported goods in our next Block. Once the duty is paid, the authorities issue an out of customs charge order for the final clearance of the goods.

In the case of exports, the same procedure is followed in a reverse manner. It involves submission of a bill of export, appraisal of the bill by customs authorities, followed by a grant of permission by the authorities to unload the goods into a custom location.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

Subsequently, there is a cross-verification of goods with the bill and, upon payment of customs duty, the goods are cleared for loading onto a carrier, such as a ship or an aircraft, that takes them out of India.

Special cases on pilferage/ deterioration /damage/ destruction of imported goods If any imported goods are pilfered after their unloading but before the receipt of a clearance order of the goods for home consumption or for warehousing from the customs officer, then the importer shall not be liable to pay the duty on such goods According to the provisionsx of the Customs Act. In due course of time, if the importer regains the pilfered goods, he will be liable to pay duty on such goods. Continuing with our previous illustration of Mr. A importing vacuum cleaners in to India, assuming that in the process of validation of the bill of entry submitted by Mr. A, the custom authorities observe that the count of vacuum cleaners does not match the number contained in the import manifest. The count in the import manifest being 1000 out of which 100 vacuum cleaners seem to have been pilfered after the goods were unloaded in the customs station. In such case, the authorities will value only 900 vacuum cleaners and levy customs duty only on that amount.

Charge on imported as well as exported goods According to the Customs Actix, the duties of customs shall be levied on goods imported into or exported from India at such rates as specified in the first or second schedule of the Tariff Act. The first schedule of the Tariff Act contains classification of import goods and their relevant tariff rates. Similarly, the second schedule classifies export goods and their relevant rates.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

10

If any imported goods are destroyed before the clearance for home consumption, then the customs officer will remit duty on the remaining amount of goods. Consider that all the vacuum cleaners imported by Mr. A were destroyed in an accidental fire after payment of customs duty but before the issuance of an out of customs charge order being given by the customs authority. In this case, the customs duties collected from Mr. A will be returned to himxi . If any imported goods are damaged or otherwise deteriorate, then abatement of duty on such goods is allowed according to the Customs Act . The value of abatement is calculated as a proportion of the value of the goods after damage or deterioration to the value of the goods before damage or deterioration multiplied by the duty of the goods before their damage or deterioration.
xii

Types of Custom Duties In our earlier Blocks on income tax, we studied two types of rates that is, normal rates leviable under the slab system and the special rate applicable for capital gains, winnings from lotteries, and so on. Similarly, under the Customs Act, all dutiable goods are chargeable to tax at a basic customs duty. Further, special rates such as counter veiling duty, anti-dumping duty, and so on are levied to alleviate the impact of importation of goods on domestic industries. The types of customs duties applicable on goods under customs laws are enumerated below: Basic Custom Duty (BCD): It is a basic charge on goods imported into or exported from India. The prevailing rate of BCD is ten per centxiii. Counter Veiling Duty (CVD): CVD is levied on imported goods at a rate equal to that of the excise duty levied on goods locally manufactured in India. CVD is levied on the imported goods in order to counterbalance the impact of

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

11

excise duty that is applicable to an indigenous manufacturer of the imported goods and to ensure a level playing field . In other words, the rationale behind CVD is to mitigate the difference between the duty free goods exported from abroad and the applicable excise duty on the same indigenous goods. The rates of duty mentioned in the Central Excise Tariff Act, 1985 specify the rate of CVD applicable on a imported good. Illustration: Assume that Mr. A imports vacuum cleaners from China to India. The cost of manufacturing a vacuum cleaner in China is much less than cost of manufacturing the same vacuum cleaner here in India. Hence, the vacuum cleaners from China can be priced for sale at a rate that is less than that attributable to a vacuum cleaner manufactured in India. This would result in more people buying the Chinese vacuum cleaner rather than an Indian one and would ultimately lower the threshold sale price of vacuum cleaners in India.
xiv

This would also put Indian manufacturers in a position of disadvantage as compared to their Chinese counterparts as the Indian manufacturers would need to pay an excise duty that the Chinese would not. In order ensure a level playing field, CVD at a rate of 12% is charged on the vacuum cleaner imported from China, which is the tax a local manufacturer would pay as excise duty. Special Additional Duty (SAD): Similar to the CVD we discussed earlier, the SAD is levied to counterbalance the impact of sales tax, including value added taxes and other local charges. The normal rate of special additional duty is 4 per centxvi . In our earlier Illustration, since the vacuum cleaner is a complete good and doesnt require further processing, Mr. A could directly sell the goods in the Indian market. On the other hand, a domestic company producing vacuum cleaners would need to buy the requisite raw materials, and then process them to arrive at the complete good before

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

12

selling it. The raw material purchased by the domestic company would be subjected to sales tax and this would increase the threshold sale price of domestic vacuum cleaners. In order to balance this, the imported vacuum cleaners are charged to SAD at a rate of 4 per cent. A customs cess is leviable on the imported goods. We already know the concept of cess from our discussions on income tax in the previous Blocks. Educational cess is charged at 2% and the secondary and higher education cess is levied at 1%. A National Contingency Calamity Duty (NCCD) is imposed by Annual Finance Acts on item such as pan masala, cigarettes, and tobacco. Generally, NCCD is levied on goods that are injurious to public health in order to dissuade their increased consumption. The rate of duty ranges from 10% to 45%. NCCD is levied on luxury motorcars and two wheelers at 1%.

Safeguard duty: Safeguard duty is a kind of protection that the government can provide in order to give temporary relief to indigenous industries from bulk imports of similar kinds of goods from abroad. This duty is levied on goods that are imported in increased quantities and cause injury to the domestic industry producing similar goods. Both antidumping duty (discussed next) and safe guard duty are levied to protect domestic industry. The difference between two is that anti-dumping duty is levied on dumped goods whereas safe guard duty is levied on a large import of goods that would normally enjoy concessional tariff rates due to World Trade Organisation obligations of a member State.

Anti-dumping duty: Dumping is an act of discharging the goods from the exported country into India at price lower than the normal price at which such goods are sold in the exporting country. It is considered an unfair trade practice and has a distorting effect on domestic industry. For instance, the dumped goods will be available at a much cheaper rate than indigenous goods in India and many

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

13

buyers may, obviously, opt for such low-cost goods. This can cause significant harm to domestic industry. In order to ensure a control mechanism on dumped goods, the government levies an anti-dumping dutyxvii . The margin of dump is determined as the difference between the normal price and the export price. The designated authorities decide upon the duty to be charged on such unfairly dumped goods.

In this Unit, we have learnt that customs duty is charged on goods imported into or exported from India. It has been essential to cover common terminology under the Customs Act in order to understand this area of law better. In our next Block we will learn some advanced concepts in customs law, such as the valuation procedure for imported goods.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

14

Unit 2: Introduction to Excise Law Excise duty is a charge on goods manufactured in India for home consumption. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to customers. The Central Excise Act, 1944 (Excise Act) contains provisions which define the scope of excise duty on a given product, the mechanism for levy and collection of the duty, procedure of assessment, penalties, appeals, and adjudication. In this Unit, we will focus on the basic principles of the Central excise law.

chargeable on the event of manufacture of any excisable goods, its collection is postponed to the time of removal of such goods from the factory. The term excisable goods has been defined under the law to mean those goods specified in the Central Excise Tariff Act, 1985 (CETA) as being subject to the duty of exci,se. The word 'Goods' has not been defined in the Act. Therefore the meaning of the term excisable goods is borrowed from the Constitution and from the Sale of Goods Act, 1930 and understood according to the decision of the Apex Court. Under the excise law, it is understood to be items that are movable, i.e. capable of being moved, and marketable, i.e. capable of being sold. Thus any manufactured good that is capable of being moved and marketed is subject to the levy of excise duty. The Excise Act defines manufacture in an inclusive manner as encompassing any process incidental or ancillary to the completion of a manufactured product. The term manufacture, for excise purposes, can be understood as a process wherein the name, characteristic, and use of an input or raw material is changed or made distinct into another product capable of being moved and

Legislation The Excise Act came into force on 28th February 1944. It extends across the whole of India and contains the basic provisions in regard to levy and collection of duties on excisable goods manufactured or produced in India. Although excise duty is

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

15

marketed by application of the process. Thus a process that simply changes the form or size of the same article or enhances the value of the article would not constitute manufacture.For instance, a process whereby cigarettes or bidis are cut to size does not constitute manufacture. Similarly, the process of repairing or reconditioning of an existing product does not constitute manufacture as no distinct by-product emerges from this process. On the other hand, the process of assembling the individual parts of a car to form a whole would constitute manufacture as a product in the form of car, that is distinct from its parts, is formed as a result of such a process. Therefore, the conditions for levy of excise duty on a product can be summed up as below: The duty is to be levied on goods. The goods must be excisable. The goods must be manufactured or produced.

Such manufacture or production must have been carried out in India.

The Excise Act extends to whole of India including the Indian territorial waters. The Excise Act along with CETA, excise rules, circulars and notifications issued by CBEC and amendments by the relevant Finance Act comprise the gamut of legislation on the subject of excise duty in India. The CETA deals with classification of excisable goods and prescribes the relevant rate of duty for each class of goods. It consists of 21 sections, and 96 chapters that provide a comprehensive classification of all conceivable goods that can be manufactured. The CETA also mentions the general rules that are to be followed to interpret its schedules for the purpose of classification of products. The Excise Act empowers the Central Government to make rules on various aspects such as the mechanism to levy and collect

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

16

excise duty, methods to determine the value of excisable goods, removal of goods at concessional rates from a factory, and so on. The following is list of prevailing rules under the Excise Act: Central Excise Rules, 2002 Cenvat Credit Rules, 2004 Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 Central Excise (Determination of Retail Sale price of Excisable Goods) Rules, 2008

Central Excise (Compounding of Offences) Rules 2005

Charging section As we discussed above, the Excise Actxviii prescribes that excise duty can be levied on goods manufactured in India that are capable of being moved and marketed. Thus the terms manufacture, goods, and excisable goods define the scope of the levy of excise duty. We will discuss these terms in detail to understand the nature of excise duty.

Manufacture According to the provisionsxix of the Excise Act, the term

Central Excise (Advance Rulings) Rules, 2002 Central Excise (Appeal) Rules, 2001 Central Excise (Settlement of Cases) Rules, 2007

manufacture is defined in an inclusive manner as follows: Manufacture includes any process incidental or ancillary to the completion of a manufactured product

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

17

Manufacture includes any process specified in relation to any goods in the section or chapter notes of the schedule of the CETA as amounting to manufacture

Goods According to the Constitutionxx , the word Goods is defined to include all kinds of moveable property other than a few items such as actionable claims and money. According to the Excise Actxxi , the term good is further extended to include any article, material or substance, which is capable of being bought and sold for a consideration, and such goods are deemed to be marketable. Thus, a manufactured product shall constitute goods if they are marketable and moveable.

In case of goods specified in the third schedule of CETA, manufacture involves: Packing or repacking of such goods in a unit container. Labeling or re-labeling of containers, including the declaration or alteration of retail sale price on it. Adoption of any other treatment on the goods to render the product marketable to the consumer.

Marketable Further, manufacture is said to be complete only if an article so produced is recognised as a new and different article having a distinctive name and character or use. Marketability is the capability of goods to be bought and sold for a consideration. Actual sale of goods is not necessary to prove marketability. Essential tests for marketability according to the decisions of various courts include the following: An article known in the market as a distinct and separate product having unique use is marketable.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

18

An article that is capable of being sold or consumed is marketable

good if it is capable of being brought to the market to be bought and sold. We can infer that only moveable goods can be brought to market for a transaction between buyer and seller. Thus, excise duty cannot be levied on immovable goods and property. According to the provisionsxxiv contained in the General Clauses Act, immovable property includes land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth.

However, articles in crude or elementary form are not marketable as they are merely intermediate products and are not goods. In the case of CCEx v. Bakelite Hylam Limitedxxii , the tribunal held that a good or product shall not be chargeable to excise duty merely because it is so specified in the schedule of CETA, and that the marketability of such goods are essential to the levy of excise duty. Hence, we can discern that the concept of marketability of the goods is integral to the levy of excise duty.

Excisable goods According to the Excise Actxxv , a good is said to be excisable if it satisfies the following: It is specified as dutiable in the First or Second Schedule of the Central Excise Tariff Act, 1985; and It is subject to duty according to the Tariff.

Moveable According to the Excise Act, only moveable and marketable goods can be subject to excise duty. In Union of India v. DCM xxiii , the Supreme Court laid down the principle that an article shall be a

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

19

There are certain goods that the Excise Act exempts by charging nil duty on them. However, even those goods are considered as excisable goods according to the Supreme Courts decision in the case of Wallace Flour Mills Ltd. v. CCExxxvi . The rationale behind this case is that the taxable event for the levy of excise duty is manufacture. Hence, there may be some goods that are exempt from payment of excise duty, but that fall within the definition of being manufactured. Thus, such exempt goods also fall under the scope of the taxable incidence of excise, although the duty payable on them is zero. Therefore, merely because a good is exempt does not mean that it is not excisable.

but, rather, are constructed. However, during the process of construction of an immovable property, there can be a yield of intermediate goods that can be subject to excise duty. For instance, consider the following. An item of immovable property, such as a building, is created by the input of a combination of various components. All components required for the construction of that immovable property are purchased and assembled at the factory. Then these assembled goods are carried to the site and attached to the earth to make it immovable. In this case, during assembly of such components in the factory, if any goods emerge with a new identity, character and with distinct features from the components used in the production process, they can be chargeable to excise duty provided such new good can be carried away to the market as such without any damage to its components, and be sold. On the other hand, if all the components required for the construction of an item of immovable property are

Taxable events of special cases Case of immovable property: According to the Excise Act, only moveable goods satisfying the conditions of excisability, discussed above, are subject to excise duty. It follows that there cannot be a charge of excise duty on immovable goods since such goods are not manufactured or produced

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

20

purchased and are erected piece by piece on top of an erected component or on top of any civil foundation to fabricate such immovable property, then excise duty cannot be levied since the final good produced is immovable property
xxvii

are construed as being captively consumed. In general, we have seen above that an intermediate product emerging during the process of manufacture is liable to excise duty if such a product can be commercially identified as being a distinct product. Thus, a commercially distinct intermediate product that is captively consumed must also be subject to excise duty. We also know that the Central Excise Rules postpone the collection of the duty on excisable goods to the time of removal of such goods from the factory. Then a question arises as to how excise duty can be charged when the intermediate excisable products are consumed captively, without being removed from the factory. The Finance Act, 1982 amended the provisionsxxxi of the Central Excise Rules in respect of captive consumption to connote that excise duty will be charged on captively consumed intermediate goods at the time of their removal from an approved place of storage within the factory. Therefore, goods captively consumed shall be charged to excise duty if they are

. Though a new, distinct marketable good might

arise during the process of construction, it will not be chargeable to excise duty because the new product cannot be dismantled without substantial damage to take it to the market to be sold
xxviii

Waste and Scrap: In Khandelwal Metal & Engineering Works V. UOIxxix , the Supreme Court has held that the waste and scrap that emerges as an intermediate item during the processing of a final product shall be chargeable to excise duty if such waste or scrap is marketable and is covered in the CETA. The Apex court also held that processed waste and scrap could be a distinct and identifiable product and have commercial value. Captive consumption: Any goods produced within the factory for the purpose of internal consumption or production

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

21

removed from the approved place of storage within the factory for internal consumption purposes.

National Calamity Contingent Duty (NCCD): This is imposed by the Annual Finance Act on certain items like pan masala, chewing tobacco and cigarettes produced in India.

Types of excise duty In the earlier Unit, we learnt that customs duty could be broken down into the smaller components that comprise it. Similarly, excise duty is also comprised of the following components: Basic excise duty: This is the basic charge on excisable goods. The basic excise rate is 10%. This rate is applicable unless a different rate is specified under the CETA. Special excise duty: The Annual Finance Actxxxii charges a special duty on certain notified goods. The duty rates are specified in the second schedule of the CETA. Cess: Educational cess is leviable at 2% and secondary and higher education cess at 1% of the excise duty.

Additional duty on goods of special importance: This duty is levied as measure of relief from multi-level taxes and duties on certain goods. This duty is charged at the single point of manufacture.

Classification of excisable goods Classification of excisable goods is essential as it provides the rate of duty applicable for goods falling under each such heading. In other words, excise duty payable shall be arrived at by levying the excise on the value of the excisable goods at the rate specified in the heading or subheading specific to the good. The Central Excise Tariff Act consists of 20 sections. Each of the sections is divided into various chapters. In total, there are 96 chapters. Each chapter is further classified into various headings and sub-

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

22

headings. In order to ensure uniformity in the classification of goods, a coding convention known as the Harmonized System of Nomenclature (HSN) is used. It is an eight-digit system and digits represent the chapter number, headings, sub-headings and subsub-headings relevant to such goods. The following steps are undertaken to classify the goods under the appropriate heading in the CETA. Read through the section and chapter notes given at the beginning of each section and chapter respectively. The most relevant and specific heading is identified. If no ambiguity exists, then the classification is final and the goods shall be charged at the rate specified in the heading. In the case of incomplete or unfinished articles, the article shall be classified in the heading applicable to the final or finished goods, provided that the incomplete product has the essential character of the complete good. In the case of a mixture/combination of materials, the mixed article shall be classified to the heading of one of the

materials to the mixture that provides the most specific meaning and essential character to such a mixed article. If a classification entry for the good is unidentifiable, then such a good shall be classified under heading most akin to it.

In this Unit, we have learnt that a good is said to be excisable if such a good is movable, marketable and is specified in CETA. Any excisable goods manufactured or produced in India are chargeable to excise duty.

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

23

Conclusion In Units 1 and 2 of this Block, we have gained a basic understating of the concepts underlying excise law and customs law. Some of the more advanced concepts such as valuation of excisable goods and goods subject to customs duty will be discussed in the next Block. Units 3 and 4 of this Block will introduce you to the concepts of service tax and sales taxes, including Value Added Tax. -x-x-

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

24

Suggested Reading Books V.S. Datey, Indirect Taxes Law and Practice, 28th edition, Taxmann, 2012.

Web pages The Finance Bill, 2011, available at http://www.bareactsonline.com/pdfs/2011/Finance%202011 %20BH.pdf http://business.gov.in/taxation/vat.php http://www.cbec.gov.in/ http://www.servicetax.gov.in/

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

25

iii

The Sea Customs Act, 1878, The Inland Bonded Warehouses Act, 1896, The Land Customs Act, 1924, and The Aircraft Act, 1934 were consolidated into The Customs Act, 1962. ii Section 2(27) of the Customs Act, 1962.

Section 2 of the Customs Act,1962. According to Section 2(31) of The Customs Act, 1962, person-in-charge in case of vessel, aircraft, railway or other conveyance means master of the vessel, commander or pilot in charge of the aircraft, guard of the train or driver of the conveyance respectively. v Section 46 of The Customs Act, 1962. vi Section 50 of The Customs Act, 1962. vii Public warehouse appointed under Section 57 or private warehouse licensed under Section 58 of The Customs Act, 1962. viii All definitions contained in this table are from Section 2 of the Customs Act, 1962. ix Section 12 of the Customs Act, 1962. x Section 13 of the Customs Act, 1962. xi Id. xii Section 22 of the Customs Act, 1962. xiii Section 3(1) of the Customs Tariff Act, 1985. xiv Id. xvi Id. xvii Section 9A of the Customs Act, 1962. xviii Section 3 of the Central Excise Act, 1944. xix Section 2(f) of the Central Excise Act, 1944. xx Article 366(12) of the Constitution of India. xxi Explanation to Section 2(d) of the Central Excise Act, 1944. xxii 1990 (26) ECC 353. xxiii (1977) ELT 199. xxiv Section 3(26) of the General Clauses Act, 1897. xxv Section 2(d) of the Central Excise Act, 1944. xxvi (1989) (44) ELT 598. xxvii www.icai.org/resource_file/16017finalselecte.pdf. xxviii Id. xxix (1985) (20) ELT 222. xxxi Rule 9 and 49 of the Central Excise Rules, 1944. xxxii Section 37 of the relevant Finance Act.
iv

Rainmaker Training & Recruitment Private Limited, 2012. Any unauthorised use or reproduction of this material shall attract all applicable civil and criminal law remedies.

26