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This e-Lecture was Recorded on:
March 16, 2015
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Taxes are the sources of funding the
expenditure of Governments. In the
context of India the following are the
categories of Govt Expenditure:
Salaries of Govt
Indian Railways, Food Bill,
Employees &
Posts & Manrega, Road
establishment costs
Telegraph Etc Construction etc
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Direct Taxes Paid by the Indirect Taxes Meant to be paid by one
person who bears the incidence person but incidence on another person
Collected directly from the These taxes are collected indirectly from
persons meant to bear these persons other than those on whom the
taxes incidence of these taxes are meant to fall
Sales Excis
Incom Gift Wealth Servic Custom
Tax / GST e
e Tax Tax Tax e Tax s Duty
VAT Duty
Abolished by
Union Budget
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An important source of revenue
Account for more than 70% of
total tax revenue.
Linked to consumption No
direct pinch of the tax as the
amount is chargeable in the cost
of goods or services.
Features of Indirect
Taxes
Charged both on goods &
services. Charged at various
stages of producing & selling the
goods or services.
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Tax on manufacture of
Excise Duty
goods in India - by CG
Tax on services
Major Types of
Service Tax rendered in India by
Indirect Taxes
CG
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Excise Duty
Customs Duty
GST Goods &
Services Act
Single tax in lieu of
Service Tax
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1. Central Excise
Act, 1944
Excise Duty 2. Central Excise
Tariff Act, 1985
1. Customs Act,
1962
Customs Duty 2. Customs Tariff
Act, 1975
Chapter V and VA of
Relevant the Fin Act, 1994
Service Tax as amended to
Legislation
date
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Central Excise Tariff Act, 1985: originally
included as schedule to the Central Excise
Act, 1944 was delinked from it and enacted
as Central Excise Tariff Act, 1985
Central Excise Act, 1944: referred to as the
containing the tariff schedule, based on
Act in this lecture contains the basic
international product coding system called
provisions relating to the levy of excise
Harmonized System of Nomenclature
duty, contained in chapters I to VII.
(HSN).The schedules to this Act enlist all
the excisable goods giving the
corresponding rates of Excise Duty for each
good.
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Annual Union Finance Acts (The Union Budgets): Once the Annual Union
Budget delivered by the Finance Minister is approved by the parliament, it
becomes the Finance Act for that year. Part B of the Finance Act contains
the detailed tax proposals and constitute the most common ways through
which the Central Govt makes amendments to the Central Excise Acts.
Central Excise Rules: Rules are framed by the Central Govt to carry on
the provisions of the Central Excise Act. The Rules cannot override the
provisions of the Act and should be read with the Act.
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Notifications: are issued by the Central Government or the
Central Board of Customs and Excise in terms of powers
given by the Excise Act or the Rules framed thereunder.
Notifications are issued to give effect to the amendments to the Act and
the Rules.
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Trade notices / Clarifications: Trade notices are issued by the
Excise Departmental Authorities for the purpose of clarifying
various aspects of the Excise Law for the facilitation and
clarification to the members of the public and industry. These
notices are intended to clarify excise issues to the industry so
that proper compliance is made.
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The Central Excise Act applies to the whole of India .
The Duty becomes payable on the happening of the taxable event which
means the execution of a transaction which results in a tax consequence for the
party which executes the transaction.
For example the taxable event for the levy of a state level VAT is the sale of
goods in the state. Whenever the sale of goods in a state takes place, the
liability for payment of state level VAT arises.
The taxable event for the levy of excise duty is the manufacture of goods.
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Liability of excise duty arises when a product is manufactured, whether
sold or consumed captivley.
Excise duty is a Value Added Tax, i.e. CENVAT. The offset of excise
duty paid on intermediary products is allowed in the form of modvat
credit from the duty payable on the end product or the finished product.
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Goods manufactured by 100% EOU and brought to Domestic Tariff
Area (DTA) are liable to ED equal to the Customs Duty.
100% EOUs are set up to promote exports and are required to export 100% of their
output;
EOUs are fully exempt from Excise Duty (to make them globally competitive)
However, sometimes, they may sell their products in the domestic market called
Domestic Tariff Area in which case the goods are liable to ED;
In such a case the ED = Total customs duty leviable on like goods manufactured
outside India and imported into India
For charge of Excise Duty, the Goods must satisfy two conditions, they
must be Moveable and Marketable.
Moveable Goods: must be capable of being brought to the market and sold . Excise
Duty cannot be levied on immoveable goods.
Marketable Goods: Unless goods are capable of being marketed, they cannot be
charged to Excise Duty. In case of short shelf life products the salability must be
within the short shelf life of the product.
However, actual sale is not necessary;
Marketability is established even if there is one purchaser
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Goods which are specified in the
First & the Second Schedule of
the Central Excise Tariff Act,
1985; And
Include Salt
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Manufacture
A Special Economic
Zone (SEZ) is a
geographically
demarcated area within
India where the
Conditions for charge of In India (excluding economic laws for export
ED SEZ) and import are more
liberal than in the rest of
the country. Goods
manufactured in SEZ are
exempt from Excise
Manufacture must Duty.
result in an
excisable product
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The most commonly used test for
ascertaining if manufacture for
levy of ED has taken place was
evolved by the Supreme Court in
Any process specified in the case of Delhi Cloth and
Any process incidental to
relation to any goods, in General Mills 1977, which is used
or ancillary to the
the section, chapter or even today. The judge stated:
completion of a
notes of the Central Manufacture implies a change,
manufactured product
Excise Tariff as amounting but every change is not
[Section 2(f) (i)
to Manufacture.
manufacture and yet change of
an article is the result of
Any process, in relation to treatment, labour and
goods specified in the manipulation. .there must be
Third Schedule, involving transformation; a new and distinct
packaging or labeling or article must emerge having a
any other treatment to distinctive name and character or
render them marketable. use. Therefore, manufacture
[Section 2(f)(iii) must result in the emergence of a
new commercial product, different
and distinctive from the one with
which the process started.
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Processes involving manufacture
Conversion of sugarcane to sugar
Conversion of wood to furniture
Rolling of tobacco to make bidis
Conversion of fruit pulp into fruit drink
Making of wheat flour from wheat
Processes not involving manufacture
Stirring cream to make butter;
Upgradation of computer systems to increase storage capacity;
Painting of goods
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A person who employs hired labour for the manufacture of
excisable goods;
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Classification of excisable goods may be defined as the grouping and sub grouping of
thousands of types of manufactured goods in order to apply a single rate of duty on a sub
group or group. In short classification of excisable goods consists of determining the
headings and sub headings of the Central Excise Tariff Act, 1985 under which all such
goods can be charged to ED.
The Central Excise Tariff Act has based the system of classification on the concept of
Harmonized System of Nomenclature i.e. HSN.
HSN is an internationally accepted product coding system formulated under the General
Agreement of Tariffs and Trade (GATT).
The classification of goods under Central Excise Tariff Act, 1985 is contained in the First &
the Second Schedule of the Act. The First Schedule specifies the rates of basic excise duty
(CENVAT) and the Second Schedule specifies the rate of special excise duty.
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In the vast majority of cases, ED is levied as a % of the value of the excisable
goods and the rate of duty in such cases is called rate ad valorem.
The excisable goods to be valued are covered under the Legal Metrology Act, 2009 or any other
law which requires declaration of the retail price on the package of such goods; AND
The CG has by notification provided that such goods shall be on the basis of RSP less deductions
as specified by the CG.
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Assessable value
based on Normal
Price of the goods
which was based on
the WP at which the
upto 30th June 2000 Manufacturer sold
them
Assessable
Value of
Excisable Goods
u/s 4
Transaction Value
WEF 1st July 2000
As per CE Valuation
(Determination of
Price) Rules, 2000
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Price is the sole consideration for the sale
Conditions for
applicability of
Transaction
The assessee and the buyer of the goods are not related
Value Method
Goods sold for delivery at the time and place of their removal
a. Transaction value the price actually paid or payable for the goods
b. Price includes any amount that the buyer is liable to pay in connection with the sale
c. Price includes, but such inclusion is not restricted to, expenses on advertising or
publicity, marketing & selling, organization expenses, storage, outward handling,
servicing, warranty, commission, but does not include the excise duty , sales tax or
any other tax actually paid or payable on such goods.
In all other cases (where any of the three conditions have not been fulfilled), the
assessable value to be determined under the CE Valuation (Determination of Price)
Rules, 2000
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Determine if the goods are
subject to Excise Duty
Countervailing Duty
(CVD)
Special Countervailing
Duty
Types of Customs
Protective Duty
Duty
Safeguard Duty
CVD on subsidized
articles
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Customs Act, 1962
applicable to the whole of
India including its territorial
waters
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Except as Duties of Custom shall be levied
provided in
this Act or any
At such rates as may be specified under the Customs Tariff Act,
other law in
1975 of any other law in force
force
For the purpose of levy of Customs Duty goods belonging to the Government shall be
treated at par as goods not belonging to the Govt.
The rates at which Customs Duty is levied are specified in the Customs Tariff Act, 1975
and contained in the First & the Second Schedule of the said Act
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The First Schedule of the Customs Tariff Act, 1975 lays down the rates of
custom duty applicable to goods imported into India;
The Second Schedule of the Act lays down the rates of custom duty on goods
exported from India;
In respect of goods imported from any area not specified as a preferential area
the custom duty that will be levied will be at the standard rate of duty.
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Derelict Goods: refer to any vessel
or cargo abandoned at sea without
hope of recovery;
Derelict Goods,
Jetsam, flotsam Jetsam: refers to goods jettisoned
and wreck from a vessel to prevent it from
brought or sinking;
coming into
India shall be
dealt with, as if Flotsam: refers to jettisoned goods
they were continuing to float in the sea
imported into
India
Wreck: refers to cargo or vessel or
any property which are cast ashore
after shipwreck
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Classification of import / export goods may be defined as the grouping and sub grouping of
thousands of types of goods in order to apply a single rate of duty on a sub group or group.
In short classification of goods consists of determining the headings and sub headings of
the Customs Tariff Act, 1975 under which all such goods can be charged to CD.
The scheme of classification under the Customs Duty law is similar to the classification
under the Central Excise Tariff Act which is based the system of classification on the
concept of Harmonized System of Nomenclature i.e. HSN.
HSN is an internationally accepted product coding system formulated under the General
Agreement of Tariffs and Trade (GATT).
Classification of imported goods determines the type and rate of custom duty to be levied
on them such as applicability of import restrictions, applicability of anti dumping duty or
grant of benefits of exemption from CD etc.
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Sec 13: No duty on imported goods pilfered after
unloading but before clearance for home
consumption or deposit in warehouse. However, if
goods restored to the importer, CD will become
payable.
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General Exemption: The CG may, by notification in public
interest, exempt wholly or subject to fulfillment of
Exemptio conditions specified therein, exempt generally the custom
ns from duty, in whole or in part, on goods specified in the
Customs notification.
Duty
Special Exemption: The CG may (as a special case), by a
special order exempt the duty on goods which are
otherwise chargeable to CD if it is in public interest do so.
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