CENTRAL EXCISE DUTY AND CONCEPT OF CENVAT

INDIRECT TAX
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The term indirect tax has more than one meaning. In the colloquial sense, an indirect tax (such as sales tax, a specific tax [a tax per unit], value added tax (VAT), or CENVAT is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."

An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a function of the relative elasticity of the supply and demand of the goods or services being taxed. Under this definition, even income taxes may be indirect.

Major changes in budget of 2011 regarding indirect tax

enhancement of the value-added tax (VAT) rate slab of 4-5% in most states y excise duty on goods hitherto chargeable to excise duty at 4% was enhanced to 5%. Products like condensed milk, ice creams, meat, fish and poultry products have been fully exempt from excise duty y The service tax rate has been increased from 10 per cent to 12 per cent
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One of the most significant announcements in the budget speech is that the government has set a target date of 01 April, 2010 for implementation of a comprehensive Goods and Services Tax (GST). A GST would bring all goods and services which are taxable under a single system, unlike the present system of VAT for goods and a separate service tax for services.

CENTRAL EXCISE ACT

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Excise duty is an indirect tax and levied on all excisable goods which are produced or manufactured in India. But power to impose excise duty on certain goods like alcoholic liquors, opium and narcotics is granted to State and such excise is called state excise. The Act, Rules and rates for State excise are different from each State. The Central Excise is levied uniformly all over India in accordance with the provisions of Central Excise Act, 1944 which came into force on and from February 28, 1944.

Central excise is a major source of revenue of the Central Government and it is more than the amount of income tax. Before the enactment of Central Excise Act, 1944 several Acts were used to levy and collect excise duty. In fact, there were 16 such enactments. The manufacturers as well as the excise officers had faced many problems to deal with all such enactments. With an aim to minimize such problems all these Acts were consolidated into a single Act which was known as Central Excises and Salt Act, 1944. This Act is still in force in another name Central Excise Act.

IMPORTANT TERMS
Manufacturing: The true test of excise is manufacturing. It implies a change. Every change is a result of labour, money and manipulation. Though after a series of process something not new emerges, excise duty liability may come into picture. Another concept of manufacturing is known as deemed manufacturing and defined as packing, re-packing, labelling, re-labelling, and adaptation of any other mean to render product marketable and given in Central Excise Tariff Act. y Excisable goods: According to section 2(d) of the Central Excise Act, 1944 , excisable goods means goods specified in First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 as being subject to duty of excise and salt. It is important to mention here that excisable goods do not become non-excisable goods merely because they are exempt from duty by an exemption notification
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Chief features of central excise duty

(a) It is an indirect tax. (b) Central excise duty is levied on all excisable goods produced or manufactured in India (except goods produced or manufactured in special economic zone). y (c) Excisable goods are specified in Central Excise Tariff Act, 1985. y (d) Such duty is levied and collected uniformly throughout India in accordance with the provisions of a specific Act known as Central Excise Act, 1944.
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(e) Taxable event of Central excise is manufacture or production i.e. charge is fixed at the time of occurrence of manufacture or production. y (f) Though taxable event is manufacture or production, duty is payable on the date of removal i.e. clearance from factory. y (g) Excise duty is payable by the manufacturer or producer of excisable goods in certain cases. y There are trade free zones, 100% export oriented companies, special economic zone where there exemption of excise
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Rates of excise duty

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NON POL GOODS:

Goods other than petroleum ,oil and lubricants. Rate is 10% Every assesse has to submit to the superintendent of Central Excise a monthly return in the specified form. For specified situations such as manufacture of goods exempt under a notification, a prescribed declaration and/ or a financial statement needs to be filed

Who is liable to pay Excise Duty?

(a) Every manufacturer is liable to pay excise duty. y (b) Warehouse keeper is liable to pay excise duty if goods are cleared from factory without payment of duty. y (c) In case of molasses the purchaser is liable to pay excise duty.
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Some important notifications

there are 34 zones headed by Chief Commissioners of Central Excise and Customs, who are exercising supervision over the various Commissioners under their charge. y There are 93 Central Excise Commissionarates in the country headed by Commissioners of Central Excise.
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Documents of central excise duty

Excise invoice y Bill of Entry y Excise Invoice of registered first stage dealer y Excise Invoice of second stage dealer y Excise Invoice issued by an importer from his godown or Registered Consignment Agent
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Evolution of central excise tax to CENVAT

VAT was introduced by FRANCE in 1970 y From year 1944, tax on manufactured goods and excisable goods were charged according to central excise duty y From 1986 it was called as MODVAT , later in year 1997 capital goods were included y Capital goods and inputs were put under CENVAT CREDIT RULES in 2001 . Then changing the rules in susequent years of 2002 and 2004
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Introduction to cenvat
Central excise act gives power to central government to make rules: y a) provide for the credit of duty paid or deemed to have been paid on goods used in or in relation to manufacture of excisable goods. y b) provide for giving up credits of sums of money with respect of row material used in manufacture of excisable goods.
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c) provides for credit of service tax leviable under chapter 5 of finance act 1994, paid or payable on taxable services used in or in relation to manufacture of excisable goods

CENVAT CREDIT
When the manufacturer buys raw material to produce finished goods he as to pay excise duty y After producing goods he has to again pay excise duty on finished goods. y Credit can be taken by the manufacturer for example: y If he pays 20000 as excise duty on raw material and 25000 on finished goods then he can avail relief of 20000 and pay only 5000rs
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Cascading effect of conventional system of taxes

Purely based on selling price of a product. y Computation of tax content difficult y Varying tax burden as tax burden depends on number of stages through which a product passes.
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Calculation of cenvat

CENVAT = value of taxable services in X100 previous financial year total value of services

For example
During the financial year 2007-08, if a branch has earned an income of Rs.8,50,000/- from services exempted from Service Tax and Rs.1,50,000/- from taxable Services on which Service Tax is applicable, then ratio for calculating estimat ed CENVAT Credit to be availed will be worked out as under:1,50,000X100
(8,50,000+1,50,000)

= 15%

Difference between vat and cenvat

VAT is levied by State Govt. on sale of goods. It is governed by State Level VAT / Sales Tax acts. y CENVAT is tax on manufacturing or production of goods as described under The Central Excise Act, 1944. levied by central govt. y VAT is based on the difference between the value of the output over the value of the inputs used. y CENVAT meant for reducing the cascade effect of indirect taxes on finished products. The scheme is a more extensive one with most goods brought under its preview.
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