Taxation system in India

Direct Taxes

Indirect Taxes

Income Tax

Wealth Tax

Excise

Customs

Sales Tax / VAT

Service Taxes

Taxation system in India

Direct Taxes Indirect Taxes

Tax on property / income, to be paid by the owner / earner

Tax on goods / services, incidence on intermediary but burden on consumers

Direct Taxes Imposed on Persons Progressive based on level of income / wealth (i.e., capacity to pay) Incidence & burden on taxpayer Administrative difficult convenience costly &

Indirect Taxes Imposed on Goods / Services Regressive No relation with income Shifting of burden by taxpayer to consumer Administrative economical convenience easy &

Central Excise

Central Excise Law

Central Excise Act, 1944 Central Excise Tariff Act, 1985 Rules Central Excise Rules, 2002 CENVAT Credit Rules, 2004 Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 The Central Excise Act, 1944 extends to the whole of India.

Excise Duty
Excise duty is a duty on excisable goods produced or manufactured in India.

Basic Conditions of excise liability The duty is on goods.

The goods must be excisable.

The Goods must be manufactured or produced. Such manufacture or production must be in India.

Excise Duty
Types of excise duty Basic Excise duty (CENVAT). Specific Tariff Value Ad veloram Special Excise Duty. Additional duty of excise. Education Cess.

Excise Duty

Levy of excise duty and taxable event Section 3 is the charging section under Central Excise Act, 1944; provides for levy of excise duty on all excisable goods produced or manufactured in India; Production or Manufacture of excisable goods in India is the taxable event;

Relevant date for rate of duty and tariff valuation (Rule 4 & 5 of Central Excise Rules, 2002)
Duty is payable at the time and place of removal of goods Relevant date for determination of rate of duty and valuation shall be the actual date of removal

Liability to pay excise duty is on the manufacturer / warehouse-keeper

Excisable Goods

Excisable Goods means goods specified in the schedules to the Central Excise Tariff Act, 1944 as subject to a duty of excise [Section 2(d)].

Goods has not been defined in the Act. Sale of Goods Act, 1930 Every kind of movable property UIO v. Delhi Cloth & General Mills Co. Ltd. Movability and marketability

Amendment to Section 2 (d) Goods capable of being bought and sold are deemed to be marketable;

Manufacture

Section 2 (f) Inclusive definition : Any process incidental or ancillary to the completion of manufactured product; Specified as deemed manufacture in CETA Repacking / re-labeling / alteration of MRP Specified as amounting to manufacture in CETA

UIO v. Delhi Cloth & General Mills Co. Ltd. Bringing into existence a new substance and not just bringing some change in the substance; Manufacture implies a change but every change is not a manufacture, there must be a transformation, a new and different article must emerge Deemed manufacture Mineral Water, Conversion of powder into tablets or capsules, printing / artwork on glasses, Refined edible oil, Betel Nut (Supari)

Central Excise Basic Concepts

June 5, 2010

Manufacture Some issues

Bleaching, dyeing, printing & mercerizing of textile fabric: Whether duty payable at each time the fabric is subjected to one process, or One time on final clearance of textile fabric after all the process? Held in CCEx V. Textile Corpn. of Marathwada Ltd. (2008) that duty is payable at the final stage.
(Even if paid at each stage, CENVAT Credit available)

Manufacture vis--vis processing Manufacture a result of one or more process; Manufacture implies processing, however, every processing may not amount to manufacture [Parle Products Ltd. and J. G. Glass Industries Ltd.]

Whether packing, labeling and branding amounts to manufacture?

Whether assembly amounts to manufacture? (BPL India Ltd.)

Change in tariff headings

Whether change in tariff heading between the input material and the final output necessary to render finished goods liable to duty? Inputs and final product falling under same heading : Manufacture is a process of bringing into existence a new substance;

Once a new substance commercially known as such emerges, it is exigible to duty;

Therefore, it is irrelevant whether the new article falls into the same tariff heading

Input and final product fall under different tariff headings : Mere change in tariff heading does not mean there is manufacture; The process of bringing the change should amount to manufacture to make product excisable (S R Tissues) To conclude, change in tariff heading is not relevant to determine excisability.

Captive Consumption
Captive Consumption :Use/consumption of goods manufactured in one unit by another unit of the same organisation or related organisation for further processing / manufacturing another product. Duty liability on Captively consumed goods : Duty liability arises on ___________________ ? Status of duty liability on captively consumed goods / goods removed for captive consumption !! Fiction of removal by explanation to Rule 5 date or issue shall be the date or removal. Capitively consumed godds excisable only if other conditions of excisabilty fulfilled (Goods excisable- manufacture). Current position in Excise law Most of the intermediate product exempt from excise duty if the final product is excisable.

Case Cipla Ltd. (2008) mere transfer to another captive unit doesnt establish marketabilty.

Miscellaneous

Waste and Scrap : Waste and scrap liable to excise duty?

Earlier position v. new position ..(liable to duty if movable, marketable, manufactured

and mentioned in the tariff) Waste of exempted goods exempt Scrap arising during manufacture of parts for repair of plans is excisable (Grasim Industries

Ltd. 2008)

Site related activities : Plant and Machinery in a fully manufactured condition removed in a CKD and reassembled at site ; Various parts are purchased/manufactured at site and a new plant and machinery comes into existence; Piece by piece erection of parts into a plant and machinery in immovable manner

Manufacturer
Manufacturer Section 2(f) :-

A person who manufactures goods on his own account;

A person who manufactures goods through hired labour. An independent contractor or job worker may himself be treated as manufacturer in case he exercises control over the activity. Examples Example Raw material supplied for manufacturing goods on Independent job work basis Goods manufactured by job-worker based on designs and specifications and/or trade name of customer In case the customer exercises full control and supervision over the job worker in the above cases Job-worker acting as dummy or there is common source of funding Manufacturer? Raw material supplier OR Job worker? Customer OR Job worker?

Customer OR Job worker?

Customer OR Job worker?

EOU

SEZ and Domestic Tariff Area.

100% Export Oriented Undertaking : Section 3 Duty not chargeable on goods manufactured by a 100% EOU for export out of India

Proviso to Section 3 In case excisable goods manufactured by a 100% EOU are brought to any other place in India, excise duty equal to the aggregate of customs duty which would have been levied in case of import of similar goods, shall be levied.

Valuation of the goods to be done as per the Customs Act

Imp Definitions (Section - 2)

Factory - Any premises wherein any excisable goods are manufactured or any process connected with the production is being carried on.

Wholesale dealer A person who buys or sells excisable goods for the purpose of trade and manufacture.

Sale and purchase Transfer of the possession of goods by one person to another in the course of trade for a consideration.

Broker or commission agent a person who makes contracts for sale or purchase of excisable goods for others.

Excisable goods Goods specified in the schedules to the CETA and subject to a duty of excise and includes salt (Explanation added for deemed marketability in case capable of being bought and sold)

Exercise Relevant date for rate of duty

Example At the time of manufacture Not excisable At the time of clearance 14% duty imposed

Whether duty payable? YES OR NO?

At the time of manufacture Exempted

At the time of clearance Exemption withdrawn and 14% duty restored At the time of manufacture Nil rate of duty At the time of clearance 14% Special duty of excise At the time of manufacture Not liable

YES OR NO?
(Wallace Flour Mills Co. Ltd. case)

YES OR NO?

YES OR NO? (Vazir Sultan Tobacco Co. Ltd. case)

At the time of clearance liable

Exercise computation of duty

Goods manufactured were liable @14% (plus 3% EC); exempted vide a notification at the time of manufacture. Exemption notification withdrawn while clearance of certain goods on 1-3-2010. Certain goods manufactured prior to 1-32010 removed

on 2-3-2010. Value of goods Rs. 3,00,000.

Compute excise duty payable.

Goods manufactured were liable @14% (plus 3% EC); additional duty of excise @

8%. Value of goods Rs. 3,00,000. Compute excise duty payable.

Exercise computation of duty

Amount of excise duty Rs. 300,000 x 14.42% = 43,260

Amount of excise duty Basic Excise duty - Rs. 300,000 x 14% = 42,000 Add. Excise duty - Rs. 42,000 x 8% = EC (42000+3360) - Rs. 45360 x 3% = 3,360 1,361

Total

46,721

Central Excise Classification

June , 2010