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Central Excise Duty

An Exercise tax/duty is a type of tax levied on certain goods and commodities that are produced or sold within the country and on licenses granted for certain activities. It is the tax on production or manufacturer or sale of goods. Commodities cover a wide range of consumer and industrial products except those which are deliberately excluded.

Objects of Central Excise Duty

i. ii. iii. iv. v. vi. vii. To raise revenue To achieve a socio economic objective Price control Ensure efficiency supply of essential commodities For industrial growth Promotion to small scale industries Discourage the production of certain commodities

Chargeability of Excise Duty

i. Excise duty is levied on production of goods but the liability of excise duty arises only on removal of goods from place of storage ii. Excise duty is paid even if the duty was paid on the raw materials used in production. iii. Excise duty is levied on government undertakings also. For ex: Railways is liable to duty on the goods manufactured by it iv. Excise duty is an expense while calculating the profits in accounting.

Laws or provisions relating to Excise Duty

i. ii. iii. Central Excise & Salt Act 1994 Central Excise Rules Central Excise Valuation Rules 2000

iv. v. vi.

Notification Central Excise Tariff Act 1985 CESTAT Rules 1982

1. Central Excise & Salt Act 1994: This is the basic act providing for the charging of duty valuation power of officers, provisions for arrest, penalty etc. The name Central Excise Salt Act 1994 and the word Salt was dropped in 1996. 2. Central Excise Rules: These rules are noticed by central Govt. These rules provides for various procedures to be followed, clearance, storage and accounting for goods, registration procedure, Central provisions, refund provisions, export procedure etc. Earlier CE rules 1994 was replaced by new set of rules w,e,f 1.7.2001. they are: CE Rules 2001 CENVAT Credit Rules 2001 Central Excise Rules 2001 3. Central Excise Valuation Rules 2000: For the purpose of determining value of goods or charging excise duty. 4. Notification: U/s 5A or 11C of CEA, Central Govt has been granted power to issue notification for granting partial or full exception from time to time. Each of such notification has to be approved by parliament and such rules and notions are treated as a part of the Act itself. 5. Central Excise Tariff Act 1985: since it is essential to prescribe different duties for different type of products, it is necessary to classify the items under different heads. Indian Constitution has given powers to Central Govt and State Govt to levy various tax and duties. Powers of Central Govt and State Govt are enlisted in 7th Schedule of our constitution. Power to impose excise on alcoholic liquors, opium and narcotics is granted for states.

Basic Conditions of Excise liability:

There are 4 basic conditions for levy of Central Excise Duty i. The duty is on goods.

ii. iii. iv.

The goods must be excisable The goods must be manufactured or produced. Such manufacturing or production must be in India.

Unless all of these conditions are satisfied, Central Excise Duty cannot be levied.

Valuation under Central Excise:

Basis of calculation of duty payable: Excisable duty is payable on one of the following basis. a. Specific Duty: here duty is based upon certain physical characters like weight, length, colour, thickness etc. Ex: duty on sugar, marble slabs and tiles. b. Duty as percentage of tariff value fixed under section 3(2) c. Duty based on annual production capacity u/s 3A wef 10th may 2008. For Ex: rolled steel products. d. Duty based on MRP printed on carton after allowing deductions under section 4A of CEA. e. Duty as percentage based on assessable value under section 4 (ad valorem duty) Specific Duty: It is the duty payable on the basis of certain unit like weight, length, volume; thickness etc for ex duty on sugar is based on per kg basis. In such cases calculation of duty is comparatively easy. In view of simplicity many goods were covered earlier under specific duty. Tariff Value: It is the nominal value fixed by the Govt for different class of goods on the basis of wholesale price or average sale price. This is the notional value for the purpose of calculating the duty payable. Govt can fix different tariff value for different classes of goods or goods manufactured by different classes sold to different classes of buyers. When tariff value is prescribed under the law, the value will form the basis for assessment. Duty on basis of production capacity:

Section 3A of Central Excise act provides for payment of duty on basis of production capacity, without any reference to actual production. For ex: rolled steels products are perceived to be prone to duty evasion. In case of such products, Central Govt, by notification, can issue notification specifying that duty on such notified products will be levied and collected on the basis of production capacity of the factory.

Compound Levy Scheme: Normal Excise procedures and controls are not practicable when there are numerous small manufacturers. Central Govt may specify the goods in respect of which an assessee shall have option to pay duty of excise on the basis of specified factors relevant to production of such goods and at specified rates. Central Govt can specify procedure for payment, abatement allowable, interest and penalty payable etc. it is an optional scheme ie the manufacturer can opt to pay duty as per normal rules and procedure also. Advalorem duty u/s 4CEA: Fixing specific duty of value is possible only for few selected items ike sugar, consumer goods etc, and not for use items. Generally, it is not applicable to fix specific duty on tariff value for numerous products; similarly paying duty on basis of MRP is possible only in respect of few selected commodities. In such cases CED is payable on the basis of value. This is called as Advalorem Duty,

Meaning of Goods:
The word goods has been defined under the article 366(12) of constitution and not defined under CE Act. Articles 366(12) defines goods as Goods includes materials, commodities and articles. The word goods for the purpose of levy of ED must satisfy two requirements. 1) Must be movable not attached to earth. 2) They must be marketable capable to being bought or sold. For Ex: Gas, Electricity, Sub-standard goods, Intermediate goods, by products Articles which are not considered as goods: 1) Goods having very short life for ex: vegetables, fruits etc 2) Immovable properties attached to land.