Excise duty is a type of indirect tax levied on production or manufacture of excisable goods in India. The Excise Duty is collected by Central Board of Excise and Customs (CBEC). In Union Budget of India 2016, an excise duty of 1% without input tax credit and 12.5% with input tax credit has been imposed on the articles of jewellery except silver jewellery. Excise Duty on alcoholic preparations, alcohol, and narcotic substances is collected by the State Govt and is called “State Excise Duty”. The Excise Duty on rest of goods is called “Central Excise Duty” and is collected in terms of Section 3 of the CEA (Central Excise Act), 1944.
|Central Excise Valuation Rules, 2000||Central Excise Duty Forms in India|
The law of Central Excise Duties is governed by the following
- Central Excise Act, 1994
- Central Excise Tariff Act 1985
- Central Excise Rules, 1944
Central Excise Act, 1994:
This is the basic law related to the levy and collection of duties of central excise. However, this Act does not contain the rate at which duties are imposed.
Central Excise Tariff Act, 1985:
This Act classifies various goods on which central excise duties are levied and prescribes the rates at which the duty is payable.
Central Excise Rules, 1944:
All manufacturers of excisable goods are required to register under these rules .The registration is valid as long as production activity continues and no renewals are necessary.
Liability of Goods
Excise Duty is levied if the following conditions are satisfied.
- There must be goods.
- Goods must be excisable (means the goods must be specified in CETA (central excise tariff act)).
- Goods must be manufactured or produced.
- Such manufacture or production must be in India (excluding special economic zone).
Excise Duty Rate – 12.5%
Basic Excise Duty (Section 3(1) of Central Excise Act) = 12%
- Education cess @ 2% of Excise Duty (2% * 12%)
- Secondary and Higher Education Cess @ 1% of Total Excise Duty (1% * 12%)
- Effective rate of duty = 12.36%
As per Budget 2015, basic Excise Duty rate has been changed from 12% to 12.5%. However, Education Cess and Secondary & Higher Education Cess has been removed.
Taxable Event & Liability to pay Excise Duty
Taxable Event: Manufacture or production in India is a taxable event.
Liable to pay duty: Every person who produces or manufactures any excisable goods or who stores such goods in a warehouse shall pay excise duty.
Liable to Excise Duty: (Section 3(1) provides that there shall be levy & collected in such manner as may be prescribed).
- A duty of excise to be called the “Central Value Added Tax (CENVAT)” on all excisable goods produced or manufactured in India.
- Special Duty of Excise in addition to Excise Duty can be levied as per the second schedule to central excise tariff act, 1985.
Goods, Excisable Goods, Movability and Marketability of Goods
Goods: Goods means all articles, materials, and commodities.
- These articles, materials must be movable and marketable.
- In order to movable, it should come into existence and should be capable of being moved to market to be bought & sold.
- Goods must be capable of being sold in the market ordinarily.
Excisable Goods: It means which are specified in the first schedule and second schedule of central excise tariff act 1985.
Exempted Goods: Those goods which are exempted by way of notification by the central government.
Non-excisable goods: Not specified in 1st and 2nd schedule of central excise tariff act 1985 therefore, no excise duty is leviable.
Goods manufactured in India:
Excisable: Two types of Excisable goods are as follows.
- Marketable: Marketable Goods are of two types: Movable and Non-movable. Movable goods are Excise Duty payable whereas for Non-movable goods Excise duty is not payable.
- Non-marketable: There is no Excise Duty for Non-marketable goods.
- Non-dutiable: These are exempted from Excise Duty.
Non-excisable: There is no Excise Duty for Non-excisable goods.
What is Manufacture?
- As specified in court decisions, i.e., New & identifiable product having a different name, character or use.
- Deemed Manufacture:
- Some processes are carried out; goods will be said to be manufactured even if as per court decisions, the process may not amount to manufactured.
- In respect of goods specified in 3rd schedule to central excise act, repacking, relabeling, putting or altering Retail Sale Price (RSP).
Who is Manufacturer?
A manufacturer is a person who actually brings a new and identifiable product into existence.
- Duty liability is on a manufacturer in most of the cases.
- Mere supplier of raw material or brand name owner is not a manufacturer.
Exception: Brand owners liable to pay Excise Duty
In case of readymade garments and made up of articles of textiles manufactured on job work basis liable to pay ED (i.e., person on whose behalf the goods are manufactured by Job workers, namely, owner of raw material)
Classification of Goods
Excise Duty is chargeable on goods which are manufactured in India and are subject to excise duty. However, all goods cannot be charged with the same rate of Duty. Therefore, goods need to be grouped into separate categories and subcategories. This identification of goods through groups and subgroups is known as Classification of Goods.
Valuation of Goods
- Duty based on production capacity: Source products (Pan Masala, rolled steel products) are perceived to be prone to Duty evasion. In case of such products, Central Govt by notification specifying the rate of duty on such products on the basis of production capacity of the factory.
- Specific Duty: It is duty payable on the basis of a certain unit like weight, length, volume, etc.
Duty based on basis of MRP (Maximum Retail Price) printed on product after allowing deductions (section 4A) of Central Excise Act, 1994:
As per Section 4A, MRP provisions will be covered only when the following two conditions are satisfied.
- Goods must be specified under legal metrology Act, 2009.
- Those goods must be mentioned in the notification issued by Government of India with rate of abatement.
Value under CEA (Central Excise Act), 1944:
- Transaction value under Section 4 of CEA.
- The value determined on a basis of MRP as per Sec 4A of CEA.
- Tariff value under Section 3 if applicable.
Essential conditions for application of transaction value are
- Assessee must sell excisable goods.
- The transaction is between unrelated parties, i.e., assessee & buyer are not related parties.
- Price is sole consideration for sale.
- Goods are sold by Assessee for delivery at the time of place of removal. Place of removal means factory, warehouse, Dipo, etc.
As per Section 4, transaction value includes the following
- Marketing and selling expenses etc.
Inclusions in Assessable Value:
- Packing charges
- Desing and engineering charges
- Consultancy charges
- Loading and handling charges
- Warranty charges
- Advt and Sales promotion charges
- After sale service & pre-delivery inspection charges
- Dharmada Charges
- Dealers margin
Exclusions from transaction value:
- Taxes and duties
- Erection, Installation and commissioning charges
- Freight (transportation)
- Advt or public expenditure
- Interest on receivables
- The price of accessories.