8/13/2019 29 Guidance Notes
Accounting Treatment For Excise Duty
The following is the text of the revised Guidance Note on Accounting Treatment
For Excise Duty issued by the Institute of Chartered Accountants of India
1. The Institute of Chartered Accountants of India, had issued a Guidance Note onAccounting Treatment for Excise Duties m 1979. In order to bring uniformit in the
accounting treatment of excise dut and in!entor !a"uation, the Guidance Note #as re!isedin 19$$. %ee&ing in !ie# further de!e"o&ments, !i'., issuance of the re!ised Accounting
(tandard )A(* +, -a"uation of In!entories )#hich has come into effecting res&ect ofaccounting &eriods commencing on or after 1..1999 and is mandator in nature*, it has
been decided to re!ise this Guidance Note again. This re!ised Guidance Notes being issuedin su&ersession of the ear"ier Guidance Note issued in 19$$ and is effecti!e in res&ect of
accounting &eriods beginning on or after A&ri" 1, 1999.
+. This Guidance Note recommends accounting treatment for Excise Dut in res&ect of
excisab"e goods &roduced or manufactured b an enter&rise. A se&arate Guidance Note onAccounting Treatment for /0D-AT sets out &rinci&"es for accounting for /0D-AT )no#
renamed as CEN-AT2.
3. At the outset, this Guidance Note brief" dea"s #ith norma"" acce&ted accounting
&rinci&"es for in!entor !a"uation as &rescribed in re!ised Accounting (tandard )A(* +4-a"uation of In!entories5 issued b the Institute of Chartered Accountants of India, and
nature of excise dut 6or detai"s, reference shou"d be made to re!ised Accounting (tandard)A(* + and Centra" Excise Act, u"es, Notifications and Circu"ars.
Normally Accepted Accounting Principles For Inventory aluation
. Norma"" acce&ted accounting &rinci&"es #ith regard to the !a"uation of in!entories )i.e.
materia"s or su&&"ies to be consumed in the &roduction &rocess or in the rendering ofser!ices, #or8in&rocess and finished goods*, as &rescribed in re!ised Accounting (tandard
)A(* +,-a"uation of In!entories, are re&roduced be"o#:
;. In!entories shou"d be !a"ued at the "o#er of cost and net rea"isab"e !a"ue.
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Norma" ca&acit is the &roduction ex&ected to be achie!ed on an a!erage o!er anumber of &eriods or seasons under norma" circumstances, ta8ing into account the
"oss of ca&acit resu"ting from &"anned maintenance. The actua" "e!e" of &roductionma be used if it a&&roximates> norma" ca&acit. The amount of fixed &roduction
o!erheads a""ocated to each unit of &roduction is not increased as a conse=uence of"o# &roduction or id"e &"ant. ?na""ocated o!erheads are recognised as an ex&ense in
the &eriod in #hich the are incurred. In &eriods of abnorma"" high &roduction, theamount of fixed &roduction o!erheads a""ocated to each unit of &roduction isdecreased so that in!entories are not measured abo!e cost. -ariab"e &roduction
o!erheads are assigned to each unit of &roduction on the basis of the actua" use of
the &roduction faci"ities.
511. 0ther costs are inc"uded in the cost of in!entories on" to the extent that theare incurred in bringing the in!entories to their &resent "ocation and condition. 6or
exam&"e, it ma be a&&ro&riate to inc"ude o!erheads other than &roduction
o!erheads or the costs of designing &roducts for s&ecific customers in the cost ofin!entories.5
Nature O! Excise Duty
;. Excise dut is a dut on manufacture or &roduction of excisab"e goods in India. (ection 3
of the Centra" Excise Act> 19, dea"s #ith charge of Excise Dut This (ection &ro!ides that
a dut of excise on excisab"e goods #hich are &roduced or manufactured in India sha"" be"e!ied and co""ected in such a manner as ma be &rescribed. This &rescri&tion is continued
in the Centra" Excise u"es, 19 #hich &ro!ide that excise dut sha"" be co""ected at the
time of remo!a" of goods from factor &remises or from a&&ro!ed &"ace of storage )u"e9*. ate of dut and tariff !a"uation to be a&&"ied is the one in force on that date, ie., the
date of remo!a" )u"e 9A* and not the date of manufacture. This difference in the &oint oftime bet#een taxab"e e!ent, !i'., manufacture and that of its co""ection has been examined
and discussed in a number of @udgements. 6or instance, the (u&reme Court m the case ofa""ace 6"our /i""s Co. Btd. !s. CCE 119$9 )* EBT ;99 summed u& the "ega" &osition as
4It is #e"" sett"ed b the scheme of the Act as c"arified b se!era" decisions that e!en though
the taxab"e e!ent is the manufacture or &roduction of an excisab"e artic"e, the dut can be"e!ied and co""ected at a "ater stage for administrati!e con!enience. The (cheme of the said
Act read #ith the re"e!ant ru"es framed under the Act &articu"ar" u"e 9A of the said ru"es,re!ea"s that the taxab"e e!ent is the fact of manufacture of &roduction of an excisab"e
artic"e, the &ament of dut is re"ated to the date of remo!a" of such artic"e from thefactor.5
(u&reme Court in another case, !i'., CCE !s. -a'ir (u"tan Tobacco Co. 199< )$3* EBT 3he"d as under:
4e are of the o&inion that (ection 3 cannot be read as shifting the "e! from the stage ofmanufacture or &roduction of goods to the stage of remo!a". The "e! is and remains u&on
the manufacture or &roduction a"one. 0n" the co""ection &art of it is shifted to the stage of
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ma re"ate to a manufacturer, e.g., a sma"" sca"e industria" unit. Exem&tion ma be goodss&ecific, eg., handicrafts are current" #ho"" exem&t from dut. The exem&tion ma a"so be
enduse s&ecific, e.g., goods for use b defence ser!ices. Excisab"e goods can be remo!edfor ex&ort out of India either #ho"" #ithout &ament of dut or under bond or on &ament
of dut under c"aim for rebate of dut &aid.
7. Excisab"e goods, after com&"etion of their manufacturing &rocess, are re=uired to be 8e&t
in a storeroom or other identified &"ace of storage in a factor ti"" the time of their c"earance.Each such storeroom or storage &"ace is re=uired to be dec"ared to the Excise Authorities
and a&&ro!ed b them. (uch storeroom or storage &"ace is genera"" referred to as aonded (toreroom. Dutiab"e goods are a"so a""o#ed, [email protected] to a&&ro!a" of Excise
Authorities, to be remo!ed #ithout &ament of dut, to a onded arehouse outside
factor. In such cases, excise dut is co""ected at the time of c"earance of goods from suchonded arehouses.
$. Amount of excise dut forming &art of the sa"e &rice of the goods is re=uired to be
indicated se&arate" in a"" documents re"ating to assessment of dut, e.g., excise in!oice
used for c"earance of excisab"e goods )(ection 1+A*. It is, ho#e!er, o&en to a manufacturerto reco!er excise dut se&arate" or not to ma8e a se&arate reco!er but charge a
conso"idated sa"e &rice inc"usi!e of excise dut The incidence of excise dut is deemed to be
&assed on to the buer, un"ess contrar is &ro!ed b the &aer of excise dut )(ection 1+*.
Excise Duty As An Element O! Cost
9. In considering the a&&ro&riate treatment of excise dut for the &ur&ose of determinationof cost for in!entor !a"uation, it is necessar to consider #hether excise dut shou"d be
considered different" from other ex&enses.
1F. Admitted", excise dut is an indirect tax but it cannot> for that reason a"one, be treated
different" from other ex&enses. Excise dut arises as a conse=uence of manufacture ofexcisab"e goods irres&ecti!e of the manner of use dis&osa" of goods thereafter, e.g., sa"e,
destruction and ca&ti!e consum&tion. It does not cease to be a "e! mere" because the
same ma be remitted b a&&ro&riate authorit in case of destruction or exem&ted in casegoods are used for further manufacture of excisab"e goods in the factor. Tax )other than a
tax on income or sa"e* &aab"e b a manufacturer is as much a cost of manufacture as another ex&enditure incurred b him and it does not cease to be an ex&enditure mere"because it is an exaction or a "e! or because it is una!oidab"e. In fact, in a #ider context
an ex&enditure is an im&osition #hich a manufacturer #ou"d "i8e to minimise.
11. Excise dut contributes to the !a"ue of the &roduct. A dut &aid &roduct has a higher!a"ue than a &roduct on #hich dut remains to be &aid and no sa"e or further uti"isation of
excisab"e goods can ta8e &"ace un"ess the dut is &aid. It is, therefore, a necessar ex&ense
#hich must be incurred if the goods are to be &ut in the "ocation and condition in #hich thecan be so"d or further used in the manufacturing &rocess.
1+ Excise dut cannot therefore be treated different" from other ex&enses for the &ur&ose
of determination of cost for in!entor !a"uation. To do so #ou"d be contrar to the basic
[email protected]!e of carring for#ard the cost re"ated to in!entories unti" these are so"d or
13 As stated in &ara < abo!e, "iabi"it to excise dut arises e!en on excisab"e goods
manufactured and used in further manufacturing &rocess. In such a case excise dut &aid )if
the same is not exem&a