EXCISE DUTY

BY-

KULDEEP AGRAWAL

(MT14IND010)

VNIT

OBJECTIVES OF PRESENTATION

• Introduction

• Why there is need of excise duty ?

• Type of excise duty.

• On what event excise duty is imposed.

• Who is need to pay excise duty.

• Calculation of excise duty

• Present excise duty rates and laws in India.

• Procedure of payment of excise duty

Introduction

Key taxes subsumed

Direct Tax Indirect Tax

TAXES

Taxes are conventionally broadly classified as Direct tax and Indirect taxes. Direct taxes are those that taxpayer pays directly from his income/wealth/Estate etc. indirect taxes that the taxpayer pays indirectly while purchasing goods and commodities, paying for services etc. in case of indirect taxes one person pays them but he recovers the same from another person . Thus a customer actually bears the tax burden.

DIRECT TAX

Gift & wealth

tax

Income Tax

INDIRECT TAX

• EXCISE DUTY- An excise duty is a type of tax charged on goods manufactured or produced within the country (as opposed to customs duties, charged on goods from outside the country).

• Excise duty is levied on production of goods but liability of excise duty arise only on removal of goods from the place of storage, i.e. factory or warehouse. Excise duty is imposed according to some central laws.

Need of excise duty

• Justice Holmes of US Supreme Court has long ago rightly said that Tax is the price, which we pay for a civilized Society.

• Taxes are collected in two broad form direct and indirect. As tax payers does not feel a direct pinch while paying indirect taxes , resistance to indirect taxes is much less compared to resistance of direct taxes. Manufacturers/ Deale psychology also favors indirect taxes because they feel that they only collect the tax & not pay the tax. Indirect taxes are easier to collect & tax evasion is comparatively less in Indirect taxes(excise duty etc.).

Central excise laws

• Central excise act, 1944• Central excise tariff act(CETA), 1985• Union budget for excise duty of that

period(tariff)• CENVAT credit rules, 2004

Central excise act ,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.

• Objectives-o To collect excise duty on manufactured goods more

conveniently.o To avoid tax evasion by appropriate control measures.o To collect high revenues.

Central excise tariff act, 1985

o This Act classifies various goods on which central excise duties are levied and prescribes the rates at which the duty is payable.

o CETA has various sections and chapters .o There are 20 Sections in CETA .o There are 96 chapters in CETA . Each section has various

chapters. A section relate a class of goods e.g.,o Section – I is ‘Animal Products’, Section – XI is ‘Textile

Products’, Section –o XVII is ‘Vehicles, Aircraft, Vessels and Other Transport

Equipments’.

CETA

• Each Chapter is further divided into headings and headings are divided into sub-headings, e.g., Chapter 50 of silk has 5 headings:

o 50.01 Silk and Cocoonso 50.02 Raw Silko 50.03 Silk Wasteo 50.04 Silk Yarn

Following is broad grouping of goods in CETA:

1. Animal Products (Section I - Chapters 1 to 5)

2. Vegetable Products (Section II - Chapters 7 to 14)

3. Animal or vegetable fats (Section III - Chapter 15)

4. Prepared foodstuffs, beverages (Section IV - Chapters 16 to 24)

5. Mineral Products (Section V - Chapters 25 to 27)

6. Chemicals, Fertilizers, soap etc. (Section VI - Chapters 28 to 38)

7. Plastics and Rubber and their articles (Section VII - Chapters 39 and 40)

8. Leather and articles (Section VIII - Chapters 41 to 43)

9. Wood, cork, straw and their articles (Section IX - Chapters 44 and 46)

Pulp, Paper, Paper-board and articles (Section X - Chapters 47 to 49)

11. Textile and Textile Products (Section XI - Chapters 50 to 63)

12. Footwear, Headgear, Umbrellas, Articles of human hair (Section XII -

Chapters 64 to 67).

Conti…..

13. Articles of stone, plaster, ceramic, glass (Section XIII - Chapters 68 to70)

14. Pearls, precious metals (Section XIV - Chapter 71)

15. Base metals and articles of base metal (Iron, Steel, Copper, Nickel,

Zinc, Tin etc.). (Section XV - Chapters 72 to 83)

16. Machinery and mechanical appliances, electrical equipments,

television etc. (Section XVI - Chapters 84 and 85)

17. Vehicles, Aircrafts, vessels (Section XVII - Chapters 86 to 89)

18. Optical, photographic, medical, surgical instruments, clocks, musical

instruments (Section XVIII - Chapters 90 to 92)

19. Arms and Ammunition (Section XIX - Chapter 93)

20. Misc. Manufactured articles like Furniture, toys etc. (Section XX -

Chapters 94 to 96)

CENVAT credit rules, 2004

• CENVAT Credit is a credit of duty paid on raw materials, capital gods and services used in relation to manufacture of excisable goods or in relation to services provided on which Service Tax is payable.

• This credit is available on input goods, input services and capital goods.

o Input goods-All goods (except High Speed Diesel Oil [HSD], Light Diesel Oil [LDO] and petrol) used in, or in relation to, the manufacture of the final products. The input may be used directly or indirectly in or in relation to the manufacture of final product. The input need not be present in the final product.

Conti….

• Input service -Setting up, modernization, renovation or repairs of factory, premises of provider of output service or an office relating to such factory or premises , Advertisement or sales promotion, Market research , Storage up to the place of removal , Procurement of inputs.

• Capital Goods-Tools, hand tools, knives, etc. falling under chapter 82. Machinery covered under chapter 84. Electrical machinery under chapter 85. Measuring, checking and testing machines, etc. under chapter 90. Moulds and dyes, Refractory and refractory material Tubes, pipes and fittings thereof, used in the factory Storage tank

TYPES OF CENTRAL EXCISE DUTIES Basic 

Excise Duty, imposed on all excisable goods other than salt produced or manufactured in India This duty is levied at the rates specified in the First schedule to Central Excise Tariff Act 1985

Special 

Some commodities like pan masala and cars have special excise duties levied on them .These items are covered under in schedule II to the Central Excise Tariff

Additional 

Charged on goods listed in schedule III. This tax is shared between the central and state governments and charged instead of sales tax.

• Excise duty on clearances by 100 % EOUs 100 per cent Export –oriented Units are expected to export all their production .However ,if they clear their final product in the domestic tariff area , the rate of excise duty will be equal to that of the customs duty on like article imported in India.

• Education cess on excise duty- education cess is a duty of excise that has to be calculated on all aggregate of all duties of excise, including special on any other duty of excise. Mostly it is 2% of excise duty.

Taxable event for central excise duty

• Taxable event for charge of duty of central excise is the manufacturer or production of goods in India

• Taxable event means the stage when tax is levied/applied Manufacture or production in India is the stage of levying tax. However, the government, at the time, when the goods are removed from the factory, i.e. goods are taken out from factory, collects tax.

Liability for central excise

Four condition must be present for the charge of central excise duty:

1.The duty is on goods

2.The goods must be excisable

3 .The goods must be manufactured or produced

4.Such manufacture or production must be take place in India

Conti….For an item to be considered goods for the purpose of the

levy of central excise duty ,it must satisfy two requirements:

1.Movability

Goods must be movable . Duty cannot be levied on immovable property , cannot imposed on plant and roads, bridges and buildings.

2.Marketability

Goods must be marketable .The goods must be known in the market and must be capable of being bought or sold.

Conti….

Therefore we can say that excise duty is not levied on:1) Services such as doctors treating the patients,

accountants preparing the accounts, in these cases service tax are levied.

2) Immovable goods such as roads, bridges and buildings.

3) Non-Marketable goods, i.e., goods for which no market exists, e.g.,

melted iron ore at 1600 degree Celsius.

4) Goods that are not mentioned in CETA.

5) Goods manufactured or produced out of India.

• For the liability of duty of central excise to arise , the item in question should not only be goods it should also be excisable goods .A goods become excisable if and only if it is mentioned in the Central Excise Tariff Act 1985.

• the date of its actual production is not relevant Excise duty applicable on the date of removal shall be actual rate of excise duty to be paid.

Who is liable to pay excise duty• The central excise duty is a tax on manufacture or

production of goods .Hence the liability to pay excise duty lies on manufacturer or the producer

• Levy means imposition and assessment but does not include collection of tax. Thus, duty is levied as soon as taxable event occurs, but collection can take place anytime - before, at the time or even after the taxable event.

• Duty is payable by the manufacturer or producer of excisable goods. In case where goods are allowed to be stored in a warehouse without the payment of duty, the duty liability is of the person who stores the goods.

Calculation of excise duty

• Valuation of Goods-o Specific duty, based on some measure like weight,

volume, length, etc.o Duty as of Tariff Value o Duty based on Maximum Retail Price printed on

carton after allowing deductionso Compounded Levy Schemeo Duty as a % on Assessable Value fixed u/s 4 (ad

valorem duty

• Specific Duty-It is a duty payable on the basis of certain unit like weight, length, volume, thickness, etc. Calculation of duty payable is comparatively easy. In view of simplicity, many goods were covered under “specific duty”.

• the disadvantage is that even if selling price of the product increases, the revenue earned by Govt. does not increase correspondingly. Hence, most goods are covered under “Ad valorem” duty.

• Presently, specific rates have been announced for - Cigarettes (length basis), Matches (per 100 boxes / packs), Sugar (per quintal basis), Marble slabs and tiles (square meter basis), Color TV when MRP is not marked on package or when MRP is not the sole consideration (based on screen size in cm)Cement clinkers (per ton basis), Molasses resulting from extraction of sugar (per ton basis)

• Tariff Value- tariff value is fixed by the Govt. from time to time. This is a “Notional Value” for purpose of calculating the duty payable. The tariff value may be fixed on the basis of wholesale price or average price of various manufacturers as the Govt. may consider appropriate. Provision of fixing tariff value is used very rarely as frequent changes become necessary when prices rise.

• Presently, tariff values are fixed for - Pan masala packed in retail packs of less than 10 gm per pack, Tariff value of readymade garments falling under heading 6101.11 or 6201.00 has been prescribed as 60% of the retail sale price of such goods as specified on the package.

• Compounded Levy Scheme- Central Govt. may, by notification, specify the goods in respect of which an assesses shall have the option to pay Excise duty on the basis of specified factors relevant to the production of such goods and at specified rates. This is termed as “Compounded Levy Scheme”.

• Under this scheme, the manufacturer has to pay prescribed duty for specified period on the basis of certain factors relevant to the production, like the size of equipment, etc. After making the lump-sum periodic payment, the manufacturer does not have to follow any procedure of excise regarding storage and clearances of goods.

• Presently, this scheme is applicable to stainless steel pattas / pattis and aluminum circles.

MRP –based valuation- Some manufactures had started the practice of central excise by resorting to some questionable practices .In order to check these malpractices ,a new basis of valuation was introduced ,that is ,the maximum ratail price(MRP)-based valuation

• While allowing such abatement, Central Govt. shall take into account excise duty, sales tax and other taxes payable on the goods

• The “retail sale price” should be the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packaging, forwarding charges, etc. If under certain law, MRP is required to be without taxes and duties, that price can be the “retail sale price.”

• Duty based on Value-Excise duty is payable on the basis of value called “ad valorem duty” assessable value” when duty of excise is chargeable on excisable goods with reference to value will be “transaction value”

• Inclusions in Transaction Value- Packing charges Design and Engineering charges ,Consultancy charges relating to manufacturing Compulsory after Sales Service / service in warranty period, Pre-delivery inspection charges for vehicles Loading and handling charges within the factory Royalty charged in franchise agreement

• Assessable value= sales price less deduction/(1+rate of duty)

valuation shall be done on the basis of cost of production plus 10%

Direct material cost + Direct labor cost + Direct expenses = Prime Cost

Prime Cost + Production Overheads + Administration Overheads + R&D Cost (Apportioned) = Cost of Production

Cost of Production + Selling Cost + Distribution Cost = Cost of Sales

Cost of Sales + Profit = Selling Price

Example

• If the sales price of a good is Rs. 10, which includes the cost of bottle of Rs. 2and the excise duty of 16% plus 2% education cess. The assessable value?

• Assessable value = Price Less Deduction – Allowable deductions/ (1+ rate of duty)

• Assessable Value = (10 – 2) / (1+0.1632) = Rs.9.54

Present excise duty rates and laws ,rules in India

• Central excise laws &Rules applicable- the Central Excise Act, 1944 Central Excise Tariff Act, 1985 CENVAT Credit Rules, 2004 Central Excise Rules, 2002 Central Excise Valuation Rules, 2004

Rates• The excise duty is raised from 12.36 to 12.5%• Excise duty is being reduced from 12% to Nil on forged steel rings used in the

manufacture of bearings • Full exemption from excise duty is being provided on flat copper wire used in the

 manufacture of PV ribbons (tinned copper interconnect) for use in the manufacture of solar  cells or modules. 

• Excise duty on machinery for the preparation of meat, poultry, fruits, nuts or vegetables, and  on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit  juices or similar beverages and on packaging machinery is being reduced from 10% to 6%.

• Full exemption from excise duty is being granted in respect of machinery, equipments, etc.  required for initial setting up of solar energy production projects

• To incentivize expansion of processing capacity, reduction in excise duty on specified food processing and packaging machinery from 10 percent to 6 percent. 

• Excise duty increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco. And many more…

Procedure of payment of excise duty

• Daily Stock Account of Stored Goods (DSA)-A daily stock has to be maintained by every assesses in a legible manner, indicating particulars regarding Description of goods manufactured or produced, Opening balance Quantity manufactured or produced Inventory i.e. stock of goods Quantity removed, Assessable value ,Amount of duty payable Particulars regarding to duty actually paid.

• Invoice shall be in triplicate and should be marked as follows- Original for Buyer , Duplicate for Transporter, Triplicate for

Assesses

Procedure of payment of excise duty• Goods cleared from factory are cleared under an invoice. Duty is

payable on monthly basis by 5th of the next month in which duty payment becomes due, i.e., the month in which goods are cleared from the factory. Duty is paid through current account called PLA and /or Central Value Added Tax Credit ,i.e., CENVAT Credit.

• Small Scale Industry (SSI) is required to pay the duty by 15th of the next month. However, the duty for the month of March is paid by 31st March itself not on 5th of next month i.e., 5th of April because government accounts closes on 31st March.

• Duty is paid by assesses through current account known as PLA (Personal Ledger Account). The PLA is credited when duty is paid i.e., deposited in the bank by filling a challan called TR-6 on monthly basis. Only excise duty paid comes in PLA the items like fine, penalty, interest does not appear in PLA.

Thank you

QUESTIONARE

• What is excise duty? It’ s role in manufacturing industry?

• What are the type of excise duty?• On what event and on who excise duty is

imposed?• How the valuation of excise duty is done on

goods? Give any three methods.• What is the Procedure of payment of excise

duty?