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Central Excise

Course: COMMERCE (CBCS)


Subject: Indirect Tax Laws
Lesson: Central Excise
Lesson Developer : Dr. Minakshi Paliwal
Daulat Ram College, University of Delhi and Ms. Arushi Gaur, Research Scholar, Jamia
Millia Islamia
Reviewers Name: Dr. Gurmeet Kaur
Fellow in Commerce, ILLL Associate Professor, Daulat Ram College, University of Delhi

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Lesson: Central Excise


Table of Contents
1. Learning Outcomes
2. Introduction
3. Central Excise Law and Acts
4. Central Excise Act 1944
5. Levy and Collection of Excise Duty
6. Goods and Excisable Goods - Definitions
a. Goods
b. Excisable Goods
c. Classification of Goods
7. Schedules of Central Excise Tariff Act
8. Manufacture and Manufacturer
9. Calculation of Excise Duty
10. CENVAT Credit
11. Small Scale Industries
Summary
Exercises
Suggested Readings

1. Learning Outcomes:
This chapter will make you clear the following:
The Meaning of excise duty,
various excise law and acts,
meaning of goods and excisable goods,
concept of movability and marketability,
classification of goods,
meaning of manufacture and manufacturer,
how to calculate excise duty, and
concept of Small Scale Industries.

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2. Introduction:
Taxes (derived from Latin word Taxo) are a great source of revenue to the
Government. Taxes (Direct or Indirect) are levied (imposed) and collected by the
authority of law as per Article 265 of India constitution. This Article empowers the
competent authority (Union and State government) to collect these taxes.
As per seventh schedule to the constitution of India consists of 3 lists for setting out
the matters under which the Union and State have power to make laws:
1. List-1(Union List): only central government has power to make laws in these
respects.
2. List-2(State List): only state government has power to make laws in these
respects.
3. List-3(Concurrent List): both state and central government has power to make
laws in these respects.

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Meaning of Excise Duty:


Excise Duty or tax is defined as a type of tax/duty, to be collected from a producer or
manufacturer with regard to the commodities produced or manufactured. The word
Excise duty has been derived from a Latin word called Excisum which denotes to cut
out. An excise duty is a charge on the production or manufacture of goods. Now excise
duty is known as CENVAT (Central Value Added Tax). Entry No. 84 of Union List has
empowered the Union Government to impose Excise duties on Tobacco and other
goods manufactured or produced in India excluding the following:
a. Liquors, making use of alcohol and used for human consumption/utilization. But if
alcohol has been used as a constituent for Medicinal and toilet preparations then
Excise duty has to be imposed on them.
b. Opium, narcotics etc.
3. Central Excise Law and Acts:

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Excise Act was introduced in 1944 known as Central Excise and Sales Tax Act 1944.
But before 1944 there were only 16 individual acts which can be levied excise duty .All
acts that were in existence prior to 1944 were consolidated and a new act called
Central Excise and Sales Tax Act 1944 was formed and this act formally came into
existence on 28th February. 1944. Again in 1966 it was renamed as Central Excise Act.
Broadly, the Central Excise Law comprises the following:
Central Excise Act, 1944
Central Excise Tariff Act, 1985
Central Excise Valuation Rules, 2000
Central Excise Rule 2001 for Removal of Goods at Concessional Rate of Duty for
Manufacture of Excisable Goods.
Central Excise Rules, 2002
CENVAT Credit Rules, 2004
Central Excise Rules 2005 for Compounding of offences
Central Excise Rules, 2007for settlement of cases
Central Excise- Rules 2008 Determination of Retails Sale Price of Excisable Goods)
Central Excise Act, 1944
The Act includes the basic provisions in respect to the levy of excise duty, valuation,
power of authorities, penal provisions etc.
Central Excise Tariff Act, 1985
This Act includes the list of goods which are subject to Central Excise Duty and has 96
chapters and Two schedules.
First schedule contains all excisable goods
Second schedule contains goods selected from the first schedule and make them
subject to additional duty.
Central Excise Valuation Rules, 2000
These are the valuation methods that have been prescribed to evaluate excise duty
wherein transaction value is not determinable under section 4.
Central Excise Rules, 2002
These rules are regarding the procedure for the computation and collection of duty
which consists of other procedures like-mode of payment of excise duty, registration
and maintenance of records, rebate of duty, invoicing, export without payment of
excise duty etc.
CENVAT Credit Rules, 2004
CENVAT Credit Rules, 2004 came into existence after replacing CENVAT-2002 rules
which provide for extending credit across goods and services wherein the procedure
for availing CENVAT credit on goods and services have been mentioned. After the
amendments in 2005, 2006, 2007, 2008, 2009, Now these rules are known as CENVAT
credit (Amendment) Rules, 2010.
Central Excise (settlement of Cases) Rules, 2007

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These rules provide the policy and practice (procedural aspect) for settlement of cases
before the Settlement Commission.
4. Central Excise Act, 1944:
The Central Excise Act, 1944 has following duties:

1. Basic Excise Duty


As per Section 3(1)(a) of this Act basic excise duty, (known as CENVAT with
effect from 12.5.2000) is levied at a specified rate mentioned in 1st Schedule of
Central Excise Tariff Act. The normal rate of central excise duty on non-
petroleum products is 12.5% with effect from March1,2015.
2. Special Excise Duty
As per Section 3(1)(b) of this Act special excise duty, is levied on specific
articles e.g. pan masala, cars etc which have been mentioned in 2nd Schedule
of Central Excise Tariff. Currently, this duty is not applicable.
3. Duty for 100% Export Oriented Undertaking (EOU) and Free Trade
Zone (FTZ)
An undertaking is called as 100% EOU if it has been assigned the status of
100% EOU by the Board appointed by the Central Government in accordance
of the powers bestowed by section 14 of the Industries Act 1951 and the
rules prescribed under that Act. As per rules prescribed, 100% export oriented
undertakings are exempted for excise duty but when these Export Oriented
Undertaking and Free Trade Zone clear their final products in Domestic Tariff
Area (DTA), they have to pay excise duty. This duty is equal to the total of
customs charged on articles as if imported in India. The value of such goods is
determined in the light of provisions of the Customs Act, 1962. If any duty is
chargeable at dissimilar (different) rates, then, such duty shall be charged at
the highest of those rates.
4. Duties under Other Acts:
There are some duties and cesses which are levied or imposed on
manufactured goods under the provision of other acts. The administrative
department of Central Excise is authorized to collect such taxes under the
relevant Acts, levied on manufactured products. These duties are as follows:
1. Additional excise duty on pan masala and tobacco products.
2. Additional duties of excise on certain textile and textile articles as per
additional duty of Excise Act, 1978. Currently, this duty is not applicable.

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3. Additional excise duty on goods of special importance as per additional duty


of excise Act, 1957. Currently, this duty is not applicable.
4. Additional duty on medical and toilet preparations.
5. Additional duty on mineral products.
5. National Calamity Contingent Duty (NCCD):
This duty of NCCD is imposed on products like tobacco (chewing),cigarettes,
pan masala, domestic crude oil and mobile phones imposed as per Section 136
of Finance Act, 2001 .
6. Education Cess (EC) and Secondary and Higher Education Cess (SHEC):
These cesses were applicable before March1, 2015. Now there is no cess on
excise duty and the same is subsumed in the basic excise duty.
7. Clean Energy Cess:
This cess has been introduced on 01-07-2010. Under this duty cess has been
levied on raw coal, lignite and peat raised and dispatched from a coal mine in
India.
Rate of Clean Energy Cess: 50 per tonnes.
Exemption has been granted in respect of goods produced and extracted as per
traditional and customary rights enjoyed by local tribals in Meghalaya without
any license or lease.
8. Other Cesses:
Apart from the above cesses, some other cesses are also leviable on a few
products. Some of these are as follows:
a) Cess on Automobiles,
b) Cess on biris,
c) Cess on tractors,
d) Cess on tobacco,
e) Cess on coffee,
f) Cess on rubber etc.

5. Levy and Collection of Excise Duty:


Levy and Collection of Excise Duty has been prescribed under Chapter II of
Central Excise Act, 1944 and section 3, 4 & 4A deal with charging and collection
of taxes.
Section 3 deals with charging of excise duty
Section 4 explains the valuation methods of excisable goods
Section 4A deals with valuation method based on Maximum Retail Price
(MRP).
Section 3(1) states:
These duties shall be levied and collected in such a manner as may be
prescribed

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a. The goods that have been produced and manufactured in India- a duty of
excise on all excisable goods {excluding goods produced or manufactured in
special economic zone (SEZ)}, are to be levied on the basis of the rates
prescribed for them in the First Schedule to the Central Excise Tariff
Act,1985.
b. A special duty of excise, on excisable goods (excluding goods produced or
manufactured in SEZ) are to be levied on the basis of rates prescribed in
the Second Schedule to the Central Excise Tariff Act, 1985.
6. Goods and Excisable Goods Definitions:
Section 2(d) deals with definition of goods and Excisable goods.

a. Goods:
The term goods has not been defined properly in the Central Excise Act. But
Article 366(12) of the constitution of India define goods as goods includes all
materials, commodities and articles.
Section 2(7) of the Sales of Goods Act, 1930 defines goods as every kind of
movable property other than actionable claims and money; and includes stocks
and shares, growing crops, grass and things attached to and forming part of
the land which are agreed to be served before sale or under the contract of
sale.
UNION OF INDIA Versus DELHI CLOTH AND GENERAL MILLS CO. LTD 1977 (1)
E.L.T(J 199)
As per the judgment of the Supreme Court of India in the above mentioned
case, goods are the article that must be capable of coming in the market to be
bought and sold. Hence Goods should be articles that are movable and
marketable.
The two key features of the term goods are
(a) Movability
(b) Marketability
a. Movability
Manufacture or production is associated with movables.
Immovable property like buildings, bridges are not said to be manufactured or
produced rather they are constructed or built.
According to Section 3(26) of the General Clauses Act, 1897
Immovable property shall include land, benefits to arise out of land, and things
attached to the earth, or permanently fastened to anything attached to the earth.
Therefore no excise duty is charged on building, roads or any other immovable
property.
b. Marketability
Marketability of a product is the capability of a product of being put into the market
for sale Any article, material or substance which is capable of being bought and
sold for a consideration then such gods shall deemed to be marketable. Marketable
only means saleable or suitable for sale. Goods need not be actually sold.

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Excise duty becomes chargeable only if the goods are marketable.


Cases of Marketability
1. C.C.EX Verses Ambalal Sarabhai Enterprises (1989) (43) ELT-214
The Supreme Court made a decision that excise duty can be charged on the
manufacture of goods and for an article to be goods.
The items called as transient items, if they are known in the market as distinct
and separate and have separate uses then these transient items can be
considered as goods. They would still become goods if they were capable of
being marketed during the said short period of their life.
From this verdict it can be said that
a. Life of Goods is not relevant.
b. Actual Sale is not relevant.
Marketable only means saleable or suitable for sale. Goods need not be
actually sold.
2. BHOR INDUSTRIES LTD versus C.C.EX (1989)(40) ELT-280
Prior to Bhor Industries, it was the practice to hold all goods in the Tariff as
chargeable to duty, regardless of marketability.
The Supreme Court argued that it would be necessary to find out whether the
goods are known in the market as separate, distinct and identifiable
commodities.
3. A.P. State Electricity Board versus C.C.E 1994 (70) ELT
To be marketable it is not necessary that there must be large number of buyer.
Whether any goods marketable or not, do not depend on the number of buyers.
Cipla Ltd versus UOI (1990)(46) ELT-240
Karnataka High court has held that for dutiability of a product must pass the
test of marketability. In other words, whether any goods are marketable or not,
it has to be proved by the officer of the department. Marketability has to be
decided on the basis of facts of each case.
On the basis of these verdicts, features of marketable goods can be
summarized as:
Goods that are saleable or suitable for sale, need not actually sold. Goods may
or may not have buyers and the goods be known in the market as separate and
distinct and identifiable.
Marketability is to be decided on the basis of the state in which the good is
produced.

Waste and Scrap are goods.


In Khandelwal Metal and Eng. Works v. UOI the Apex Court said that scrap is
not exempted from duty, if it is known in commercial parlance by that name
and are marketable.

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b. Excisable Goods:
According to Section 2(d) of the Central Excise Act, 1944
Excisable goods means goods specified in the 1st and 2nd Schedule of the
Central Excise Tariff Act,1985 as being subject to a duty of excise and this
includes salt.
CONDITIONS FOR EXCISABLE GOODS:
There are two conditions which are to be satisfied for excisable goods.
1. The goods must be mentioned in the 1st or 2nd schedule to the Central Excise
Tariff Act, 1985 and,
2. The goods so mentioned must be subject to the duty as per the tariff.
Thus, the goods are said to be non excisable if these are not covered in the
Schedules as mentioned.
Thus, we can say that Non-Excisable Goods are:
i. Those which are not listed in Schedules to Central Excise Tariff Act.
ii. Listed in Schedules to Central Excise Tariff Act but no rate is specified for
them.
c. Classification of Goods:
In order to calculate excise duty the goods be identified through headings and
sub-headings and rate of duty under each heading and subheading be
determined. This process is known as classification of products.
Need for Classification:
Classification is important for establishing the applicable duty rate, because
different rates are imposed on different types of goods. Classification is also
needed for the purpose of ascertaining the eligibility to exemptions.

7. Schedule of Central Excise Tariff Act:


First Schedule: First schedule has 96 chapters and 20 sections. It contains the
rates of basic excise duty leviable on various products.
Each chapter is further subdivided into heading and sub-headings on the
basis of different types of goods belonging to same class of products.
Second Schedule- It enumerates the items on which special excise duty is
leviable.
However, w.e.f. 01.03.2006, all goods have been exempted from special excise
duty.
Third Schedule- It also enumerate goods in relation to which packing, re-
packing, labeling, re-labeling, MRP or treatment of goods to render them
marketable shall amount to manufacture u/s 2 (f) (iii) of the Central Excise
Act,1944.
Central Excise Tariff Act, 1985 is based on the Harmonised System Of
Nomenclature. This system is a product coding system which is acceptable
internationally and formulated under the auspices of the General Agreement

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on Tariff and Taxes (GATT).

THIRD
SCHEDULE

Eight Digit Classification System:


With effect from 28.2.2005, the excisable goods are classified by using eight
digit system. Here,

FIRST- 2 digits- these are the chapter numbers of the tariff.


NEXT- 2- digits- these are headings of the goods in that chapter.
NEXT- 2- digits- these are chapter sub-headings.
LAST- 2- digits- these are chapter sub-sub-headings.

Value Addition 1: Illustration

Eight Digit Classification System

3305 90 40 covers Hair Dyes


Here,
33- Chapter 33 cosmetic or toilet preparation
05- Heading preparation for use on the hair
90- Sub-headings other
40- refers to the item hair dyes

8. Manufacture and Manufacturer


MANUFACTURE
The general meaning of manufacture means to make by hand. But, According
to Central Excise Act, 1944; Section 2(f) of the Act states
Manufacture means any process:

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a. Incidental and ancillary to the completion of manufactured products and


b. Which is specified in relation to any goods in the Section or Chapter Notes
of the Schedules of the Central Excise Tariff Act, 1985 as amounting to
manufacture or
c. which in relation to the goods specified in the Third Schedule, involves
packing or repacking of such goods in a unit container or labeling or re-
labeling of containers including the declaration or alteration of retail sale
price on it or adoption of any other treatment on the goods to render the
product marketable to the consumer.

Value Addition 2: Examples

Processes amounting to Manufacture

Making furniture from wood


Making wheat flour from wheat
Obtaining oil from oil seeds
Making fruit juice from fruit pulps
Stitching of clothes

Value Addition 3: Did you know?

Processes not amounting to Manufacture

Painting of Goods
Freezing of water
Upgradation of computer system by increasing the storage
capacity
Peeling of fruits

Manufacture and Processing


Manufacturing:
Manufacturing basically consist a sequence of processes to convert raw materials into
finished goods (product). If there is no indispensable distinction in identity between
the original article and the processed article, then we can say that no manufacturing
has taken place under the laws of excise.
Processing:

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Where the material holds its substantial identity through the various stage of
processing, it can be said that it had not been manufactured but merely processed.
Union of India versus J.G. Glass Industries Ltd. 1998 (097) ELT 0005 (S.C)
The Supreme Court of India (SCI) observed that for concluding a process to be
manufacture two fold test be carried out.
Identity: whether the original identity of the commercial commodity has been
retained or vanished i.e. .whether the identity of the original commodity ceases to
exist or not.
Purpose: whether the existing commodity will serve any purpose or will have no
commercial implications or use for the said process.
Manufacture whether includes Labelling and Packing:
Labelling or packaging of an existing product is different from the manufacturing and
hence mere packaging or labeling in itself cannot be termed as manufacturing of a
product. However, packaging or labeling may be one of the steps in order to
manufacture the final product. According to section 2(f) of the Act, manufacturing
covers incidental and ancillary activities like packaging and labeling also, and are
sometimes a necessary adjunct to manufacture. However, as it is specified in the 3rd
schedule of the Central Excise Tariff Act, the process of packing or repacking of such
goods in a unit container or labeling or re-labelling of containers are considered as
manufacture.
For Example, A Ltd. gets wafers manufactured by B Ltd. and gets in a packing of 10kg.
On receipt of the same, A Ltd repacks the same in a packet of 50gm. Wafers are
included in the Third Schedule. Although A ltd. carriers out only repacking of the
wafers received from B ltd, still it amounts to manufacture and therefore, he is
required to pay duty.
Further, any changes in the retail sale price or adoption of any other treatment or
modification on the goods to cater to the product marketable to the consumer is also
counted as manufacture.

Value addition 4: Did you know?

Basis of Central Excise Tariff

As per the provisions of Section 4A, the goods specified in Third


Schedule of the Central Excise Tariff are valued on MRP.

Deemed Manufacture
The detail provisions of the deemed manufacture are covered under section (u/s)
2(f)(ii) and 2(f)(iii).
According to Section 2(f)(iii) provides that the following processes, which are provided
in relation to the goods specified in the Third Schedule, will also amount to deemed

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manufacture.
Deemed Manufacture:
involves packing or repacking of such goods in a unit container, or
labeling or re-labeling of containers including the declaration or alteration of
retail sale price on it, or
adoption of any other treatment on the goods to render the product marketable
to the consumer.

Value Addition 5: Illustration

Deemed Manufacturer

1. In relation to Audio tapes/ CD etc.,


It is Covered under the heading number 8523 of chapter 85,
Chapter Note 10 mentions that recording of sounds shall amount
to manufacture.
2. In relation to Aluminum Foils
It is covered under heading 7607 of chapter 76, Chapter Note 3
mentions that process of cutting and printing of aluminum foil
amount to manufacture.

Captive Consumption
Those goods which are produced in the factory and used within the factory for the
production of final product is known as intermediate goods or captive consumption.
Excise Duty is chargeable on intermediate goods if they are movable and marketable
in those intermediate stages which are mentioned in Central Excise Tariff Act. But,
under the circumstances where the excise duty is payable on final product, then excise
duty is exempt on intermediate/captive consumption.
Example of Captive Consumption:
Wheat is used in manufacturing of wheat flour and such wheat flour is further used in
manufacturing bread. Here, wheat Flour is immediate goods and their consumption
within the factory of Bread is captive consumption.
Manufacturer
According to Section 2(f), the manufacturer includes:
a. A person who manufactures himself
b. A person who gets the goods manufactured through hired labour
c. A person who does not employ hired labour but still gets the manufacturing activity
done from others under his direction control and supervision. In this case, although
the person does not own a factory nor does the manufacturing process himself, but
he is getting the goods manufactured from others under his direction control and

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supervision.
The Supplier of Raw Material is Not Necessarily a Manufacturer
A person who has carried out the manufacturing process is treated as manufacturer,
irrespective of whether the raw material is supplied by other person. At the same time,
a person shall not be treated as a manufacturer merely because he is the owner of raw
material or he has supplied raw material.
For an example-M/s Adarsh Pickles supplies raw material to several households where
females are usually engaged in making pickles. These ladies make pickles at their
home and supply the same to M/s Adarsh Pickles. In this case, M/s Adarsh Pickles is
only the raw material supplier and not the manufacturer as it does not exercise control
and supervision over the ladies making pickles. The ladies making pickles are the
manufacturer.
Brand Owner is Not Necessarily Manufacturer
Manufacturer is a person who has actually manufactured the goods. The owner of a
brand does not necessarily manufacture goods himself as he might ask other person to
manufacture goods and puts his brand.
For an example-Nilon gets pickles manufactured from Ms Adarsh. Ms Adarsh
manufactures pickles and puts the name Nilon on it. In this case, Ms Adarsh will have
to pay excise duty to the government because he is the person who has manufactured
the goods and not the Nilon.
Relationship is Important
If a person can control the method of doing the work of the other person then
there is a principal agent relationship.
If relationship is on principal-agent basis then the principal shall be
manufacturer.
If the relationship between the supplier of raw material/owner of brand name
and the person doing the process is on a principal to principal basis, then the
person doing the manufacturing process shall be treated as a manufacturer.
In case of the manufacturer being a fake unit, the raw material supplier or the
brand owner shall be treated as the manufacturer.
9. Calculation of Excise Duty
Excise duty can be broadly computed in three ways as per the Central Excise
Act, 1944 and Central Excise Tariff Act 1985.

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9.1 Specific Duty:


It is the duty payable on the basis of weight, length and other measurable etc and it is
very easy to calculate excise duty on the basis of this method.
For example- Excise Duty is calculated as proportion of length of the cigarettes.
But the disadvantage of this method is that if the price of goods increase, duty does
not increase.
9.2 Ad Valorem:
Under this the excise duty is calculated as the percent of the final value of the
goods. On most of the goods excise duty is charged on the basis of ad-valorem.
There are 3 days for calculating value of goods.
a. TARIFF VALUE u/s 3(2)
b. MRP u/s 4A
c. TRANSACTION VALUE
9.2.1. TARIFF VALUE u/s 3(2)
The Central Government by notification may fix tariff values of any articles, chargeable
to duty ad-valorem. Such tariff values may be fixed on the basis of wholesale price or
on the average price of manufacturers as may be considered appropriate by the
government.
If the tariff value is fixed u/s 3(2) then section 4 shall not be applicable.
Example: Central Government has fixed tariff value for jewelry other than silver as 30
percent of the value of the invoice.
9.2.2. MAXIMUM RETAIL PRICE u/s 4A
Under the Legal Metrology Act, 2009, the Central Government is empowered to fix, by
notification specify any goods on which the retail sale price is required to be declared
on its package.

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As per the Packaged Commodity Rules 1977, under the Standards of Weights and
Measures Act, the packaged Commodities are required to have the maximum retail
price on it. Out of such packaged commodities, some of them have been notified by
the Government from time to time to be valued separately u/s 4A of Central Excise Act
1944. Central Government recently grouped up all such notified goods and formed a
Schedule known as Third Schedule. This new Schedule has been appended to Central
Excise Act, 1944.
Valuation as per Maximum Retail Price:
The following is the process under section 4A regarding the valuation as per the
maximum retail price:
1. It is mandatory to have the MRP on notified goods.
2. The MRP declaration is statutorily required.
3. If the manufacturer prints the MRP voluntarily, and not under a legal obligation,
the valuation of such goods need not be made under section 4A.
4. The MRP is used as the basis for calculating the assessable value.
5. Rates of abatement are also notified by the Government. Rates of abatement may
vary for different commodities.
Objectives:
The objectives of valuation as specified u/s 4A are:
a. To discourage the practice by a section of manufacturers offering higher margins to
the retailers by deliberately printing a higher MRP.
b. To increase revenue collection by levying duty on the final valuation after removal
of expenditure like advertisements, transportations, middle mens margins etc.
c. To make the process of valuation simple and also to minimize the litigation
processes.
Rules for the Application of MRP based Valuation:
a. If different MRPs are printed on an article then the highest MRP be taken for the
purpose of valuation of excise duty.
b. In a case where separate MRPs are printed on packages materials for the purpose
of sales at different places, the MRPs from each of such lots are taken for the
valuation purposes. Hence each such consignment is valued separately.
c. If the price is altered by changing the label, etc. the excise duty amount is
calculated on the basis of newly altered price because alteration of price before
removal is considered a process of deemed manufacturer.
9.2.3. TRANSACTION VALUE
Transaction value means sales value, in other words transaction value is the total
amount of sales transaction excluding taxes. According to Section 4 assessable value is
called as transaction Value. The invoice price is considered as base for the purpose of
valuation. If trade discount and freight are payable by manufacturer then he Is
permitted deduction for this amount payable. For the purpose of calculation of sales
value each transaction of sale is valued separately on the basis of its sales value.
All excisable goods except those covered under section 3(2) and section 4A are

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covered under rule 4.


The valuation of goods is made under the section 4 if:
1. The ad valorem rate (according to value) is the basis of calculation of excise duty.
2. Tariff values are NOT notified for the goods u/s 3(2).
3. The excisable goods are NOT notified for valuation u/s 4A.
Cum Duty Price:
It is the price at which excisable goods are sold for price representing sale
consideration without specifying duty separately.
For considering the Transaction value as Sale Value the following conditions should be
fulfilled.
1. The assesse sells the goods for delivery at the time and place of removal.
2. The buyer and assessee are not related to each other in any way.
3. The price is the only criteria of sale.
10. CENVAT Credit
Central Value Added Tax was initially known as MODVAT. Under this tax system, the
manufacturers were entitled to avail credit of the duty paid on inputs used at any
stage in the manufacture of final product. The central government can frame the rules
in this respect.
CENVAT credit and Service Tax Credit Rules were integrated in 2014 to enable the
manufacturer to avail the credit of duty paid on: Input, capital goods and for input
services used in, or in relation to, the manufacture of the excisable goods.
10.1. CENVAT CREDIT SCHEME
For providing the CENVAT credit the following principles are followed:
a. CENVAT scheme is available to manufacturers and service providers.
b. The CENVAT credit constitutes the duties and taxes which have been paid on
inputs, input services and capital goods. However, in case of the capital goods the
CENVAT credit is permissible in two parts i.e. in two financial years @50% each.
c. The CENVAT credit taken can be used for setting off the duties/taxes payable on
the output.
d. Manufacturer is can avail the CENVAT credit for the services and capital goods used
even indirectly. But the same is not true for Service provider. Because service
provider is entitled to take credit only when he uses them directly for providing
output service.
e. For the outputs and output services listed under exempted category, no credit is
made available on inputs and input services.
f. The inputs and capital goods sent to job work the CENVAT credit can be availed.
g. One to one correlation between inputs and outputs need not to be followed while
utilizing the CENVAT credit.
h. The balance outstanding of CENVAT credit cannot be refunded in cash it has not
been utilized.

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i. For taking CENVAT credit and utilizing it, manufacturer or Service Provider has to
submit documentary evidence and comply with the procedures as mentioned.
10.1.2. Basic Procedure under Central Excise
In order to keep a watch and check on production activity a specific method described
below has been prescribed in the Excise Law.
Stepwise procedure is mentioned as under:-
1. Registration (As Per Rule 9)
2. Maintenance of Record (As Per Rule 10)
3. Removal of Excisable Goods( As Per Rule 4(1) )
4. Filling Return (As Per Rule 12)
5. Assessment of Return ( As Per Rule 6 & 7)
1. Registration (As Per Rule 9)
Registration for the central excise is necessary to start any business. The
manufacturers of excisable goods or any person who deals with these goods, have to
get the business registered with the CENTRAL EXCISE Department before starting any
business. However, under the rule 9(2) the Board has the powers to issue a
notification for granting exemption from registration, provided the conditions notified
by the Central Board of Excise and Customs are satisfied.
2. Records Maintenance (As Per Rule 10)
As per Rule 10 every assesse has to maintain proper records. These records should be
preserved by the assessee minimum for a period of previous five financial years.
3. Removal of Excisable Goods (As Per Rule 4(1))
As per the rule 4(1), excisable goods shall not be removed from the place of
production without paying the excise duty. But in exceptional cases the Commissioner
may grant permission for storing the goods at some other place without paying
excise duty, as per Rule 4(4).
4. Return Filing (As Per Rule 12)
Every assessee shall submit the return as per rule 12 on Form No:- ER-1 in a
prescribed format. The return is submitted to the superintendent of Central Excise.
This submitted return contains detail information about the production, removal of
goods and other desired details. The information has to be prepared within 10 days
after the close of the month to which the return relates.
5. Assessment (As Per Rule 6 & 7)
Under this rule (Rule 6) an assessee can assess himself on his own i.e. SELF
ASSESSMENT.
Under this method of self-assessment, the assessee determines the duty payable, at
the time of removal of goods from the factory on the basis of classification of goods
(for tariff) and their value.
11. Small Scale Industries (SSIs)
The industrial growth of Indian economy is directly related to growth of Small scale
Industries. Hence Central Excise Act has provided various concessions to small scale

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industries so that they become competitive in the domestic as well as the global
market. Exemption notification no. 8/2003 have provided these
concessions to SSI.
11.1. Conditions for Small Scale Industries
For the clearance, the average value of all excisable goods produced by SSI, should be
less than four crores during the previous financial year.
e.g., If XYZ Ltd. desires to claim SSI exemption in the year 2015-2016, then the value
of its clearance for the preceding year i.e. 2014-2015 should not exceed 4/ cr. But if
business of XYZ Ltd has come into existence only in the year 2013-2014 then it is not
entitled for any SSI exemption as there is no previous year.
If a manufacturer has cleared the goods from more than one factory, then for the
purpose of providing exemption average value of clearances from all factories will be
considered.
11.2. Eligible Goods
The goods for which SSI Exemption is permissible are mentioned in the list of SSI
exemption. And exemption is permitted to these goods only.
Some products are specifically excluded from the SSI exemption for example tobacco,
matchboxes, gutka & pan masala, and watches.
11.3. Exemptions under SSI
The excisable goods for which notification has been issued are exempted from the duty
if their value is 1.5 crores above in one financial year, if turnover in the immediately
preceding year does not exceed 4 crores.
11.4. Brand Name
Mere use of the brand name on goods manufactured by others does not give
entitlement to a manufacturer on goods manufactured by him.
Hence he shall have to pay normal duty on gods having the brand name of other
persons.
11.5. Exceptions
There are certain cases where a person has put the brand name of the other person;
still he is allowed exemptions on such goods.
1. If factory is located in rural areas
2. For a factory located in urban areas- certain goods like packing material,
account books, registers, writing pads are given exemption.
11.6. Credit Availability
SSI unit can take credit of the duty paid on capital goods even if they were used for
exempted goods but SSI unit cannot take credit of those inputs which have been used
in manufacture of goods on which exemption is claimed.

Summary:
Excise Duty is defined as a type of tax or duty, to be collected from a producer

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or manufacturer for the commodities produced or manufactured by them.


Duties under Central Excise Act are Basic Excise Duty, Special Excise duty, Duty
for 100% Export Oriented Undertaking (EOU) and Free Trade Zone(FTZ) and
many other duties under other Acts.
As per section 2(7) of the Sales of Goods Act, 1930 goods are defined as every
kind of movable property other than actionable claims and money; and includes
stocks and shares, growing crops, grass and things attached to and forming
part of the land which are agreed to be served before sale or under the contract
of sale.
The two key features of the term goods are Movability and Marketability.
As per the section 2(d) of the Central Excise Act, 1944 - Excisable goods
means goods specified in the 1st and 2 nd Schedule of the Central Excise Tariff
Act,1985 as being subject to a duty of excise and this includes salt.
Captive Consumption: Those goods which are produced in the factory and
used within the factory for the production of final product is known as
intermediate goods or captive consumption.
Central Value Added Tax (CENVAT): Under this, the manufacturers were
entitled to avail credit of the duty paid on inputs used during process of
manufacture of the final product.
Central Excise Act has provided various concessions to small scale industries
so that they become competitive in the domestic as well as the global market.

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Short Answer Questions:


1. What is the basic purpose of the CENVAT Credit Scheme?
2. Who all are eligible under the Scheme of CENVAT credit?
3. Is the SSI scheme optional or compulsory?
4. What is the main notification which deals with the matters of SSI exemption?
5. What is specified in the third schedule of the Central Excise Tariff Act, 1985?
Long Answer Questions:
1. Briefly explain the concept of Movable and marketable goods in context to
Central Excise Act?
2. Explain the meaning of Manufacture and Deemed Manufacturer in relation
to the Central Excise Act?
3. What is the Basic Procedures under Central Excise Act?
4. What are the benefits enjoyed by a Small Scale Industries under SSI scheme?

Answers to Short Answer Questions:


1. The taxes paid at input level are allowed to set off against the taxes paid on output
level.
2. The manufacturer of the excisable goods and services are eligible.
3. Optional.
4. Notification Number 8/2003.
5. It specifies deemed manufacture in relation to various specified goods.

Suggested Readings:
1. Datey, V. S. (2016). Central Excise: Law and Practice. Taxmans, 24th Edition.
2. Krishnan, R. and Parthasarthy, R. (2016). Central Excise Ready Recokner.
Commercials, 19th Edition.
3. Jain, R. K. (2016). Central Excise Law Manual. R.K. Jains, 63rd Edition.

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