Excise Duty

Central Excise Act, 1944 (CEA) This is the basic Act providing for charging of duty,valuation, powers of officers, provisions of arrests, penalty, etc. Central Excise Rules Section 37 (1) of the Central Excise Act grants power to Govt. to frame rules to carry into effect the purposes of Central Excise Act. Rules can make provision of penalty and prosecution. Section 38 of CEA provides that the rules should be made by issue of a notification. The rules should be placed before Parliament for 30 days when Parliament is in session.

Notifications : Central Govt. has been granted power to issue notification for granting partial or full exemptions from excise duty. Central Excise Rules also provide for issue of notifications . Each Rule and Notification has to be placed before each House of Parliament for a total period of 30 days. If Parliament decides to amend any of such rule or notification, it will have effect in modified form. Otherwise such rules or notifications will continue to be effective. The rules and notifications are treated as part of the Act itself and it has full legislative backing.

Action under notification or rule can be taken even if rule/notification is amended Even if any rule, notification, regulation or order is amended or rescinded; rights acquired and liabilities incurred during the period when the rule/notification/ regulation/ order was in force, will continue. Thus, a demand can be raised for the period rule was in force, even after such rule/ notification is rescinded.
Central Excise Tariff Act, 1985 (CETA) CETA, 1985 classifies all the goods under 96 chapters and specific code is assigned to each item. This classification forms basis for classifying the goods under particular chapter head and sub-head to prescribe duty to be charged on that particular product.

CESTAT (Procedure) Rules, 1982 Customs, Excise and Service Tax Appellate Tribunal Rules, 1982, made by CESTAT, prescribe procedure of filling and hearing appeals to CESTAT.
NATURE OF EXCISE DUTY

Entry No.84 of list I of Seventh Schedule to the Constitution reads as follows: Duties of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, opium, narcotics, but including medical and toilet preparations containing alcohol, opium or narcotics.

Section 3 of CEA states that There shall be levied and collected in such manner as may be prescribed duties on all excisable goods which are produced or manufactured in India. Basic Excise Duty (BED) and Special Excise Duty (SED) are levied under section 3 of CETA, 1985. There are four basic conditions for levy 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 in India.
Unless all of these conditions are Satisfied, Central

Excise Duty cannot be levied

Goods manufactured in SEZ are excluded excisable goods

Goods manufactured or produced in SEZ are excisable goods but no duty is leviable, as section 3(1) excludes those goods. Thus, the goods manufactured in SEZ are not exempted goods. They can be termed as excluded excisable goods.

Meaning of word levy

Section 3 uses the words levy and collection. Article 265 of Constitution also uses the same words. Levy means imposition of tax. Once a tax or duty is imposed, it has to be quantified and then collected. Once a duty is levied, it has to be collected. It cannot be collected unless the duty is quantified. Hence, normally, levy should cover imposition, assessment and collection. When goods are produced or manufactured, even if it is not sold in market, excise duty is levied.

01.

Condition to Levy Excise Duty Duty is on Goods:

To levy Excise Duty, goods should be movable and marketable, goods should be capable of being brought and sold in the market. Actual sale is not necessary.(saleable or suitable for sales) Actual open market is not necessary.

 When goods are consumed within the factory and

duties is levied on captive consumption, Goods are given as free samples Goods are given for free replacements
Excise Duty is levied only when the goods satisfy

the test of movability and marketability, marketability implies regular market for a product.

 To levy Excise Duty, article must satisfy 2

requirements to be GOODS (a) it must be movable (b) it must be marketable e.g of goods: Gas, steam electricity, substandard goods, By- products, intermediate goods, drawing and design of goods.
Machinery waste and scrap will be considered as goods, if it is marketable.
The waste and scrap should be mentioned in

CETA i.e. goods should be excisable.

What are not goods?

Immovable goods are not considered as goods.

For eg; Roads, bridges, dams. Goods having very short life or perishable goods, if not marketable for. E.g. Yeast, if it is not marketable within 8 hours, it is not considered as goods.
Plant and machinery absorbed and erected at

site cannot be treated as goods, if it is not movable and marketable as it is. Erection and installation of plant is not excisable.

02.

Excisable goods:

Essential requirement is goods must be excisable. The goods that are mentioned in CETA 1985. The goods are excisable even if they are exempt from duty. (duty rate is Nil) Goods that are manufactured in SEZ called Excluded Excisable Goods. Goods not include in CETA are called Non-Excisable Goods. E.g flower, vegetable, fish, flour etc.

Mere mention in CETA is not enough incase (a)if it is exempt from duty. (b)If it is not marketable.
In both cases, even goods excisable, No duty levied.

Definition of Excisable goods

Sec 2(d) of CEA 1944 defines excisable goods as goods specified in the schedule to Central Excise Tariff Act (CETA)1985 as being subject to a duty of excise and includes salt.
should be manufactured and

03. Goods produced:

Excise is a duty on manufacturer or production

of goods in India. If there is no manufacturer there is no Excise Duty.

Manufacture: Manufacture means Manufacture as specified in various court decisions i.e. new and identifiable product having a distinctive name, character or use must emerge or Deemed manufacture Examples : Manufacture takes place only when process results in commercially different article. For e.g. Manf. of table from wood, conversion of sugarcane into sugar, conversion of crude diamond into jewellery, assembling of computer, making pan masala, conversion of pulp into base paper. New distinct name, character or use must emerge. Identity of original article should be lost. Assembly of parts and components can be manf. if new product emerges which is movable & marketable. Commodity should be fit for commercial use.

Assembly of Completely Knocked Down Packs

(CKD) and Semi-Knocked Down Pack (SKD) for convenience of dispatch is not manufacturer . For eg: unassembled or dismantled product for the purpose of transportation is not manufacture. For eg: cycle manufacturer dispatch cycles in unassembled condition from factory. No Manf. Assembly at site of computer components sent as set in semi-knocked down condition is not manufacture. Conversion of timber logs into small timber is not manufacture as no product emerges.

Manufacture has taken place

Processing of commercial plywood Coffee beans from raw coffee berries Roasting,salting spicing of nuts is manufacture

Cotton seed from unginned cotton

Oil from oil seeds Cutting of fabrics to make bed sheets

Wheat to wheat flour

Stitching of cloths Making masala powder

What is not manufacture

Testing/ quality control Printing on glass bottle Upgradation/modification is not manufacture Cutting of steel rod

Processing fish is not manufacture

Deemed Manufacture : Two Types : a) CETA specifies some processes as Amounting To Manufacturer. b) In respect of goods specified in 3rd Schedule to CEA.

a) Processes Amounting to Manufacturer:

Labeling ,relabeling of containers and repacking from bulk packs to retail packs or application of any other treatment to render the product marketable to the consumer shall amount to manufacture. eg: Putting stickers on goods to indicate MRP is manufacture as label is required to make goods marketable (i.e. stickers on imported medicines)

 Dairy products like milk, cream, butter, cheese

Coffee, tea, spices

Meat, fish etc. vegetables, fruits, nuts Pan masala, natural or artificial mineral water, yeast, soups,

sauces Tobacco, Cigar, Cigarettes Perfumes and beauty preparation for use on the hair Recording of sound on Audio or Video tapes Galvanizing articles of Iron and steel Cutting, slitting, perforation of photographic plates, films or rolls Soap, waxes, etc Inorganic chemicals Readymade garments

b) Deemed manufacture in case of Goods covered in Third Schedule Under MRP Provisions:
Goods included in Third Schedule of CEA same as those on

which Excise Duty is payable u/s 4A i.e on basis of MRP printed on the package. So, incase of goods on which duty is payable on basis of MRP, if any of the process as specified (i.e labeling, re-labeling, repacking in unit container, alteration of MRP etc) it will be manufacture and Duty will become payable. The process of packing, labeling and putting MRP is carried out by buyer or by C & F Agent/ Depot/ Godown will be manufacture.

 They have to be Registered under Central Excise as

Manufacturer. It will have to pay Duty on the basis of MRP, Alteration of MRP printed on wrapper is not permissible. Simply putting Bar Code, and LOGO is not manufacturer.

 Testing, inspection, quality control, cutting and polishing of

diamond Betel nut to supari powder Printing on glass bottle (any logo printed on glass bottle) Plain glazed tiles to decorated tiles Vanaspati (Dalda) from groundnut oil Up gradation or modification of computer system Crushing of boulders into smaller stones Repairs or Re-conditioning Processing food or fruits Processing fish

 Affixing brand name

Cutting or slitting of steel sheets or polyster film

(Plastic sheet) Conversion of marble blocks into marble slabs Recharge of battery Blending and packing Tea

manufacturer
A person who conducts a manufacturing activity on his own

account or by hiring a labour For eg: tailor stitching cloth A person who manufactures goods themselves or on their own account A person who gets the goods manufactured through hired labour. A person will be treated as manufacturer even if he manufactures goods for his own use or consumption If there is a master- servant relationship between the raw material supplier and the job worker, the raw material supplier will be the manufacturer

1) Manufacture through hired labour

A person will be treated as manufacturer if he

engages hired labour who may be employee or contractor for manufacture of excisable goods. A hired labour is one who hires himself out to work for and under control of another for wages.
If there is master servant relationship between the

raw material supplier and the job worker E.g HUL If

HUL hires Packers and Movers, then manufacturer is HUL. If HUL outsources the process of manufacture then manufacturer is Packer and Movers.

2)Engage manufacture on his own account

on his own account-----means as under his direction

and control.

3) Raw material supplier is not

the manufacture

For eg: Mr. A person was supplying raw material to the household ladies for manufacturing agarbatti, dhoop etc in their houses. The final product was directly sold from the premises of the ladies and was not brought to the factory of Mr. A. There was no supervision over their work by Mr. A. Payment to the ladies was on the basis of number of pieces produced. It is held that household ladies are the manufacturer and Mr. A is the raw material Supplier. Raw material Supplier is not manufacturer e.g Bajaj,Maruti.

3) INDEPENDENT CONTRACTOR IS MANUFACTURE EVEN IF MANUFACTURE CARRIED OUT IN THE PREMISES OF RAW MATERIAL SUPPLIER

WHEN RAW MATERIAL SUPPLIER WILL BE MANUFACTURE

RELATIONSHIP IS ON AGENCY BASIS
PERSON EMPLOYED BY RAW MATERIAL SUPPLIER

TO MANUFACTURE THE GOODS AND RETURN IT TO HIM

JOB WORKER ARE NOT MANUFACTURING ON

THEIR OWN ACCOUNT AND THEY ARE DUMMY OR BOGUS

 Brand owner is not manufacturer

e.g Bajaj Electricals

Loan licensee is not manufacturer e.g RM Suppr in Drug I

RULE 138A of drugs and cosmetic s rules.

Contractor Supplies labour & goods manfd in premises of

manufacturer with machn ,contractor is not manufacturer.

DUTABILITY OF WASTE AND SCRAP Waste and scrap is practically treated as final product for excise purposes. Waste and scrap can be goods but dutiable only if manufactured and are mentioned in Tariff. Goods rejected during testing If finished product is rejected at testing stage, it is to be classified as scrap. Defective products not usable as such as waste and scrap Defective products unusable have to be taken as scrap and waste No duty on scrap if final product is exempt.

Waste dutiable only if there is manufacture For eg: Aluminum dross is not manufactured product and hence not dutiable, even if there is specific entry in the tariff. For eg: Coal ash (cinder) which is a residue or waste of coal burnt in boiler is not a manufactured product and is not excisable. Waste / scrap generated from sources other than

raw materials is not excisable. For eg: Duty cannot be levied on empty drums or waste packing material in which inputs were packed as these are not manufactured.
Waste arising due to dismantling of old machinery, structures etc. is not taxable as no manufacture

 Waste Oil remaining after manufacture

Waste oil does not emerge from process of manufacture and hence is not dutiable.
Waste and scrap arising in ancillary process is

not dutiable For eg: Coal was used as a fuel to produce steam. The steam was used in manufacturing process. After coal was burnt, cinder was left.
Everything that is sold not necessarily goods

Waste/ scrap can be excisable goods if they are known in commercial parlance and are marketable.

 Waste and scrap not goods if not marketable

For eg: rubber scrap obtained by cutting defective rubber tubes are not goods.
Waste and scrap excisable only if mentioned

in CETA The waste and scrap will not be excisable goods unless it is specified in CETA.

DISPUTED CASES OF MANUFACTURE Some border-line cases are discussed below Re-melting This would normally amount to manufacture as identity of original product is completely lost during the process. If same article is produced after melting, it can be argued that new product has not emerge and hence it is not manufacture. Re-melting of an article to remake the same article is not a process of manufacture.

 Packing-

Goods can be said to be fully manufactured even before they are manufactured. Packing is not a process of manufacture. However, it could be a process ancillary to the manufacturing process. Eg: packing of matches in Match Box or packing of medicine as per statutory requirements.

Mixing, blending Eg.Mixing of oxygen/ nitrogen

with inert gases does not bring about any chemical reaction and no new product emerges. Eg. Making of pan masala by mixing various ingredients is manufacture.

Supplying two or more items together is not manufacture

Purchasing various items and packing them together will not amount to manufacture if a new product does not emerge. Putting together bought out plastic bottles and attached rubber nipples and packing in a printed corrugated box is not manufacture. Assembly of piston, piston rings, circles, gudgeon pins and rubber ring to make Liner Piston Set is not manufacture

 INCIDENTAL

OR ANCILLARY PROCESS OF MANUFACTURE Manufacture includes any process which is incidental or ancillary to the completion of manufactured product. Incidental means occasional or casual process. Ancillary means auxiliary, i.e. it is integral part of manufacturing. Manufacture is not complete unless all ancillary and incidental processes are complete. Painting or polishing may be essential process for manufacture of furniture. Packing is a process incidental or ancillary to the completion of manufacture of a product. Incidental refers to an occasional or casual process. Ancillary means a subsidiary process i.e. unless these processes are carried out, the manufacture of product

Manufacture must be in India Excisable goods must be manufactured or produced in India. Excise levy cannot be imposed on imported goods or goods manufactured in Nepal.

conclusion
Articles 246(1) of Indian constitution states that

parliament has exclusive powers to make laws with respect to any matters enumerated in the list I in the seventh schedule to constitution( union list). As per article 246(3) , state government has exclusive powers to make laws for state with respect to any matter in the list II of the seventh schedule to constitution. List III contains entries where both union and state govt can exercise power

Union list relevant to taxarion

Entry no 82- tax on income other than agriculture

income. Entry 83- duties of customs including export duties Entry 84- duties of excise Entry 85- corporation tax Entry 92 A taxes on the sale or purchase of goods Entry 92 B- taxes on consignment of goods Entry 92 C- tax on services Entry 97- any other matters

Types of duty Basic excise duty to be termed as (cenvat ) is levied at the rate specified in the first schedule to central excise tariff Act

Special duty of excise are leviable with special duty ( section 3(1) (b) of CEA.