Excise Duty:

Introduction & Chareability of Excise duty

1. Excise Duty is to be collected from a manufacturer with regard to the commodities 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 manufacture of goods.

2. Entry No. 84 of Union List has empowered the Union Government to impose Excise duties on
goods manufactured 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

3. Excise Act was introduced in 1944 known as “Central Excise and Sales Tax Act 1944

What is the merits of Excise Duty

1. Major source of Government revenue

2. Contribution to the welfare of nation
3. Balanced Industrial Growth
4. Less collection cost as it is levied at the time of manufacture
5. Tax evasion is difficult

What is the Disadvantages of Excise Duty

1. Increase the Price of goods

2. The incidence is uniform
3. Reduces demand of goods
4. Increases project costs
5. Increases smuggling/tax evasion
6. Buden on General public

Basic Conditions of Excise Duty Liability

Section 3 of Central Excise Act the ‘charging Section’ states that there shall be levied and collected
duties on all excisable goods (excluding goods produced or manufactured in special economic zones)
which are produced or manufactured in India. This definition of charging section of central Excise is
vital, because it clearly signifies that there are four basic conditions for levy of Central Excise duty.

1. The excise duty levied on goods;

2. The goods must be excisable;
3. The goods must be manufactured or produced; and
4. The manufactured or production must be in India.
Levy and Liability of Excise duty:

The words ‘Levy’ means imposition of tax. Once a tax or duty is imposed, it has to be quantified
(assessed) and then ‘collected’. Once a duty is levied, it has to be collected. It cannot be collected
unless the duty is quantified (assessed). Hence, normally, ‘levy’ should cover ‘imposition’, ‘assessment’
and ‘collection’.

The following point should be kept in view regarding Levy of Excise Duty –

1. Taxable event
2. Person liable to pay excise duty
3. The duty Liability in case of Ware house Goods
4. Duty Liability in case of Job work
5. Duty leviable on captive consumption
6. Duty can be levied on Government undertaking
7. Rate of duty as applicable on date of removal relevant
8. State of goods at the time of removal is relevant
9. Marketability is essential

What is Goods ?

The Excise Duty is levied on manufacturing of goods, but the term goods has not been defined under
Central Excise Act 1944 or the Central Excise Rules. However, based on definitions in other
enactments as well as judicial pronouncements, certain broad guidelines have evolved in this regard.

Article 366 (12) of the constitution defines goods as “Goods includes all materials, commodities and
articles.”

Sale of Goods defines “Goods means every kind of movable property other than actionable claims
and money, and includes stocks and shares, growing crops, grass and things attached to or forming
part of the land which are agreed to be served before sale or under the contract of sales.”

a. Goods must be Movable

b. Goods must be Marketable

What is Excisable Goods ?

Sec 2(d) Excisable Goods means goods specified in the schedule to the Central excise Tariff Act, 1985,
as being subject to a duty excise and includes salt’.

Goods liable to the imposition of excise duty are such items upon which excise is imposed under the
legislation. Since 1985, it has been provided under the Act that the excise duty shall now be levied
only upon those items which have been covered in the schedule of the Central Excise and Tariff Act,
1985.
What is Manufacture ?

Sec. 2 (f) Every action or process is manufacture, which results into the transformation of raw material
into a commercial commodity or finished product that a separate identify. However, excise is a tax on
manufacture and is not depends on the end use of the manufactured product.

1. New substance having distinct name, character or use must emerge

2. Transformation or Conversion
3. Identify of original Article should be lost
4. Assembling can be manufacture
5. Commercial Known Product
6. What is not Manufacture?

What is transaction value ?

As per Sec. 4(1) of the Act, excise duty is chargeable on any excisable goods with reference to their
transaction value. Section 4(3) defines ‘Transaction value’ as the price actually paid or payable for the
goods.

The value also includes any amount charged to customer in the name of advertising or publicity,
marketing and selling organization expenses, storage, outward handling, servicing, warranty,
commission or any other matter; but does not include the amount of duty of excise, sales tax and
other taxes, if any, actually paid or actually payable on such goods.

Thus, following are main requirements or ‘transaction value’.

1. Price actually paid or payable

2. Price is for the goods
3. It includes, in addition to the price charged, any amount the buyer is liable to pay to assessee in the
respect of the sales.
4. It includes advertising, financing, servicing, warrantee commission or any other amount payable by
buyer to the manufacturer.
5. It does not include excise duty, sales tax and other taxes.
6. The transaction value will not be applicable for the purpose of payment of duty if the buyer and
seller are related.
7. If the goods are sold to related person or if the goods are not sold valuation will be done on the
basis of rules as may be prescribed.

What are the various types of Valuation under Central Excise

1. Non- value based duty payables:


1. Specific duty: in certain cases the duty is payable on the basis of certain unit, length, weight,
volume etc. However, this nature if duty does not keep pace with the inflation 

E.g.: Duty Payable on cigarettes is on the basis of length

2. Compounded Levy scheme: bearing in mind a small manufacturer under this scheme, the
assessee has the option to pay the duty of excise on the basis of specified factors relevant to
 production of the goods covered under the scheme (size of equipment employed, number and the
types of machines used for manufacture etc.) at the specified rates. 


E.g.: Stainless steel pattas/pattis and aluminium circles are covered under this scheme. The rate of
duty is Rs. 40,000 and Rs. 12,000 pm per cold rolling machine for stainless steel pattas/pattis and
aluminium circles respectively

3. Duty based on capacity of production: This duty is payable on the basis of production capacity,
without any reference to the actual production. The production capacity is determined as per the
rules made in this regard by the Government.


E.g.: Pan masala, gutkha, tobacco etc. are notified under this scheme

2. Value based duty payables:


1. Tariff based valuation: The Central Government is empowered to notify the values of goods
which will be chargeable to ad valorem duty. In such a case, the task is easy since the value is
already fixed.


E.g.: The Central Government has fixed tariff value for jewellery (other than silver jewellery) under
heading 7113 and branded readymade garments under Chapter 61 and 62 as 30% of the transaction
value declared in the invoice and 30% of the retail sale price of the ready garments respectively.

Illustration: X Ltd. manufactured readymade garments for Rs. 10 lakh (exclusive of all taxes). The retail
sale price of such garments is Rs. 30 lakh. The rate of duty is 12.5% The tariff value is notified at 30%
of retail sale price. Compute the excise duty payable.

2. RSP based Valuation:

Value = RSP printed on the package – Abatement, if any, notified by the Government

Excisable goods need to be valued in terms of provision of section 4A if the following two conditions
are satisfied cumulatively:
1. The excisable goods to be valued are covered under the Legal Metrology Act, 2009 or related
rules or under any other law and such law requires declaration of the retail sale price on the
package of such goods.
&
2. The Central Government has notified the said goods as goods in relation to which the payment
of excise duty will be on the basis of the RSP less such deductions/abatements as it may allow
in the notification. The abatement is given as a percentage of the retail sale price.


E.g.
Goods notified under section 4A Rate of Abatement (%)
Biscuits 30%
Toothbrush 30%
Photographic cameras 30%
Pressure cooker 25%

3. Transaction Value:
As explained above in the beginning duty is charged on amount charged from customer and on the
rate prescribed in central excise tariff.
Who are liable for Registration under this law?

General Rule: Every person who are as below, and are issuing an excisable invoice will be liable to
register himself under this law:
• Manufacturer
• Dealer
• Store keeper or a Warehouse keeper
• Importer 


Exception:
• If such manufacturer, manufactures non-excisable goods or completely exempt goods for
whole of the financial year.
• Small scale industries availing the benefit under Notification 8/2003. However, requires to file a
declaration once he attains a clearances of Rs. 90Lakhs.


Manufacturer is entitled to full exemption from payment of duty on its first clearances of up to Rs. 1.5
Cr in the current financial year.

What is the procedure for clearance of Goods

(a) Physical Control Procedure: Each clearance of manufactured goods from the factory is done under
the supervision of the Central Excise Officers. Today, only cigarettes are  removed under physical
control procedure. All other products fall under the self -removal procedure.

(b) Self Removal Procedure

Introduction of Self-Removal procedure was a welcome procedure in the industry. It was made
applicable to almost all the commodities except a few items. Under the Self Removal procedure, the
assessees were allowed to quantify the duty on the basis of approved classification list and the price
list and clear the goods on payment of appropriate duty.

1. The manufacturer may ensure that the goods, which are sought to be removed, have  been duly
intimated to the Department providing the process flow chart of manufacture as well as list of critical
raw materials.

2. He shall ensure that the finished goods are all duly entered in the production register daily. (This was
called the RG-I register earlier).

3. The invoice raised should be in line with the purchase order if any, received from the customer. Care
is to be exercised in calculations in the invoice.

4. The assessable value (whether cum-duty price or otherwise) is to be arrived at accurately

by applying section 4 read with Central Excise Valuation Rules, 2000. If the value is based on MRP or
Tariff Value fixed under section 3(2), the same may be applied.

5. The manufacturer shall prepare an invoice in accordance with the provisions of rule 11 and calculate
the assessable value and excise duty payable.

6. He shall make the removal entry in production register providing details of value, quantity and duty
payable.

7. It is to be ensured that the person/carrier who/which carries the goods is provided with “duplicate
for transporter” copy of invoice.
Central Sales Tax:
Introduction

Central Sales Tax is applicable on sales of goods from one state to another. This tax is imposed by the
Central Govt., but it is collected by the states and the amount collected is also used by state

The central sales tax Act, 1956 is a fiscal legislation, which imposes a levy of tax on sale of goods –

1. In the course of interstate trade and commerce, or

2. Outside the state, or In the course of imports into or export from India.
3. It is levied at specified rate.
4. It shall be collected in the state from which the movement of goods commences and by the
registered dealer.

What is Interstate Sale ?

I. When is a sale or purchase of goods said to take place in the course of Inter-state Trade or
Commerce (Section 3)

A sale or purchase of goods shall be deemed to take place in the course of Inter state trade or
commerce, if the sale or purchase:

a. Occasions the movement of goods from one State to another; or [Sec. 3 (a)]
b. Is effected by transfer of document of title to the goods during their movement from one State
of another. [Sec. 3(b)]
Ex: Goods manufactured in Karnataka is transported and sold to customer in Maharashtra its a
Interstate sale.

2. Movement of goods commences and terminates is the same state – Where the movement of
goods commences and terminates in the same State, it shall not be deemed to be a movement of
goods from one State to another by reason merely of the fact that in the course of such movement,
the goods pass through the territory of any other State.

3. Intra-state sales – When a purchaser from another state comes in a state for purchasing some
goods and seller delivers the goods to him directly such sale will not be interstate sale, though
purchaser and seller belong to different states.

What is Sale in course of import or export?

Many importers, acting as agents, import goods and the documents are transferred to ultimate buyer.
Such buyer usually clears goods from Customs. This is ‘sale in the course of import” if the documents
are transferred (i.e. endorsed in favor of buyer) before goods are cleared from customs.

In other words goods are sold when they are stored in customs bonded warehouse, before clearance
from warehouse.  It has been held that goods continue to be in customs barrier when they are in
customs bonded warehouse. Import would be completed only when goods cross customs barrier and
not when they land in India or enter territorial waters.

Thus, sale before clearance from customs bonded warehouse will be ‘sale during import’ and will not
be taxable.
Service Tax

Service Tax was imposed under Finance Act 1994 by the Government of India. Like Income Tax, Excise
duty, Customs, there is no separate tax for service tax. It is governed and altered by Finance Act. It is
applicable throughout India, except Jammu & Kashmir. At present each type of economic, commercial
and financial services in the tax net of Service tax. W.e.f 2012-13 except some services given in
negative list and exemption list all type of Services are taxable.

Introduction

• Service tax is tax on services introduced by Central Government. Introduced in 1994 by Dr.
Manmohan Singh based on recommendation by tax reform committee headed by Dr. Raja Chelliah
in 1990
• First introduced for 3 services – (i) Share broking, (ii) Telephone services and (iii) General insurance
business. There after number of taxable services increased rapidly.
• Concept of service tax was introduced by inserting Chapter V in Finance Act. No law has been
introduced for Service tax. Finance Act, 1994
• Jammu and Kashmir is considered as non-taxable territory for service tax. Therefore, service tax is
applicable to the whole of India except the State of Jammu & Kashmir.
• Service tax is administered and controlled by the Central Board of Excise &Customs.
• Rate of service tax is 14%. Krishi Kalyan Cess 0.5%, Swachh Bharat Cess at 0.5%
• All services are taxable except those mentioned in negative list and mega exemption list.

Chargeability of Service tax

Service tax is a tax on service. A service should have the following characteristics to be taxed:

a. presence of an activity,
b. which has been carried out for some consideration,
c. activity has been done by one person for another person,
d. it is part of declared services.

a. Meaning of Activity: For the applicability of service tax it is necessary that there should be service.
The first basic characteristic of service is that there should be an activity. The term activity has not been
defined in the Act. In layman‟s term an act done, a work done, a deed done, an operation carried out,
execution of an act, provision of facility etc. Activity can be active or passive and also includes
forbearance to act.

b. Activity must be Carried Out for Consideration: Second important characteristic for the
applicability of service whenever an activity has been performed it should be done in return for some
consideration. Consideration includes monetary and non-monetary payments received in return of a
provision of service whether actually received or not. An activity would be taxable only when it is
carried out by a person. Activities like donations, gift etc. are not taxable because these services are
not provided to get consideration in return. If an activity is carried out by way of charity but a
consideration is received for the same then it would be taxable.

For example, if a person donates to a charitable organization and in return asks for a non-monetary
consideration in the form of display of name of company or advertise the name of the donor in a
particular manner then, it would be taxable as consideration is received in kind.

What is not ‘service’?

• Activity of mere transfer of title in goods or immovable property is not ‘service’ [security is ‘goods’.
Hence, transfer of security is not ‘service’]
• Deemed sale of goods under Article 366(29A) of Constitution of India is not ‘service’.
• Mere transaction in money is not service.
• Mere Actionable claim – claim of unsecured debt or beneficial interest in movable property, lottery
ticket –is not service.
• Service provided by employee to employer – not ‘service’ [However, service provided by employer
to employee can be ‘service’]
• Fees paid to Court or Tribunal is not service
• Duties performed by MP, MLA, MLC , Members of Panchayats, Members of Municipalities and
Members of other local authorities is not ‘service’ [How true!]
• Duties performed by persons holding Constitutional post, Member or a Director in a body
established by the Central Government or State Governments or local authority is not ‘service

Miscellaneous Points

A. The following persons covered under Service Tax who fulfill the following conditions –
1) Who provide any one or more taxable services except exempted services.
2) Whose annual turnover is exceeding Rs. 10 lakhs regarding taxable services.
3) Who provides services in the consideration of value.
4) Who provides services with in India except J. & K

B. Every person liable to pay the service tax shall himself assess the tax due on the services provided
by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such
manner and at such frequency as may be prescribed. Returns are half yearly i.e April- September -
due date - 25th October. October to March - 25th April.

C. Every ‘person liable for paying service tax’ has to register with Superintendent of Central Excise. He
should register within 30 days from date of commencement of the business of providing taxable
service. If value of taxable services is more than Rs. 9 Lakh in the year 2013-14. The person will
have to apply for registration in form ST-1.