Overview of Central Excise Law & Procedures

Madhukar N Hiregange.
Bcom, FCA, DISA(ICAI)

Levy of Central Excise = Cenvat

Indirect tax more than 2300 yr old in India Whole of India On produce / manufacture in India Not on Goods but Activity Ownership immaterial Slowly moving into a value addition tax rather than manufacturing tax

Cenvat/ ED- A duty on

-> -> -> -> -> -> -> ->

goods which are excisable manufactured in India for home consumption at rates specified on value as defined with set off of previous duty on removal

Excisable Goods

Goods movable and marketable Immovable means permanently attached to the ground. Now it maybe preferable to opt for making goods liable rather than not.- credits are available to manufacturers/ service providers. Not to Items in State list List II VII schedule of Constitution Of India.

Manufacture 2(f)(i)

.or ancillary to Any process incidental the completion of a manufactured product New product with Distinct Name, Character and Use Emerges A converted to B A to A+ or A- may not be manufacture ( possible under Service Tax) Trade understanding important

Sec. 2(f)(ii)
Specified in Chapter Notes as amounting to manufacture (84 heading an sub headings) Packing, Re-packing, Labelling, ReLabelling, drawing, Mixing, Diluting etc. Trader can be called a manufacturer Consumer products food, cosmetics, chemicals, fabrics, breaking ships etc

2(f)(iii)- Activities of packing etc

Deems the activity of packing, labeling, affixing price tax or alteration of the price tag or any other processes to render the goods marketable Applicable for the goods listed in Schedule III to the Act (96 headings) Mainly food, chemicals, cosmetics, lubricants, tiles, white goods- pressure cookers, razors, automobile parts etc)

Classification & Exemption

Not specified in CET unworkable machinery Specified but no rate set out Attracting Nil rate rice, wheat Exempted agarbattis Left Hand side Rule Exemptions cost benefit analysis Exemptions- conditions to be followed.

Small Scale Exemption

Not.8/2003 as amended. One of more manufacturers from one factory By one manufacturer from one or more factories. All products/ locations to be considered. Not available for Branded goods unless in rural area

8/2003

OE supplies possible within 150 lakhs Eligible units less than 400 Lakhs of manufactured products ( including nil rate) Eligibility upto Rs..150 lakhs ONLY. No credit. Net effect saving of 0-16 lakhs or loss of 0-12 lakhs depending on customer. Exports/ Branded goods /As such removals not considered for the calculations

Locational Exemptions

North East of India Kutch Jammu & Kashmir Himachal Pradesh Chattisgarh 3 years time provided Uttaranchal - same ++ No IT, CST 1% - in short time maybe closed.

Options for Exports Scheme

Duty drawback of Customs and/or CE DEPB Scheme Advance Authorisation (DEEC) DFRC Scheme EPCG Scheme Procurement of goods w/o payment of duty.

Job Work- Options

Rule 4(5)(a)- Direct, JW-.> JW, Dir Des. CG for JW 214/86 Loan Licensee 83 & 84/94 Govt/ Defence Not. On payment of Duty

Self Assessment

Onus on the manufacturer to comply Ensure that payments are made in time Ensure that returns are filed in time Material movement documented well Ready for the Visits by Dept Preventive Ready for Audits by Dept.

Demands- Appeals etc.

Show Cause Notice Reply/ Personal Hearing Adjudication / Order Appeal to C(A) + Stay Appl PH / Order Appeal to Trib + Stay High Court Supreme Court Alternative Settlement Commission

Extended Period when not applicable

Details rqd already with dept. difference of opinion assessee under bona fide belief dept. aware No deliberation proved Elements of mens rea absent Removal took place under cover of invoice

Audit Party

It is an audit not an investigation. Should be after adequate notice wherein what is the time period should be mentioned. If extension reqd another letter maybe sent. No power to force reversal. They are to provide info to Range who would seek compliance and if assessee feels different and they are convinced on liability SCN to be issued.

Self Check- Value additive

Since this area has considerable costs involved internal audit of this area required. Advantages: -> Compliance with laws -> No surprises -> Past period demands avoided -> Benefits under law claimed IDEALY AN INDIRECT TAX AUDIT

Cenvat Credit Rules 2004

Madhukar N Hiregange
BCom, FCA, DISA(ICAI)

To Whom Credit is available?

To Manufacturers under Central Excise To Mfr. & Taxable Service Providers(SP) To Mfr. & Tax. & Non Taxable SP To Taxable SPs To Taxable & Non Taxable SPs To Job workers paying duty on consumables

Credit of which duties and taxes?

Central Excise duty BED, SED, Additional duty of customs on imports. Additional duty of excise T & T and GSI. Education cess & SHE Cess Credit on Excise Duties. Service tax. Education cess & SHE Cess Credit on Service Tax. NCCD duty, Cess on Tea

Credit on what basis?

Excise duty credit based on excise invoices and bills of entry & challans raised by the large tax paying unit Excise duty invoice of manufacturer, dealer, depot, importer, consignment agent. Service tax invoice, challan of input service provider and input service distributor issued on or after 10.9.2004.

Conditions- Inputs

Eligible input/input service as per definition On valid document- Invoice with details, Banking company Advise / counterfoil From genuine sources The connection should be established in general Account of usage maybe necessary. Receipt into the premises of service provider is not must.

Conditions for creditCapital Goods

Eligible as per definition Not used exclusively in exempted goods/ service Upto 50 % in year of receipt and Balance (50) % in any subsequent year of possession. Not required for moulds, dies, tools etc., No depreciation on credit claimed Receipt into the premises of service provider is must.

Conditions Input Services

Used by manufacturer whether directly or indirectly in or in relation to manufacture & clearance of products upto place of removal Used by taxable service provider for providing an output service And includes initial services ( modernisation, repairs, sales promotion, and activities relating to business such as auditing,.

Credit Bifurcation

Services exclusively used in non taxable services ( trading) No Credit Services exclusively used in taxable services- 100% Specified common services (16) 100% ( AMC, Security, Construction..) Other common services proportionate As per formulae

Utilisation

Cenvat Credit on Inputs/ CG Can be used for paying CED, ST,Cess ST credit on input serv Can be used for paying the CED, ST, Cess Additional duty of Customs @ 4% is not available for paying ST. Cess Credit can be used only for Cess Payment Same for NCCD, AED

Credit in case of exempted goods

Inputs/Input service used exclusively for exempted goods No credit Inputs/Input service exclusively used for manufacture of excisable goods Full Credit Inputs partially used for excisable and exempted
Option 1. Separate records - take credit only used for that used in excisable goods. Option 2. No separate records take credit based on the computations prescribed under Rule 6

Input Service Distributor

The Head Office, Sales Office, Corporate Office may spend centrally on services These may need to be distributed for the credit to be availed at each of the premises of multiple registration entities. By way of an invoice the same can be spread out. Presently no norms on the % ages.

Refund for exporters

Rule 5 - Cenvat + ST credit refund available to manufacturer clearly Specific refund for services specified under Not 18 & 19/2009 as amended ( many of the services supposedly after removal) Not available for deemed exports

Valuation Under Central Excise

Madhukar N Hiregange Chartered Accountants

Valuation for Sale

Section 4A- MRP based less abatements Different MRP for different regions Composite of other items Transaction Value Sec 3(2) Tariff Rate- Cigarettes, Sugar Sec 4 TV - Invoice Price if at arms length, time and place of delivery, not related parties, no additional consideration

Modes of Valuation
Transaction Price - Invoice price when:
- Time of delivery is point of sale - Place of delivery is point of sale - Not to related person - No additional Consideration Accrues

What is a sale ?

Section 2(h) sale with its grammatical variations and cognate expressions, means any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration.

Modes of Valuation

MRP- Sec. 4A On Goods reqd to have printed ratesWeights & Measures Act Specified On MRP Abatements

Tariff Rates-3(2) Sugar, Pan Masala, Branded Regd. Garments Deemed Mfr- 2(f) (ii) Chemical, Garments, Cosmetics, Drawing .

Valuation - Not a sale

Sample Warranty Gifts/ Donations Captive Cons Supply of Dies/ Moulds Interest on adv Related Persons

At comparable - COP + 10 % Add Prorated value Duty on Notional

At Relatives SP

As Per Central

Valuation Rules

Valuation Job Work

Under Valuation Rules 2000 Ujagar Prints Grey Fabrics-now it is governed by Rule 10A Material Cost (FOC) + Packing material (FOC) Cost + Job Work charges of others paid directly by customer + freight upto Job Worker premises + Unloading + Materials used by Job Worker + Conversion cost-now it is governed by Rule 10A Less Cenvat credit on all the inputs-now it is governed by Rule 10A PRESENTLY BEING REVIEWED

Questions??
mhiregange@gmail.com mhiregange@hotmail.com