AN OVERVIEW OF CENTRAL EXCISE

By
M. PONNUSWAMY, I.R.S., (retd)
Principal Additional Director General
NACEN, Chennai
Taxes are what we pay
for civilized society.
– Oliver Wendell Holmes, Jr., 1904
 Evolution of Central Excise duty in India
• The practice of levying Excise duty on goods was prevalent even in
ancient period( Mauryan period- salt & liquor)

• Moghul and early British rule saw excise being levied on salt, sugar,
cloth, leather and dairy products.

• Modern excise levy started in 1894- excise duty was imposed on

cotton yarn above 20 counts ( @ 5%).

• Prior to 1889, the Salt, Akbari and Customs Department were

together.

• In 1924, a separate Salt Department was formed.

 Evolution of Central Excise duty in India
• Motor spirit and kerosene were brought under Excise levy in 1917 and 1922 respectively.

• In 1931, provisional collection of Taxes Act was legislated.

• In 1934, Central Board of Revenue was constituted.

• Simultaneously, more commodities such as iron and steel ingots, matches, sugar and
mechanical lighters were brought under excise levy.

• A Tariff Act was also legislated in 1934.

• In 1941-44, more commodities viz., rubber tyres, vegetable products, cigars, cheroots,
coffee, tea, betel nuts, unmanufactured tobacco, etc., were brought under the excise net.

• In 1944, Central Excise and Salt Act, 1944 was legislated.

• In 1947, Tax on Salt was removed.

 Evolution of Central Excise duty in India
1944 – 1950 - 1. C EX & Salt Act 1944 2. Salt tax removed; 3. Phy. Cont/RBC

1950 - 1986 - 1. Phy. control/RBC to SRP; 2. Tariff items 1 -68 &

3. Whole sale price

1986 - 1994 - 1. C EX Tariff Act ; 2. MODVAT; 3.Transaction price 4. Rate cuts

1994 – 2001 - 1. Service Tax; 2. extension of MODVAT credit

2001 – 2004 - 1. C EX Rules; 2. CENVAT 3. Service Tax credit

2004 - 2015 -1. Cross utilization of cenvat; 2. Negative lists;

 Central Excise Revenue at a Glance
Revenue: (Rs. in Crores)
• 1920-21 : 60.85 (Salt Revenue: 6.67 Crores)
• 1938-39 : 81.87 (Salt Revenue: 8.41 Crores)
• 1950-51 : 67.54 (No duty on Salt w.e.f. 01.04.1947)
• 1960-61 : 416.35
• 1970-71 : 1791.44
• 1980-81 : 6447.19
• 1990-91 : 24355.65
• 2000-01 : 68636.00
• 2010-11 : 142487.19
• 2013-14 : 197553.95
• 2014-15 :
• 2015-16 :
 CONSTITUTIONAL & LEGAL PROVISIONS
Constitution of India:
Article 265: No tax shall be levied or collected save by the authority of law.
(
Article 246: Empowers Legislatures ( union & states) to make laws on the subjects enumerated
under three Lists in the seventh schedule of the constitution.
Article 248: i) Parliament has exclusive power (Residuary power) to make laws with respect
to any matter not enumerated in Concurrent List or State List.
ii) Such powers shall include the power of making any law imposing tax not
mentioned in either of the lists.

Article 286 Restriction on the states as to imposition of tax on sale or purchase of goods (inter
state trade)
Article 366: Tax on the sale or purchase of goods includes
(Clause 29A) (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in
any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other
form) invoked in the execution of a works contract;
(c) a tax on the delivery of goods on hire purchase or any system of payment by
instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or
not for a specified period) for cash, deferred payment or other valuable
consideration;
 CONSTITUTIONAL & LEGAL PROVISIONS (Contd .)

Parliament and state legislature can make laws

on the subjects allocated to them by law.
Seventh schedule of the constitution enumerates
three lists

UNION CONCURRENT
STATE LIST LIST
LIST
 CONSTITUTIONAL & LEGAL PROVISIONS (Contd.)

The Centre levies duties/taxes on goods and taxes on services by virtue of the
legislative power vested under Union List (List 1)

UNION LIST - Entry : 82. TAXES ON INCOME OTHER THAN AGRICULTURAL INCOME
83. DUTIES OF CUSTOMS INCLUDING EXORT DUTIES
84. EXCISE DUTY ON GOODS MANUFACTURED OR PRODUCED
92A & 92B. CENTRAL SALES TAX (CST)
92 C. SERVICE TAX
The States also, by virtue of article 246 read with Seventh Schedule under
State List(List 2), levy taxes/ duties as indicated below:
STATE LIST - Entry : 51. Excise duty on alcoholic liquors etc
52. Entry Tax
54. VAT/Sales Tax on sale or purchase of goods
62. Luxury Tax/Entertainment Tax/betting/gambling etc
CONSTITUTIONAL PROVISIONS – LEVY OF CENTRAL
EXCISE DUTY

Entry 84 : List I (Union List): Duties of Excise on Tobacco and other goods
manufactured or produced in India except –
a) Alcoholic liquors for human consumption
b) Opium, Indian hemp and other narcotic drugs & narcotics
But including Medicinal and toilet preparations containing alcohol or
any substance involved in sub-paragraph (b) of this entry.
 LAWS RELATING TO LEVY & COLLECTION OF
EXCISE DUTY
Basic Acts:
• Central Excise Act, 1944
• Central Excise Tariff Act, 1985

Supporting Rules:
• Central Excise Rules, 2002
• CENVAT Credit Rules, 2004
• Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000
• Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008
 LEVY OF DUTIES UNDER CENTRAL EXCISE ACT 1944

Section 3: Duties specified in the First Schedule and the Second Schedule to the Central
Excise Tariff Act, 1985 to be levied
(1) There shall be levied and collected in such manner as may be prescribed, -
(a) a duty of excise to be called the Central Value Added Tax (CENVAT)] on all excisable goods
(excluding goods produced or manufactured in special economic zones) which are produced
or manufactured in India as, and at the rates, set forth in the First Schedule to the Central
Excise Tariff Act, 1985 (5 of 1986);
(b) a special duty of excise (SED), in addition to the duty of excise
specified in clause (a) above, on excisable goods excluding goods
produced or manufactured in special economic zones, specified
in the Second Schedule to the Central Excise Tariff Act, 1985 (5
of 1986) which are produced or manufactured in India, as, and at
the rates, set forth in the said Second Schedule.
 DUTIABILITY / EXCISABILITY
Excise duty is chargeable on goods manufactured or produced in India.
What is goods?

The term goods has not been defined under the Central Excise Act, 1944.
Article 366(12) of the Constitution defines goods as ‘ goods include all materials, commodities and articles’.

As per Sub-Section (3) of Section 2 of The Sale of Goods Act, 1930,

“ Goods are said to be in a “deliverable state” when they are in such state that the buyer would, under the contract, be bound
to take delivery of them” ;

As per Sub-Section (7) of Section 2 of The Sale of Goods Act, 1930,

“goods” means every kind of movable property other than actionable claims and money; and includes stock and shares,
growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under
the contract of sale;

As per the explanation appended under Section 2(d) of the Central Excise Act, 1944,
“For the purposes of this clause, “goods“ includes any article, material or substance which is capable of being bought and
sold for a consideration and such goods shall be deemed to be marketable”.
 DUTIABILITY / EXCISABILITY (Contd.)
What is manufacture?

As per Section 2(f) of the Central Excise Act, 1944, “manufacture” includes any process, -
i) incidental or ancillary to the completion of a manufactured product;

ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the
Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or

iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods
in a unit container or labelling or re-labelling 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;

and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs
hired labor in the production or manufacture of excisable goods, but also any person who engages in their
production or manufacture on his own account;
 DUTIABILITY / EXCISABILITY (Contd.)
What is excisable goods?

As per Section 2(d) of the Central Excise Act, 1944,

“excisable goods” means goods specified in the First Schedule and the Second Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;

Explanation - For the purposes of this clause, “goods“ includes any article, material or substance which is
capable of being bought and sold for a consideration and such goods shall be deemed to be
marketable.
CENTRAL EXCISE TARIFF ACT, 1985
First Schedule : Section I to XXI
(Chapters 1 to 99) Classification of goods and rates of duty
Second Schedule : Special Excise Duty on specified goods

Third Schedule : Specified goods under Deemed manufacture [ Section 2(f)(iii) ]

 ON WHAT THE EXCISE DUTY IS CHARGED?

VALUATION:

1. On the value of the goods manufactured ( Section 4 (1) ) – Transaction Value

2. On the value of the goods indicated in the tariff ( Section 4 (2) ) – Tariff Value

3. On the retail sale price ( Section 4 A ) – Retail Price

Section 4 - Valuation of excisable goods for purposes of charging of duty of excise.

(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on
each removal of the goods, such value shall –

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of removal, the assessee
and the buyer of the goods are not related and the price is the sole consideration for the sale, be the
transaction value;
(b) In any other case, including the case where the goods are not sold, be the value determined in such manner as
may be prescribed.
 WHO IS LIABLE TO PAY THE DUTY?
The liability to pay tax excise duty is always on the manufacturer or producer of the goods.

There are three types of parties who can be considered as manufacturers-

1.Those who personally manufacture the goods in question

2.Those who get the goods manufactured by employing hired labour
3.Those who get the goods manufactured by other parties

The following have been held to be real manufacturers :

1. In case where the factories are leased out, duty liability is on the lessee as he is the person who actually
manufactures the said goods
2. When goods are manufactured from others by supplying raw material, the duty liability will rest on the
person who actually carried out the manufacturing activity and not on the person who supplied the
material.
3. If the manufacturer is a mere dummy of the customer or supplier of raw material, then the goods are said
to be manufactured on behalf of the customers / suppliers and the latter is liable to duty.
 WHO ARE ALL NOT REQUIRED TO PAY EXCISE DUTY?
1. Manufacturers, who manufacture “NIL” rated goods.

2. Manufacturers, whose annual turn over is less than 1.5 Crores

3. Manufacturers, who manufacture fully exempted goods

4. Goods manufactured under various Export Promotion Schemes

5. Job Workers ( if they return back the goods manufactured)

6. Captive Consumers

7. Exemption to goods manufactured in Govt. factories and supplied to Defense

8. Exemption to Technical, Educational and Research Institutes

9. Exemption to goods produced without use of power and for units in rural areas.

10. Exemption to certain goods and industries.

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Basic Provisions ( Levy & Collection of Duty)

levy : section 3 & (3a)

valuation : section 4 & (4a)

demand : section 11a

refund : section 11b

exemption : section 5a

remission : section 5

not to recover : Section 11C

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT &
RULES

Basic provisions (Levy & Collection)

Interest on delayed payment of duty : Section 11AA

Duty collected from the buyer to be deposited : Section 11D

Interest on excess collection : Section 11DD

Interest on delayed refunds : Section 11BB

 ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Obligation of the manufacturers

REGISTRATION : Section 6 & Rule 9 of Central rules 2002

ISSUE OF INVOICE : Rule 11

Price to be indicated : Section 12A

ASSESSMENT OF DUTY : Rule 6 & 7

PAYMENT OF DUTY : Rule 4 & 5

MANNER OF PAYMENT : Rule 8

FILING OF RETURNS : Rule 12

MAINTENANCE OF RECORDS : Rule 10

 ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Facilities to the Manufacturers:

Removal of goods for job work: - RULE 16A

Removal of semi Finished goods for job work: - Rule 16B

Removal of goods for carrying out certain operations: - Rule 16C

Removal goods for 100% EOUs For DTA: - Rule 17

Job workers in Jewellery: - Rule 12AA

Independent weavers of unprocessed fabrics: - Rule 12C

Large Tax payers units: - RULE 12BB

Warehousing provisions: - Rule 20

Export without payment of duty: -Rule 19

Grant of Rebate: - Rule 18

 ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Powers of the Government

Powers to appoint officers: Section 12E

Powers of Search & seizure: Section 12F

Power to search conveyance : Rule 23

Power to detain or seize goods: Rule 24

Powers of Arrests: Section 13

Powers of Summons: Section 14

Special Audit in Certain Cases: Section 14A & 14AA

Obtaining Information return: Section 15A

Officers to assist E.Ex officers: Section 15

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Recovery Provisions

Demand : Section 11 A

Recovery of duty : Section 11

Recovery of CENVAT : Rule 14 of CENVAT Rules 2004

Provisional attachment : Section 11DDA

Liability under First charge : Section 11E

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Offences & Penalty: Section 9

Certain offence non cognizable: Section 9A

Offences by Companies: Section 9AA

Power to publish names by courts: Section 9B

Presumption of culpable mental state: Section 9C

Relevancy of statements under certain circumstances: Section 9D

 ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Adjudication of confiscation & penalties

Power of Adjudication: Section 33

Adjudication procedure: Section 33A

Penalty for short levy/non levy of duty: Section 11A & 11AC

Confiscation & penalties: Rules 25, 26 & 28

Option to pay fine in lieu of penalty: Section 34

Confiscation & penalty not to interfere : Section 34A

Presumptions as to documents in certain cases: Section 36A

Admissibility of certain documents as evidence: Section 36 B

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Appeals provisions
Appeals to Commissioner (Appeals) : Sections 35 & 35A

Appeals to the Appellate Tribunal : Sections 35B , 35C & 35D

Powers of CCs/PCs/Commissioners : Section 35E

Revision by Central Government : Section 35EE

Appeals to High Court : Sections 35G, 35H, I,K & 35K

Appeals to Supreme Court : Section 35L & 35M, 35N,35O & 35P

Appearance by auth representative : Section 35 Q

Appeal not to be filed in certain cases: Section 35R

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Powers to make Rules & issue instructions

Power of Central government to make rules: Section 37

Delegation of powers: Section 37A

Instructions to officers: Section 37B

Publication of information: Section 37E

Power to issue supplementary instructions: Rule 31

ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Supporting Provisions to Central Excise Act

Service of orders, summons etc: Section 37C

Rounding of duty etc: : Section 37D

Advance Ruling Authority : Sections 23A to 23 G

Settlement Commission : Sections 31 to 32 p

Indirect –tax Ombudsman system: Guidelines 2011

 ENABLING PROVISIONS UNDER CENTRAL EXCISE ACT & RULES

Supporting Rules to the Central Excise provisions

• Central Excise (Removal of Goods at Concessional Rate of Duty for manufacture of Excisable & other Goods) Rules, 2016
• Central Excise (Compounding of Offences) Rules, 2005
• Consumer Welfare Fund Rules, 1992
• Central Excise (Removal of Difficulties) Rules, 2005
• Central Excise (Settlement of Cases) Rules, 2007
• Customs and central excise settlement commission procedure 2007
• Central Excise (Advance Rulings) Rules, 2002
• Authority for Advance Rulings ( Central Excise, Customs & Service Tax ) Procedure Regulations 2005
• Customs, Central Excise Duties and Service Tax Drawback Rules, 1995
• Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008
• Chewing Tobacco & Unmanufactured Tobacco Packing Machines (Capacity Determination & Collection of Duty) Rules,
2010
• Clean Energy Cess Rules, 2010
• Indirect –Tax Ombudsman Guidelines, 2011
Thank you !!!

M.PONNUSWAMY IRS.,(Retd)