Icwa Notes

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i) Any ancillary or incidental activity to manufacture.

ii) Any packing or repacking or labelling or re-labelling or changing the

container or conversion of powder into tablets or capsules will amount tomanufacture, provided it is specified in the section notes or chapter notes

of CETA, 1985.

iii) Any activity of labelling or relabelling or packing or repacking or affixingMRP or altering the MRP of specified goods will amount to manufacture.

However, it is applicable only to the goods specified under the schedule

given in the tariff. (Finance Act, 2003).

Recent Case Laws on Manufacture:

1) Collector of Central Excise vs. Technowell Industries

(Supreme Court)

In this case the Supreme Court held that the process of drawing wires from wirerods does not amount to manufacture, since both products being wires. Further,

product not to be considered excisable merely because wires and wire rods

covered by 2 separate entries.

1) Dolson Container Pvt.Ltd. Vs. CCE(Comm) (Delhi Tribunal)

Conversion of corrugation gum powder into liquid gum by adding & mixingwithout any chemical does not amount to manufacture.

2) Preparation of Purified mineral water from potable water fit for human

consumption will amount to manufacture?

However, mere treating of the water and bottling will not amount tomanufacture. Silver Springs Pvt. Ltd. Vs. CCE (Bangalore Tribunal)

3) Powdering of tobacco leaves does not amount to manufacture.

Pramila Gudakhu Factory Vs. CCE (Calcutta Tribunal)

4) Paper cutting waste generated during the manufacture of corrugated boxes does

not amount to manufacture since the company is not engaged in themanufacture of waste.

5) Carbon Paper: Cutting of larger dimensions i.e. from royal or brief size intofullscape will not amount to manufacture since the basic product remains same.

Kores(I) Ltd. Vs. CCE (Chennai Tribunal)

6) Process of cutting steel sheets into specific size and punching holes to obtainrequired design of fabric amounts to manufacture. Since a different article

namely DOBBY CARD, having distinct name, character and use having

emerged. BIRLA VXL Ltd. Vs. CCE (Delhi Tribunal)


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7) Upgradation of a lower capacity transformer into a transformer of higher

capacity does not bring into existence any new & distinct product to the market.

Therefore no manufacture.

CCE Vs. USHA (I) Ltd. (Delhi Tribunal)

8) Refilling of empty cylinders in the fire extinguishers with carbon dioxide does

not amount to manufacture as no new product emerges.

CCE Vs. Safex Fire Systems Ltd. (Bombay Tribunal)

9) Washing of Coal or reducing the ash content of Coal

would not amount to manufacture.

CCE Vs. TISCO (Delhi Tribunal)

11) Mixing of raw rice, dehydrated vegetables and spices in predetermined

proportion and blending them together in a mixed form, then heating, sterilising

and packing the product in pouches with nitrogen flushing for a longer shelf lifeamounts to manufacture as a new product commercially known to the market

has emerged.

TEST FOR MOVABLE OR IMMOVABLE GOODS:

1) Quality Steels Pvt. Ltd. Vs. Collector of Central Excise (Supreme Court)

In this case the assessee had put up a plant in two phases to manufacture steel

tubes of various specifications. The assessee procured certain components from the

market, fabricated certain components within the factory and erected a tube mill insidethe factory. The Excise Department issued a notice to the assessee demanding duty on

the tube mill for the reason that they are goods, movable and marketable. Upto the stage

of Tribunal the demand was confirmed. The Supreme Court held that when any goodsare embedded to earth and identity arises after attaching to earth, it is an immovable

property.

The tube mill will lose its identity the moment it is dismantled. Further tubemill

as such is not marketable. Therefore it is not excisable.

2) Triveni Eng. Ltd. Vs. CCE (Supreme Court)

In this case the company was engaged in the manufacture and assembling of a

product known as Turbo alternator. It involves assembly of Steel Turbine,

Alternator, Motor and a coupling and aligning them in a specified manner.

The Excise Department demanded duty on the Turbo alternator.

The Supreme Court held that by assembling turbine, alternator etc. a new

product namely, Turbo alternator has emerged and hence it amounts to manufacture.However, by embedding the goods on earth it has become an immovable property.

Therefore, it is not excisable.


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3) Sirpur Paper Mills Ltd. Vs. Collector of CE (Supreme Court)

In this case a product was assembled and erected on earth. The Excise

department claimed that it is an immovable property.

The Supreme Court gave the following decision:

The purpose behind attaching the machine to a concrete base was to preventwobbling of the machine and to secure maximum operational efficiency and safety. It is

not something attached to earth like a building or a tree. The test would be whether the

paper making machinery could be sold in the market? In this case it can be sold in the

market. Therefore it is excisable.

LATEST CIRCULARS

Due to contradictory decisions in various cases, the CBEC has issued a circularclarifying that any goods may become movable or immovable on the basis of following

tests:

1. Whether it is attached to earth?

2. Whether the goods are marketable as such?3. Whether the goods could be dismantled without substantial damage to the

property?

While dismantling if the goods get damaged, it has to be treated as an immovable

property. the Board Circular has cited few examples:

1) Any Cement Plant, Steel Plant, Sugar Plant, Paper Plant etc. are immovableproperties attached to earth and hence not excisable.2) Storage Tanks : Any storage tank that are ready made that are movable and

marketable and therefore, excisable. On the other hand huge storage tanks

constructed on earth using steel plates and rods are welded together and thereby itis immovable and hence not excisable. Further, such (Plants) tanks cannot be

dismantled without damage to the property.

3) Air-conditioning & Refrigeration Plants : Such plants are huge plants erected onearth and assembled to the specification of the customer. They are not marketable

as such. Therefore, they are immovable properties and not excisable. However,

any parts of Air-conditioning or Refrigeration Plant manufactured and cleared are

liable for excise duty.4) Lifts & Escalators : The erection of lifts involves assembling of several

components like motor, body of the lift, ropes, electrical and electronic items.

The lift obtains its identity only after erection at the Site. Therefore, it isimmovable and not excisable.

5) Weigh Bridges : There were difference of opinion on the question of weigh

bridges being movable or immovable. In the case of Narne Tulaman Ltd. and


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later cases it was held that weigh bridges are movable, since, it can be dismantled

and erected at any other place.

TEST FOR MARKETABILITY:

A.P.S.E.B Vs. C.C.E (Supreme Court)

In this case APSEB engaged contractors and supplied Steel, Cement, Gravel and

Sand to manufacture power distribution poles. The contractors were paid job charges.Neither APSEB nor the contractors paid any excise duty on the ground that the poles are

not sold in the market.

The Supreme Court held that marketability does not mean the goods must be soldin the market Even if there is only one buyer or a seller, it is marketable and it becomes

goods, therefore duty is payable.

Who has to pay Excise Duty:

Excise Duty is paid by the manufacturer or producer of excisable goods. Thereare 3 categories of manufacturers:

I. A person manufactures the goods for himself e.g. an automobile engineerassembles a car for himself. In this case the automobile engineer is the manufacturer.

II. A Company or a person hires labourers or employees and obtains the goods

manufactured through them. In this case the company or the person is the manufacturer.

III. One supplies raw materials and components to another who manufactures goodsand receives job charges or conversion cost. In this case there was a dispute on who is

the real manufacturer.

The Supreme Court held tht in such cases the Job Worker is the manufacturer.

Case Laws: UOI Vs. Citabul (I) Ltd. (Supreme Court)

Collector Vs. Jay Engineering Ltd. (Supreme Court)

Food Specialities Ltd. Vs. UOI (Supreme Court)

However, a Job worker should not be dummy or hired labourer of the customer.

The Job Worker will be treated as dummy, if there is a common source of funding and

financial flow back from one unit to another.Whether goods are excisable if mentioned in the Tariff?

In the case of DCM Ltd. Vs. UOI

Bhor Industries Ltd. Vs. Collectors

Collector Vs. Ambhala Sarabhai Ltd.the Supreme Court held that simply because the tariff heading is there, it is not

dutiable unless the goods are marketable.


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Definition of Factory Sec.2(e)

Factory means any place or premises where excisable goods are manufactured or

produced that includes any other place or premises where any activity is carried in or in

relation to manufacture or production.

Sec-3

Excise Duty shall be levied on all excisable goods manufactured or produced inIndia on the basis of the following:

a) A Duty called CENVAT under First Schedule to CETA, 1985.b) A Duty called Special Excise Duty under II Schedule to CETA, 1985.

MODE OF IMPOSING EXCISE DUTY:

1) Specific Rate : It is based on quantity cleared. For example, Rs.5 per litre orRs.10 per Kg or Rs.15 per metre or Rs.20 per piece etc.

2) Advalorem Rate Duty : It is percentage imposed on the value of the goods thattakes into account the total quantity cleared and assessable value per unit.

3) Combined Rate : It is a combination of a specific rate and advalorem rate. E.g.

16% + Rs.500 per metric tonne.

CHAPTER II

CLASSIFICATION

The purpose of classification is two fold.

1) To know whether the goods are excisable or not2) To know the quantum of duty payable.

The Excise Tariff has been designed under a 8 Digit Coding System on the basisof HSN or HCDCS (Harmonised Commodity Description Coding System)

The purpose of HSN is to have a uniform classification of goods imported among

the member countries of WTO under GATT. The 6 Digit coding system follows thefollowing principles:

1) First two digits indicate Chapter Number.2) Next two digits indicate Heading Number.

3) The Last 4 digits after decimal point indicate Subheading or Sub classification

of goods.


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Example: Chapter-90: Optical, Photographic, testing and Surgical instrument.

Heading 9004: Spectacles, Goggles and like.Sub Heading 9004-1010: Sunglasses .16 %

Sub Heading 9004-1090: OthersNil.

The Central Excise Tariff has 20 sections and 96 Chapters. The 20 sections are as

follows:

Guidelines to Classification:

1) Notification :

The Tariff must be read with notifications which may reduce the rate of duty or it

may make the rate nil subject to conditions or without any conditions.

2) Interpretative Rules :

Interpretative rules are available in the tariff itself to assist classification. These

interpretative rules are as follows:

a) Any unfinished or incomplete goods are classifiable under the main heading,

provided it has attained all the essential characteristics. Also any goods

cleared in parts are in disassembled condition classifiable under the heading

meant for complete goods.b) Any material or substance which is a mixture or combination is classified

under the heading for mixture if there is a separate heading, otherwise it isclassifiable on the basis of predominance. For example, If copper and zinc ismixed it brings Brass. If there is a heading for Brass, it is classifiable there. If

there is no heading for brass, if copper is more it is classifiable under copper.

On the other hand if zinc is more it is classifiable as Zinc.c) A specific heading must be preferred to general heading. e.g. Tyres & Tubes

meant for motor car is not classifiable as parts of motor car under chapter-87.

It is classifiable under chapter-40, as there is a specific heading for Tyres &Tubes.

d) Where any goods are put in sets or combination of features, it is classifiable

on the basis of the main character. e.g. A 3-in-1 product with CTV(Main

Feature) /DVD/Digital Timer is classifiable as CTV.e) Where any goods are classifiable equally under 2 or more headings, the later

one must be preferred.

3) Any Dictionary or Scientific or Technical meaning cannot decide the

classification, it can only guide classification.

4) Results of chemical examination cannot be taken as


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conclusive proof for classification.

5) Products may have end use and predominant use. However, classificationdepends upon the primary use of the goods. In other words, the main

character or use alone can determine the classification of goods.

6) Section Notes : Every Section of the Tariff may contain section notes. These

notes specifies inclusion or exclusion of certain chapters or headings under a

particular section.

7) Chapter Notes : Chapter Notes also specifies inclusion or exclusion of certain

goods under a heading or subheading. Further it defines meaning for certainterms like 'smoke point' or 'boiling point' etc. It also says whether packing

or repacking or labelling or relabelling or any other activity will amount to

manufacture.

8) Sec.37-B Circular : Under Sec.37-B of CE Act, the Ministry of Finance or

CBEC is empowered to issue circulars on the matters relating to classification,valuation etc. Such circulars may classify where the goods are exactly

classifiable. However, such circulars are binding only departmental officersand not the assesses.

9) HSN Harmonised System of Nomenclature : The HSN published byGovernment of India contains details of various group of commodities that

may fall under a heading or subheading which may help to decide the

classification.

10) Case Laws : Any decisions made by Tribunals or High Court or Supreme

Court may assist to determine the classification.

Explanatory Notes:

The Tariff headings and subheadings are preceded by either single dash (-)or double dash (--). Where any heading is preceded by '---', it indicates it is a

classification of the main heading. Where any heading or subheading is preceded

by '----', it indicates the sub classification of the immediately preceding heading.

CHAPTER - III

VALUATION

Till 30-6-2000, excise duty was payable on the basis of normal price. The conceptof normal price was litigated before the court of law for more than a period of 25 years.

Since 1-7-2000, the concept of normal price was replaced by transaction value.

Under Sec-4, excise duty is payable on the transaction value. Under Sub-clause-a

of clause-1 of sec-4, a transaction value requires following conditions to be satisfied:

1) There must be a sale


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2) The value is to be determined at the 'place of removal', since any change in the

place of removal for sale may affect the transaction value.

3) Transaction value is to be determined 'at the time of removal'. Any change inthe time of removal involves interest element that may affect the transaction

value.

4) Buyer and Seller not to be related. It does not mean goods cannot be sold torelated person. It actually means transaction value is not acceptable if the

goods are sold to related person.

5) Price must be the sole consideration of sale. In other words, other than theinvoice amount nothing is to be collected in cash or kind.

Sec.4(1)(b): Where there is no sale or any one of the conditions of Sec.4(1)(a) is not

satisfied, the transaction value is to be determined on the basis of Valuation Rules, 2000.

Sec.4(2): The provisions of Sec.4 is not applicable where the Central Government has

fixed Tariff Value for any excisable goods under sec.3 of the Central Excise Act. Tariff

Value means value notified by the Central Government through official Gazette. For anyexcisable goods, in such cases, duty is payable only on that value irrespective of the sale

price.

Sec.4(3):

a) Definition for Assessee : Assessee means any person who is liable to Pay

Excise Duty under the Central Excise Act, that includes a consignment agent.

b) Related person : Related person means:

1) An Inter connected undertaking.2) A relative as defined in Sec.2(41) of Companies Act, 1956.

3) A relative and a distributor or sub distributor of such

distributor.

4) The buyer and seller are interested on each other

either directly or indirectly (in other words, there is amutuality of interest between the buyer and the

seller).

c) Place of Removal : Place of removal means:

1) A Factory or any other premises where excisablegoods are manufactured or produced.

2) Any warehouse or premises where excisable goodsare permitted for storage without payment of excise

duty (applicable to petroleum products like LPG,Petrol, Kerosine & Diesel).

d) Transaction Value : Transaction value means the price paid/payable inconnection with or in relation to sale by the buyer to the seller. It shall include all costs

like administrative expenditure, selling and distribution, outward handling, after sales


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warranty costs, cost of distribution etc. but excluding taxes and duties actually paid or

payable.

Even though value of excisable goods is determined on the basis of transactionvalue, excise duty is payable only on assessable value. Therefore, it is necessary to

work back from transaction value to assessable value by including or excluding certain

elements which are discussed below:

1) Cost of packing : Generally, Consumer goods involves 3 types of packing

namely, primary packing, secondary packing and special secondary packing.Further cost of packing includes the value of packing material and also the labour

& overheads incurred to pack the goods. With effect from 1-7-2000, all cost of

packing are includable in the Transaction Value or A.V.

2) Cost of Distribution : It is an expenditure incurred by the

manufacturer to distribute the goods to dealers, agents etc. It shall form part of

the Transaction Value and A.V.

3) Interest on Finished goods : When stock of finished goods arecarried at the depot or branch or godown etc. it blocks working capital that results

in additional interest liability which is known as interest on finished goods. It isincludable in the Transaction Value or A.V.

4) Interest on Receivables : It means the interest payable on theamount due from the customer where the goods are sold on credit basis. The

Supreme Court in the case of MRF Ltd. held that interest on receivable for the

period from the date of sales till the date of payment need not form part of the

A.V. Under new Sec.4 also, interest on receivables is not includable subject tothe following conditions:

a) There is a separate financial arrangement between the buyer

and seller.b) Interest element is clearly distinguished from the price.

c) it relate to the period between date of sale and date of

realisation.d) It is known to the buyer at the time of sale.

5) After Sales Warranty Costs : The marketing practices is that for

consumer durable goods, a standard warranty period is offered in addition towhich an optional warranty is given on payment of a specific amount (extra).

Any cost associated with the normal warranty period automatically forms part of

the sale price. Hence the question of exclusion or inclusion does not arise.However in the case of optional warranty any amount collected at the time of Sale

(or) later is includable in Transaction Value or A.V.

6) Discounts :

a) TAC/Warranty Discount : TAC means Tyre Adjustment

Committee formed by MRF and other tyre manufacturer. Any buyer of tyres or


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A.V.=CDSP(Total Sales Price)- All Permissible Deductions(APD)

+ Rate of Duty

e.g. TSP = Rs.1,300

APD = Rs. 140

Excise Duty Rate = 16%

A.V. =1300 140 =1160 = Rs.1,000

1+ 16/100 116 100

10) Interest on Deposits: A manufacturer or seller of excisable goods may collect

deposits from distributors or dealers as Security Deposit or Caution Deposit. In

such cases, whether the manufacturer pay interest or not, interest element is notincludable in the value.

VST Industries Ltd. Vs. UOI ( Supreme Court )

11) Value of System Software: In the case of PSI Data Systems Ltd., the

Supreme Court held that if any software is supplied along with the computer

system it is includable in the A.V. However, under new Sec.4, the CBEC has

issued a circular which clarifies that any software etched in the Computer Systemitself (like Calculator), the value of such software is includable in the value. Any

other software which is loaded into the computer system to the requirement of the

customer, the value is not includable. However, any software exclusivelydeveloped to the requirement of the customer shall suffer excise duty

independently.

12)

Erection & Commissioning Charges: Where Plant and Machineries are

supplied it may involve erection and commissioning for which the seller chargesthe buyer separately. In such cases if the erection and commissioning charges are

distinguished from the price of the goods and if there is a separate agreement suchcharges are not includable in the value.

However, the CBEC circular classified that if any goods are cleared as

component from the factory to the site and later assembled or erected and thepremises of the buyer proportionate erection and commissioning charges are

includable.

13) Commission: Where commission is given to a consignment agent, it is a caseof selling & distribution expenses, hence includable in the value.

14) Advertisement expenses incurred by the dealer: Any advertisementexpenditure incurred by the dealer on his own not includable in the value. In case

the expenditure is incurred compulsorily by the dealer on behalf of manufacturer

or the expenditure is shared on account of the manufacturer it is includable.


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15) Cost of Transportation: Any cost of transportation (Freight & Insurance) from

the freight to depot, branch, godown, warehouse & premises of consignment

agent is always includable in A.V.

However, if the cost of transportation relates to factory to buyer's premises or

depot or branch etc to buyer's premises, then it is not includable to the extent ofactual cost.

VALUATION RULES 4(1)(b)

Rule-1: a) These rules re called Central Excise [Determination of Price of

ExcisableGoods]Valuation Rules, 2000.

b) It shall come into effect from 1-7-2000.

Rule-2: a) 'Act' means Central Excise Act, 1944.

b) 'Value' means 'value' as defined in Sec.4 of Central Excise Act.

c) Normal transaction value means the price at which majority of the

aggregate quantity of the goods sold at a particular time of removal.

Rule-3: Where Sec.4(1)(b) is made applicable, the following rules are to be

followed.

Rule-4: As per this rule where goods are removed for sale, always there is a

transaction value, but when the goods are removed not for sale, there is no transaction

value. In such cases the price of excisable goods at the time and place of removalcould be price of such goods at the time and place of removal. In simple terms, price

of excisable goods could be price of similar goods, In case, there is any difference intime of removal, in time of removal, necessary adjustment could be made. This rule

is applied where samples are cleared that are distributed free of cost.

Rule-5: Where place of removal is factory gate and place of delivery is buyerspremise, actual cost of transportation (freight, insurance etc.) is deductible from the

transaction value subject to the condition that the deduction claimed is actual cost of

transportation from the place of remove to the place of delivery.As per the amended provisions of Finance Act, 2003 the cost of

transportation need not be shown separately on invoice. Further equalised freight isalso deductible provided a certificate is issued by a practicing cost accountant to the

effect that the manufacturer has incurred a specific amount of cost of transportationactually.

Rule-6: If price is not the sole consideration of sale, any other consideration flowing

from buyer to the seller is includable in the value. Such indirect considerations wouldbe materials, components, parts, value of tools, dies, moulds, drawings, blue prints,


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technical maps, packaging materials, engineering work, development, art works,

design work, plans, sketches etc. supplied free of cost.

Note: When gas is supplied in the cylinder owned by the seller,

a charge called cylinder holding charges or rental is

collected depending upon the no. of days the cylinder isheld by the buyer.

Prior to 1-7-2000 it was not includable in the value,

however with effect from 1-7-2000 any cylinder holdingcharges or rentals or maintenance charges includable in

the value.

KOTA GAS LTD. Vs. ACCE (Tribunal)

Rule-7: Where the place of removal or sale is different from the factory i.e. depot orbranch or godown or a warehouse or a premises of the consignment agent then the

transaction value of excisable goods shall be the normal transaction value at whichsuch goods are sold at the place of removal for sale. e.g. Certain goods are removed

to Mumbai Depot from Vijayawada Factory and if the depot price is Rs.100 per unitthen duty is payable at Rs.100 per unit. In case there was no sale at the depot on the

date of removal from factory, previous day's price will be adopted.

Once the goods are removed and if the goods are sold at a higher price from

the depot at a later date, there is no question of further payment of duty. Similarly, if

the goods are sold actually at a lower price, no question of refund.Where there were different prices on the same day at the

Depot normal transaction value is to be adopted.

Rule-8: This rule is applicable where goods are captively consumed. There are 3

situations of captive consumption:

i) Any Excisable goods manufactured and consumed withinthe same factory.

ii) Excisable goods manufactured in a factory, but consumed

in some other factory belonging to the same manufacturer.iii) Excisable goods are consumed by a manufacture behalf

of any other person.

In all the above cases, the value shall be 110% of cost of production or cost of

manufacture.

The Board vide circular dated 13.2.2003 has clarified that cost of production is

to be determined as per C.A.S.4 evolved by ICWAI. s per C.A.S.-4 Cost ofProduct(COP) shall include all direct and indirect material, labour and expenses.

It shall include Administrative Overhead relatable to factory of production.However, Selling & Distribution expenses, Interest and finance charges need not form

part of cost of production. Any miscellaneous income relating to production or scrap


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income is to be reduced from COP. It shall include any R & D expenses or packing cost

if relatable to captively consumed goods.

Rule-9: Where excisable goods are sold only to related persons falling under (ii) or

(iii) or (iv) of the definition of a related person, then the value shall be the normal

transaction value at which the related person has sold the goods to an unrelated buyer.

e.g. If A has sold goods to B at Rs.10 per unit and B has sold goods to C at Rs.20 per

unit, then the transaction value shall be Rs.20 per unit in case A & B are related to eachother.

In case the related person has not sold the goods but captively consumed the goods,

then Rule-8 is to be applied.

Rule-10:Where the goods are sold only to inter connected undertaking and if the buyerhappen to be a related person within the definition of ii, iii or iv of related person or

holding or subsidiary company, then the value shall be determined as per Rule-9.

If the buyer and seller are only interconnected undertaking, it has no implication

on the Transaction Value.

Rule: 10 A Where goods are manufactured on job work basis the goods are to be valuedat the price at which the principal sells the goods. If the goods are sent to depots or any

other place of removal of the principal the price at which the goods are sold at Depot is

the basis for payment of duty.

Rule-11: Where the value of any excisable goods could not be determined by any of the

foregoing rules, it is left to the proper officer of Central Excise to determine the value

consistent with Sec.4 and the above rules.

Sec - 4A:

Initially excise duty was payable only on wholesale price. Since there was a large

gap between wholesale price and retail price, the government wanted to impose excise

duty on the basis of retail price. Accordingly, a new Sec-4A was introduced in the

Central Excise Act. The salient features of Sec-4A are as follows:

1. It is applicable only to those excisable goods notified by the Central Government(so far around 101 goods are covered by Sec.4A)

2. It is applicable only where the goods are sold in a packed condition.

3. It is applicable only where the packaged commodity requires affixation of MRP.under Standards of Weights & Measures Act read with packaged commodity

rules, 1976.


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4. Excise Duty is payable on MRP(-) a permissible deduction notified by the Central

Government for every commodity.

5. If more than one MRP is printed on a package, then maximum MRP will bevalued under Sec.4A.

6. In case, a manufacturer adopts different MRP for different regions or states each

such MRP will be the value u/s-4A.7. Once a MRP is affixed, the goods must be actually sold at that price, where a

manufacturer clears goods under any of these provisions and the price is altered or

obliterated at a later date, the goods are liable for confiscation. Further theExcise Department can ascertain the maximum MRP of such goods and demand

excise goods.

8. MRP means price inclusive of all duties and taxes and other element.

9. The percentage of deduction takes into account all taxes and duties, discounts,commission etc.

10. Where a commodity is covered by Sec-4A but cleared on bulk quantity, then

excise duty is payable only under Sec-4 and not under Sec.4A.

11. If any goods are distributed free of cost, MRP need not be affixed, since MRP isrequired only when the goods are meant for retail sale. In such cases goods must

be valued under Sec.4.12. Where goods are covered by Sec.4A, but consumed captively such quantity must

be valued u/s-4 and not under Sec-4A.

13. If buyer and seller are related goods can be valued under Sec.4A on the basis ofMRP, provided the related person sells the goods at MRP or below MRP.

14. If any extra consideration flows from the buyer to the seller generally, it cannot

have any implication under Sec.4A, since the value is based on MRP. However if

the buyer charges beyond MRP on customers and part of the amount flows backto the manufacturer, then the same is includable in the value at the hands of

manufacturer.

15. New Valuation are Rules are introduced. Where any MRP is altered orobliterated the department can ascertain the price at such goods were sold in the

market and levy duty on such price.

Chapter 4 : CENVAT

Primarily it was introduced as MODVAT in 1986. Even before this, we had a similar

provision viz., Proforma Credit. Now it is CENVAT.

SCHEME:1R.M. 1,000

LEOH 800

S P 200 1000 value addition 10% of 1000 =100

------

2,000 R.M. 2,000


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------- LAB & O.H .1,000

PROFIT 500 1,500 value addition------- 10% OF 1500 = 150

3,500

-------

SCHEME:2 CREDIT SYSTEM

ON C.V. 10% of 2,000 = 200 Already paid on the R.M.10% of 3,500 = 350

-----

150 --------

A&Co. ( ) B&Co. (Ingot) C&Co. ( )

MC 10,000 23,200 34,800

LAB 10,000 6,800 5,200

-------- -------- --------

20,000 30,000 40,000Tax

@ 16% 3,200 4,800 6,400

-------- -------- --------

23,200 34,800 46,400

4,800 6,4003,200 4,800

-------- --------ED Payable (Cash) 1,600 Cash ED 1,600

CENVAT means Central Value Added Tax. It was earlier known as MODVAT,

MODVAT was introduced in the year 1986. But even before 1986, such a scheme wasin existence and was known as Proforma Credit. CENVAT was introduced in the year

2000. The basic concept of the scheme is that the duty paid on the inputs or allowed for

adjustment against duty payable on the final products manufactured by the assessee.

A manufacturer or Service provider can avail this facility if he complies with the

following CENVAT Credit Rules:

16 Rules to be complied to avail CENVAT:

Rule 1:

a) These Rules are called CENVAT Credit Rules 2004.b) It is applicable to whole of India.


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c) It is not applicable to Jammu & Kashmir State in the case of Service

Provider.

d) It has come into effect from 10/9/2004.

Rule 2: (Deals with Definitions)

a) Capital goods means

i) All goods falling under chapter 82, 84, 85, 90 and chapter

subheading 6801.10 and chapter heading no.68.02.ii) Pollution Control equipments

iii) Spares, Components and Accessories meant for goods falling

under (i) and (ii)iv) Moulds and Dies

v) Tubes, Pipes and Fittings thereof

vi) Jigs & Fixtures

vii) Refractory/Refractory materials

viii) Storage Tanks

Chapter 87 Motor Vehicles and Parts

1) Courier Service 2) Rent a Cab Service Operator

3) Tour Operator 4) GTA (Goods Transport Agent)5) Pandhal & Shamiana Service 6) Cargo Handling

Services 7) Outdoor Caterer

The Capital goods must be used in the Factory of production No CENVAT is

available for any equipment / appliance used in a office (not a factory)

CENVAT is available on capital goods used for providing outdoor services.

CENVAT is available for Motor Vehicles falling under chapter 87 to thefollowing Service Providers. If the Motor Vehicle is registered in the name of service

provider:

1. Courier Service 2) Rent a Cab Operator Service3. Tour Operator 4) Goods Transport Agency

5. Pandhal & Shamiana Contract Service6. Cargo Handling Services 7) Outdoor Catering

Services.

*Only this service providers can take credit on Motor Vehicles.


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b) Central Excise Tariff Act 1985

Central Excise Tariff Act means Central Tariff Act, 1985.

c) Customs Tariff Act, 1975

Customs Tariff Act means Customs Tariff Act, 1975

d) Exempted Goods

Exempted Goods means exempted from payment of duty which includes Nil

Rate Goods.

e) Exempted Service (At present 81 & 18 to be added)

Exempted Service means any taxable service exempted from payment of

service tax or any service on which no service tax is payable.

f) Final Products

All goods specified in Central Excise Tariff Act, 1985

g) Inputs

Inputs means 1) an all goods other than HSDO, MS & LDO specified in the ExciseTariff Act used in or in relation to manufacture of the Final Product, whether used

directly or indirectly whether contain in the final product or not. It includes Paints,

Packing Materials, Accessories cleared along with the final product, goods used as fuel,grease, lubricating oil, cutting oil, coolants and goods used for generation of electricity orsteam, used within the factory of production.

(In the case of electricity, steam the same have to be used within the factory ofproduction for any purpose to avail the credit)

2) Inputs used for providing output services are also entitled for CENVAT credit (Creditis available if inputs are necessary and used for providing output services)

e.g. Construction Service requires input like Cement, Steel rods etc., Repairs and

Maintenance Service.

Input Service


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Input service means any service taken by a manufacturer of the final product

used in or in relation to manufacture of the final product. It includes Advertisement

service, Auditing & Accounting Service, Credit Rating Service, ManagementConsultancy Service, Consulting Engineering Service, Insurance Service, Cargo

Handling Service, Storage and Warehousing Service etc.

It also includes Goods Transport Agency Service to bring the inputs or Capital

goods to the place of removal and outward transportation upto the place of removal (It is

to be noted that any service tax paid on GTA from place of removal to place of Deliveryis not permissible).

Input service means any service used for providing any output service by an

output service provider.

Input Service Distributor:

Input Service Distributor means any manufacturer or service provider whodistributes the input service credit among various factories belonging to the manufacturer

or premises belonging to the service provider.

Output Service:

Output Service means any service other than GTA provided by a Taxable

Service Provider to a customer or client or policy holder or any other person where

service tax is payable by a person other than the service provider. The person who taxes

the service shall be deemed as taxable service provider who is liable for payment ofservice tax.

e.g. Where a Technology Service is provided by a Foreign Company in India, theIndian Company that takes the Input Service will be deemed as Output Service Provider

liable for payment of Service Tax.

Rule 3:

CENVAT CREDIT

Following types of Duties and Taxes paid on Imports or Capital Goods or InputService are entitled for CENVAT Credit.

i) BED (Basic Excise Duty) specified under I Schedule to


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CETA, 1985

ii) SED (Special Excise Duty) specified under II Schedule to

CETA, 1985.iii)ADE (Add Duty of Excise) (T&T) Textile levied under Add

Duty of Excise (T & F, 1978)iv)GSI (Goods under Special Import) levied under ADE(GSI)

Act, 1957v) NCCD levied under Fin Act, 2001 (National Calamity

Contingency Duty)

vi) Addition Customs Duty (CVD) / ED. Cess paid underCustoms Tariff Act, 1975 (Countervailing Duty)

vii) Special Additional Duty levied under Section 3(5) of

Customs Tariff Act, 1975viii) Additional Duty of Excise levied under Section 157 of the

Fin Act, 2004 (Tea & Tea Waste)

ix) Additional Duty of Excise levied under section 185 of theFin Act, 2004 (Pan Masala)

x) Service Tax levied under Fin Act, 1994

xi) Education Cess levied u/s 91 & 97 of Fin Bill 2004

xii) Education Cess on Service Tax levied u/s 92 & 95 ofFin Bill, 2004

Note: SAD levied under Customs Tariff Act,1975 is available CENVAT

Credit only to a manufacturer and not to any service provider - where any puts or

capital goods purchased from a 100% EOU or EPZ or FTZ or EHTP or STP the

CENVAT is admissible as per the following formula:

1+BCD CVD

(X) 200 100

X = Assessable value of the goods supplied

BCD = Basic Customs Duty

CVD = Additional Customs Duty / Countervailing Duty

Where goods are purchased from SEZ it is treated like import and hence the entire

ACD and SAD is entitled for CENVAT period.

Where any inputs on which CENVAT Credit has been taken is cleared as such to

any other factory or to any other buyer proportionate. CENVAT Credit must be reversedin the CENVAT Account.

Where any Capital goods on which CENVAT has been taken is cleared as such the

credit taken must be reversed however, where capital goods is scrapped, duty is payable onthe scrap value.


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An Output Service Provider can clear the input as such to provide the Output

Service without reversal of Credit.

e.g. Repairs and Maintenance Provider, Construction

Service Provider.

A Service Provider can take the Capital Goods outside his Premises withoutreversal of CENVAT Credit subject to the condition the capital goods must be brought

back to the premises within 180 days from the date of removal, which is extendable for a

period not exceeding 180 days by Deputy Commissioner/Assistant Commissioner ofCentral Excise.

- CENVAT Credit taken on the inputs or capital goods or input services may be

utilized for the following purposes:i) To pay Excise Duty on Final Product

ii) To pay duty on inputs cleared as such

iii) To pay duty on Capital Cleared Goods as such

iv) To pay Service Tax on output servicev) To pay duty when goods or removed under Rule 16 or

Central Excise Rules, 2002

Note: CENVAT Credit cannot be utilized for payment of Interest, penalty and Cost

Recovery Charges.

Note: Where any inputs or Capital goods, clear as such the receiver of input of capital

goods can take CENVAT Credit.

The following types of Duties could be used only for payment of similar types of

duties:

i) AED (T & T) Textiles and Articles of Textiles.

ii) NCCDiii) Education CESS

iv) Additional Customs Duty equivalent to NCCD (or)

AED (T&T) (or) Education Cess levied under CustomsTariff Act.

Note: CENVAT Credit taken during first day to the last day of the month alone shall be

utilized for payment of duty by 5 th of following month ( e..g. CENVAT from 1st May to31st May shall be alone utilized for payment of duty on 5 th June).

v) Additional Duty of Excise levied u/s 187 of Fin Act.vi) Additional Duty of Excise levied u/s 85 of Fin Act.

However, Education Cess may be used interchangeably i.e. Education Cess paid oninput goods/capital goods may be used on payment of education cess on service tax (or)

education cess paid on services may be used for payment of education cess or excise duty

on final products.


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In case of Project Imports 100% of the Addl. Customs Duty paid is available as

CENVAT Credit Ref Rule 11 Starting.

Rule 4:

CONDITIONS:

1. CENVAT on inputs can be taken immediately on receipt of the inputs into the

factory gate (before such entry we cannot take on the fact that it was in the course of

transport)

2. CENVAT on capital goods shall be taken at 50% of the excise duty paid in the

financial year in which the capital goods are received into the factory or premises of the

service provider, the balance of 50% of the ED may be taken CENVAT Credit in any of

the following financial year.

3. Where any Capital goods are removed as such, balance 50% CENVAT Creditmay be taken in the same financial year. The balance 50% CENVAT is admissible in the

following year, provided the capital goods are in possession of the manufacturer or service

provider.

However, the case of spares, components, accessories, moulds, dies, refractory

materials, goods falling under 68.0110 and 68.02.

- They need not be in possession in the following year we can take CENVAT

Credit (like Screw Drivers, Spanners etc.) which has short useful life.

- Where a manufacturer or service provider opts for CENVAT Credit on capital

goods shall not claim depreciation on that part of the value of capital goods representing as

excise duty u/s 32 of Income Tax Act, 1961. In simple terms, Depreciation not to beclaimed on the CENVAT Credit amount. It is to be noted that where any capital goods is

treated as Revenue Expenditure the value inclusive of CENVAT Credit may be written off

in the P & L A/c. as Expenditure subject to the restrictions under I.T. Act.

CENVAT is available even the capital goods are procured on lease or Hire

Purchase or installment or any other financial arrangement (such document must be

available).

A manufacturer can remove inputs or partially processed inputs after taking

CENVAT Credit to a Job worker for the purposes of further processing or repairs orreconditioning or any purpose whatsoever subject to the following conditions:

1. The inputs or partially processed inputs must be cleared under a challan or any

other document.


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2. After processing the input must be received back within 180 days from the date

of removal.

3. If the goods are not received in 180 days the CENVAT Credit taken is to bereversed. In case part quantity is received proportionate credit on the quantity not received

is to be reversed.

4. Suppose, if the input are received after 180 days, the credit can be taken in theCENVAT Account.

The above provision are applicable to Capital Goods, moulds, dies, Jigs sent to aJob worker for dues in the manufacturing.

Where any inputs or partially processed inputs are sent to a job worker for further

processing, after processing, the goods may be cleared from the premises of job worker toany other place subject to the following conditions:

a. A prior permission is to be obtained from Commissioner of Central Excise.

b. An undertaking what goods will be cleared from job worker.

Premises on payment of appropriate duty is to be given. CENVAT on input servicecan be taken as credit on payment of service charges based on will or any other document

that indicates the Service Tax amount.

Rule: 5 REFUND OF CENVAT CREDIT:

Refund of Cenvat is allowed subject to following conditions:

Where a manufacturer has used any inputs or inputs service in the manufacture of

excisable goods that are exported without payment of duty can claim refund subject to the

following provisions:.-

The CENVAT Credit on the input / input service contained in the exported goods

may be used for payment of excise duty on clearance of excisable goods in India.

In case the credit could not be utilized refund is admissible as per the relevant

notification issued in this regard.

A service provider who exports service without payment of service tax can also

claim refund if he is unable to utilize credit on services provided in India.

No refund is admissible under this rule if the applicant has claimed duty draw

back / rebate.

Rule: 6


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OBLIGATIONS:

1. No CENVAT Credit shall be taken on any inputs used in exempted goods or

Nil Rate goods.

2. Where inputs are common or input service is common for both exempted goods

and dutiable goods, the following options are available:

Option 1: The manufacturer shall maintain the inventory separately and not to

take any CENVAT Credit on that quantity of inputs which are likely to be used in theexempted goods / Nil Rate goods. (OR)

Option 2: A manufacturer shall pay 10% on the value of the exempted goods / Nil

Rate goods.

Option:3 To debit provisionally on monthly basis an amount as per the formula

and after the financial year final figure is to be arrived at and the difference is tobe paid and refund may be taken on or before 30th June.

In the case of service provide he has to be 8% on exempted service or he can opt

for the said formula.

Note: It is to be noted that the buyer of the exempted / Nil Rate Goods is not entitled forCENVAT Credit of 10% payment, since it is not excise duty.

Nothing contained in this Rule is applicable where goods are manufactured and

supplied by the following units without payment of Excise Duty:

1. A 100% EOU

2. An unit in SEZ

3. An unit in EPZ/FTZ

4. An unit in EHTP

5. An unit in STP

6.Any supplier to UN or any international organizations for products funded byinternational organizations approved by Govt. of India.


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7. Export under Bond

8.Gold/Silvers manufactured by Copper/Zinc Smelters

Where CENVAT is taken on any input service commonly used for providingexempted services and taxable service or dutiable product or exempted products with

reference to 16 services, credit is admissible even though they are use to provide

exempted service or in exempted goods..

In the case of following output services is admissible unless the input services are

exclusively used for manufacture of exempted goods or Nil Rate goods.

- Where Capital goods are commonly used to manufacture exempted goods as

well as dutiable goods, CENVAT is admissible unless the capital goods are exclusively

used in the manufacture of exempted goods.

Rule: 7

Distribution of Input Service Credit:

A manufacturer or an output service provider can distribute the input service

credit various units / premises subject to the following provisions:

1. A Registration from Service Tax is to be obtained.

2. The tax is to be distributed through a proper documentname, challan prepared under Rule 4(a) of Service TaxRules.

3. No distribution shall be made beyond the service tax

amount.4. No credit shall be distributed to any unit / or premises.

Which manufactures exempted goods or services which are exempted.

Rule 8:

Storage of Input outside the Factory:

A manufacturer may be permitted to store the goods outside the factory premises

if the following requirements are satisfied:

1. There is shortage of space in the factory or the goods are dangerous in nature.

2. A prior permission is to be obtained from DC or AC of Central Excise.


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3. An undertaking is to be given to reverse the CENVAT Credit if the inputs are

clear without use in the manufacture of final product.

Rule 9:

Documents & Returns:

CENVAT Credit can be taken on any of the following documents:

1. An Invoice issued by the manufacturing of inputs / capital goods from his

factory / warehouse / branch / godown / depot / premises of a consignment agent.2. An invoice issued by the importer.

3. An invoice issued by the importer from his branch /depot / warehouse / godown

registered with Central Excise.4. A Bill of Entry

5. An invoice issued by first stage dealer registered with Central Excise.6. An invoice issued by 2nd stage dealer registered with Central Excise.7. A supplementary invoice

8. A certificate issued by appraiser of Customs where goods are imported by post.

9. A bill / challan issued by a Service provider under Service Tax Rules.

It is the responsibility of the person taking CENVAT Credit to ensure that thesupplier of inputs on capital goods on input service provider has paid the appropriate

excise duty / service tax. One can ensure the duty payment by following methods:

1.From his personal knowledge

2.A certificate issued by the supplier whose signature is familiar.

3.A certificate issued by Superintendent of Central Excise at the suppliers end.

4.CENVAT is admissible if the following information are available on the documents.

a. Name and Address of the Supplier

b. Description of goods

c. Value of goods.d. Amount of Duty on Tax

e. Duty or Tax payment particulars

If any information is not available on the document it can be condoned by AC/DCby passing an order if he is satisfied that the input or capital goods where actually

received into the factory used in the manufacture of final product.

Every person who takes CENVAT Credit has to maintain proper records to showthe description of the inputs / capital goods / input service, document no., quantity

received, quantity issued and closing balance. Also a proper register or account is to be

maintained to show opening balance, date, document no., CENVAT Credit taken,CENVAT Credit utilized and closing balance.

The CENVAT Register as and when inputs /Input Service / Capital goods

received, the duty paid will be entered in the credit column, as and when ED is paid on


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final product or Service Tax is paid on Output Service entry will be made in Debtor

Column.

IfCENVAT account is maintained in the Ledger Entry will appear in the opposite

column.

Every manufacturer who takes CENVAT Credit must file a Monthly Return by

10th of following month indicating the Opening Balance, Credit taken during the month,

Credit utilized during the month and closing balance.

A SSI Unit shall file a Quarterly Return by 20th of a following Quarter:

A registered dealer shall file a return in prescribed format indicating OpeningBalance, Quantity received Quantity sold, Closing Balance, Excise Duty paid, Excise

Duty Credit passed on etc.

This Return is to be filled quarterly basis by 20 th of the month following thequarter.

Every Service Provider shall file a Half yearly Return by end of the month

following the half year.

Rule 9A: Declaration of Inputs:

Every manufacturer who pays duty not less than 100 lacs in previous financial

year shall file a declaration in prescribed format by 30 th April every year. In case of any

change, a fresh declaration is to be filed within 15 days from the date of charge.

Manufacturers of Excisable goods falling under certain chapters are exempted

from filing this Return. This declaration shall consists of the following particulars:

a. Serial Number

b. Description of the inputs

c. Chapter Subheading no.d. Unit of Measurement

e. Quantity

f. Final product descriptiong. CSH no. of final product

h. Quantity of Waste and Scrap Generator

i. Input, Output Ratio

This declaration is to be filed only for principle raw materials. Principle Raw

Materials means any raw material which constitutes 10% or more of the Total Raw

Materials cost.

Rule 10:

Transfer of Credit:


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Each unit if separately recognized CENVAT Credit of 1 unit cannot be transferred

to other unit to the same company even though they are considered as same under the

Companies Act. We have to pay the CENVAT in cash only.

Normally, one manufacturing unit cannot transfer the CENVAT Credit to another

unit. However, if a factory is shifted to another site or 2 or more units or companies oramalgamated or merged or 1 unit is taken over are absorbed by another company.

The CENVAT Credit lying as balance may be transferred if the following

conditions are satisfied:

1. A permission is to be obtained from DC/AC of Central Excise

2. The company or unit taking over the other unit must take over the liabilities.

3. All the inputs, WIP and Capital goods lying in stock if the unit which is to beshifted must be transferred to the other unit.

A Service Provider who is shifting the premises or two or more companies

amalgamated, merged, the unutilized CENVAT Credit may be transferred by satisfyingthe above three conditions.

Rule 11:

Where a manufacturer has not opted for exemption in a financial year, but opts forexemption in the following year, he shall pay / proportionate CENVAT Credit on inputs,

WIP and Finished Goods lying in stock as on the date of commencement of the following

year. After debiting the proportionate credit in the CENVAT Account, if there is any

balance it shall lapse.

Rule 12: Omitted:

Deals with special provisions given to the North Eastern States. No Imp for

exam.

Rule 13: Deemed Credit:

It is the facility extended by the Government to specified manufacturer on

specified goods to enable the manufacturers to avail CENVAT Credit. This Creditfacility is extended even though a manufacturer may not have duty paid document for

inputs to take the credit.

The specific amount is allowed as CENVAT Credit under the scheme.

It is to be noted that very rarely this credit facility is provided by government.

Rule 14: Recovery of Wrong Credit:


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Where any CENVAT Credit has been taken wrongly or utilized wrongly by any

person, it shall be recovered along with interest u/s 11A and 11AB of Central Excise Act.

Rule 15:

Confiscation and Penalty:

1. Where any CENVAT Credit has been taken wrongly without ascertaining the

fact that appropriate duty has been paid by the supplier of input/Capital goods/service or

contravening any of the provisions of these Rules or goods are liable for confiscation anda penalty not exceeding the duty on excisable goods or Rs.2,000 whichever is great shall

be imposed.

2. Where CENVAT Credit has been taken wrongly / utilized wrongly by reasonof fraud, collusion or suppression of facts or willful misstatement or contravention of any

of the provisions of these rules with the intention to evade duty, penalty u/s.11 AC of the

act(equivalent to the duty amount) shall be imposed.

3. Where a Service Provider has taken any CENVAT Credit wrongly or without

ascertaining the fact that appropriate service tax has been paid or in contravention of

these rules, a penalty shall be imposed which may extend to Rs.2,000

4. Where a Service Provider has taken any CENVAT credit wrongly or utilized

the credit wrongly by reason of fraud, collusion or suppression of facts or willful

statement or contravention of any of these rules if the intention to evade payment of dutya penalty u/s 78 of the Finance Act shall be imposed (not less than) service tax amount

but not exceeding twice the service tax amount.

Rule 16:

Supplementary Provisions:

(To avoid doubts clarification, orders, circulars etc. will be given)

The CBEC (Central Board of Excise and Customs) the Chief Commissioner andCommissioner of Central Excise are empowered to issue circulars, instructions, standing

orders and clarifications consistent with these rules.

Any action taken under CENVAT credit Rule, 2002 is valid under the newprovisions.

CENTRAL EXCISE RULES, 2002

Rule-4: Duty payable on removal:


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Excise duty is payable on removal by every person who manufactures or produces

or stores excisable goods subject to the provisions of Rule-8.

However, in the case of the manufacturers of molasses from khandasari sugar,

excise duty is payable on receipt of the goods by the buyer when he receives the goods

into his factory.

In the case of goods falling under chapter 62 (Ready made garments) excise duty

is payable on removal either by the principal who supplied the raw material or by the jobworker. If the job worker undertakes to pay excise duty removal he shall pay on removal.

If the principal undertakes to pay duty he shall pay excise duty, on removal of goods

from his premises.

Excisable goods manufactured in a factory may be stored outside the factorypremises after executing a bond and obtaining permission from Commissioner. Such

permission will be granted only in exceptional circumstances depending upon the nature

of goods and shortage of space in the factory. (Finance Act, 2003)

Rule-5: Relevant date for determination of Rate of Duty and Tariff Value.

In the case of all excisable goods the relevant date will be the date on which thegoods are manufactured. However, for administrative convenience relevant date is taken

as date of removal of such goods from the factory or any other premises of the

manufacturer.

In the case of khandasari sugar molasses, the relevant date shall be the date on

which molasses is received into the buyers premises.

In the case of goods falling under Chapter 62 the relevant date shall be the date on

which the principal removes such goods from his premises or from the premises of the

job worker depending upon who undertakes to pay duty.

Rule-6: Assessment of Duty:

Basically there are 3 systems of Control:

1) Physical Control system:

Under the physical control, a Central Excise Officer is posted to every factory tosupervise the clearance of the goods. Usually an advance intimation (24 hrs. in advance)

is to be given by the manufacture to a Range Superintendent, the range officer will

inspect the goods, verify the correctness of value, tariff classification, rate of duty,

amount of duty etc. and if satisfies permits clearance on payment of duty. Physicalcontrol is not applicable to all types of goods. It is presently applicable only to

Cigarettes.

2) Compounded Levy Scheme:

Under this system excise duty is imposed on the basis of capacity of production asa lump sum amount. This is applicable to products like stainless steel patties or pattas or


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embroideries and marble slabs. A similar scheme was existing under Sec.3A for steel

rolling mill, (Ingot manufacturers, manufacturers of aluminium circles and independent

textile process). However, Sec.3A was abolished in the year 2000. Under CLS, capacityof production is determined on the basis of size of the machinery or power consumption

or no. of employees etc.

3) Self Removal Procedure (SRP):

It is applicable to all excisable goods except those covered by physical control orCLS. Under this scheme there is no intervention of any excise offices on day t day

clearance of any goods. The manufacturer himself determines the value, duty etc. and

clears goods on payment of duty.

There is no need of any assessment of duty by the Departmental officers under

this rule. The assessment by range officer was replaced by self assessment system under

which assessment is carried out by the assessee himself. However, in the case ofcigarettes assessment is to be done by Range Officer before clearance of the goods.

Rule-7: Provisional Assessment:

Where a manufacturer or producer of excisable goods is not in a position to

ascertain the value or rate of duty of excisable goods, he may request DC or AC of the

Division for provisional assessment. For this purpose a letter is to be given in writing

specifying the reasons for opting provisional assessment. On receipt of the letter, the DCor AC will grant permission to pay duty on provisional basis.

The assessee must forward the proposals for final assessment at the earliest not

exceeding 6 months to finalise the assessment.

The DC or AC must pass a final order of assessment immediately on receipt of

particular from the assessee.. If the assessment could not be completed within 6 months

from the date of the order, permission is to be obtained from Commissioner for extendinganother 6 months and for any further extension permission is necessary from Chief

Commissioner.

On finalisation if any duty is payable further, it must be paid with the interest at13% p.a. from the first day of the following month for which assessment is completed till

the date of payment.

Where any amount is refundable C.G. shall pay interest @ 6% p.a. from the first

day of the following month for which assessment was completed.

The new provisions are applicable only for those provisional assessment orderspassed on or after 1-7-2001.

Where any amount is refundable it will be credited to Consumer Welfare Fundunless the requirements of Sec.11-B is satisfied.

Rule-8: Manner of Payment of Duty:


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Every manufacturer of excisable goods shall pay excise duty on monthly basis.

For the clearances effected during a month, the duty shall be paid by 5 th of the following

month. However SSI units shall pay by 15th of the following months for the clearanceseffected during a month.

For the month of March all assesses including SSI units must pay duty by 31 st

March.

Even though under Rule 4 duty is payable on removal, a facility has been

introduced that provides for payment of duty on monthly basis.

Every assessee other than a SSI manufacturer availing exemption, shall pay duty

on or before 5th of the following month for the clearances effected during the month. TheSSI units may pay the duty on or before 15 th of the following month. If an assessee fails

to pay the duty on the specified date, he shall pay interest @ 2% p.m. of default or

R.1000 per day whichever is greater. However, the interest shall not exceed the duty

payable (Finance Act, 2003)

The buyer of the goods can take Cenvat on the basis of invoice as if duty hasbeen paid already on such goods.

Excise Duty cannot be paid by Cash or Cheque directly at excise department. It

has to be paid through a nominated bank by depositing cash or cheque using TR-6

challan. TR-6 challans are to be prepared in quadruplicate under the signature and seal ofthe person who remits the duty. It shall give information regarding name and address of

the manufacture, registration number, name of the nominated bank with code number,

type of duty and its code number, amount of duty etc.

When the amount is remitted to the bank, the banker returns triplicate and

quadruplicate copies of the challan to the remitter. Using the quadruplicate copy, theassessee shall make entry in credit column of P.L.A. where any deposit is paid by

cheque, the date of payment will be taken as date of presentation of the cheque at the

bank. However, if the cheque is not realised and bounces, it will be treated as clearance

without payment of duty.

Any payment of penalty or interest or any other charges cannot be paid through

Cenvat A/c. such payments are to be made only through a TR-6 challan by cash orcheque or a separate P.L.A. is to be maintained for such payments.

Rule-9: Registration:

ECC No.:


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Earlier Excise Department used to give a registration number for every

manufacturer or producer or dealer of excisable goods. Presently they are allotted ECC

No. in the place of registration number. The expansion for ECC is Excise Control Code.It is a combination of PAN and a alphabetical prefix and a serial number allotted by

excise department. Where the application is for manufacture of excisable goods the letter

XM are attached to PAN No. If the applicant is a dealer the letters XD is a attached toPAN No. where the manufacturer is having more than one unit, the letter XM is followed

by no.1 or no.2 or..

E.g. ABCDE 1234 H + XM 001

002

ABCDE 1234 H + XD 001

002

Registration is necessary for every manufacturer or producer of excisable

goods. It is also necessary for a dealer or a person who store excisable goods. To obtain

registration an application is to be made in Form A1 in duplicate to DC/AC furnishingthe following information:

a) Name and Address of the factory

b) Location

c) Name of the excisable goodsd) C S H no. of the goods.

e) Rate of duties

f) Notification number (if any)

g) Estimated quantity of productionh) Name and address of the proprietor or partners or directors of the

company.

i) PAN no. of the companyj) Date of application

k) An undertaking to abide by all the terms and conditions of the registration

l) An undertaking to comply with all the provisions of Central Excise Act &Rules.

m) A Declaration to the effect the information given are true and correct.

n) Signature of the applicant with data.

The application is to be submitted to the DC or AC of the Division who will grant

registration on the same day after feeding the particulars into the computer system. If

any application is incomplete, it is to be rectified by the applicant.Since ECC No. is granted, no separate registration no is allotted to an

applicant.

Central Excise Registration is not for the company, it is only for the premiseswhere excisable goods are manufactured or sold. Therefore, separate registration is

necessary for every factory or premises. On receipt of the application registration will

be granted in Form-RC.


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If any new product is introduced for manufacture or storage, it is necessary to

obtain an endorsement on the registration certificate from DC/AC.

Any change in the constitution of the firm must be intimated to AC/DC.

The RC must be exhibited in a conspicuous place at the factory.

If the manufacturing activity is discontinued or factory is closed, the RC must be

surrendered before AC/DC.

The RC may be suspended or reverted if the person fails to comply with anyconditions of registration or provisions of excise act & rules or is punished for any

offence under CPC of IPC [u/s.109, 116 and 161].

If one or more factories are amalgamated or merged or taken over, the RC must be

surrendered and the transferee must obtain a fresh certificate.

Who need not take Registration?

1) Any person who manufactures excisable goods that are exempted from

payment of duty or attracts nil rate of duty. However, such person must file adeclaration to proper officer of excise.

In the case of SSI units availing exemption from paying whole of duty,declaration is not necessary, but immediately after exceeding(crossing) 90 lacs

value of clearance, the declaration must be filed.

2) Where excise goods are manufactured under customs warehousing procedures,registration is not necessary.

3) Where goods are manufactured through Job worker and if the Job worker isnot clearing goods on payment of duty, he need not take a registration.

4) Where a principal supplied raw material to a job worker and obtains the goods

manufactured through job worker, he need not take registration, provided heundertakes that the job worker will pay appropriate duty.

5) Any dealer of excisable goods who is not FSD/SSD need not take registration.

6) An 100% EOU or a unit in FTZ or EPZ or SEZ or EHTP or STP need not take

a registration as such units come under customs control.

Rule-10: Daily Stock account:

Every manufacturer or producer or the assessee must maintain a daily stock

account indicating date, quantity produced, quantity cleared, O.B., C.B., value of thegoods cleared, rate of duty and amount of duty. This register must be maintained on day


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to day basis. The daily stock account must be pre-authenticated by the assessee himself

or by the authorised person on first and last page of the register.

Rule-11: Removal under Invoice:

All excisable goods must be removed from factory or warehouse only under a

document namely invoice or invoice cum delivery challan to be prepared in triplicate.

The original must indicate in bold capital letters. ORIGINAL FOR BUYER,

DUPLICATE must indicate FOR TRANSPORTER and TRIPLICATE must indicateFOR ASSESSEE.

Each foil must be self authenticated by the proprietor / MD / Mang.Partner / CS

or any of the authorised employee of the company. It must contain the seal anddesignation of the person who authenticated the invoice.

An invoice shall contain the following particulars:

1) Pre printed Serial number.2) Date

3) Name and address of the manufacturer4) Name and address of the consignee

5) ECC No. or Registration No.

6) CSH (Chapter Sub-heading) No. of the excisable goods7) Notification number (if any)

8) Division and Range

9) Description of the goods10) Number of Packages

11) Quantity

12) Unit of Measurement13) Unit Rate14) Value under Sec.4 or 4A

15) Rate of excise duty

16) Amount of duty17) Trade Discount, Cash discount etc.

18) Any other consideration

19) Total transaction value20) Date and Time of removal

21) Vehicle No.

22) A declaration by the manufacturer stating that other than the transaction

value no other amount was charged on the buyer.

Rule-12: Filing of Return:

Every assessee shall submit to the range superintendent a monthly return in

specified form indicating the Opening Balance, Quantity produced, quantity cleared,

closing balance, value under Sec.4 or 4A, quantity cleared without payment of duty andits value, duty payable, invoice number under which the goods were cleared, an extract of


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CENVAT, an extract of PLA etc. The assessee must indicate whether the return was

assessed provisionally or finally.

Every assessee must file a return on or before 10 th of the following month.

However, SSI units shall file the return on quarterly basis, by 20 th of the following

quarter.

Note to Rule-6 and 12:

Eventhough no assessment is done by the Excise officer and the assesses areworking under self assessment system, as per the supplementary instructions, the returns

are to be scrutinised by the Range Superintendent.

Rule-13: Duty on Matches

Rule-14: Procedure for Production and Removal.

Prior to Finance Act, 2003, excise duty on matches was payable in advance andevery match box required a stamp to be affixed on the match box that was issued by

Treasury. By Finance Act, 2003, this procedure has been abolished. Now there is nonecessity to affix any stamp on match boxes.

Rule-15: Special Procedures for excisable goods:(payment of duty)

The Central Government may prescribe special procedure for payment of duty

on the basis of capacity of production or units covered by Special Status like 100% EOU,

FTZ, SEZ etc.

Rule-16: Return of Duty paid goods:

Any duty paid goods may be returned to the factory for the purposes of testing

or repairs or reconditioning or reprocessing or for any other purposes subject to the

following conditions:

1) Immediately on the return of goods duty paid may be taken credit in the

Cenvat Credit.

2) After completion of the activities, when the goods are cleared, the CENVATA/c. must be debited equivalent to the CENVAT credit taken provided there is

no manufacturing activity.

3) In the case of manufacturing activity duty is payable u/s.4 or 4A as the case

may be.

Rule-17: Removal by 100% EOUs FTZ etc.

Where any goods are removed by EOUs, FTZ to DTA, it must be removed

under proper invoice and on payment of duty through P.L.A. or Account current. Suchunits must maintain proper records in prescribed format.


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Rule-18: Export under Rebate:

Where any gods are exported on payment or excise duty, the C.G. can grantrebate to the extent of:

1) Excise duty paid on the final product.2) Excise duty paid on the inputs contained in the final products.

The rebate is subject to certain rules and regulation provided under notification

no.41/2001.

Where any goods are supplied as stores to a foreign going vessel or aircrafts, rebate

is admissible.

Rule-19: Export under Bond:

A manufacturer of excisable goods can export goods without payment of

excise duty under bond. However, presently the bond has been replaced by LUT (Letter

of Undertaking). The LUT is given in a plain white paper or in a letter head that gives anundertaking to pay the excise duty in case the goods are not exported and diverted in the

home consumption market.

A merchant exporter cannot give a LUT. On the other hand, he must execute a

bond. An exporter can either opt for Rule-18 or Rule-19. Rule-19 is subject to the

conditions given under notification 43/2001.

Rule-20: Warehousing Provisions:

The Central Government has issued notifications prescribing procedures forclearance of goods from factory to warehouse or Warehouse to Warehouse for petroleum

products and any other excisable goods. Under these provisions goods are cleared from

factory to warehouse under a prescribed document namely AR-3A in triplicate withoutpayment of excise duty. After deposit of goods in the warehouse the duplicate copy of

AR-3A must be received back by the original manufacturer and to be submitted to Range

Officer. If the warehousing certificate is not received with in 90 days excise duty must

be paid immediately by the manufacturer. However, the responsibility on the payment of

excise duty is on the consignee if the goods are received at the warehouse.

Rule-21: Remission of Duty:

Where any goods are lost or destroyed by natural causes or by unavoidable

accident or goods are unfit for consumption or for marketing, an assessee may request forremission from Commissioner of Central Excise. The power to remit has monetary limits

as per the following table:


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Designation of the Officer Power to Remit

Commissioner Goods on which Duty

exceeding Rs.5,00,000

ADC/JC > 1lac but nor more than 5

lacDC / AC > 10000 > 100000

Superintendent < Rs.10000

Inspector Nil

An application for destruction must be disposed off by the R.O. within 15 days

from the date of receipt. He must forward the request to AC/DC. AC/DC has to grantremission within 3 days. Where necessary, DC/AC may forward the request to the higher

officer.

The date of destruction is to be decided according to the mutual convenience of

the assessee and the Range Officer.

The destruction of the goods must take place under the supervision of exciseofficer but within the factory premises as far as possible.

Where goods to destructed or like paper or cloth or fabric etc. the destruction may

be carried out by setting fire. If the goods are like petrol or diesel or vegetable oils, it hasto be mixed with sand and destroyed.

Rule-22: Access to Registered Premises:

Any officer of Central Excise empowered by Commissioner can visit a factory

or registered premises for the purpose of carrying out any scrutiny or verification of anyrecords.

Every assessee is bound to maintain proper records relating to production,

storage and disposal of excisable goods.

All business records and private records including invoices, delivery challans,

purchase documents, debit notes, credit notes, ledger accounts, vouchers etc. are alsoCentral Excise records for the purpose of verification.

All records must be preserved at least for 5 years after completion of a financial

year.

Every assessee must file a list in duplicate indicating all the records and

documents maintained by him to the range officer. Any change in the list must beintimated immediately.


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Where an assessee maintains records in a computer system, he must intimate

the software used and must furnish audit trials, inter linkages, data codes, directory etc. to

the Central Excise Officer.

A hard copy must be maintained in a bound form for every records where the

entries are made in computer system.

The records can be produced in the form of floppies or CDs or hard copies as

required by the Excise officer. Also proper back up records must be maintained by theassessee.

Where any officer is deputed by the Commissioner of Offices of the Internal

Audit Department of Excise or Audi party deputed by CBAG, every assessee shall

furnish:

1) All accounts and returns maintained by him

2) A Cost Audit report u/s.233B under Companies Act, 1956.3) A Tax Audit Report prepared u/s. 44AB of IT Act, 1961.

Where a company is having more than one factory of production, the P&L A/c.and Balance Sheet of the individual Factory has to be submitted for verification.

Rule-23: Power to Stop & Search:

Any Central Excise Officer may search any conveyance carrying excisablegoods where he suspects the goods are carried with the intention to evade duty. The said

power is exercised usually by Preventive Officers of Central Excise.

Rule-24: Power to detain and Seize the goods:

If a Central Excise Officer has reason to believe that any goods are liable toduty, but no duty has been paid or goods were removed with the intention to evade duty,the officer may detain and seize such goods.

Rule-25: Confiscation & Penalty:

1. Where a manufacturer / producer of excisable good or a person storing the goods

without payment of excise duty --

a.Removes any excisable goods in contravention of any of the provisions of theCE Rules and notifications issued there under

2. Fails to account any excisable goods produced/manufactured/stored.

3. Engages in production or manufacture or storage without making an application

for registration.4. Contravention of any of the provisions of these rules or notifications with the

intention to evade payment of duty.

The goods are liable for confiscation and the manufacturer or the producer or theperson who stores the goods shall be liable for the penalty not exceeding duty on

excisable goods or Rs.10000 whichever is greater.


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Before confiscating the goods and imposing penalty, a notice must be issued to

the party.

Rule-26: Penalty for Certain offences:

Any person who transports or removes or deposits or keeps or conceals or sells orpurchases any excisable goods which he knows or has reason to believe that the goods

are liable for confiscation, shall be punishable with a penalty not exceeding the exceeding

the excise duty on the goods or Rs.10000 whichever is greater.

*Rule-25 applicable to manufacture/warehouse/prod etc.

Rule-26 applicable to every person not registered.

Rule-27: General Penalty:

A breach of any of the Central Excise Rules where no other penalty provided in

the rules or act, be punishable with a penalty which may extend to Rs.5000 and the goodsare liable for confiscation.

Rule-28: Confiscated property to rest with the government.

Any confiscated property shall rest with the Government.

Every Police Officer must assist the Central Excise Officer to take possession of

goods confiscated.

Rule-29: Disposal of Confiscated goods:

Any confiscated goods can be disposed by way of sale or destruction. Howeveran assessee or the party can pay a fine in lieu of confiscation so that the goods may be

released.

Rule-30: Storage charges to be recovered on confiscation.

The owner of the goods may be required to pay storage charges determined bythe excise officer on confiscation of the goods.

Rule-31: Power to Issue Supplementary Instructions:

The CBEC or CC or Commissioner may issue written instructions consistent with

the CE Act and rules for the purposes of regulation.

Rule-32: Restriction on Removal of goods:


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No excisable goods shall be removed from a factory/warehouse between the

appointed time for presentation of the annual budget a supplementary budget of the CG in

the parliament.

However, goods may be permitted for clearance during the said time subject to

the following conditions:

i. The assessee has to obtain a permission from the Commissioner.

ii. An application for such removal is to be presented by the assessee to

Excise Officer before 17:00 hrs. immediately preceding the budget day.iii. The assessee must give an undertaking in writing to pay the duty at

enhanced rate in case the budget provisions increases the rate of duty.

Rule-33: Transitional Provisions:

Any notification, circular, instruction, standing order, trade notice etc. issuedunder Central Excise rules by the Board or CC or Commissioner shall be deemed to be

valid under the provisions of new rules.

Note: Payment of duty under protest: The supplementary instructions of excise

provides for payment of duty under protest where an assessee disagrees with the views ofthe excise department on certain issues. In such cases the assessee must file a protest

letter before AC or DC explaining why he disagrees with the views of excise department

and state his intention to pay the duty under protest. The assessee must indicate on all theclearances documents, PLA, on Cenvat that the duty has been paid under protest. Later

once a decision is taken by the Excise Officer, assessee can claim refund if the decision is

in his favour.

BENEFITS TO SSI UNITS

SSI units are considered to be backbone of the economy as it provides selfemployment opportunity to the people and also the cost of production is comparatively

lower than large scale manufacturers. Therefore, the Central Excise Tariff grants certain

concession to SSI units. The tariff has two important notifications namely 8/2002 and9/2002. The salient features of 8/2002 are detailed below:

8/2002: The notification in the interest of the public grants exemption to SSI units frompayment of whole of the excise duty or the specified goods manufactured or produced.

The exemption is available only to the specified goods and not to all the goods.

The table attached to 8/2002 provides that the exemption is available to all goods fallingunder Central Excise Tariff Act except certain goods.(For e.g. Exemption is not available

to Tobacco Products,Aluminium, Stainless patties & pattas, certain textile products etc.)

The concession is as per the following table:

Sl.No Value of Clearance

Icwa Notes

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