NATURE OF EXCISE DUTY
Excise is a duty on manufacture. Manufacture or production of ‘excisable goods’ in India is the ‘taxable event’ in Central Excise. [Section 3(1) of Central Excise Act]
In the Indian tax structure, there are a lot of taxes that people pay for different reasons. Income tax, sales tax, entertainment tax, value added tax etc. All these taxes are existent because in some way or the other it impacts and helps the economy. One such tax that is prevalent in any manufacturing sector is the excise duty.
An excise or excise tax (sometimes called an excise duty) is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good. This tax is now known as the Central Value Added Tax (CENVAT).
Though the collection of tax is to augment as much revenue as possible to the government to provide public services, over the years it has been used as an instrument of fiscal policy to stimulate economic growth. Thus it is one of the socio-economic objectives.
Conditions for imposition of excise duty
o Entry No. 84 of List I of Seventh Schedule to Constitution empowers Central Government to impose levy of excise on goods manufactured or produced in India.
o In case of ‘deemed manufacture’, imposition of excise duty can be justified under entry 97 of List I.
o Excise is a duty on manufacture. Manufacture or production of ‘excisable goods’ in India is the ‘taxable event’ in Central Excise. [Section 3(1) of Central Excise Act]
o Ownership of inputs or final products is irrelevant for purpose of liability of excise duty.
o Excise duty is levied on production of goods but the liabilities of excise duty arise only on removal of goods from the place of storage, i.e., factory or warehouse.
o Excise duty is levied even if the duty was paid on the raw material used in production.
o Excise duty is levied on government undertakings also, e.g., Railways is liable to duty on the goods manufactured by it.
o Excise duty is an expense while calculating the profits in accounting.
o Excise duty is levied if goods are marketable. Actual sale is not relevant.
o Therefore, goods, which are given for free replacement during warranty period, are also liable for excise duty.
TAXABLE EVENT
Taxable event means the stage when tax is levied/ applied. Manufacture or production in India is the stage of levying tax. However, the government, at the time, when the goods are removed from the factory, i.e., goods are taken out from factory, collects tax.
Since, excise duty is levied at the time of removal of goods. Thus, it becomes taxable at the time of their removal and therefore, the date of its actual production is not relevant. The date of removal is relevant and the rate of excise duty applicable on the date of removal shall be actual rate of excise duty to be paid.
The term 'excisable goods' means the goods which are specified in the first schedule and the second schedule to the Central Excise Tariff Act, 1985, as being subject to a duty of excise and includes salt.
Therefore we can say that excise duty is not levied on:
1) Services such as doctors treating the patients, accountants preparing the accounts, in these cases service tax are levied.
2) Immovable goods such as roads, bridges and buildings.
3) Non-Marketable goods, i.e., goods for which no market exists, e.g., melted iron ore at 1600 degree Celsius.
4) Goods that are not mentioned in CETA; and
5) Goods manufactured or produced out of India.
If production or manufacture is in special economic zone then no excise duty is levied.
The liability to pay tax excise duty is always on the manufacturer or producer of goods. There are three types of parties who can be considered as manufacturers:
- Those who personally manufacture the goods in question
- Those who get the goods manufactured by employing hired labour
- Those who get the goods manufactured by other parties
· There are three different types of central excise duties which exist in India which are as follows:
· Excise Duty liability is generally on manufacturer, but in some cases, duty is collected from others also. Duty liability is no ‘manufacturer’, though he can collect it from buyer. He will be liable even if he does not collect [rule 4(1) of Central Excise Rules]
· In case of goods stored in warehouse under rule 20, the duty liability is on person who stores the goods in warehouse [rule 4(1) of Central Excise Rules]
· In case of molasses produced in khandsari sugar factory, duty liability is of procurer i.e. purchaser if he is procuring it for manufacture of any commodity [rule 4(2) of Central Excise Rules].
· In case of job work, duty liability is of job worker, even if he is not owner of manufactured goods. However, if inputs are sent under Cenvat provisions or under notification No. 214/86-CE, duty liability is of raw material supplier.
Basic - Excise Duty, imposed under section 3 of the 'Central Excises and Salt Act' of 1944 on all excisable goods other than salt produced or manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of basic excise duty in India.
Additional - Section 3 of the 'Additional Duties of Excise Act' of 1957 permits the charge and collection of excise duty in respect of the goods as listed in the schedule of this act. This tax is shared between the central and state governments and charged instead of sales tax.
Special - According to Section 37 of the Finance Act, 1978, Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt Act of 1944. Therefore, each year the Finance Act spells out that whether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant financial year.
It is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used, value of turnover (clearances) in a financial year, type of process employed etc.
Ownership of inputs or final products is irrelevant for purpose of liability of excise duty.
As per section 3 of Central Excise Act (CEA) excise duty is levied if: -
1) There is a good.
2) Goods must be moveable
3) Goods are marketable
4) Goods are mentioned in the central excise tariff act (CETA).
5) Goods are manufactured in India.
RATES OF EXCISE DUTY
Rates of excise duty
The basic rate of excise duty is 16% while in some cases there is a special duty if 8% which makes the excise duty in those cases at 24%. There is at present a cess for education called education cess, which is 2% of the excise duty; therefore, the effective excise duty comes out as 16.32% or 24.48%.
CLASSIFICATION AND VALUATION OF GOODS FOR EXCISE PURPOSE
The excise duty is chargeable at different goods at different rates. Therefore, goods are classified for determination of duty.
The classification of goods adopted in Central excise Tariff Act and Custom Act is common. The classification uses 8-digit nomenclature. CETA consists of two schedules; the first schedule gives basic excise duty (i.e., CENVAT duty) and second schedule gives export duties.
Assembly of air conditioner in a car is not manufacture as no new identifiable product emerges.
There are only 26 items in second schedule out of which 24 are exempt from export duty.
CETA and Customs Act both have sections and chapters. We have read above that the scheme of class is common for both CETA and Customs Act. Each section has various chapters. A section relate t a class of goods e.g.,
Section – I is ‘Animal Products’, Section – XI is ‘Textile Products’, Section –
XVII is ‘Vehicles, Aircraft, Vessels and Other Transport Equipments’.
A chapter contains goods of one class e.g., Section – XI of Textile Products
has Chapter 50 relating to Silk, Chapter 51 relating to Wool and Chapter 52 relating to Cotton.
Each Chapter is further divided into headings and headings are divided into sub-headings, e.g., Chapter 50 of silk has 5 headings:
50.01 Silk and Cocoons
50.02 Raw Silk
50.03 Silk Waste
50.04 Silk Yarn
The heading 50.04 ‘Silk Yarn’ has sub-headings 5004.11 Silk Yarns with 85% or more silk and sub-heading 5004.19 relates to Silk Yarns with less than 85% silk.
In this classification scheme let us elaborate on 5004.19, in this there are upto 6 digits. The first two digits ‘50’ is chapter number; next two digits ‘04’ is heading number and next two digits after decimal ‘19’ is subheading number.
The 2 more digits (to make these 6 digits to 8 digits) are additional digit to facilitate and provide flexibility in international trade.
Trade Parlance Theory emerged out of case of Grenfell vs. IRC (1876), where justice Pollok concluded that any word in statue should be interpreted and understood in its popular sense, in which people understand it.
o Carbon paper is not a paper because paper is used for writing, Printing, drawing etc.
o A mirror is not a glass wear, as glass loses its character after it is converted into mirror.
o Plastic pen has a separate identity. It cannot be classified as article of plastic like pipes, plastic sheets etc.
o Windscreen of motor vehicle (front glass of car) is not a glass it is understood as automobile part.
A product is also classified on the basis of its end use, if classification is related to the function of the goods.
Excise duty is payable on the basis of:
1. Specific duty based on measurement like weight, volume, length etc.
2. Percentage of Tariff value.
3. Maximum Retail Price.
4. Compounded levy Scheme.
5. Percentage of Assessable Value (Ad-valour duty)
SPECIFIC EXCISE DUTY:
Specified excise duty is the duty on units like weight, length, volume, etc.
Items Basis of Specific Excise Duty
Cigarettes length of cigarette
Matches per 100 boxes
Sugar per quintal
Marble slab and tiles square meter
Colour TV screen size in cm.
Cement per tonne
Excise Duty on MRP:
Government can specify the goods on which excise duty will be based on MRP.
MRP shall be the maximum price at which excisable goods shall be sold to the final consumers. It includes taxes, freight and transport charges, commission to dealers etc.
Excise duty on MRP is applicable on products on which quoting of MRP is necessary under the Weights and Measurements Act, e.g., Chocolates, Biscuits, Wafers, Ice Creams, Camera, Refrigerators, Fans, Footwear, Toothpaste etc.
Excise Duty on Tariff Value:
Tariff Value is the value fixed by government from time to time. Government can fix different tariff value for different classes. Tariff Value is fixed for Pan Masala, Ready Made Garments.
Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.
It may be noted that nothing contained in this note should be regarded as our opinion. Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views.
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