WHEN AND HOW EXCISE DUTY IS PAID
Compounded Levy Scheme:
In case of small manufacturer, government allow small manufacturer to pay excise duty on the basis of specified factors like size of equipment employed, at the specified rates.
Excise Duty on Assessable Value:
Assessable Value is the value of transaction i.e., the value at which transaction takes place, in other words it is the price actually paid or payable for the goods on sales. It is also called transaction value. It includes freight and transportation charges, commissions to dealer etc.
Excise duty is paid on transaction value or assessable value if:
1. Goods are sold at the time and place of removal.
2. Buyer and assessee (Manufacturer/seller) are not related.
3. Price is the only consideration for sale, i.e., money or some valuable item is received on sale.
Assessable Value excludes amount of excise duty, sales tax or other tax actually paid.
Following items are included:
1. Primary packing or main packing or necessary packing.
2. Royalty charges.
3. Commission to sales agent.
Following items are excluded:
1. Secondary packing.
2. Returnable primary packing like cold drinks bottles, LPG cylinders.
3. Discount given at the time of sales.
REGISTRATION OF GOODS
According to section 6 of Central Excise Act, every manufacturer or producer, who produces excisable goods, must get two types of registration:
1. Registration for manufacturer.
2. Registration for warehouse, where goods are stored.
Rules of Registration
Following are the rules of registration:
1. Separate registration is required for each premise.
2. Registration is not transferable.
3. Registration certificate shall be given within 7 days of application for registration.
4. If manufacturer cease to produce i.e., stops the production permanently then he should apply for de-registration.
5. Registration can be revoked or suspended by AC/DC if any condition of the Act or Rules is breached.
Procedure for Registration
Following are the steps for registration under central excise act.
1. Application for registration is given in prescribed format to the Assistant Commissioner or Deputy Commissioner in duplicate.
2. Application should be accompanied be a self-attested copy of Permanent Account number (PAN) allotted by income tax department.
3. In case of company and partnership firms name of company or partnership should be mentioned as name of business and not the name of owner who sign the application.
4. On receipt of application of registration the excise department allots the registration certificate within 7 days.
5. The registration certificate mentions the Excise Control Code (ECC), the ECC is a 15 digit number which has first 10 digits of PAN, next two digits are either ‘XM’ for manufacturer or ‘XD’ for dealer and the last three digits are number like 001,002 etc.
The registration certificate includes:
1. Name of assessee
2. Constitution of the business
3. Types of business (Manufacturer, Dealer or warehouse or depot or
Export Oriented Unit (EOU).
4. Address of the business
5. The Excise Control Code (ECC).
CLEARANCE OF GOODS
Clearance means taking goods out of factory. Thus, finished goods can be stored not removed in the place of manufacture (factory) without payment of duty. There is no time limit for removal of gods from place of manufacture i.e., factory.
The records have to be maintained by manufacturer indicating particulars regarding:
1. Description of goods manufactured or produced
2. Opening Balance of goods manufactured or produced.
3. Quantity produced or manufactured.
4. Stock of goods.
5. Quantity of goods removed
6. Assessable Value
7. Amount of duty payable; and
8. Amount of duty actually paid.
The record should be preserved for 5 years. If the records are not maintained then penalty up to duty payable can be imposed and goods can be confiscated.
If goods are stored at any other place other than factory, then goods can be cleared from factory without payment of duty, if commissioner permits.
DUTY PAYMENT PROVISIONS
Goods cleared from factory are cleared under an invoice. Duty is payable on monthly basis by 5th of the next month in which duty payment becomes due, i.e., the month in which goods are cleared from the factory. Duty is paid through current account called PLA and /or Central Value Added Tax Credit, i.e., CENVAT Credit.
Goods can be cleared out of factory without payment of duty for carrying out tests and omission per unit.
Small Scale Industry (SSI) is required to pay the duty by 15th of the next month. However, the duty for the month of March is paid by 31st March itself not on 5th of next month i.e., 5th of April because government accounts closes on 31st March.
If the due date is Sunday or holiday, the duty can be paid on next working day.
If duty is not paid then assessee is liable to pay the interest also on outstanding amount. If duty and interest is not paid for 30 days after due date, then the facility to pay duty on monthly basis will be withdrawn till the time interest and duty is paid or 2 months, whichever later. Thus, the facility of monthly payment of excise duty is withdrawn at least for 2 months. During this period duty will be paid on removal basis.
Duty is paid by assessee through current account known as PLA (Personal Ledger Account). The PLA is credited when duty is paid i.e., deposited in the bank by filling a challan called TR-6 on monthly basis. Only excise duty paid comes in PLA the items like fine, penalty, interest does not appear in PLA.
A PLA contains:
1. Serial number and date
2. Details of TR-6 challan number
3. Balance duty etc.
The PLA is maintained in triplicate using both sided carbon.
Excise Return: Excise return is submitted to the excise department with the two copies of PLA and TR-6 challan. The excise return is prepared in form ER-1 and ER-3.
CENVAT: CENVAT has its origin from the system of VAT, which is very common in European countries. VAT means Value added Tax; it is a system of taxation in which tax is paid only on the value addition. Value addition is the difference between the sale price and the purchase price. Thus, if a person buys a good for Rs. 40 and sells it for Rs. 100 after doing some works on it.
Then he has added value of Rs. 60 on these goods. If the rate of taxation is 10% then the tax will be Rs. 6, i.e., 10% of Rs. 60.
This system of VAT was introduced in Central Excise Act in 1986 and it was named as MODVAT (Modified VAT) later in 200 the name was changed to CENVAT.
The system of Vat was brought in Service Tax in 2002 and now it is brought even in Sales Tax Law too.
EXCISE DUTY SET OFF PROVISIONS
As discussed above tax on value addition of Rs. 60 is Rs. 6, let us elaborate on it. Tax of Rs. 6 can also be calculated using the concept of set off of tax.
Tax on sale of Rs. 100 is Rs. 10; tax on purchase of Rs. 40 is Rs. 4. Thus, if a manufacturer pay tax on the total value of goods manufactured by him of Rs. 100, i.e., Rs. 10 he can claim back Rs. 4 as his tax liability on value addition of Rs. 60 is only Rs. 6. This claiming back of tax is called tax credit or set off of duty scheme.
CENVAT System: CENVAT is applicable on central excise duty. In Central
Excise the manufacturer has to pay tax on the value of goods manufactured but taking the VAT system he can claim the tax credit i.e., CENVAT credit of the tax paid on:
1. Input goods used in manufacture
2. Input services used in manufacture.
It should be noted that no CENVAT credit is available if:
1. Final production is exempt from excise duty.
2. The document showing proof of payment of duty on input is not available.
It is worth to note that duty paid on input cannot be enchased / refunded it can only be adjusted against duty on finished goods.
Input output relation: There need not be an input –output relation for claiming CENVAT credit, e.g., duty paid on automobile components used in automobile manufacturer can be adjusted against duty on textile production.
CENVAT credit on Capital Goods: Any duty paid on machinery and plant, spare parts of machine, tools, dies etc. used in manufacture can also be adjusted against duty payable on production. However, up to 50% credit is available in current year and balance in subsequent financial year.
Motorcar is not a capital asset and for the purpose of CENVAT Credit for all manufacture. However it may be taken as capital good for service tax in case of service provider uses motor car for service providing purpose e.g., Courier, tour operator, rent-a-cab, cargo, outdoor caterer, pandal and shamiana operator, and goods transport agency.
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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