Transcript 1) MANUFACTURE AND EXCISIBILITY

CENTRAL EXCISE
CA. ABHAY DESAI
CA. Abhay Desai
Partner, M/s Yagnesh Desai & Co.
DIRECT
CA. ABHAY DESAI
TAXES
INDIRECT
2
AGENDA
COMPONENTS
o
TYPES OF EXCISE DUTIES
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BASIC CONDITIONS FOR LEVY OF EXCISE DUTY
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WHO PAYS THE DUTY
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CLASSIFICATION
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VALUATION
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CENVAT CREDIT
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INPUT SERVICE DISTRIBUTOR
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BENEFITS OF SSI
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STEP BY STEP AJUDICATION PROCESS
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INTEREST & PENALTIES
CA. ABHAY DESAI
o
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COMPONENTS
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CENTRAL EXCISE ACT, 1944
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CENTRAL EXCISE RULES, 2002
CENTRAL EXCISE VALUATION (DETERMINATION OF PRICE OF
EXCISABLE GOODS) RULES, 2000
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CENTRAL EXCISE TARIFF ACT, 1985
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CENVAT CREDIT RULES, 2004
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CENTRAL EXCISE (APPEALS) RULES, 2001
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NOTIFICATIONS
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CIRCULARS
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TRADE NOTICES
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CASE-LAWS
CA. ABHAY DESAI
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TYPES OF EXCISE DUTIES
Basic Excise Duty (BED)
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Special Excise Duty (SED)
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Education Cess on Excise Duty
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Excise duty in case of clearances by EOU
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National Calamity contingent Duty (NCCD)
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Additional Duty on Goods of Special Importance (AED [GSI])
o
Additional Duties of Excise (Textiles and textile Articles)
CA. ABHAY DESAI
o
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BASIC CONDITIONS FOR LEVY OF
EXCISE DUTY (SEC. 3)
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EXCISABLE GOODS
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MANUFACTURED IN INDIA (EXCLUDES SEZ)
CA. ABHAY DESAI
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EXCISABLE GOODS
MEANING OF “EXCISABLE GOODS” (SEC. 2(d))
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TWIN TESTS: MOVABILITY & MARKETIBILITY
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EFFECT OF EXPLANATION TO SEC. 2(d)
CA. ABHAY DESAI
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“goods include any article, material or substance which is capable to be
being bought and sold for a consideration and such goods shall be deemed
to be marketable”
WHETHER COMMERCIALLY CAPABLE ?
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MANUFACTURE
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THREE TYPES: (SEC. 2(f))
CA. ABHAY DESAI
A) ORDINARY MANUFACTURE (INCLUDES INCIDENTAL OR ANCILLARY
PROCESS)
B) PROCESS MENTIONED IN CETA (FIRST SCHEDULE)
C) DEEMED MANUFACTURE (THIRD SCHEDULE)
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TYPICAL CASES
o
o
o
o
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CA. ABHAY DESAI
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WASTE & SCRAP – IS IT MANUFACTURE (CIRCLUAR NO.
904/24/2009 – DROSS, SKIMMINGS, BAGASSE, RESIDUES, ETC. IN
VIEW OF EXPLANATION IS LIABLE)
BALRAMPUR CHINI MILLS LTD [2013] 30 TAXMANN.COM 175 (ALL.)
– BAGASSE THOUGH DEEMED MARKETABLE NOT
MANUFACTURED
MANUFACTURING AT SITE – IF IMMOVABLE – NO DUTY (CBEC
ORDER NO. 58/1/2002-CX DATED 15.01.2002
MANUFACTURE OF FURNITURE AT CUSTOMER’S SITE – TAXABLE
– MEHTA & CO. 264 ELT 481 (SC)(2011)
CONSTRUCTION SECTOR – CEMENT MANUFACTURED AT SITE –
NOT TAXABLE – NOT. NO. 05/2006-CE DATED 1/3/2006
RMC – TAXABLE
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STAGE OF COLLECTION OF EXCISE
DUTY
o
o
PLACE OF REMOVAL (RULE 4 OF CENTRAL EXCISE RULES, 2002) –
FACTORY OR WAREHOUSE
RATE OF DUTY WHEN GOODS ARE REMOVED (RULE 5)
CA. ABHAY DESAI
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UOI v. BOMBAY TYRE INTERNATIONAL LTD. [1983] 14 ELT 1896
(SC)
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WHO PAYS DUTY
MANUFACTURER
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JOB-WORKER (NOT UNDER NOT. 214/86)
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GOODS STORED IN WAREHOUSE (RULE 20)
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PROCURER IN CASE OF MOLASSES PRODUCED IN KHANDSARI
SUGAR FACTORY
CA. ABHAY DESAI
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RATE OF DUTY
GENERAL: 12%
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ON 130 ITEMS: 1%
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LARGE CARS,MUV,SUV: 22% + Rs. 15,000
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CESS
o
OTHERS (NCCD, AED, Etc.)
CA. ABHAY DESAI
o
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CLASSAFICATION OF GOODS
CETA (HSN)
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RULES FOR INTERPRETATION
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Rule 1 – Titles only for reference
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Rule 2(a) – Incomplete/unfinished/ckd/skd
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Rule 2(b) – Mixtures/combinations
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Rule 3 – If cannot be determined by above
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Rule 3(a) – Specific over general
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Rule 3(b) – Essential Character
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Rule 3(c) – Whichever comes latter
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Rule 4 – Residual Rule – Akin theory
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Rule 5 – Packing Material
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Rule 6 – Only sub-headings at same level are comparable
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TRADE PARLANCE THEORY
CA. ABHAY DESAI
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VALUATION
TRANSACTION VALUE (SEC. 4)
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MRP BASED VALUATION (SEC. 4A)
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OTHER MODES
CA. ABHAY DESAI
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TRANSACTION VALUE
REQUIREMENTS FULFILLED – SALE PRICE
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VALUATION RULES
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INCLUSIONS/EXCLUSIONS
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CENTRAL EXCISE VALUATION ( DETERMINATION OF
PRICE OF EXCISABLE GOODS) RULES, 2000
o
o
The rules are used for ascertaining the “normal transaction value” at
which the greatest aggregate quantity of goods are sold
11 Rules in all
CA. ABHAY DESAI
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APPLICABILITY – WHEN NORMAL SALE VALUE CANNOT BE
CONSIDERED
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RULES
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Rule 1 – name & entry into force from 1-7-2000
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Rule 2 – definitions
o
o
o
o
o
Rule 3 – exhortation to decide the value (when the transaction value is
unavailable or unacceptable)
Rule 4 – Value not known - ascertainable equivalent price of such goods –
nearest in time to the time of removal of goods from the factory – margin
adjustment on account of differences in dates of delivery allowed – free
sample/warranty
CA. ABHAY DESAI
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Rule 5 – cases when the delivery of goods is at a place other than the
factory – cost of transportation to be added
Rule 6 – when there is additional consideration to the sale not reflected in
the transaction price charged – solution: monetize the additional
consideration and add it up to the tax value (Fiat’s case)
Rule 7 – Depot / branch sales – solution: adopt the nearest prevailing
depot price
Rule 8 – captive /self consumption/use – solution: tax value is 110% of the
cost of production of the goods (as per CAS 4)
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RULES (CONTD.)
o
o
o
o
CA. ABHAY DESAI
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Rule 9 – sales to related persons – solution: resale price of related person /
110% of the cost where the related person does not resell but consumes or
uses for self
Rule 10 – sales to inter-connected undertakings /holding company
/subsidiary company – solution:: do as per rule 9 above.
Rule 10A – job work on behalf of a principal manufacturer – solution:
resale price of the principal manufacturer
Rule 11 – residual method
Valuation in case of job-worker manufacturing intermediates – Ujagar
Prints 1989 38 ELT 535 (SC)
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EXCLUSIONS
By Statute
o
Excise Duty.
o
Sales Tax.
o
Other taxes such as Octroi, entry tax
o
By Court / Tribunal Decisions
o
Trade Discount.
o
Cash Discount/ Prompt Payment discount.
o
Turn over discount.
o
Quantity discount.
o
Year – end bonus/discount.
CA. ABHAY DESAI
o
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EXCLUSIONS



o
o
o
o
o
CA. ABHAY DESAI

Freight and Freight insurance, including equalised Freight.
Bought – out items [not integral/ critical to Product] – CENVAT not
available
Third party Inspection charges at the instance of and borne by the buyer.
Interest on receivables
Erection, Commissioning charges if products emerge as immovable
property.
Erection, commissioning charges after the product is cleared from factory.
(however if parts are removed and machine (excisable) comes into
existence - it will be included)
Advertising charges borne by the client – buyer on his own account.
Additional warranty charges. (Compulsory/optional charges are included).
Notional interest on Advances/ deposits from buyers not influencing the
price.
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INCLUSIONS
o
o
o
o
o
o
o
o
o
o
CA. ABHAY DESAI
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By Statute
Advertising.
Publicity.
Marketing/ Sales Promotion.
Storage/ Outward handling.
Servicing.
Warranty.
Commission.
By Tribunal/ Court Decisions
Dharmada.(ITC) (158 ELT 286 – Tata Motors)
Design/ Development/ Engineering
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INCLUSIONS
Royalty.
o
Amortised Cost of tools/ dies/ moulds received from buyers.
o
Commission to agents.
o
Interest on inventory.
o
Packing.
o
Cost of material supplied by Customer.
CA. ABHAY DESAI
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VALUATION IN TURN-KEY PROJECTS
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EXCISE DUTY ON PARTS/COMPONENTS MANUFACTURED
CA. ABHAY DESAI
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MRP BASED VALUATION
Conditions:
o
A) Excisable
o
B) Sold in package
o
C) Declaration of MRP is mandatory under LEGAL METROLOGY ACT
o
D) Mentioned in Notification
Assessable value: MRP less abetment
CA. ABHAY DESAI
o
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OTHER MODES
PRODUCTION CAPACITY (Pan Masala, Gutkha, etc.)
o
SPECIFIC DUTY (Marble tiles, cigarettes, etc.)
o
TARIFF VALUE (Jewellery, etc.)
o
COMPOUND LEVY
aluminium circles)
SCHEME
(Stainless
steel
pattis/pattas
and
CA. ABHAY DESAI
o
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PROCEDURES
REGISTRATION (Rule 9)
o
PAYMENT (Rule 8)
o
INVOICE (Rule 11)
o
MAINTANENCE OF RECORDS (Rule 10)
o
RETURN FILING (Rule 12)
CA. ABHAY DESAI
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WHAT SHOULD INVOICE CONTAIN
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It shall be prepared in Triplicate (Buyer/Transporter/Assesee).
o
Before using Invoice book, the serial no. should be intimated to
Superintendent.
o
o
o
o
o
o
o
o
CA. ABHAY DESAI
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The Invoice shall be serially numbered & shall contain:(a). Registration Number
(b). Description of goods
(C). Classification
(d). Time & Date of Removal
(e). Mode of Transport & Vehicle Registration No.
(f). Rate of duty
(g). Qty. & Value of goods
(h). Amt. of duty
(i). Address of concerned Central excise Division.
o
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RECORDS
RG-23A- Part I (Stock Account of Input Goods)
o
RG-23A- Part II (Credit on Input Goods)
o
RG-23C- Part II (Credit on Capital Goods)
o
RG-1 (Daily Stock Account)
o
PLA (Personal Ledger Account)
o
Credit Register for Input Services
CA. ABHAY DESAI
o
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RETURNS
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ER 1 – monthly – due by the 10th of the following month
o
ER 2 – monthly, for EOU – due by the 10th of the following month
o
o
ER 3 – quarterly for SSI units – due by the10th of the following quarter
ER 4 – Annual financial statement for units paying INR 1 crore in excise –
due by the 30th of April of the following year
ER 5 – CENVAT – Annual Return of information relating to principal
inputs – due by 30th April of the following year – some class of
manufacturers given exemption
CA. ABHAY DESAI
o
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RETURNS
o
ER 7 – Annual Installed capacity statement – due by the 30th April of the
following year
CA. ABHAY DESAI
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ER 6 – monthly return of principal cenvat inputs due by the 10th of the
following month – some class of manufacturers given exemption
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OTHER ISSUES
o
PROVISIONAL ASSESSMENT UNDER RULE 7
o
REMISSION UNDER RULE 21
CA. ABHAY DESAI
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CENVAT
o
CENTRAL VALUE ADDED TAX
o
BASIC WORKING
CA. ABHAY DESAI
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ELIGIBLE FOR CREDIT
CAPITAL GOODS (Rule 2(a))
o
INPUTS (Rule 2(k))
o
INPUT SERVICES (Rule 2(l))
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CAPITAL GOODS
All goods falling under the following chapters –
o
Chapter 82 – tools etc
o
Chapter 83 – miscellaneous articles of base metals
o
Chapter 84 – machinery, equipment etc
o
Chapter 85 – electrical / Electronic machinery & equipment etc
o
Chapter 90 – optical, photographic, medical , checking, measuring
equipment etc
o
Abrasives under heading no 6805
o
Grinding wheels & the like under heading 6904
CA. ABHAY DESAI
o
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CAPITAL GOODS
o
o
o
o
o
o
o
o
o
CA. ABHAY DESAI
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Pollution control equipment
Components, spares & accessories of the goods for (i) & (ii)
Moulds, dies , jigs and fixtures
Refractories, and Refractory materials
Tubes, pipes and fittings thereof
Storage tank
Used in the factory of the manufacturer of final products, but does not
include any equipment or appliance used in the office OR
Outside the factory for generation of electricity for captive use within the
factory
Or, used for providing output service
Motor vehicles registered in the name of the following service providers
are allowed – courier agency, GTA, Rent a cab operator , tour operator,
outdoor caterer
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CAPITAL GOODS
o
o
o
o
o
o
Credit to be taken for 50% of the duty in the first year and the rest in any
subsequent year
Depreciation under Income tax prohibited
The 50% restriction does not apply to special CVD of 4% paid on imported
capital goods
Removal of capital goods after use requires reversal of credit – 2.5%
depreciation on credit for every quarter of use or duty on transaction
value, whichever is higher (Rule 3(5A)) (other capital goods)
CA. ABHAY DESAI
o
Ownership of capital goods is not required for a manufacturer or service
provider except for the motor vehicle credit
Removal of capital goods as waste and scrap – Duty leviable on
transaction value
Written off BEFORE use – 100% to be reversed (also applicable to inputs)
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CAPITAL GOODS
o
o
o
CA. ABHAY DESAI
o
Provision for removal of capital goods for test, repair etc
Moulds, dies , jigs and fixtures can be deployed at the premises of the job
worker
Capital goods can be produced and used in the factory of production for
manufacture of excisable goods – duty exempt
Capital goods on which credit is taken should not be solely used in the
manufacture of exempted goods
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INPUTS
o
o
"input" means—(i) all goods used in the factory by the manufacturer of
the final product; or
(ii) any goods including accessories, cleared along with the final product,
the value of which is included in the value of the final product and goods
used for providing free warranty for final products; or
o
(iii) all goods used for generation of electricity or steam for captive use; or
o
(iv) all goods used for providing any output service;
CA. ABHAY DESAI
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Wide definition in the CCR
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INPUTS
o
o
o
o
o
(B) any goods used for—(a) construction or execution of works contract of
a building or a civil structure or a part thereof; or(b) laying of foundation
or making of structures for support of capital goods, except for the
provision of service portion in the execution of a works contract or
construction service as listed under clause (b) of section 66E of the Act;]
(C) capital goods except when used as parts or components in the
manufacture of a final product;
CA. ABHAY DESAI
o
but excludes—(A) light diesel oil, high speed diesel oil or motor spirit,
commonly known as petrol;
(D) motor vehicles;
(E) any goods, such as food items, goods used in a guest house, residential
colony, club or a recreation facility and clinical establishment, when such
goods are used primarily for personal use or consumption of any
employee; and
(F) any goods which have no relationship whatsoever with the
manufacture of a final product.
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INPUTS
o
No one-to-one correlation between input and output
CA. ABHAY DESAI
o
Input credit can be availed immediately on receipt of the goods
accompanied by the relevant invoice
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INPUT SERVICES
o
o
o
o
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o
For manufacturers:
Any service used by a manufacturer
Whether directly or indirectly
In or in relation to the manufacture of final products
And clearance of final products upto the place of removal
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INPUT SERVICES
o
o
For service providers:
CA. ABHAY DESAI
Any input service used by a provider of output service for providing an
output service
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SPECIFIED LIST
o
o
o
o
o
o
o
o
o
o
CA. ABHAY DESAI
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Services used in relation to –
Modernization
Renovation
Repairs
Of a factory or the premises of the service provider
Or an office relating to such factory or the premises
Advertisement
Sales promotion
Market research
Storage upto the place of removal
Procurement of inputs
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SPECIFIED LIST
Accounting
o
Auditing
o
Financing
o
Recruitment and quality control
o
Coaching and training
o
Computer networking
o
Credit rating
o
Share Registry
o
Security
o
Inward transportation of inputs & capital goods
o
Outward transportation upto the place of removal
CA. ABHAY DESAI
o
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EXCLUSIONS
o
o
o
Renting of motor vehicle
service of general insurance business, servicing, repair and maintenance ,
in so far as they relate to a motor vehicle which is not a capital goods,
except when used by—(a) a manufacturer of a motor vehicle in respect of
a motor vehicle manufactured by such person; or(b) an insurance company
in respect of a motor vehicle insured or reinsured by such person; or
CA. ABHAY DESAI
o
Service portion in works contract used for construction of building or civil
structure or part thereof or laying foundation or structural support for
capital goods
such as those provided in relation to outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery, membership of a club,
health and fitness centre, life insurance, health insurance and travel
benefits extended to employees on vacation such as Leave or Home Travel
Concession, when such services are used primarily for personal use or
consumption of any employee;
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CENVAT CREDIT AVAILABLE FOR
o
BED
o
SED
o
AED (Textile & Textile Articles) – can be used only against payment of
same duty
AED (Goods of Special Importance) – Can be used only for payment of
BED & SED
o
NCCD – Only for payment of NCCD
o
Education Cess – Only for payment of Education Cess
o
Secondary and Higher Education Cess – Only for payment of SHEC
o
Additional Duty u/s 3(5) of Customs – Not available for service provider
o
Service Tax u/s 66A/B
CA. ABHAY DESAI
o
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UTILIZATION
Duty on Finished product
o
As such removal of inputs & capital goods
o
Re-credit on sales return (Rule 16(2))
o
Service Tax on output service
o
CANNOT be used for RCM
CA. ABHAY DESAI
o
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TIME
ON ACCRUAL (IF PAYMENT MADE WITHIN 3 MONTHS) OR
o
ON PAYMENT
o
RCM – ON PAYMENT BASIS
CA. ABHAY DESAI
o
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JOB WORK
Options
o
1) Not. 214/86 – Exempt
o
2) Clearance on payment of duty
CA. ABHAY DESAI
o
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INPUT SERVICE DISTRIBUTOR
o
PURPOSE
o
PROCESS
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MANUFACTURING
TAXABLE/EXEMPTED GOODS
RATIONALE OF RULE 6
o
Options there under
o
Maintain separate accounts
o
o
o
o
Or pay 6% on the value of exempted goods and value of exempted services
and take full CENVAT
Or take credit proportionate to the taxable turnover as per formula
prescribed (payment before 30th June)
CA. ABHAY DESAI
o
Inputs & capital goods & input services should not be exclusively utilized in
the manufacture / provision of exempted goods or exempted services
Clearances to EOU/SEZ/BTP/STP/EHTP & exports will not require reversal
of credit
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BENEFITS FOR SSI
Notification no: 8/ 2003 as amended.
o
Basic ceiling Rs.1.5 Cr.
o
Outer ceiling Rs. 4 Cr.
o
Only listed goods benefit.
o
Use of Trademark/ symbol/ brand of another person disentitles.
o
Excludes: Manufacture in rural area, supplier to OEM, printing material
CA. ABHAY DESAI
o
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RECOVERY PROCESS
o
PERIODICAL AUDITS
o
PREVENTIVE
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STEP-BY-STEP PROCESS
COLLECTION OF INFORMATION
o
SHOW-CAUSE NOTICE – TIME LIMIT FOR ISSUANCE
o
AJUDICATION
o
ORDER IN ORIGINAL
o
COMMISSIONER (APPEALS)
o
CESTAT
o
HIGH COURT
o
SUPREME COURT
CA. ABHAY DESAI
o
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INTEREST & PENALTIES
o
o
o
o
o
o
o
o
CA. ABHAY DESAI
o
Interest for delayed payment under section 11AA – 18%
Penalty equal to duty under section 11AC in cases involving suppression
of facts. – 100% - 50% (if details available in specified records) – 1% p.m.
max. 25% (if payment made before SCN) (also avbl if pmt made within 30
days of OIO)
Penalty under Rule 25 – maximum upto duty or Rs 2000/-whichever is
greater, with confiscation of the goods
Tax default beyond 30 days – penalty under rule 8 – daily clearance on
payment of duty in cash, plus prohibition of using cenvat credit, till dues
are paid up.
Rule 26 – penalty for abettors , transporters, issuers of false invoices –
max upto duty or Rs 2000/- whichever is greater (Personal penalty)
Rule 27 – general penalty where no penalty is specified for any offense in
the rules, max of Rs 5,000/- with possible confiscation of the goods
Sec. 9 & 9A – Power to arrest – (Above Rs. 50 lacs – cognizable & nonbailable) – 7 years imprisonment & fine.
Culpable mental state is presumed – Sec. 9C
Wrong Credit – Rule 15 of CCR – equal to credit claimed
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56
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