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CENTRAL EXCISE CA. Abhay Desai Partner, M/s Yagnesh Desai & Co .

CENTRAL EXCISE CA. Abhay Desai Partner, M/s Yagnesh Desai & Co. AGENDA. COMPONENTS TYPES OF EXCISE DUTIES BASIC CONDITIONS FOR LEVY OF EXCISE DUTY WHO PAYS THE DUTY CLASSIFICATION VALUATION CENVAT CREDIT INPUT SERVICE DISTRIBUTOR BENEFITS OF SSI STEP BY STEP AJUDICATION PROCESS

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CENTRAL EXCISE CA. Abhay Desai Partner, M/s Yagnesh Desai & Co .

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  1. CENTRAL EXCISE CA. Abhay Desai Partner, M/s Yagnesh Desai & Co. CA. ABHAY DESAI

  2. CA. ABHAY DESAI

  3. AGENDA • COMPONENTS • TYPES OF EXCISE DUTIES • BASIC CONDITIONS FOR LEVY OF EXCISE DUTY • WHO PAYS THE DUTY • CLASSIFICATION • VALUATION • CENVAT CREDIT • INPUT SERVICE DISTRIBUTOR • BENEFITS OF SSI • STEP BY STEP AJUDICATION PROCESS • INTEREST & PENALTIES CA. ABHAY DESAI

  4. COMPONENTS • CENTRAL EXCISE ACT, 1944 • CENTRAL EXCISE RULES, 2002 • CENTRAL EXCISE VALUATION (DETERMINATION OF PRICE OF EXCISABLE GOODS) RULES, 2000 • CENTRAL EXCISE TARIFF ACT, 1985 • CENVAT CREDIT RULES, 2004 • CENTRAL EXCISE (APPEALS) RULES, 2001 • NOTIFICATIONS • CIRCULARS • TRADE NOTICES • CASE-LAWS CA. ABHAY DESAI

  5. TYPES OF EXCISE DUTIES • Basic Excise Duty (BED) • Special Excise Duty (SED) • Education Cess on Excise Duty • Excise duty in case of clearances by EOU • National Calamity contingent Duty (NCCD) • Additional Duty on Goods of Special Importance (AED [GSI]) • Additional Duties of Excise (Textiles and textile Articles) CA. ABHAY DESAI

  6. BASIC CONDITIONS FOR LEVY OF EXCISE DUTY (SEC. 3) • EXCISABLE GOODS • MANUFACTURED IN INDIA (EXCLUDES SEZ) CA. ABHAY DESAI

  7. EXCISABLE GOODS • MEANING OF “EXCISABLE GOODS” (SEC. 2(d)) • TWIN TESTS: MOVABILITY & MARKETIBILITY • EFFECT OF EXPLANATION TO SEC. 2(d) “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 ? CA. ABHAY DESAI

  8. MANUFACTURE • THREE TYPES: (SEC. 2(f)) A) ORDINARY MANUFACTURE (INCLUDES INCIDENTAL OR ANCILLARY PROCESS) B) PROCESS MENTIONED IN CETA (FIRST SCHEDULE) C) DEEMED MANUFACTURE (THIRD SCHEDULE) CA. ABHAY DESAI

  9. Typical cases • 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 CA. ABHAY DESAI

  10. STAGE OF COLLECTION OF EXCISE DUTY • UOI v. BOMBAY TYRE INTERNATIONAL LTD. [1983] 14 ELT 1896 (SC) • 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

  11. WHO PAYS DUTY • MANUFACTURER • JOB-WORKER (NOT UNDER NOT. 214/86) • GOODS STORED IN WAREHOUSE (RULE 20) • PROCURER IN CASE OF MOLASSES PRODUCED IN KHANDSARI SUGAR FACTORY CA. ABHAY DESAI

  12. RATE OF DUTY • GENERAL: 12% • ON 130 ITEMS: 1% • LARGE CARS,MUV,SUV: 22% + Rs. 15,000 • CESS • OTHERS (NCCD, AED, Etc.) CA. ABHAY DESAI

  13. CLASSAFICATION OF GOODS • CETA (HSN) • RULES FOR INTERPRETATION • Rule 1 – Titles only for reference • Rule 2(a) – Incomplete/unfinished/ckd/skd • Rule 2(b) – Mixtures/combinations • Rule 3 – If cannot be determined by above • Rule 3(a) – Specific over general • Rule 3(b) – Essential Character • Rule 3(c) – Whichever comes latter • Rule 4 – Residual Rule – Akin theory • Rule 5 – Packing Material • Rule 6 – Only sub-headings at same level are comparable • TRADE PARLANCE THEORY CA. ABHAY DESAI

  14. VALUATION • TRANSACTION VALUE (SEC. 4) • MRP BASED VALUATION (SEC. 4A) • OTHER MODES CA. ABHAY DESAI

  15. TRANSACTION VALUE • REQUIREMENTS FULFILLED – SALE PRICE • VALUATION RULES • INCLUSIONS/EXCLUSIONS CA. ABHAY DESAI

  16. Central Excise Valuation ( Determination of price of excisable goods) Rules, 2000 • APPLICABILITY – WHEN NORMAL SALE VALUE CANNOT BE CONSIDERED • 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

  17. RULES • Rule 1 – name & entry into force from 1-7-2000 • Rule 2 – definitions • 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 • 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) CA. ABHAY DESAI

  18. RULES (CONTD.) • 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) CA. ABHAY DESAI

  19. EXCLUSIONS • By Statute • Excise Duty. • Sales Tax. • Other taxes such as Octroi, entry tax • By Court / Tribunal Decisions • Trade Discount. • Cash Discount/ Prompt Payment discount. • Turn over discount. • Quantity discount. • Year – end bonus/discount. CA. ABHAY DESAI

  20. EXCLUSIONS • 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. CA. ABHAY DESAI

  21. inclusions • 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 CA. ABHAY DESAI

  22. inclusions • Royalty. • Amortised Cost of tools/ dies/ moulds received from buyers. • Commission to agents. • Interest on inventory. • Packing. • Cost of material supplied by Customer. CA. ABHAY DESAI

  23. VALUATION IN TURN-KEY PROJECTS • EXCISE DUTY ON PARTS/COMPONENTS MANUFACTURED CA. ABHAY DESAI

  24. MRP BASED VALUATION • Conditions: • A) Excisable • B) Sold in package • C) Declaration of MRP is mandatory under LEGAL METROLOGY ACT • D) Mentioned in Notification Assessable value: MRP less abetment CA. ABHAY DESAI

  25. OTHER MODES • PRODUCTION CAPACITY (Pan Masala, Gutkha, etc.) • SPECIFIC DUTY (Marble tiles, cigarettes, etc.) • TARIFF VALUE (Jewellery, etc.) • COMPOUND LEVY SCHEME (Stainless steel pattis/pattas and aluminium circles) CA. ABHAY DESAI

  26. PROCEDURES • REGISTRATION (Rule 9) • PAYMENT (Rule 8) • INVOICE (Rule 11) • MAINTANENCE OF RECORDS (Rule 10) • RETURN FILING (Rule 12) CA. ABHAY DESAI

  27. WHAT SHOULD INVOICE CONTAIN • 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. • It shall be prepared in Triplicate (Buyer/Transporter/Assesee). • Before using Invoice book, the serial no. should be intimated to Superintendent. CA. ABHAY DESAI

  28. RECORDS • RG-23A- Part I (Stock Account of Input Goods) • RG-23A- Part II (Credit on Input Goods) • RG-23C- Part II (Credit on Capital Goods) • RG-1 (Daily Stock Account) • PLA (Personal Ledger Account) • Credit Register for Input Services CA. ABHAY DESAI

  29. RETURNS • ER 1 – monthly – due by the 10th of the following month • ER 2 – monthly, for EOU – due by the 10th of the following month • 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

  30. RETURNS • ER 6 – monthly return of principal cenvat inputs due by the 10th of the following month – some class of manufacturers given exemption • ER 7 – Annual Installed capacity statement – due by the 30th April of the following year CA. ABHAY DESAI

  31. OTHER ISSUES • PROVISIONAL ASSESSMENT UNDER RULE 7 • REMISSION UNDER RULE 21 CA. ABHAY DESAI

  32. CENVAT • CENTRAL VALUE ADDED TAX • BASIC WORKING CA. ABHAY DESAI

  33. ELIGIBLE FOR CREDIT • CAPITAL GOODS (Rule 2(a)) • INPUTS (Rule 2(k)) • INPUT SERVICES (Rule 2(l)) CA. ABHAY DESAI

  34. CAPITAL GOODS • All goods falling under the following chapters – • Chapter 82 – tools etc • Chapter 83 – miscellaneous articles of base metals • Chapter 84 – machinery, equipment etc • Chapter 85 – electrical / Electronic machinery & equipment etc • Chapter 90 – optical, photographic, medical , checking, measuring equipment etc • Abrasives under heading no 6805 • Grinding wheels & the like under heading 6904 CA. ABHAY DESAI

  35. CAPITAL GOODS • 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 CA. ABHAY DESAI

  36. CAPITAL GOODS • Ownership of capital goods is not required for a manufacturer or service provider except for the motor vehicle credit • 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) • 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) CA. ABHAY DESAI

  37. CAPITAL GOODS • 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 CA. ABHAY DESAI

  38. INPUTS • Wide definition in the CCR • "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 • (iii) all goods used for generation of electricity or steam for captive use; or • (iv) all goods used for providing any output service; CA. ABHAY DESAI

  39. INPUTS • but excludes—(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; • (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; • (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. CA. ABHAY DESAI

  40. INPUTS • Input credit can be availed immediately on receipt of the goods accompanied by the relevant invoice • No one-to-one correlation between input and output CA. ABHAY DESAI

  41. INPUT SERVICES • 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 CA. ABHAY DESAI

  42. INPUT SERVICES • For service providers: • Any input service used by a provider of output service for providing an output service CA. ABHAY DESAI

  43. SPECIFIED LIST • 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 CA. ABHAY DESAI

  44. SPECIFIED LIST • Accounting • Auditing • Financing • Recruitment and quality control • Coaching and training • Computer networking • Credit rating • Share Registry • Security • Inward transportation of inputs & capital goods • Outward transportation upto the place of removal CA. ABHAY DESAI

  45. Exclusions • 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 • 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 • 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; CA. ABHAY DESAI

  46. Cenvat credit available for • BED • SED • 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 • NCCD – Only for payment of NCCD • Education Cess – Only for payment of Education Cess • Secondary and Higher Education Cess – Only for payment of SHEC • Additional Duty u/s 3(5) of Customs – Not available for service provider • Service Tax u/s 66A/B CA. ABHAY DESAI

  47. UTILIZATION • Duty on Finished product • As such removal of inputs & capital goods • Re-credit on sales return (Rule 16(2)) • Service Tax on output service • CANNOT be used for RCM CA. ABHAY DESAI

  48. TIME • ON ACCRUAL (IF PAYMENT MADE WITHIN 3 MONTHS) OR • ON PAYMENT • RCM – ON PAYMENT BASIS CA. ABHAY DESAI

  49. JOB WORK • Options • 1) Not. 214/86 – Exempt • 2) Clearance on payment of duty CA. ABHAY DESAI

  50. INPUT SERVICE DISTRIBUTOR • PURPOSE • PROCESS CA. ABHAY DESAI

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