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What is Excise Duty ?
Its a duty levied upon goods manufactured or produced in India.
Entry No. 84 of Union List empower CG to levy excise duty on tobacco and other goods produced
or manufactured in India, Except on
Alcoholic liquors for human consumption;
Opium, narcotic drugs
but including medicinal and toilet preparation containing above two.
Types Excise Duty.
Who is liable to pay excise duty.
Normally manufacturer or producer of goods is liable to pay ED, at time of removal/moving out
(Sale, etc) of goods from factory.
In case of goods stored in warehouse (outside factory) as per excise law, duty is payable by
person who stores the goods.
In case of manufacture of molasses, buyer of molasses is liable to pay ED.
In case of Job Work, job worker is liable to pay duty, unless principal manufacturer has given
undertaking to discharge duty on behalf of job worker as per Notification 214/86.
BASIC ED / CENVAT
(1ST SCH CETA)
ED BY EXPORT ORIENTED
ADDITINAL ED ADDITIONAL ED
Rate is applied on
value of goods
Normal rate is 16%.
on all goods.
Levied on specifed
wef 1/3/06 via EN.
No duty by 100% EOU or
unit in FTZ.
If EOU clear/sell goods
produced in DTADomestic
, ED payable.
Amount of ED equals to
Custom Duty liveable on
like goods if imported in
Though CD paid, but it is
Hence Duty is levied only
to protect producers in
Goods of Special
Levied as per FA 2001,
except two wheelers.
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Example: Hero Honda sent part of bike for polish to job worker outside factory, If hero Honda
pay duty, then job worker don’t need to pay ED.
Excise law is governed by following:
Central Excise Act 1994
Central Excise Tariff ActCETA 1985
Central Excise Rules 2002
Central Excise Valuation Rules 2000
Cenvat Credit Rules, 2004
Goods vs Excisable Goods
Exciable Goods Goods / Non-Excisable Goods.
Defined in CEA 1994.
Good to be excisable must be MOVABLE +
Movable means, capable of moved to other place in
Marketable means, capable of being sold as such.
Not defined in CEA 1994
Constitution of India defined goods as ‘all material,
commodities and articles’.
Central Sale Tax Act and various sale tax act have
Excisable goods are goods specified in 1st and 2nd
Schedule to CETA 1985 as being subject to duty of
excise, and include salt.
Goods not finding place in 1st / 2nd schedule to
CETA are non-excisable goods.
Excisable goods may be Dutiable or Don-Dutiable
Non-excisable goods are always non-dutiable.
Manufacture u/s 2(f) of CEA
Manufacture includes any
Central Excise Act
Central Excise Tariff
Central Excise Rules
Basic structure of
Definition, basic law,
Rates of excise against
schedule for BED.
schedule for SEC.
Provision related to
of duty, manner of duty
To determine value of
Provision related to
cenvat of excise
duty and service
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1. Process Incidental or ancillary to the completion of manufactured product; or
2. Process which is specified, in relation to any goods (in the section/chapter notes to the 1st
schedule to CETA 1985) as manufacture.
3. Process which, in relation to goods specified in 3rd schedule to CEA 1944 involves
Packing or repacking of such goods in unit container or
Labelling or re-labelling of container, including declaration or alteration of retail
sale price on it or
Adoption of any other treatment on the goods to render the product marketable
to the consumer.
Note: Process mentioned in Point 2 & 3 also called DEEMED MANUFACTURE.
Manufacturer u/s 2(f)
Manufacturer is a person who produces or manufactures (as defined under CEA) goods and shall
Person who employs hired labour in production of excisable goods.
Person who engages in their production or manufacture on his own account. In other
words, one who retain direction, supervision and control.
Taxable event (i.e time) to levy ED is production/manufacture of excisable goods.
In Wallace Flur Milss case, Supreme court said, CER merely specifies time of removal of goods as
point of collection of duty. It doesn’t make removal as taxable event. Taxable event is
manufacture. CER also permit to apply rate prevailing on date of removal of goods.
Assessment of Duty i.e. determination of amount of ED.
Specific Rate / Specific Duty Advalorem Rate / Percentage Based
Duty determined based on length, area, volume,
Duty on cement determined based on weight i.e.
Duty on cigarette determined based on length.
Duty determined by applying rate of duty to the
value of goods.
If rate of ED is 12%, Value is 1,00,000.
ED equal to 12,000.
Only few items are assessed under this category. Most of the items assessed under this method.
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Valuation of Goods (Determination of value of goods, to apply rate of duty).
Methods for determination of Assessable ValueAV
, in following order
Tariff Value u/s 3(2)
MRP based value/Abated value u/s 4-A
- CG is empowered to notify
tariff value for goods
subject to ad-valorem duty.
-Once tariff value fixed, ED
payable on such tariff value,
no other method can be
used to determine value.
-Government can alter tariff
value at any time.
-Intention of Section 3(2)
was to avoid:
-CG is empowered to notify goods, for
which it is required under Standard
Weight & Measure Act, to declare retail
-Once goods notified under this section,
value shall be MRP declared on goods, as
reduced by abatement.
Hence Assessable value=
MRP - % of abatement (reduction in MRP)
-Notified goods are now mentioned in
3rd schedule to CEA 1944.
- Intention of section 4-A was
= To simplify valuation process.
= To avoid litigation.
= If multiple MRP declared on package,
highest of them shall be taken.
= If different-2 MRP mentioned on
packages meant for sale at different-2
places, each such MRP shall be taken.
=If MRP declared is altered to increase,
then such altered MRP shall be taken.
-All goods except those covered u/s
3(2) 4A are covered u/s 4(1).
-u/s 4(1), AV shall be Transaction
Value if following conditions
= Goods are Sold
= Delivery(sale) at place of
= Manufacturer & Buyer not related
= Sale price, sole/only consideration.
Hence if all 4 conditions not satisfied,
AV shall be determined as per CEVR
Related Person u/s 4. Person shall be related person if,
They are Inter Connected Undertaking i.e ICU.
They are relative.
Buyer is relative and distributor of the assessee or sub-distributor of such distributor.
They are so associated that they have interest, directly or indirectly in the business of each
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Place of Removal u/s 4 means
Warehouse or other places, where EG permitted to be deposited w/o payment of duty.
Depot, or other place from where EG are to be sold after their clearance from the factory.
Transaction Value u/s 4 means
Price actually paid or payable for goods sold and include
Any amount, buyer is liable to pay to assessee or to other person(on behalf of assessee),
including but not limited to
Warranty, Commission, Storage
Advertisement, Marketing and selling expenses
but does not include duty of excise, sale tax, other taxes paid/payable on such goods.
Basic Procedure under Central Excise (CER 2002)
Every person, who produces/manufactures excisable goods require registration.
CBEC by E/N may exempt person or class of person from registration. Following are
Small Scale IndustriesSSI
Raw material Supplier, who get his goods manufactured by other(Job Worker)
Trader of excisable goods. Excluding 1st &2nd Stage dealer.
100% EOU, etc.
Registration required for every premises.
Registration application to Department >
Get Certificate of Registration
Excise registration no. Is 15 Digit alphanumeric no.
1st 10 Digit PAN + EM/ED/EU + No. Of premises.
Example: ADPOL2345B EM 002
Daily Stock Account
Assessee to main records on daily basis, showing ;
Opening balance, Production, Closing Stock, Removal/sale ;
regarding Goods produced or manufactured
Removal(sale/transfer) against Invoice only, showing imp. details like:-
Sellers Name, Address, Excise No., Invoice No., Sellers sign.
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Goods quantity, description, value, duty rate & amount.
Buyers Name, Address, etc.
Returns (E-Return mandatory)
RETURN PERIOD TIME LIMIT PURPOSE
Monthly Return In 10 days after month Production, removal, etc
By SSI Unit
In 20 days after quarter Production, removal, etc
In 15 days after quarter Cenvat taken and
Half yearly Return
In 1 month, after half
Cenvat taken and
Who paid > 1cr ED PY
By Nov, after end of FY. Annual Financial -
Annual Return By April, after end of FY. Annual Installed-
ED payment (E-Pay mandatory)
Pay ED in 6 days, after month end.
ED of March to be paid by March end.
Export excisable goods, directly from factory/warehouse, w/o duty payment.
Exporter shall furnish Bound or execute Letter of undertakingLUT. Goods must be exported in 6
months from date of clearance from factory.
Method to Export w/o duty payment, Sealing at Factory by excise officer OR Self Sealing
SEALING AT FACTORY BY OFFICER SELF SEALING
Execute Bond / Submit LUT to Deptt
Prepare Invoice as per CER
Prepare ARE-1 (4 copies). It contain detail, amount, qty,etc of goods.
Present goods to deptt officer alongwith ARE-1
Self seal the package
Call Officer, who after examination, will:-
-Ask to seal the package.
-Endorse each copy of ARE-1, give back 1 & 2
copy to exporter.
Send 3 & 4th Copy to excise deptt.
Export now remove goods from factory Export now remove goods from factory
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At port, custom officer will:-
-check sealed package.
-check & Endorse 2 copy, and return 1 copy.
At port, custom officer will:-
-Check & Endorse 2 copy, and return 1 copy.
Exporter export the goods
Exporter now apply to excise deptt alongwith 1 copy, to cancel bond/LUT.
Job work means
processing or working upon of raw material or semi-finished goods
supplied to the job worker,
to complete a part or whole of the process
resulting in the manufacture or finishing of an article or any operation which is
essential for aforesaid process
and the expression "job worker" shall be construed accordingly.
Valuation of goods manufactured on Job WorkJW
It’s important, when Principal ManufacturerPM
has not given undertaking to discharge duty.
Valuation to be done as per rules under CEVR 2000, which is as follows
SSI – Small Scale Industries – Exemption 8/2003
If in PY, Aggregate Value of ClearanceAll Factory
was =< Rs. 4 crore, then in CY, 1st clearance upto
Rs. 1.50 crore shall be exempt from Normal ED, provided assessee doesn’t take Cenvat credit.
Otherwise take cenvat and pay duty as usual.
Once clearance exceeds, Rs. 1.50 crore, pay duty normally. Take Cenvat normally.
This scheme is optional. Inform deptt if NOT to avail this option.
Calculation of Rs. 1.50 crore
Clearance with own Brand/Trade name.
Clearance in Normal course.
Export to Nepal/Bhutan.
Non-Dutiable Clearance i.e. exempted.
Clearance with Brand/Trade name of other person (Since Taxable).
Clearance of Intermediate goods, if FP eligible for SSI exemption.
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Clearance exempt under Job Work notification.
Calculation of Rs. 4 crore
Amount computed above
Add: Non-Dutiable clearances, except following
Clearance exempt under Job Work notification.
Supply to SEZ/EOU/FTZ
Supply to UN/International Organization.
Central Value Added TaxCENVAT formerly known as Central Excise Duty.
Cenvat Credit is a scheme
where the Manufacturers or the Output service providers
are allowed a set off of the taxes (ED/ST) paid on the inputs/RM(ED) purchased or the
input services(ST) received,
that are used, while Manufacturing final products or providing the output service.
Cenvat Credit governed by Cenvat Credit RulesCCR 2004
Cenvat credit available of Excise Duty, Service Tax and some Import Duty.
100% cenvat allowed on receipt of Input in factory/premises.
Cenvat of Capital Goods allowed 50% in first year(on receipt in factory), balance in next
year. Amount of cenvat claimed, cannot be added to asset cost to claim depreciation.
Cenvat of Input Service allowed 100% against receipt of invoice.
No cenvat credit, if no ED/ST payable. Example SSI unit (upto Rs. 1.50 crore)
Proportionate Cenvat Credit allowed (if manufacturing/providing Taxable + Non Taxable
ISD can distribute cenvat credit to different premises,
Document to take cenvat credit is INVOICE.
Interest @ 13% for wrongful credit. Penalty upto cenvat involved, for fraud.
Input means any input (raw material/fixed asset purchased)
Used to manufacture final product
Accessories (eg Mobile cover) cleared alongwith final product
Goods used to generate electricity
Goods used to provide output service, BUT Excluding:-
Capital goods, except when used to manufacture final product
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Goods used for execution of work contract (except when used to render same service)
Input Service means any service (service received)
Used to provide output service
Used to manufacture final product, and include
Services used for repair, advertisement, storage, accounting, audit, financing, training,
legal service, computer related, but exclude
Service used for execution of work contract (except when used to render same service)
Renting of motor vehicle
Capital Goods (It only include following)
Goods falling under chapter 82, 84, 85, 90 of 1st SCH of CETA
Pollution control equipment
Component, Spare parts, accessories of above two
Moulds, dies, Jigs
Tubes, pipes, fitting thereof
Motor Vehicle (if satisfy few conditions) and its Component, spares, accessories
By Pawan Sehrawat
Chartered Accountant, Company Secretary