This document provides an overview of central excise duties in India. It discusses the governing legislation, constitutional basis, territorial jurisdiction, taxable events, conditions for levy of excise duty, and key definitions. Central excise duties are governed by the Central Excise Act of 1944 and apply to goods manufactured or produced in India if they are movable, marketable, and specified under the Central Excise Tariff Act. The taxable event is the manufacture or production of excisable goods in India.

1. CENTRAL EXCISE
Madhusudan Sharma

2. GOVERNING LEGISLATIONS
 Central Excise Act,1944(CEA) : The basic act
 Central Excise Tariff Act, 1985 (CETA):
Classifies the goods under 96 chapters with
specific codes assigned.
 Central Excise Rules, 2002: Procedural
aspects. The rules are implemented after issue of
notification.
 Central Excise Valuation (Determination of
Price of Excisable Goods) Rules, 2000:
Provisions regarding valuation of excisable goods
 Cenvat Credit Rules, 2004: Provisions relating
to Cenvat Credit available and its utilization

3. CONSTITUTIONAL BASE
 Article 268. (1) Such stamp duties and such
duties of excise on medicinal and toilet
preparations as are mentioned in the Union List
shall be levied by the Government of India but
shall be collected—
 (a) in the case where such duties are leviable
within any Union territory, by the Government of
 India, and
 (b) in other cases, by the States within which
such duties are respectively leviable.
 (2) The proceeds in any financial year of any such
duty leviable within any State shall not form part
of the Consolidated Fund of India, but shall be
assigned to that State.

4. UNION LIST – ENTRY 84
Before GST Amendment
 Duties of excise on tobacco and other goods
manufactured or produced in India except—
 (a) alcoholic liquors for human consumption;
 (b) opium, Indian hemp and other narcotic drugs and
narcotics, but including medicinal and toilet
preparations containing alcohol or any substance
included in sub-paragraph (b) of this entry.
After GST Amendment
 Duties of excise on the following goods manufactured
or produced in India, namely:- petroleum crude; high
speed diesel; motor spirit (commonly known as
petrol); natural gas; aviation turbine fuel; and tobacco
and tobacco products

5. STATE LIST – ENTRY 51
 Duties of excise on the following goods
manufactured or produced in the State and
countervailing duties at the same or lower rates
on similar goods manufactured or produced
elsewhere in India:—
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs
and narcotics; but not including medicinal and
toilet preparations containing alcohol or any
substance included in sub-paragraph (b) of this
entry.

6. TERRITORIAL JURISDICTION
 Extends to whole of India including the state of
Jammu and Kashmir
 Also extended to the designated areas in the
Continental Shelf and Exclusive Economic Zone
(EEZ) of India (vide Notification No. 166/87-CE,
dated 11.6.1987).
 Exclusive Economic Zone extends to 200 nautical
miles from the base line of the coast.

7. BASIC EXCISE DUTY (BED)
 In majority of cases, the standard rate of basic
excise duty is 12.50% w.e.f 01.03.2015
 It will vary product wise according to the rate
mentioned in CETA.
 National Calamity Contingent Duty –
(NCCD) was imposed vide Finance Act, 2001 on
some products.
 NCCD of 1% has been imposed on mobile phones
w.e.f. 1-3-2008.
 In addition, cesses and duties have been imposed
on some specified products.

8. TAXABLE EVENT
 Excise duty is leviable on all excisable goods,
which are produced or manufactured in India.
 ‘Manufacture or production in India’ of an
excisable goods is a ‘taxable event’
 Though duty is collected at a later stage i.e. at
the time of removal of goods, removal from
factory is not the ‘taxable event’.
 In UOI v Bombay Tyre International Ltd. the SC
held that while the levy of duty of excise is on
manufacture or production of the goods, taxable
event is with reference to manufacture.
 Production on 1st February 2016, removed from
factory on 4th April 2016, taxable event 1 Feb 16

9. CONDITIONS FOR LEVY OF EXCISE DUTY
Central Excise duty is levied if the following
conditions are satisfied:
 The duty is on goods.
 The goods should be movable and marketable
 The goods must be excisable
 The goods must be manufactured or produced
 Such manufacture or production must be in
India.
 All of these conditions are required to be satisfied
 Goods manufactured or produced in SEZ are
“excluded excisable goods”, “excisable goods” but
no duty is leviable

10. GOODS
 ‘’Goods’’ has not been defined in the central
Excise Act, 1944.
 As per Article 366(12) of the Constitution of
India, ‘’Goods’’ means all articles, materials and
commodities.
 Section 2(7) of Sale of Goods Act, 1930 defines
‘Goods’ to mean every kind of movable property
other than actionable claims and money and
includes stocks and shares, growing crops, grass
and things attached to and forming part of the
land, which are agreed to be served before sale or
under the contract of sale.
 For Excise levy ‘goods’, should be movable, and
marketable.

11. GOODS MUST BE MOVABLE
 In order to be movable, an article must fulfill two
conditions: It should
come into existence (as a result of manufacture); and
be capable of being moved to market to be bought and
sold.
 Where goods have not come into existence, they
cannot be moved , and no question of levy of excise
duty.
 In Municipal Corporation of Greater Mumbai v.
Union of India, a petrol pump of huge storage
capacity which was not embedded to earth but which
could not be removed without dismantling was held to
be immovable in nature.
 In Sirpur Papers Mills Ltd. V. CCE the machinery
embedded to a concrete base to ensure its wobble free
operation was held to be a movable property.

12.  CBEC has clarified that whatever is attached to
earth, unless it is like a tree/building/similar
thing, shall not necessarily be regarded as
immovable property if the whole purpose behind
such attaching to the concrete base is to secure
maximum operational efficiency and safety.
 Excise duty cannot be levied on immovable
property.

13. CASE LAWS – MOVABLE GOODS
 A Ltd. purchased duty paid parts of water treatment
plant in unassembled form and assembled to the
ground with civil work. The plant could not function
until it was wholly built including civil construction.
Excise duty is not required to pay because, the
product emerges as immovable in nature. Larsen &
Toubro Limited v UOI
 X Ltd., engaged in the manufacture of drums mix/hot
mix plant by assembling and installing its parts and
components. The machine is fixed by nuts and bolts to
a foundation not because the intention was to
permanently attach it to the earth, but because a
foundation was necessary to provide a wobble free
operation to the machine. Supreme Court held that
the plants in question were not immovable property,
duty would be levied CCE v Solid & Correct Engg

14. GOODS MUST BE MARKETABLE
 Theoretical possibility of product being sold is not
sufficient to establish the marketability of a product:
 A product known in the market with a nomenclature
is not sufficient for marketability unless there is a
buyer to buy it.
 W Ltd. manufactured Double Textured Rubberized
Fabric (i.e. upper lace of the shoe) and removed from
the factory for job work, it has no marketability,
because the said product is known in the market but
with no buyer [Bata India Ltd. v CCE ].
 Karnataka High Court in Cipla Ltd. Vs UOI, held
that for dutiability, a product must pass the test of
marketability, even if it is a transient item captively
consumed in the manufacture of other finished goods.
onus is on the Dept. to produce evidence of
marketability.

15. CASE LAWS
 In UOI v Indian Aluminium Co. Ltd. v CCE, the SC
held that marketability of a product is must for its
dutiability. Mere manufacture or specification of an
article in Tarrif is not enough.
 In Bhor Ind. Ltd. v CCE, SC held that the mere
inclusion of a particular article in the Tariff Schedule
will not render it liable to excise duty. Marketability
of that article is of primary importance. The decision
given in this case was a turning point because prior to
this decision, it was normal to treat all goods in the
Tariff Schedule, as chargeable to duty regardless of
the test of marketability.
 (d) In Union Carbide India Ltd. v UOI , SC held that
intermediate products, which were in a crude form,
would not constitute goods. Aluminium cans produced
by the extrusion process were not goods, as they were
not marketable.

16. SHELF-LIFE
 SC ruled that short shelf-life could not be
equated with no shelf-life. A shelf-life of 2 to 3
days was sufficiently long enough for a product to
be commercially marketed.
 No shelf-life or the shelf-life of the product was
such that it was not capable of being brought or
sold during that shelf-life. Nicholas Piramal
India Ltd v CCE.

17. EXCISABLE GOODS
 Section 2(d) defines Excisable Goods as ‘Goods
specified in the First Schedule and the Second
Schedule to Central Excise Tariff Act, 1985 as
being subject to a duty of excise and includes salt.
 Explanation - ‘goods’ includes any article,
material or substance which is capable of being
bought and sold for a consideration and such
goods shall be deemed to be marketable’.
 Unless the item is specified in the Central Excise
Tariff Act as subject to duty, no duty is leviable.

18.  All goods specified in the Tariff Schedule are
‘Excisable Goods’.
 However, question arises as to whether those
goods, which are exempted from duty by a
notification, but find a place in the tariff
schedule, are excisable goods.
 Dutiable goods mean excisable goods which has
rate of duty greater than 2% per cent.
 Non-dutiable goods or exempted goods mean
excisable goods which has rate of duty nil or 0%
or 1% or 2%.
 Both dutiable and non-dutiable goods are called
as excisable goods.

19.  Manufacturers paying excise duty @1% or 2% as
are not eligible for claiming CENVAT Credit,
since, these goods are called as exempted goods.
 Goods must be specified in the Schedule to the
Central Excise Tariff Act, 1985;
 The goods so specified must be subject to duty.
 “Non-Excisable goods” are that goods which has
not been very clearly mentioned in the Central
Excise Tariff Act

20. MANUFACTURE
 Taxable event for central excise duty is
manufacture or production in India.
 Word ‘produced’ is broader than ‘manufacture’
and covers articles produced naturally, waste,
scrap etc.
Section 2(f) ‘Manufacture’ means any process :
 incidental or ancillary to the completion of a
manufactured product (a new and identifiable
product having a distinctive name, character or
use emerge, as specified in various Court
decisions )
 which is specified as amounting to manufacture
(Deemed manufacture)

21. DEEMED MANUFACTURE
 Processes specified as ‘amounting to manufacture
in Central Excise Tariff Act
 Repacking, re-labelling, putting or altering retail
sale price etc. in respect of goods specified in
Third Schedule to Central Excise Act i.e Goods on
which excise duty is payable on the basis of MRP
printed on the package

22. CASE LAW
UoI v Delhi Cloth & General Mills Ltd”
 Excise Department contended that during the
process of manufacture of vanaspati, vegetable
non-essential oil was produced, which is a
separate dutiable product.
 The court decided that Manufacture implies a
change, but every change is not manufacture and
yet every change of an article is the result of
treatment, labour and manipulations. But
something more is necessary and there must be
transformation; a new and different article must
emerge having a distinctive name and character
or use. Court held that mere processing of basic
oils did not amount to manufacture, because it is
not marketable product.

23. ASSEMBLY
 Assembly involves use of certain duty paid
components to bring into existence an operational
or functional product.
 Where assembly brings into existence a new
commercially known different product, however
minor the consequent change, it would amount to
manufacture. TV from TV parts
 Mere bringing together of parts of a plant and
machinery at site cannot be termed to be
manufacture and hence, assembled plant cannot
be treated to be goods.
 Repairing activity in any possible manner
cannot be called manufacturing . Generation of
metal scrap or waste during the repair of plant
does not amount to manufacture.

24. WASTE AND SCRAP
 Waste and scrap are not manufactured, but arise
as a result of manufacture of the final product.
Therefore, generally, there should not be levied
any tax on the waste and scrap.
 In 1987 in the case of Modi Rubber Ltd., it was
held that even though the waste was capable of
fetching some amount of sale, it would not be
chargeable to excise duty.
 In 1989, in Asiatic Oxygen Limited v CCE,
Tribunal held that whether waste would be
charged to duty or not would depend on whether:
 a process of manufacture has taken place,
 the waste generated is marketable, and
 the product named in the Tariff.

25.  After amendment in 2008 in the definition -
bagasse, aluminium/zinc dross and other such
products termed as waste, residue or refuse
which arise during the course of manufacture
and are capable of being sold for consideration
would be excisable goods and chargeable to
payment of excise duty

26. INTERMEDIATE PRODUCTS & CAPTIVE
CONSUMPTION
 Intermediate products are such products, which are
produced in a process naturally in the course of
manufacture of a finished product, which involves
more than one process. output of one process is input
for the subsequent process.
 Captive consumption means consumption of such
output of one process in the subsequent process.
 Definition of manufacture implies that manufacture
would take place even at an intermediate stage, so
long as the intermediate product is commercially and
distinctly identifiable.
 In JK Spinning &Weaving Mills v UoI SC held that
the captive consumption would amount to removal,
hence chargeable to duty.
 In Union Carbide v UOI, SC held that an
intermediate product would be chargeable to excise
duty, only if it is a complete product and can be sold
in the market to a consumer.

27. WHAT IS NOT MANUFACTURE
 Any activity shall not be deemed to be manufacture,
only because it has been so written in the licence
granted.
The following are not manufacture :
 (a) Natural activity, even if carried otherwise, e.g.
drying yarn in natural sun;
 (b) Processing of duty paid goods;
 (c) Purchasing various item and putting into a
container and selling them;
 (d) Obtaining of natural products;
 (e) Testing/quality control of items manufactured by
others;
 (f) Cutting and polishing of diamond;
 (g) Upgradation of computer system;
 (h) Printing on glass bottles;
 (i) Affixing brand name;
 (j) Crushing of boulders into smaller stones.

28. MANUFACTURER
Manufacturer is a person:
 (a) who manufactures or produces any excisable
goods, or
 (b) carries on any process incidental or ancillary
to the completion of the manufactured products.
 Raw material provided to the household ladies
who were manufacturing ‘dhoop, agarbatti; etc.
in their houses. Payment to the ladies was on the
basis of number of pieces manufactured. It was
held that the household ladies, were the
manufacturers.

29. Who is a Manufacturer ?
 (a) Person manufacturing for own consumption,
 (b) Person hiring labour or employees for
manufacturing,
 (c) A job-order worker,
 (d) A contractor.
Who is not a Manufacturer ?
 (a) Where an activity is not a manufacture;
 (b) Brand Owners, if their relation with the
manufaturer is ‘Principal to Principal’ basis.
 (c) Labour Contractors, who supply labor;
 (d) Loan licensee.
 (e) Raw material supplier is not manufacturer

30. CLASSIFICATION OF GOODS
 For Levy of Duty goods are classified into
separate groups, categories and sub-categories
 The rate of duty is found out by classifying the
product in its appropriate heading under Central
Excise Tariff.
 CETA is based on International Convention of
Harmonised System of Nomenclature (HSN),
developed by World Customs Organisation
(WCO)
 This is an International Nomenclature standard
adopted by most of the Countries to ensure
uniformity in classification in International
Trade.

31.  The Central Excise Tariff Act, 1985 (CETA)
classifies all the goods under 96 chapters and
specific code is assigned to each item.
 Each chapter and sub-chapter is further divided
into various headings and sub-headings
depending on different types of goods belonging
to same class of products.
 All goods are classified using 4 digit system
called ‘headings’.
 2 digits are added for sub-headings’.
 Further 2 digits are added for sub-sub-
classification, termed as ‘tariff item’.
 Rate of duty is indicated against each ‘tariff
item’ and not against heading or sub-heading.

32. CASE LAWS
 Glass mirror cannot be classified as Glass and
Glassware because glass loses its basic character after
it is converted into mirror, which has the reflective
function [Atul Glass Industries Ltd v CCE ]
 Baidyanath manufacturing a product called “Dant
Manjan Lal” (DML) contended that the product was a
medicament but the Dept. said product was a
cosmetic / toiletry preparation / tooth powder, by
considering common parlance test.
 As long as product has popular meaning and
understanding which is attached to such products by
those using the product and not to the scientific and
technical meaning of the terms and expressions used.

33. EXAMPLES
 Motor Car not fitted with wheels or tyres will be classified
under the heading of Motor Vehicle.
 Motor Car contains the stereo (music system), here two
different products namely Motor Vehicle and Electronic
System,
 Cell phone which consist a calculator will be called as Cell
phone and not a Calculator.
 Packing material used as cases for camera classifiable as
camera product
 Classification of parachute coconut oil : In Amardeo Plastics
Industries v. CCE , on the basis of chapter notes, it was
held that parachute coconut oil is ‘vegetable oil’ under
chapter 15 and not ‘preparation for use on the hair’, since
the marking on package did not say that it is for ‘such
specialized use’, though advertisements did indicate so.

34.  However, in Shalimar Chemical Works v. CST, it
has been held that except in a few Southern
States, coconut oil is not treated as edible oil for
use of daily cooking. In West Bengal, considering
consumption pattern, coconut oil cannot be
treated as ‘edible oil’. It has to be treated as ‘hair
oil’.
 Plastic name plate : Plastic name plate for motor
vehicle is to be classified as ‘accessory of motor
vehicle’ in chapter 87 and not ‘other articles of
plastic’ in chapter 39, since ‘name plate’ is not
specified in any heading in chapter 39 – Pragati
Silicons P Ltd. v. CCE

35. VALUATION OF GOODS
 Duty based on production capacity
For products (e.g. pan masala, rolled steel
products) perceived to be prone to duty evasion,
Govt. can specify that duty will be levied and
collected on the basis of production capacity of
the factory
 Specific Duty
Duty payable on the basis of certain unit like
weight, length, volume, thickness etc. For
example, duty on Cigarette is payable on the
basis of length of the Cigarette, duty on sugar is
based on per Kg basis etc.

36. TARIFF VALUE
 In some cases, Notional Value” is fixed by Govt.
from time to time as tariff value
Products covered under the tariff basis of
valuation: Pan masala packed in retail packs of
upto 10 gm per pack, Readymade garments
 If price of readymade garment is ` 500 per unit
and govt. fixes a rate of 60% for computing tariff
value. Tariff value is 60% of ` 500 i.e. ` 300. If the
duty rate is 12.5%, the excise duty payable will
be ` 300 × 12.5% = ` 37.50 per unit

37. DUTY BASED ON MRP
 MRP provisions will be covered only when the
following two conditions are satisfied:
 (a) Goods must be specified under Legal Metrology
Act, 2009, w.e.f. 1-8-2011 (earlier Standards of
Weights and Measures Act, 1976).
 (b) Those Goods must be mentioned in the notification
issued by the Government of India along with rate of
abatement.
 MRP of an Air-conditioner is Rs. 40,000 , abatement
per cent is 40%. Excise duty rate is 12.5% :
 Maximum Retail Price = ` 40,000
 Less: abatement (40%) = ` 16,000
 Assessable Value = ` 24,000
 Excise Duty = 24,000 × 12.5/100 = 3,000

38. COMPOUNDED LEVY SCHEME -
 Normal excise procedures and controls are not practicable
when there are numerous small manufacturers.
 Rule 15 of Central Excise Rules provides that Govt. may
specify goods in respect of which an assessee shall have
option to pay duty of excise on the basis of specified factors
relevant to production of such goods and at specified rates.
 The scheme is presently applicable only to stainless steel
pattas/pattis and aluminium circles. These articles are not
eligible for SSI exemption. The rate of compounded levy in
case of cold rolled Stainless Steel patties/pattas, the
manufacturer has to pay Rs. 30,000 per cold rolling
machine per month plus cess as applicable.
 The rate of compounded levy on aluminum circles is `
12,000 per machine per month plus cess as applicable.

39. PERSONS LIABLE TO PAY DUTY
 Every person who produces or manufactures any
excisable goods, or who stores such goods in a
warehouse, shall pay the duty leviable on such goods
Following persons shall be liable to pay excise duty :
 who produces or manufactures any excisable goods,
 who stores excisable goods in a warehouse,
 In case of molasses, the person who procures such
molasses,
 In case goods are produced or manufactured on job
work,
 the person on whose account goods are produced or
manufactured by the job work, or
 the job worker, where such person authorizes the job
worker to pay the duty leviable on such.

40. COLLECTION OF EXCISE DUTY
 Physical Control Procedure
Applicable to cigarettes only. Assessment is done
by Central Excise Offices and thereafter goods
are removed under his supervision under cover of
an invoice counter signed by him.
 Self-Removal Procedure
Applicable to all other goods produced or
manufactured within the country. Under this
system, the assesee himself determines the duty
liability on the goods and clears the goods.

41. CRITICAL ISSUES
 Software is ‘Goods’, But Unbranded Software is
Service
 In TCS v. State of Andhra Pradesh it was held that
canned software (i.e. computer software packages sold
off the shelf) like Oracle, Lotus, Master-Key etc. are
‘goods’. The copyright in the programme may remain
with originator of programme, but the moment copies
are made and marketed, they become ‘goods’.
 It was held that test to determine whether a property
is ‘goods’ for purpose of sales tax, is not whether the
property is tangible or intangible or in-corporal. The
test is whether the concerned item is capable of
abstraction, consumption and use, and whether it can
be transmitted, transferred, delivered, stored,
possessed etc.

42.  Even intellectual property, once it is put on a
media, whether it be in form of books or canvas
(in case of painting) or computer discs or
cassettes and marketed would become goods.
 Classification of encyclopedia, books on CD: there
is hardly any ‘interactivity’, except that search
engine helps in locating particular information,
which can be termed as ‘software’ forms
insignificant part of the whole goods.
 Applying the criteria of ‘essential character’ in
case of mixture of goods, in my view, these cannot
be termed as ‘software’. These have to be
classified as books.

43. CENVAT-CENTRAL VALUE ADDED TAX
 CENVAT Credit is an integration of excise duty
and service tax. While paying excise duty service
tax can be claimed as Cenvat credit and while
paying service tax excise duty can be claimed as
Cenvat credit
 CENVAT Credit Rules, 2004 extended to the
whole of India except State of Jammu and
Kashmir with regard to availment and utilization
of credit of service tax.
 CENVAT Credit is available to the manufacturer
of excisable goods which either may be dutiable
or non dutiable and the provider of taxable
service.

44.  CENVAT credit is not available to the dealer
 Following duties paid on inputs are eligible as
CENVAT Credit for the manufacturer of
Excisable goods:
 (i) Basic duty of excise specified under First
Schedule to Central Excise Tariff Act.
 (ii) Special duty of excise specified under Second
Schedule to Central Excise Tariff Act.
 (iii) The additional duty of excise can be utilized
only towards payment of excise duty leviable
under additional duties of excise
 (iv) The additional duty of excise leviable under
can be utilized towards payment of either basic or
special excise duty.

45.  (v) The National Calamity Contingent duty can
be utilized for payment of NCCD.
 (vi) Education Cess on excisable goods or on
taxable services is to be utilized only towards the
payment of education cess either on goods or
taxable output services.
 (vii) Secondary and Higher education cess on
inputs and input services can be utilized only
towards payment of secondary and higher
education cess either on excisable goods or on
taxable output service.

46. Thanks
ध यवाद
Madhusudan Sharma,
FCS, FCMA, LLB, Dip. Taxation
Urban Finance and PPP Specialist
madhu.mss@gmail.com
20th February 2017