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Provisions for Excise Duty in India

The indirect tax applicable on the manufacture of a good is known as excise duty. The rules are governed by the Central Excise Act, 1944.

Excise Duty is a type of indirect tax which is applicable on the goods manufactured in India and used for consumption within India. The taxability arises as soon as the goods are manufactured. In the case of no manufacture, no excise duty is charged. The Central Excise Act, 1944 governs the provisions to levy central excise duty. The Central Board of Excise and Customs (CBEC) is responsible for collecting the excise duty. The Central Excise Tariff Act, 1985 classifies the goods on which central excise duty is levied and the rates of duty payable.

Conditions for levy of Excise Duty

  1. Goods must be there;
  2. The Central Excise Tariff Act, 1985 (CETA), must specify the goods;
  3. Manufacture of products must have taken place;
  4. The manufacture must be done in India excluding the Special Economic Zone areas.

Scope of Central Excise Law

The Law applies to whole India including Jammu and Kashmir. The territorial waters of India are also included. The goods manufactured or produced within.-

  • Territorial waters of India; and
  • The areas designated in the Continental Shelf or the Exclusive Economic Zone,

Treated as a part of India, must be liable to excise duty.

Excise Duty Rate

The basic excise duty rate as stated in the First Schedule of CETA is 12.5%. The EC & SHEC is fully exempt.

Note- EC: Education Cess; SHEC: Secondary & Higher Education Cess.

Taxable event

A taxable event is an event on the occurrence of which liability to pay excise duty is created. Manufacture or production of excisable goods is the taxable event in case of Central Excise. The manufacture must take place in India. People manufacturing or storing excisable goods in the warehouse are liable to pay the excise duty.

When is duty payable?

The Rule 4 of the Central Excise Rules, 2002, states that excise duty is payable at this time of removal from the factory or the registered warehouse, where the excisable goods are stored (unless otherwise provided).

Date for identifying the rate of duty and tariff valuation

Rule 5 of the Central Excise Rules, 2002, states that the date on which the excisable goods are removed from the factory or the warehouse will be considered as the date for determining the rate and value. This means that the rate and the value on the date of removal are taken for valuation of goods.

Types of Goods

Excisable Goods: These are those goods which are specified in the First & Second Schedule of CETA, 1985. Excisable goods can be classified into two categories-

  1. Dutiable- This can be divided into,

    • Marketable- Duty is payable on those marketable goods which are movable, whereas goods which are non-movable excise duty is not payable.
    • Non-marketable- No excise duty.
  2. Non-dutiable- Goods which are exempted from excise duty.

Non-excisable Goods: These are not listed in the schedules of CETA, 1985, and hence, no excise duty is levied.

Exempted Goods: These are those which are exempted by the Central Government’s notification.

Classification of Goods

The excisable goods are classified into various headings and sub-headings of the Central Excise Tariff. It is important to classify the goods for determining the rate of duty and also, the exemption eligibility, if any.

Valuation of Excisable Goods

The valuation of excisable goods can be done in the following ways:

  1. By Annual Production Capacity: Section 3A of the Central Excise Act, 1944, is an independent code for levying and collecting duty on the goods notified by the Central Government. The products are declared under this section to safeguard the interest of revenue. Products like pan masala, gutkha, chewing tobacco and branded unmanufactured tobacco are notified under section 3A.
  2. Specific Duty: The duty payable by length, area, volume, etc. is known as specific duty. It is the simplest method to calculate the duty.
  3. Compounded Levy Scheme: According to Rule 15 of the Central Excise Rules, 2002, this scheme is an optional scheme for the small-scale, decentralised sectors. Stainless steel patties and Aluminium circles are covered in this scheme presently. The duty is fixed as per the number and types of machines.
  4. Duty based on the value (Ad-valorem duty)-

    1. Tariff Value: As per section 3(2) of the Central Excise Act, 1944, the Central Government has the power to fix the tariff values. The goods whose tariff values are fixed will be taxed accordingly. There can be different tariff values for different descriptions or classes of same goods. Presently tariff values have been set for Ready-made Garments, Pan masala, Jewellery and Beauty or make-up products.
    2. Retail Sales Price: As per section 4A of the Central Excise Act, 1944, the valuation is based on the retail sales price declared on the goods. The statutory requirements for applicability of this section are-

      • Must be excisable goods;
      • Must be chargeable to duty on value;
      • Sales must be in package;
      • Must fall under the provisions of Legal Metrology Act, 2009, mandatorily; and
      • Must be notified by the Central Government.

        Section 4A has an overriding effect on section 4, but not Section 3(2).
    3. Transaction Value ascertained under section 4 of the Central Excise Act, 1944: The value of the excisable good will be taken to be the transaction value, where the excise duty is levied concerning value. The value is transaction value is all the conditions are satisfied.

      • Assessee must sell the goods;
      • Sale must take place for delivery at the time and place of removal;
      • The buyer is not related to the assessee; and
      • Price is the sole consideration for sale.

        If the case of not satisfying any of the conditions, the transaction value is determined as per the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

        The provisions of this section are not applicable in case the tariff value is already fixed of the excisable good u/s 3(2).