EXCISE DUTY

WHAT IS EXCISE DUTY?

Excise duty is an indirect tax levied and collected on goods manufactures in India.

An excise or excise tax (also called an excise duty) is a type of tax charged on goods produced within the country.  It is a tax on the production or sale of a good. This tax is now known as the Central Value Added Tax (CENVAT).

Though the collection of tax is to augment as much revenue as possible to the government to provide public services, over the years it has been used as an instrument of fiscal policy to stimulate economic growth.

NATURE OF EXCISE DUTY

Indian Constitution has given powers to Central Govt. and State Govt. to levy various taxes & duties. Powers of Central & State Govt. are enlisted in 7^th Schedule to our constitution. Entry No. 84 o list I of 7th Schedule to the Constitution read as follows:

Duties of excise on goods manufactured or produced in India, except alcoholic liquors for human consumption, narcotics, but including medical & toilet preparations.

Basis Conditions of Excise Liability:- Section3 of Central Excise Act (often called the Charging Section ) states that there shall be levied and collected in such manner as may be prescribed duties on all excisable goods (excluding goods produced or manufactured in Special Economic Zones), which are produced or manufactured in India.

The word goods, which are manufactured or produced in India, are same as those used in

Entry No 84 to list I. Thus, the power to levy Central Excise duty is derived from the constitution.

The definition of charging section i.e. section 3 of Central Excise is vital, because it clearly signifies that there are four basic conditions for levy of Central Excise duty.

1. The duty is on Goods.

2. The goods must be excisable.

3. The goods must be manufactured or produced.

4. Such manufacture or production must be in India.

MEANING OF LEVY

Section 3 uses the words levy and collection. Article 265 of Constitution also uses the same words. Levy means imposition of tax. Once a tax or duty is imposed, it has to be quantified (assessed) and then collected. Once a duty is levied it has to be collected.

However, constitution specially uses the words levy and collection.

Hence, it has been held that the term levy includes both impositions of tax as well as

assessment.

ASSESSEE AND ASSESSMENT

The assessee means “one who is assessed”.

He himself has to determine classification and valuation of goods and pay duty accordingly.

Assessment means determining the tax liability.

Duty is paid by the manufacturer on his own while clearing goods from the factory/warehouse, on self assessment.

TYPES OF EXCISE DUTY:

BASIC EXCISE:

 Basic excise duty (also termed as Cenvat as per section 2A of CEA added w.e.f 12-5-2000) is levied at the duty for most of the items is 8% at present rates specified in 1^st Schedule to Central Excise Tariff Act.

SPECIAL DUTY:

Some commodities like pan masala, cars etc. are leviable with

Special duty [section 3(1) (b)]. These items are covered in Schedule II to Central 20 Excise Tariff. Initially the special excise duty rates were 8%, 16% and 24%. The rate

was made uniform @ 16% from 1-3-2001.

EDUCATION CESS:

A new levy education Cess has been imposed w.e.f 9-7-2004 on all goods on which excise duty is payable.

The National Common Minimum Programme (NCMP) adopted has mandated imposition of Education Cess to finance universalized quality basic education.

Accordingly, Education Cess of 2% has been imposed which is payable on

central excise, customs, service tax & income tax.

In case of excise duty, calculation of Cess is easy. If excise duty rate is 16% Education Cess will be 0.32%. If excise duty is 24% Cess will be 0.48%.

TREATMENT OF EDUCATION CESS IN EXCISE DUTY:

Ø  Cenvat Credit Rules states that credit of education Cess paid on input can be utilized only for payment of education Cess on final product and /or output services. The credit cannot be used for payment of basic duty.

Ø  It is necessary to show education Cess separately in Invoice & separate accounting is necessary. Since account head is different, its separate indication in TR 6 challan is also necessary.

Ø  It is not necessary to pay Education Cess on Pre-budget stocks.

Ø  If assessee has already paid Education Cess, he can get refund only if he proves that he has not recovered the same from his customer.

GOODS

The word goods define goods as goods include all materials, commodities and articles. As per judicial explanation, for purpose of levy of Excise Duty, an article must satisfy two requirements to be goods i.e.

Ø  Goods must be movable

Ø  Goods must be Marketable.

EXCISABLE GOODS

Goods excisable even if exempt from Duty Excisable goods do not become

non-excisable goods merely because they are exempt from duty by an exemption

notification.

DUTIABLE & NON-DUTIABLE GOODS

Dutiable goods are those goods which attract duty as per the Tariff.

Non-dutiable goods are excisable goods on which no duty is payable, either because of Nil rate of duty because of exemption.

GOODS MANUFACTURED IN SEZ ARE EXCLUDED EXCISABLE GOODS:

 As per section3 (1) of CE Act, duty is leviable on all excisable goods (except goods manufactured or produced in Special Economic Zone)

SEZs in India

In India, SEZs are the special zones created by the Government and run by Government-Private or solely Private ownership, to provide special provisions to develop industrial growth in that particular area.
 The government of India launched its first SEZ in 1965, in Kandla, Gujarat.
The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-

• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
• 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
• Exemption from minimum alternate tax under section 115JB of the Income Tax Act.(In the Union Budget 2010-11, there is no more exemption on SEZ developers and SEZ units.)
• External Commercial Borrowing by SEZ units up to US $ 12500 billion in a year without any maturity restriction through recognized banking channels.
• Exemption from Central Sales Tax.
• Exemption from Service Tax.
• Single window clearance for Central and State level approvals.
• Exemption from State sales tax and other levies as extended by the respective State Governments.

IMPORTANCE OF EXCISE DUTIES:

Trade on which excise are not paid by the company are to be maintained and submitted to Central Excise‘s appropriate superintendent. It has a huge importance to send the unpaid duties towards excise department i.e. not to have an imbalanced account records, complexity in data, and interruption in business.

It is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used type of process employed etc.

WHO ARE LIABLE TO PAY EXCISE DUTY?

The liability to pay tax excise duty is always on the manufacturer or producer of goods. There are three types of parties who can be considered as manufacturers:

Ø   Those who personally manufacture the goods

Ø   Those who get the goods manufactured by employing hired labour

Ø   Those who get the goods manufactured by other parties

CONSEQUENCE OF AVOIDING PAYMENT OF EXCISE DUTY:

Under the different sections of the central excise act, the fines for evading tax can range 25% to 50% of the amount of duty evaded. When you look at the amount of excise you may have to pay, this is a rather large amount and along with the financial impact, you also have to encounter a stained image.

q  The effects on organization, if they are not maintained & followed

Ø  Bear Penalties

Ø  Loss of reputation

Ø  Disappointments of client

Ø  Disarray.

q  No. of cases frequently observed

Ø  Monthly approx about 80-90.

q  Minimum period for filling & sending the report

Ø  24 hours.

HOW IT IS CALCULATED?

MRP or  Cost of goods * 14% excise * 2% Cess (charged on the 14% excise duty)            * 1 % educational cess = MRP * 14.42% * Chargeable value of MRP

For example:  If u have a dish wash bar which is MRP Rs.18

MRP: 18
Excise duty: 14.42%
Rebatement or Chargeable value of MRP: 67.5% of MRP

There for
ED = 18 x 0.1442 * 0.675 = 1.752

Excise duty has to be included in the basic cost of the product and has to be declared by the manufacturer upfront before the goods leave the manufacturing plant.

FORMAT OF SENDING REPORT FOR UNPAID TRADES:

Our Ref. Cancellation                                                                         Date. 28.02.2011

Superintendent of Central Excise,

Chinchwad Range-II

Div.II, P.J.Chambers,

Pimpri, Pune-411 018.

            Sub:  Cancellation of Invoice.

Respected Sir,

Enclosed please find herewith the cancellation invoices which are erroneously prepared.

         

INV.NO.	INV.NO.
03-22-212805	03-23-107980
03-22-213181	03-23-108260
03-22-212623	03-23-108026

Kindly acknowledge the receipt on duplicate copy.

Thanking you,

Yours Sincerely,

For Exide Industries Ltd,

XYZ

ASST MANAGER- ACOUNTS          

Encl: OFB & DFT copies