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

TAXATION IN INDIA by Ashish Bhalerao

India has a well developed tax structure with a three-tier federal structure, comprising the Union Government, the State Governments and the Urban/Rural Local Bodies.

The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance with the provisions of the Indian Constitution. The main taxes/duties that the Union Government is empowered to levy are Income Tax, Customs duties, Central Excise and Sales Tax and Service Tax.

The principal taxes levied by the State Governments are Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings.

The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.

 Since 1991 tax system in India has under gone a radical change, in line with liberal economic policy and WTO commitments of the country.

 Some of the changes are:

Ø  Reduction in customs and excise duties

Ø  Lowering corporate tax

Ø  Widening of the tax base and matching up the tax administration

WHAT IS A TAX?                                                                             

A compulsory contribution made by the assesse to the government from his earnings.

HOW MANY TYPES OF TAXES ARE THERE?

There are two types of Taxes in India

Ø  Direct Taxes

Ø  Indirect Taxes

The Taxes whose burden falls directly on the Tax payers are the “Direct Taxes” like Income Tax, Wealth Tax etc.

The taxes in which the burden is passed on to a third party are called “Indirect Taxes” like Service Tax, VAT etc.

DIRECT TAXATION IN INDIA

Direct taxation in India is taken care by the Central Board of Direct Taxes (CBDT). It is a division of Department of revenue under Ministry of Finance.CBDT is given the authority to create and control direct taxes in India.

In India the tax structure is divided amongst the central government and state government.

Central government levies tax	State government levies tax
Income, custom duties, central excise and service tax.	State excise, stamp duty, VAT (Value Added Tax), land revenue and professional tax.

Direct taxes are charged on the basis of residential status and not on the basis of citizenship.

The assessee are charged based upon the following factors

• Resident
• Resident but not ordinary resident.
• Nonresident.

Direct Taxes Reform
The system of direct taxes was very much complex and inefficient because of the combination of high marginal rates of personal income and wealth taxation and high rates of corporate profits. It had a major impact on economic policies, creation of savings and the trend of investment.

 INDIRECT TAX SYSTEM INDIA

The Constitution gives the permission to levy a large number of indirect taxes. But the most important ones are customs and excise duties charged by the Central government and sales tax excepting inter state sales tax to be charged by the state government.

The indirect taxes levied by the centre like customs, excise and central sales tax and the major indirect taxes levied by the states and civic bodies like passenger and goods tax, electricity duty and Octroi.

Since they are less observable than income tax, politicians are tempted to increase them to generate more state revenue.

Indirect Taxes Reforms

·         The indirect tax rule in India is still in the early stages of growth. Both the Central and State governments charge a multitude of indirect taxes. The central government charges tax on goods at the point of import (Customs duty), manufacture (Excise duty), interstate sales (Central sales tax or CST) and on provision of services (Service tax).

·         The state governments charge tax on goods sold within the state (Sales tax/Value Added Tax or VAT), and on the goods that enter the state (Entry tax).

·         In the present scenario corporate would have to analyze the tax cost involved in a transaction, have enough backup documentation to support their tax positions and keep looking for ways for tax maximization.

Seven Stupid Things Human Resource Departments Do To Screw Up Performance Appraisals (

Seven Stupid Things Human Resource Departments Do To Screw Up Performance Appraisals

(This article is based on the book: Performance Management - Why Doesn't It Work, and the McGraw-Hill book entitled Performance Management released in October, 1998. Copyright 1998 Robert Bacal. This article may not be reproduced without permission.)

We've written an article entitled "The Ten Stupid Things Managers Do To Screw Up Performance Appraisals", but the truth is that managers don't do dumb things just to fill up their time. A lotof the time we find that when managers are doing performance appraisals badly, they are getting a lot of "help"from their human resource (HR) or personnel department. Central HR departments can create a situation that virtually destroys any value from the performance appraisal process. Here's the list of dumb things HR folks do.

Stupid Thing #1: Focusing on and stressing the paperwork and forms.

We can understand why human resource people want some sort of paper trail related to performance appraisal. But when the emphasis on the forms and paperwork overshadows the real purpose of doing appraisals, then huge amounts of resources are wasted. When HR departments focus on getting the forms done, that's exactly what they get. Forms done. If that's all this is about, hire a monkey to do it. Any fool (no insult to the monkey) can tick off boxes on a form and send it on.

Stupid Thing #2: Believing that a ratings based form of appraisal will serve as protection against lawsuits by employees.

Big mistake. If you are caught speeding, do you think the court is going to accept as evidence a policeman's statement that "On a scale of 1-5 the driver was a 4?" I don't think so. But HR departments believe that THEIR form is going to withstand legal scrutiny. It's not. It's too subjective and too vague. This desire for false security is one reason HR folks feel they need to pressure managers to get the forms done. At least until their first lawsuit.

Stupid Thing #3: Using an automated system

This is a new development. You can purchase software that automates the performance appraisal process. What it does is it takes a lousy paper process, then makes it a lousy computerized process, so now we go much faster pretending we are doing something useful.

Performance appraisal is an interpersonal communication process. Even between two people, it's often not done well. Automating the process is a waste of money and time, and HR departments that go that route are doing charitable work for the vendors of the software.

It's bad enough we mechanize a human process using paper forms. Now we can take it one step further. Heck, now managers never have to speak to staff. This is progress?

Stupid Thing #4: Undertraining or mis-training managers in the process

Take some HR folks. They design some new forms, and a new way of doing performance appraisals. They print out some basic instructions, print out some forms, and distribute them to managers. The assumption is managers will know the purpose goes much further than "getting the forms done".

That's not going to happen. If the HR folks yell and scream, they probably WILL get the forms back, but not much more. Managers need extensive training, not only regarding the nuts and bolts of the appraisal process, but about the why's and interpersonal parts of it. Without that, one gets an empty paper chase (while people pretend it is a useful way to expend energy).

Stupid Thing #4: Not training employees

Why would you train employees in their role in the appraisal process. First, because the only way it works is when employee and manager work together, in partnership. Both manager and employee need to hold the same understanding about why they are doing appraisal, how it will be done, and what is expected.

Very few organizations offer anything but a superficial orientation to the appraisal process. That's because they see it as something done TO employees. It isn't, except of course when the HR department treats it as something done to employees. Then managers will probably do it that way.

Stupid Thing #5: Thinking pressuring managers to get the forms in is productive.

One reason managers procrastinate with respect to doing appraisals is that they don't see the point, or see it as a waste of time. There are other reasons, too. Most can be dealt with by using flexible approaches that take into account the needs of managers. Unfortunately, a good many HR departments believe it's just a question of ordering, yelling, coercing or begging managers to get them done.

That doesn't address the reasons why managers aren't doing them. If they felt they were useful, they would do them. The key to getting them done is to make them useful. Unless of course the HR folks want to spend their days ordering, yelling coercing and begging.

Stupid Thing #6: One size fits all fantasy

Imagine the difficulty for HR staff if every manager used a different form, or different method. How would you keep track? How would you file them? We can understand the desire to standardize the forms across a company.

But if you think about it, does it make sense? Can we evaluate a teacher in the same way as we evaluate the school custodian? Do we evaluate a baseball umpire the same way we evaluate a baseball player? Of course not. But still, HR departments expect managers to use a single tool for everyone, often a rating form. This kind of inflexibility addresses a filing problem. Is that why we do appraisals? To make it easier for the HR department? No, we do it to improve performance.

Stupid Thing #7: Playing the appraisal cop.

Unfortunately, HR and personnel departments get stuck with the responsibility of getting appraisals done by managers. Perhaps it isn't their fault, but it is a strong indicator that the system being used is or has failed. How come?

In a properly functioning system, each manager is assessed on a number of things, one of which will be their fulfillment of the performance management and appraisal function. The responsibility lies with management. If a manager is not carrying out the responsibility, it is his or her boss that should be evaluating the manager. It's a cascading process. No appraisal system is going to work until each manager's boss makes it clear that getting it done is going to be a factor in the manager's own appraisal.

HR departments shouldn't be appraisal cops If anyone is to do that, it should be the manager's boss. Anything less is going to be a waste of time and effort.

supply

Elasticity

Basics of Income Tax