SIDDHARTH ACADEMY

INDIRECT TAX

CENTRAL EXCISE LAWS AND CUSTOM LAWS

CONTENTS

Particulars Page Number

Central Excise Act 1CENVAT Credit Rules,2004 46Customs Act,1962 63Case Laws 107

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The Central Excise Act 1944

Basic Concepts

Excise Duty: It is a tax levied on manufacture of excisable goods. The taxable event for

levy of excise is "manufacturing". Authority to state to collect tax is derived from Entry

no 84 of the Union list of the VII schedule of the constitution of India. This entry

empowers the central government to levy excise duty on all goods except on alcoholic

liquor for human consumption, opium, Indian hemp and narcotics.

State governments have been given the powers to levy duty on the above mentioned

exceptional goods ie on alcoholic liquor for human consumption, opium, narcotics etc.

eg:

On these products state excise will be levied

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The Central

Excise Act 1944

The Central Excise The Central

Excise Appeals Rules 2001

tariff Act 1985

Body of Central

Cenvat Credit Rules 2004 Excise Laws

The central Excise Rules

2002

Body of Central Excise Laws

The Central Excise (Removal of Goods at concessional rate of duty) Rules 2001

The Central Excise (Determination of retail sales price Rule) Rules 2008

The Central Excise Valuation

(Determination of price of Excisable goods)

Rules 2000

In case of medicinal and toilet preparations, which contains alcohol, opium, narcotics

etc central excise duty will be levied.

Eg: A cough syrup contains alcohol however for the purpose of Excise it will be

charged under the Central excise and not under state excise , as one of its contents is

alcohol however alcohol is not the main product being sold.

Fig: Cough syrup containing alcohol

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Levy of duty, scope of Excise Laws and

taxable events

" Section 3: Charging section

" There shall be levied and collected in such manner as may be prescribed, a duty of

excise to be called as CENVAT ie (Central Value added tax ) , on all excisable goods

(other than those produced in SEZ) which are manufactured in India and the duty shall

be levied at such rates set forth in First schedule to Central Excise Tariff Act 1985.

" A special duty of excise in addition to the above mentioned on excisable goods specified

in the second schedule to the Central Excise Tariff Act 1985, which are manufactured in

India (other than those in SEZ ) at rates set forth in Second schedule.

" The basic conditions for levy of excise duty are as follows

There must be goods Goods must be excisable

There must be a production or manufacture

Manufacture must take place in India

" The applicability of Central Excise Act is over whole of India including Jammu and

Kashmir.

" India includes Territorial waters of India (ie a distance upto 12 Nautical miles from

the baseline of Indian landmass).

" Designated areas of Continental Shelf (ie a distance upto 24 Nautical miles from the

baseline) or Exclusive Economic Zone (ie a distance upto 200 Nautical miles from the

baseline ) which are treated as part of India.

" Thus any manufacturing activity carried out in any of the above areas is liable to levy of

excise duty.

" Analysis :

" The excise duty is charged as per the provisions of Central Excise Act 1944 , however

the duty is collected as per the Central Excise Rules.

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2

3

The goods were excisable but

chargeable at NIL rate of duty

Goods wholly exempt from

duty of Excise by presence of

notification

Nil rate is increased to 12 %

Exemption notification being

withdrawn

Yes duty is payable @ 12 % as the

goods were excisable when the

taxable event took place. Nil is also a

rate of duty

Since the goods were excisable at the

time of taxable event they are liable to

duty at applicable rate.

4

5

Goods taxable at 10%

Goods were not liable to

special levy

New rate enforced at 12 %

Goods made liable to special levy

Duty is payable as per new rate in

force ie @ 12 %

No special duty will be payable as it is

a new duty levied all together and did

not exist at the time of taxable event

Territorial waters of India

Taxable event for levy of excise duty

Rate of Duty at the

time of manufacture

Non Excisable goods ie there

is no levy of excise duty

Rate of duty at the time

of removal of goods

New levy has been made @ 12%

Duty payable or not and if

yes at what rate

No duty is payable at the time of

removal as when the taxable event

took place the goods were not

subject to duty of excise

Sr

N

o

1

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Concept of Goods, Excisable goods, movability and marketability

Goods: Goods have not been defined under Central Excise Act 1944, however under various legislatures the term goods has been defined .

- Article 366(12) defines goods to include all materials, commodities and articles.

- As per Section 2(7) of the Sale of goods Act 1930 Goods means " every kind of

movable property other than money and actionable claims and includes stock and

shares, growing crops, grass and things attached to and forming part of land .

- In the case of UOI v/s DCM 1977(1) ELT 199 (SC) , the supreme court has held that in order to be goods the articles must be capable of being bought and sold.

Therefore to be called goods the items must be movable and marketable.

Point of Inference :

movable

marketable

Goods

Movability:

The goods should be such that in the ordinary course of trade they can be brought to

the market and should be capable of being bought or sold. Thus immovable properties

cannot be termed as goods for the purpose of levy of Excise duty.

" Marketability:

" It refers to the capability of being bought or sold in open market and also includes

products which are deemed to be marketable. The Supreme court in the case of

Bhor Industries v/s CCEx held that merely because a product is mentioned in the

tariff doesn't mean that it should be liable to excise unless it is proved that the

product is marketable .

" Actual sale is not necessary only the capability of a product to be sold is sufficient

enough to make the product marketable, thus liable to duty of excise.

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" Deemed marketable: Scrap generated in the process of manufacturing will also

be liable to duty of excise.

" Excisable goods:

" Defined u/s 2(d) : Goods specified in the first and second schedule of the Central

Excise tariff Act 1985 as being subject to duty of excise and includes salt.

" Goods means any article material or substance which is capable of being bought or

sold for a consideration and such goods shall be deemed marketable.

" Non Excisable goods : Goods which are not specified in the Central Excise tariff Act 1985, or which are specified in but no rate of duty ie not even "nil" rate of duty is mentioned such goods are known as non excisable goods.

Eg: Electricity

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Non Dutiable goods: Non dutiable goods means goods which are either chargeable at "nil" rate of duty or goods which are exempt from whole of the duty of excise under section 5A of the Central Excise Act 1944.

Exempt goods: Goods which have been exempt from whole of duty of excise by way of notification issued. Section 5A of the Central Excise Act 1944 exempts certain products from duty of excise.

Nil Rated goods: Goods which are mentioned in the Central Excise tariff Act 1985 and which are

not liable to duty, against which a "nil" has been marked.

Concept of Manufacture:

As per provisions of Sec 2(f) of the Central Excise Act 1944, Manufacture includes any process ,

1. incidental or ancillary to the completion of manufactured product.

2. Which is specified in relation to goods mentioned in the section notes and chapter notes of the first schedule to the Central Excise tariff Act 1985, amounting to manufacture and includes deemed manufacture, or.

3. Which in relation to goods mentioned in the third schedule involves packing repacking, labeling re-labeling of containers including the declaration or alteration of retails sales price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.

Analysis : In its decision in the case of UOI v/s Delhi Cloth and Gen Mills Co Ltd, Hon'ble Supreme Court has elucidated that

" Manufacture implies a change, but every change does not necessarily mean manufacture ". So it is clear that to say a particular activity to be called as manufacture something more than mere change has to be undergone. A new product having different name , character and use should come into existance.

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Classification The Central Excise taiff Act 1985, contains the eight digit codes to be assigned to the

products which gives them the individual identity. Classification means, assigning a appropriate chapter and tariff item for the goods being manufactured.

eg :

x x x x x x x x

All the goods have been assigned a 8 digit code for their classification in the central excise tariff act. The 8 digit codes is split as follows.

The first two digits refers to "Chapter", first four digit refers to "Chapter heading",

first six digit refers to "Chapter sub heading" and last four digit refers to "Tariff item number".

Interpretative rules have been provided for classification , these rules are mainly useful in case for products which are being manufactured for the first time and so far which are not mentioned anywhere in the tariff.

Harmonised system of nomenclature (HSN) :

It is an internationally accepted product coding system formulated on the lines

of general agreements on tariffs and trade ( GATT ) . The tariff has been

structured on the basis of HSN.

Explanatory notes to HSN have been issued :

1. These notes are issued by the Customs-Cooperation council, Brussels .

2. These notes explain the ambit of each heading of HSN and Central Excise

tariff act has been framed as per HSN.

3. However these notes can be resorted to only if there is an ambiguity over

classification of these goods.

Rules of Classification :

Rule 1 : The title of section and chapter are given for ease of reference only however

the classification will be determined as per the terms of heading of relative section or

chapter notes, provided such headings or notes do not otherwise require, according

to the provisions hereinafter contained .

Eg : The heading of Chapter 84 refers to Nuclear reactors, machinery&etc but even a

hand pump falls under chapter 84. Thus it can be observed that even though the

section and chapter note didnt specify the hand pump still it is classified under this

chapter .

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Rule 2 (a) : Classification of incomplete or unfinished articles shall be made with that of the main product provided that the incomplete or unfinished article has

the essential characteristics of that of the main product .

Eg : A car without seats will still be known as a car as even though it is complete

in all sense it is still possesses the essential characteristics of a car.

Rule 2 (b) : Classification of Mixtures/Combinations of a Material/Substance with other Material/Substances : Any reference to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other material or substance.

Eg : Natural rubber will cover a mixture of natural and synthetic rubber and rubber sheet would cover a sheet made up of mixture of natural and synthetic rubber.

Rule 3: Classification when goods are classifiable under two or more headings.

If the classification of goods cannot be done under Rule 1 or 2 then they

shall be classified under rule 3

1. More specific description : A first recourse to be adopted is to take a heading which gives more specific description over the one with a general description.

eg :

2. Essential character: Mixture, composite goods consisting of different materials or made up of different components and goods put up in sets for retail sale which

cannot be classified by reference to (1) above.

eg:

3. Later the better maxim: When goods cannot be classified under 1 or 2 above

they shall be classified under the heading which appears last in the numerical order .

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" Rule 4 : Akin rule

" Goods which cannot be classified in any of the above rule shall be classified along with

the goods to which they are most like to.

" Eg : Plastic films used to restrict glare of sunlight which are pasted on car windows,

however if we look at the following tariff entry

" "39253000" Builders ware of plastics not elsewhere specified - shutters , blinds

(including venetian blinds ).

Now even though this car film is not a builders "ware of plastic" still it will be

classified under the above tariff entry.

" Rule 5 : Packing material

" In respect of packing materials following rules need to be followed.

" The packing materials such as specifically shaped boxes or containers which help in

appropriate storage of goods are to be classified along with the main product instead

of classifying it separately.

" Eg: A wrist watch box, jewellery box, camera case.

" Rule 6 : General Rules for interpretation

" For legal purpose the classification of the goods in the sub headings of a heading shall

be determined according to the terms of those sub headings and any related sub-

heading notes and, like wise, to the above Rules in the understanding that only sub-

headings at the same level are comparable For the purpose of this rule relative section

and chapter notes also apply unless the context otherwise requires.

" Standard unit of quantity as referred in first schedule to the customs tariff act 1975

have been kept for collection, comparison and analysis of the trade statistical data.

Therefore in order to have a standardization of measuring the goods a standard unit

has been set for each goods.

" Eg : cement - Tonnes, chemical powders in- gm/mg

" Trade parlance theory suggests that if a product has not been specified in the schedule

or section notes or chapter notes of the Central excise tariff act 1985 then it should

be classified according to its popular meaning or meaning attached to it by those

dealing with it ie in commercial sense.

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Valuation

Like every product needs to be classified under a legitimate tariff head, also the same needs to be valued correctly.

As in most of the cases the calculation of duty is ad-valorem ie based on the value and therefore if the value is not calculated correctly the duty amount will not be correctly

determined. Therefore it is of utmost importance to arrive at a correct value.

There are a various basis for calculation of excise duty as mentioned below.

1. Specific duty:

The duty which is payable based on units such as length, area, volume etc.

2. Duty based on value:

It is a duty based on the value calculated ie either being a Tariff value under

section 3(2) or a Transaction value as defined under Section 4 or Retail sales price

as calculated under Section 4A of "The Central Excise Act 1944".

3. Duty based on production capacity : In respect of goods notified by Central

Government under Section 3A the duty has to be paid based on annual production capacity. This section has a overriding effect over Section 3( charging section).

Considering the nature of goods, the extent to which evasion of duty can be done or if the Central government considers it essential in its best interest it can notify all such

goods.

For the time being Pan Masala, Gutkha, Branded unmanufactured tobacco

etc are notified under this section.

4. Compounded Levy Scheme ( Rule 15 of the Central Excise Rules 2002)

This scheme is meant for small scale and disorganised sectors. Such assessees find it difficult to have a adherence to procedural compliance due to lack of availability

of resources. Thus they prefer this scheme. Since the amount of duty is specified

based on the number and type of machines.

eg : In case of Stainless steel pattas/patties the duty is Rs 30,000 per machine per month. Also this scheme is available in case of Alluminium circles produced on cold rolling machines - The duty is Rs 12,000 per machine per month.

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> Assessable Value : The value which will be adopted for the purpose of determining the amount of duty payable ie the value on which duty at a specified percentage will

be calculated is known as the assessable value.

> Transaction Value: As per provisions of Section 4(3)(d), Transaction value means price actually paid or payable by he buyer to the seller for the delivery of the goods at

the time and place of removal. This also includes any sum payable by the buyer to

any person on behalf of the seller.

Sr No Inclusions Exclusions

1 Advertisement and Publicity

Excise duty

2 Marketing and selling Sales tax, VAT

3 Storage, handling Any other local taxes

4 Servicing, Warranty

5 Commission

6 Any expenses in connection with sale

As per section 4(1)(a) The assessable value will be equal to the transaction value only if all the under mentioned conditions are satisfied.

I There must be a sale of excisable goods by the assessee. I The delivery is at the time and place of removal. I Price is the sole consideration. I The assessee and the buyer of the goods should not be related persons.

Assessee as per section 4(3)(a) means a person who is liable to pay duty under this act and includes his agent.

Related person section 4(3)(b) Persons shall be deemed to be related if 1. They are inter connected undertaking

2. They are relatives.

3. amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor.

4. They are so associated that they have interest , directly or indirectly, in business of each other Relative shall have the meaning assigned to it in clause(41) of section 2 of the Companies Act 1956

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Place of Removal : Section 4(3)(c) : Means

A factory or any other place or premises of production or manufacture of the

excisable goods . A warehouse or any other place or premise wherein excisable goods

have been permitted to be deposited without payment of duty. A depot, premises of a consignment agent or any other place or premises from where excisable goods are

to be sold after their clearance from factory.

Explanation to Section 4(1) : "Cum-duty-price" means

The price actually received by the assessee (seller) for the goods sold plus the money value of additional consideration flowing from the buyer to the assessee .

Assesable value in such cases shall be calculated using reverse calculation mechanism.

AV = Cum duty price (permissible dedctions) + (Additional consideration)

x 100 100+rate of duty

Eg : to be covered in class

"Normal transaction value" : Normal transaction value means the transation value

of the goods sold in greatest agreegate quantity.

As per a circular issued by CBEC for computing greatest agreegate quantity, the

time period should be taken as whole day. Greatest agreegate quantity means

the largest quantity of identical goods sold on a particular day irrespective of

the number of buyers.

The concept of normal transaction value is used for valuation in case of .

1. depot transfer under Rule 7.

2. Sale to a related person under Rule 9.

3. Valuation in case of Jobworker under Rule 10A

( The Central Excise Valuation Rules 2000.

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" Rule 4 : Value of goods is not known at the time and place of removal.

" The value of excisable goods shall be based on the value of goods sold by the assessee for

the delivery at the time nearest to the time of removal of goods under assessment

subject to, if necessary, such adjustment on account of the difference in the dates of

delivery of such goods and of the excisable goods under assessment, as may appear

reasonable to the proper officer. The valuation of samples which are removed is also

done as per this rule. Also in case of warranty claims this rule shall be made applicable.

" In case the goods are notified under section 4A the value of such samples shall be

computed in accordance with the provisions of section 4A of the Central Excise Act

" In case one single value cannot be found nearest to the time of removal then the value

shall be determined as per Rule 11 read with Rule 4. ie the value shall be the Normal

Transaction Value. ( ie the greatest agreegate quantity rate per unit shall be considered)

" Rule 5 : .Where any excisable goods are sold in the circumstances specified in clause(a) of sub-section (1) of section 4of the Act except the circumstances in which the excisable

goods are sold for delivery at a place other than the value of such excisable goods shall

be deemed to be the transaction value, excluding the cost of transportation from the

place of removal upto the place of such excisable goods.

" Sums to be solved in class.

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Rule 6: RULE 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub

section (1) of section 4 of the Act except the circumstance where the price is not the sole

consideration for sale, the value of such goods shall be deemed to be the aggregate of such

transaction value and not the amount of money value of any additional consideration flowing

directly or indirectly from the buyer to the assessee.

Sums to be solved in class

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Rule 7 : Where the excisable goods are not sold by the assessee at the time and the place of

removal but are transferred to a depot, premises of a consignment agent or any other place or

premises from where the excisable goods are to be sold after their clearance from the place of

removal and where the assessee and the buyer of the said goods are not related and the price is

the sole consideration for the sale, the value shall be the normal transaction value of such goods

sold from such other place of or about the same time and, where such goods are not to be sold

at or about the same time, the time nearest to the time of removal of goods under assessement.

Sums to be solved in class

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RULE 8 : Where the excisable goods are not sold by the assessee but are used for the consumption by him or on his behalf in the production or manufacture of other articles, the value shall be 110% of

the cost of production or manufacture of such goods.

The cost of production shall be calculated using CAS-4 ( Format annexed )

Certain inclusions and exclusions to be made while determining the cost of productions are as under

mentioned.

Inclusions in cost : The amortized cost of moulds, tools, dyes and patterns etc received free of cost shall be included in the cost

Exclusion from cost : interest and other financial charges, abnormal and non recurring costs,

abnormal scrap and wastages, and contingent obligations such as VRS, retrenchment compensation

etc shall form part of cost

Cost of materials to be considered should be always net of duty.

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Sums to be solved in class.

RULE 9 : When the assessee so arranges that the excisable goods are sold by the assessee except to or through a person who is related in the manner specified in either

of sub-clauses,the value of goods shall be the normal transaction value at which these

are sold by the related person at the time of removal, or where such are not sold to

such buyers, to buyers, who sells such goods in retail.

In case the goods are consumed or used by the related person in the production

process then the cost of such goods shall be determined as per Rule 8 of the Central Excise valuation rules.

Rule 10 :When the assessee so arranges the excisable goods are not sold by him except to or through an inter-connected undertaking, the value of goods shall be the

transaction value.

In any other case the value shall be determined as per Rule 9 ie Normal transaction value.

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" Rule 10A :

" Where the excisable goods are produced or manufactured by a job worker on behalf of a

person.

" In case the goods are sold by the principal manufacturer for delivery at the time of

removal of goods from the factory of the job worker, where the principal manufacturer

and the buyer are not related and price is the sole consideration for the sale, the value

of excisable goods shall be the transaction value of the excisable goods

" However if the goods are not sold by the pricipal manufacturer at the time of removal of

goods from the factory of the job worker but are transferred to some other place from

where the said goods are sold after their clearance from the factory of the job worker

and where the principal manufacturer and the buyer are not related and price is the

sole consideration , the value shall be the normal transaction value of such goods from such place at or about the same time or nearest time when such goods were sold.

" Rule 11 : If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the

principles and general provisions of these rules and sub-section (1) of section 4 of the

Act.

" The central Excise Rules :

" Rule 1. Short title, extent and commencement

" These rules may be called the Central Excise Rules, 2002. "

They extend to the whole of India.

" They shall come into force on the 1st

day of March, 2002.

" Rule 2 : Definition

" Rule 3 : Appointment and jurisdiction of central excise officers..

" Rule 4: Duty payable on removal

" 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 in the manner provided in rule 8 or

under any other law, and no excisable goods, on which any duty is payable, shall be removed

without payment of duty from any place, where they are produced or manufactured, or from

a warehouse, unless otherwise provided.

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" Rule 5 : Date for determination of duty and tariff valuation. -

" The rate of duty or tariff value applicable to any excisable goods, other than khandsari

(molasses) shall be the rate in force on the date when such goods are "removed" from a factory or a warehouse, as the case may be.

Refer the table given earlier.

" In case of molasses the rate of duty applicable will be of the date of procurement of

such molasses into the factory.

" The rate of duty in the cases of khandsari molasses, shall be the rate in force on the

date of receipt of such molasses in the factory of the procurer of such molasses.

" Rule 6 : The assessee shall himself assess the duty payable on any excisable

goods " Ie In Excise the self assessment mechanism is in force.

" Provided that in case of cigarettes, the Superintendent or Inspector of Central

Excise shall assess the duty payable before removal by the assessee,

" RULE 7. Provisional Assessement. - In the case where the assessee is not able to determine the value of the goods or the rate of duty then in such cases the assessee

can resort to provisional assessment. A request is to be made to jurisdictional Assistant

commissioner or Deputy commissioner of Central Excise, considering the same the

commissioner may allow the payment of duty on provisional basis.

" Subsequently the assessment shall be finalized and if on finalization it is noticed that

the duty paid on provisional basis is less than the duty actually payable , then the

balance amount shall be paid along with interest at prescribed rates.

" The interest will be applicable from the first day of the succeeding month for which the

duty is determined till the date of completion of final assessment. If however the duty

paid is more than what was actually payable then the excess duty paid will be

refunded. If the refund is not granted within 3 months from the date of final

assessment order then interest is payable.

" RULE 8. Manner of payment

" In normal cases the duty payable on monthly basis by 6th

of the subsequent month. If

however the payment is made electronically then the payment should be made by 5th

of the subsequent month. However in case of payments for the month of march the

payments should be made by 31st

of March.

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In case of assessees who are availing value based exemptions as per E/N 8/2003 the

payment has to be made by 5/6th

of the subsequent month after conclusion of the

financial quarters. And for the quarter ending on march the payment has to be made by

31st

of march.

Rule 9 : Registration

(1) Every person, who produces, who manufactures, carries on trade, holds private

store-room or warehouse or otherwise uses excisable goods, shall get registered :

Provided that a registration obtained under rule 174 of the Central Excise Rules,1944 or

rule 9 of the Central Excise Rules,2001 shall be deemed to be as valid as the registration

made under sub-rule for the purpose of these rules.

(2) The Board may be notification and subject to such conditions or limitatioins as may

be specified in such notification, specify person or class of persons who may not require

such registration.

The registration under sub-rule (1) shall be subject to such conditions, safeguards

and procedure as may be specified by notification by the Board

RULE 10. Daily stock account. -

Every assessee shall maintain proper records, on a daily basis, in a legible manner indicating the particulars regarding description of the goods produced or manufactured,

opening balance, quantity produced or manufactured, inventory of goods, quantity removed, assessable value, the amount of duty payable and particulars regarding amount of duty actually paid.

The first page and the last page of each such account book shall be duly authenticated by the producer or the manufacturer or his authorized agent.

All such records shall be preserved for a period of five years immediately after the financial year to which such records pertain.

Rule 11 : No excisable goods shall be removed from a factory or warehouse , except under an invoice signed by the owner of the factory or his authorized agent and in case of cigarettes, each such invoice shall also be countersigned by the inspector of Central Excise or the Superintendent of Central Excise before the cigarettes are removed from

the factory. The invoice should be serially numbered. The invoice books shall be used one at a time. The invoice should consist the name of the assessee, registered office address, date rate quantity amount and particulars, excise registration number vehicle details in which consignment is despatched, name of the buyer and his details.

The invoice shall be prepared in triplicate original for the buyer, duplicate for

the transporter and triplicate for the assessee.

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RULE 12. Filing of return. -

The monthly returns shall be filed by 10th

of the subsequent month. In case of SSI unit

holders

RULE 12A. Filing of return in respect of specified goods on which excise duty has been

imposed on and from the 1st

March,2002. -

Notwithstanding anything contained in rule 12, every assessee shall submit, in respect

of goods specified in the Annexure to rule 8A, to the Superintendent of Central Excise a

return for the months of March, April and May,2002, in the form specified by

notification by the Board, of production and removal of the said goods and other

relevant particulars, by the 10th

day of Jun,2002.

RULE 12AA. A Job work in article of jewellery or others articles of precious metals. -

RULE 12BB. Procedure and facilities for large tax payer. -

RULE 12C. Maintenance of records and payment of duty by the independent weaver of

unprocessed fabrics. -

An independent weaver of unprocessed fabrics falling under Chapter 50, 51, 52, 53, 54,

55, 58 or 60 of the First Schedule to the Tariff Act, may, at his option, authorize another

person, on his behalf, to maintain accounts, pay duty, prepare invoice and comply with

any of the provisions of these rules expect that of rule 9

RULE 12CCC: Powers to impose restrictions in certain types of cases.

RULE 12D: Applications of the rules.

RULE 15. Special procedure for payment of duty.

RULE 16. Credit of duty on goods brought to the factory. -

RULE 16A. Removal of goods for job work, etc. - Any inputs received in a factory may

be removed as such or after being partially processed to a job worker for the future

processing, testing, repair, re-conditioning or any other purpose subject to the

fulfillment of conditions specified in this behalf by the Commissioner of Central

Excise having jurisdiction.

RULE 16B. Special procedure for removal of semi-finished goods for certain purposes.

RULE 16C. Special procedure for removal of excisable goods for carrying.

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out certain purposes.

RULE 17. Removal of goods by a Hundred per cent. Export-Oriented out

certain processes.

RULE 18. Rebate of duty.

Where any goods are exported, the Central Government may, by notification, grant

rebate of duty paid on such excisable goods or duty paid on materials used in the

manufacture or processing of such goods and the rebate shall be subject to such

conditions or limitations, if any, and fulfillment of such procedure, as may be

specified in the notification

RULE 19. Export without payment of duty.

Any excisable goods may be exported without payment of duty from a factory of

the procedure or the manufacturer or the warehouse or any other premises, as

may be approved by the Commissioner.

Any material may be removed without payment of duty from a factory of the

producer or the manufacturer or the warehouse or any other premises, for use in the

manufacture or processing of goods which are exported, as may be approved by the

Commisioner.

The export under sub-rule (1) or sub-rule (2) shall be subject to such conditions,

safeguards and procedure as may be specified by notification by the Board.

RULE 20. Warehousing Provisions.

RULE 21. Remission of duty.

Where it is shown to the satisfaction of the Commissioner that goods have been lost or

destroyed by natural causes or by unavoidable accident or are claimed by the

manufacturer as unfit for consumption or for marketing, at any time before removal, he

may remit the duty payable on such goods, subject to such conditions as may be

imposed by him by orderin writing.

RULE 22. Access to a registered premises.

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Export & Warehousing

EXPORT UNDER CLAIM OF REBATE

Rule 18 of Central Excise Rules, 2002 :The Central Government may, by notification, grant rebate of-(i) Duty paid on such excisable goods which are exported out of India, or(ii) Duty paid on materials used in manufacture or processing of such goods.

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Conditions and Limitations for grant of Refund:Rebate of whole of the duty paid on all excisable goods, falling under First Scheduleto Central Excise Tariff Act, 1985, exported to any country, other than Bhutan, isgranted subject to following conditions and limitations-(a) The excisable goods shall be exported, after payment of duty, directly from a

factory/warehouse except as otherwise permitted by the CBEC by a generalorder or special order;

(b) The excisable goods shall be exported within 6 months from the date on whichthey were cleared for export from the factory of manufacture or warehouse orwithin such extended period as the Commissioner of Central Excise may, in anyparticular case, allow;

(c) The excisable goods supplied as ship's stores for consumption on board a vessel boundfor any foreign port are in such quantities as the Commissioner of Custom's at the portof shipment may consider reasonable;

(d) The rebate claim by filing electronic declaration shall be allowed from such placeof export and such date, as may be specified by the Board in this behalf;

(e) The market price of the excisable goods at the time of exportation is not lessthan the amount of rebate of duty claimed;

(f) The amount of rebate of duty admissible is not less than Rs. 500;(g) The rebate of duty paid on those excisable goods, export of which is prohibited

under any law for the time being in force, shall not be made.(h) In case of manufacturer is availing area-based exemption and exporting

goods therefrom, no rebate of duty shall be admissible.

Procedure for export of goods on payment ofduty under claim of rebate

(1)Goods to be exported under self sealing or sealing by Excise Officer :The manufacturer exporters and merchant exporters, who procure and export the goodsdirectly from the factory or warehouse, can exercise the option of exporting the goods sealed atthe place of dispatch by a CEO or under self sealing

(2)Procedure at the place of dispatch:(A) Sealing and examination at the place of dispatch by CEO:

> Goods to be presented for examination and sealing to CEO along with 4 copiesof ARE-1

> Verification & sealing of packages by the CEO> Distribution of copies of application

Original and duplicate copies shall be returned to exporter, Triplicate copy shall be sent to officer with whom rebate claim is to be filed or sent to

the Excise Rebate Audit Section at the place of export, Q u a d r u p l i c a t e c o p y m a y b e p r e p a r e d b y e x p o r t e r

f o r c l a i m i n g a n y o t h e r e x p o r t i n c e n t i v e . > E x p o r tb y P o s t

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(B) Self Sealing and certification:> Manufacturer or owner of the export goods shall take responsibility of sealing

and certification> Merchant-exporter not allowed self sealing facility> Certification of sealing of packages by owner/partner/director authorized

person The Managing Director or Company Secretary of Manufacturing unit orowner of warehouse shall- Certify all copies of application that goods have been sealed in his presence, and Shall send the original and duplicate copies of application along with the goods at

the place of export, and Shall send triplicate and quadruplicate copies to Superintendents or Inspector of

Central Excise having jurisdiction over the factory or warehouse within 24 hours ofremoval of goods;

> Verification of duty paid and endorsing the correctness of particulars bySuperitendent or Inspector of Central Excise, and shall send triplicate copy to - To the officer with whom rebate claim is filed, To Excise Rebate Audit Section at the place of export when rebate is claimed

by electronic declaration , and The quadruplicate copy shall be returned to exporter for the purposes of

claiming any other export incentive.

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(3) Procedure at the place of Export:> Presentation of goods along with application for export> Verification by Custom Officer and Inspection of package by CustomOfficer > Return of copies by Custom Officer after due endorsement

(4) Presentation of claim for rebate to Central Excise:> Person to whom claim of rebate to be made Assistant or Deputy Commissioner of Central Excise having jurisdiction

over factory or Maritime Commissioner, as the case may

be. > Sanction of Rebate(5) Claim through electronic declaration(6) Special procedure for store for consumption on board an aircraft on foreign run(7) Cancellation of export documents if goods are not exported

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Documents required to be filed to claim the rebate of Central Excise dutyby an exporter:

> A request on letterhead of the exporter containing claim of rebate, ARE-1 numbers anddates corresponding invoice numbers and dates on each ARE-1 and its calculations;

> Invoice issued under Rule 11;> Self attested copy of Shipping Bill;> Self attested copy of Bill of Lading;> Disclaimer Certificate;> Original copy of the ARE-1

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REBATE OF DUTY PAID ON RAW MATERIALSUSED IN EXPORT GOODS

Conditions and limitations for claiming rebate of duty paid on excisablematerials used in goods manufactured, to be exported are as follows -(a) Benefit of input stage rebate can be claimed on export of all

finished goods, whether excisable or not;(b) Any process not amounting to manufacture will also be eligible

for the benefit of rebate(c) Benefit of input stage rebate is allowed only to manufacture. It

is not available to merchant exporter.(d) The expression 'material' shall mean all raw materials, consumables,

components, semi-finished goods, assemblies, sub-assemblies,intermediate goods, accessories, parts and packing materials requiredfor manufacture or processing of export goods.

(e) Rebate of Central Excise duty paid on equipment and machinery, beingin the nature of capital goods used in relation to manufacture orprocessing of finished goods to be exported, shall not be allowed.

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PROCEDURE FOR CLAIMING REBATE OF DUTY ON INPUTS USEDIN MANUFACTURE/PROCESSING OF EXPORT GOODS

> Filing of declaration with Assistant or Deputy Commissioner of Central Excise withrequired particulars

> Verification of Input Output Ratio> Procurement of Material> Removal of Materials> Removal of materials or partially processed material for processing

For the purpose of test, repairs, refining, reconditioning or carrying out any othernecessary operation for manufacture of finished goods and return the same tofactory without payment of duty

For the purpose of manufacture of intermediate products necessary formanufacture or processing of finished goods and return the same to factory withoutpayment of duty

Any waste arising from processing of materials may be removed on payment of duty> Procedure for export> Presentation of claim of rebate> Communication of deficiency in claim

EXPORT UNDER BOND WITHOUT PAYMENT OF DUTY

Rule 19 of Central Excise Rules, 2002:> Any excisable goods may be exported without payment of duty from a factory of

the producer/manufacturer /warehouse/any other premises , as approved byCommissioner

> Any material may be removed without payment of duty from a factory of producer/manufacturer/ warehouse/any other premises for use in manufacture or processing ofgoods which are exported, as approved by Commissioner

> The export shall be subject to such conditions, safeguards and procedure as maybe specified by notification by the Board.

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Conditions and limitations for export to a place other thanBhutan

> Exporter to furnish a bond of a sum equal to at least duty chargeable on the goods withsurety or sufficient security,

> Export within 6 months> Export in original packed condition> Exempted goods cannot be exported under bond

Procedure for clearance of goods for export without payment ofduty> Furnishing letter of undertaking> After furnishing a bond, a merchant exporter shall obtain certificates in FormCT-1 > Procurement of excisable goods without payment of duty for export> Such general bond or letter of undertaking shall not be discharged unless the

goods are duly exported, within the time allowed and until full duty due upon anydeficiency has been paid

(1) Procedure for export of finished goods:

(I) Sealing of goods and examination at the place of dispatch: Exporter shall present goods along with 5 copies of application in the Form ARE-1, Verification by SCE of identity of goods mentioned in the application, The SCE shall return the original and duplicate copies of application to the

exporter and retain quadruplicate copy, The triplicate copy of application shall be sent to the officer to whom bond has

been furnished, The quadruplicate copy shall be retained by SCE for his own record, The exporter may prepare quintuplicate copy for claiming another export incentives.

(II) Dispatch of goods by self-sealing and self certification: Managing Director or Company Secretary shall certify all the copies application

that the goods have been sealed in his presence, and shall send original andduplicate copies at the place of export and triplicate and quadruplicate copy toSCE or Inspector

Verification by SCE of particulars of bond and endorsing correctness ofparticulars in application

The exporter may prepare quintuplicate copy for claiming another export incentives.

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2) Examination of goods at the place of export: On arrival at the place of export, goods shall be presented together with original,

duplicate and quintuplicate copies of application to Commissioner of Customs The Commissioner of Customs or other duly appointed officer shall examine

the goods with the particulars as specified in the application and if finds thatsame are correct and exportable, then he shall allow export thereof and certifycopies of application.

The Commissioner of Customs or other duly appointed officer shall return theoriginal and quintuplicate copies of application to the exporter and forward theduplicate copy of application to the officer specified in application.

The exporter shall present original copy to Bond Sanctioning Authority whoshall crosscheck the same with duplicate and triplicate copies of ARE-1 and ifhe is duly satisfied, shall discharge the bond.

The exporter shall use quintuplicate copy for the purposes of claiming anyother export incentive.

3) Cancellation of applications: If excisable goods are not exported, the AC/DC of Central Excise or Maritime

Commissioner or any other officer, to whom bond has been furnished, shall , onwritten request for cancellation of application, cancel the said application andallow diversion of goods for consumption in India.

The exporter shall pay the duty as specified in the application along with interest at therate of 24% p.a. on such duty, from the date of removal for export to the date ofpayment.

EXPORT WITHOUT PAYMENT OF DUTY TO NEPAL AND BHUTAN

Circumstances under which export of goods to Nepal andBhutan is permitted without payment of duty:

(i) Export under bond to Bhutan, where payment is in freely convertible currency(ii) Export in bond of petroleum oil, liquified petroleum gas and lubricant

products to Nepal(iii) Export in bond for supplies to Government of India aided projects in Nepal and

the Embassy Co-operative store and Embassy Petrol Pump located in Nepal forthe bonafide use of the officers and staff of the Embassy in Nepal

(iv) Export of all excisable goods without payment of duty to Kurichu Hydro ElectricProject, Tata Hydro Electric Project, Punatsangechhu-I Hydro Electric Project,Punatsangechhu-II Hydro Electric Projectand Mangdechhu Hydro Electric Projectin Bhutan

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Provisions regarding export under Bond to Nepal where payment ofduty is in freely convertible currency:

1) The importer in Nepal before the export of goods takes place, shall: Make full payment to exporter by furnishing Foreign Inward Remittance

Certificate (FIRC) from any authorized bank to deal in foreign exchange by RBI, or Open an irrevocable letter of credit in favour of the exporter in India

2) This condition does not apply to excisable goods other than consumer goodsbut excluding motor vehicles, are exported without payment of duty, as: Supplies to projects financed by United Nations Agency, International Bank for

Reconstruction and Development Association, Asian Development Bank or anyother multilateral agency of like nature;

To all diplomatic missions in Nepal provided in Nepal provided IndianEmbassy or Ministry of External Affairs certifies that import is for personnelof diplomatic community.

3) The exporter shall furnish bond before AC/DC of Central Excise having jurisdictionover factory, warehouse, or approved premises or such other officer as authorizedby the Board on this behalf from where goods are removed, for export to Nepal.

4) Where export is against an irrevocable letter of credit, exporter shall furnish acertificate from RBI, showing that full payment has been received in convertibleforeign currency.

5) On receipt of such certificate and on the satisfaction that the goods have beenexported in terms of bond, Bond Accepting Authority shall discharge theexporter of his liabilities under the bond.

Procedure for export of goods to Nepal and Bhutanwithout payment of duty:

(I) Procedure at the place of dispatch:> Six copies of Invoice to be presented to SCE having jurisdiction over

factory, warehouse or any other premises along with export goods> In case of export for supplies to Government of India aided projects in Nepal and

the Embassy Co-operative store and Embassy Petrol Pump located in Nepal for thebonafide use of the officers and staff of the Embassy in Nepal, the order of ProjectImplementation Authority shall also be presented;

> The SCE having jurisdiction over factory, warehouse or any other premisesshall verify identity of goods with reference to particulars of goods

> The goods shall be delivered to exporter or his agent, with original copy of theinvoice, duly completed and registered. He shall also give duplicate, triplicateand quadruplicate copies to exporter for delivery to Customs Officer in charge ofLand Customs Station

> The exporter shall be then free to remove goods for export to Nepalthrough Land Customs Station

> Quintuplicate copy shall be forwarded to AC/DC of Central Excise who hasaccepted the bond

> The SCE shall retain six tuplicate copy of the invoice.

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(II) Procedure at Land Custom Station:> The exporter or his agent shall present goods to the officer of customs-in-charge of

Land Custom Station along with original copy of invoice and sealed cover containingduplicate, triplicate and quadruplicate copies and obtain acknowledgment

> Verification of identifying the contents of all copies of invoice by officer ofcustomsin-charge of Land Custom Station and shall make necessary entries inregister and allow goods to cross into territory of Nepal or Bhutan

> The officer of customs shall deliver the original copy of the invoice duly endorsedto exporter along with goods for presentation of to the Customs Officer of Nepal orBhutan.

> The goods are then to be produced before Nepalese or Bhutanese Customs Officerat the corresponding border check-post along with original copy of invoice.

> The officer of customs-in-charge of Land Custom Station shall forward duplicatecopy to CEO in charge of the factory or warehouse from which goods wereremoved for export without payment of duty.

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(III) Procedure for discharge of bond or the duty liability:> The exporter shall submit the quadruplicate copy to CEO in charge of factory

or warehouse, along with bank certificates evidencing receipt of payment infreely convertible currency, within 6 months from date of removal of goods

> The CEO will verify the particulars of quintuplicate copy of invoice received fromCEO who has allowed clearance from factory or warehouse and will makesuitable entries in Board Account of exporter, giving provisional credit ordischarging the bond provisionally.

> In case of failure of export within 6 months from the date of removal or shortagesnoticed, the exporter shall discharge the duty liability on the goods not soexported or shortage noticed, along with 18% p.a. interest thereon.

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PROCUREMENT OF INPUTS WITHOUT PAYMENT OF DUTY FOR USE INEXPORT GOODS

Conditions and safeguards subject to which inputs can be procured without payment ofduty for purpose of manufacture of export goods under Rule 19:

> The manufacturer or processor intending to avail benefit of this notification shall registerhimself under Rule 9 of Central Excise Rules 2002

> The provisions of Central Excise (Removal of goods at concessional rate of duty for manufacture ofexcisable goods) Rules, 2001 shall be followed.

> General bond with surety or security or letter of undertaking shall be furnished by manufacturer.> Manufacturer or processor shall declare input output ratio and rate of duty payable on excisable

goods to be procured without payment of duty.> AC/DC of Central Excise shall verify the input output ratio and other particulars furnished in

declaration. After satisfying with correctness of particulars, he shall countersign the application

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> Removal of inputs for job work: For the purpose of test, repairs, refining, reconditioning or carrying out any other

necessary operation for manufacture of finished goods and return the same tofactory without payment of duty

For the purpose of manufacture of intermediate products necessary for manufactureor processing of finished goods and return the same to factory without payment ofduty

Any waste arising from processing of materials may be removed on payment of duty> Manufactured goods to be exported on the application in Form - ARE-2 andprocedures prescribed shall be followed.

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PROCEDURE IN RESPECT OF EXPORTED GOODS SUBSEQUENTLYRE-IMPORTED AND RETURNED TO FACTORY

Exported goods can be re-imported for carrying our repairs, reconditioning, refining,remaking or subject to any other similar process, may be returned to factory forcarrying out said processes and subsequent re-export in following manner:

> The manufacturer shall maintain separate account for return of such goods in DailyStock Account and shall make suitable entries in said account after said processes arecarried out

> Such re-import or re-export shall be governed by provisions of Custom's Act, 1962.> Any waste or refuse arising out of said processes, shall be removed from the factory

after payment of appropriate duty or destroyed , after informing proper officer atleast7 days in advance and after observing such conditions and procedure as may bespecified by CCE.

> Thereafter, duty is payable on such waste or refuse may be remitted by thesaid Commissioner of Central Excise.

PROCEDURE FOR RE-ENTRY OF GOODS CLEARED FOR EXPORTUNDER BOND BUT NOT ACTUALLY EXPORTED, IN FACTORY OFMANUFACTURER

The excisable goods cleared for export under bond or undertaking but not actuallyexported for any genuine reasons may be returned to same factory provided:

> Such goods are returned to the factory within 6 months with original documents likeinvoice and ARE-1.

> The assessee shall give intimation of re-entry of each consignment in Form D-3within 24 hours of such re-entry

> Such goods are to be stored separately t least 48 hours from the time intimation isfurnished to the Range Office or shorter period, if verification is done by SCE, aboutidentity of goods with reference to invoice, ARE-1, Daily Stock Account i.r.o. 5%intimations, within 24 hours of receipt of information.

> The assessee shall record details of such goods in Daily Stock Account and taken inthe stock in the factory.

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44WAREHOUSING PROVISIONS

Rule 20 of Central Excise Act, 1944 :

Removal of excisable goods from a factory to a warehouse or fromone warehouse to another warehouse

1)The Central Government may by notification, extend the facility of removal of anyexcisable goods from the factory of production to a warehouse, or from one warehouseto another warehouse, without payment of duty.2) The said facility shall be available subject to such conditions, including penalty and

interest, limitations with respect to period for which goods may remain inwarehouse, and safeguards and procedure as may be specified by the Board.

3) The responsibility for payment of duty on the goods, that are removed from thefactory of production to a warehouse, shall be upon consignee.

4) If the goods dispatched for warehousing or re-warehousing are not received inthe warehouse, the responsibility for payment shall be upon consignor.

(1) Procedure in respect of excisable goods removed from a factory ora warehouse:

> The consignor shall prepare an application in quadruplicate in specified from forremoval of goods from a factory or a warehouse to another warehouse.

> The consignor shall also prepare invoice i.r.o. goods proposed to be removedfrom factory or warehouse.

> The consignor shall send original, duplicate, triplicate application and duplicateinvoice along with the goods to the warehouse of destination.

> The consignor shall send quadruplicate copy to Superitendent-in-charge of hisfactory or warehouse within 24 hours of removal of consignment.

> On arrival of the goods at warehouse, the consignee shall, within 24 hours of arrivalof goods, verify the same with all the three copies of the application. The consigneeshall send duplicate copy to Superitendent-in-charge of his warehouse, duplicate toconsignor and retain the triplicate for his record.

> The Superitendent-in-charge of the consignee shall countersign the applicationreceived by him and send it to the Superitendent-in-charge of the consignor.

> The consignor shall retain the duplicate application duly endorsed by the consigneefor his record.

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(2) Failure to receive a warehousing certificate:

> The consignor shall receive the duplicate copy of the warehousing certificate, dulyendorsed by the consignee, within 90 days of removal of goods. If warehousingcertificate is not received within 90 days of removal, or extended period, the consignorshall pay appropriate duty leviable on such goods.

> If Superitendent-in-charge of the consignor does not receive original certificate, dulyendorsed by the consignee and countersigned by Superitendent-in-charge of theconsignee, within 90 days of removal of goods, weekly reminders must be issue by himto Superitendent-in-charge of the consignee. If still, original certificate is not receivedwithin further 60 days, then Superitendent-in-charge of the consignor shall inform hisAC/DC who shall either secure a satisfactory proof of goods having been duly receivedby consignee or ensure that the duty of excise due on the goods not received atdestination is recovered from the consignor.

(3) Accountal of goods in a warehouse:> The registered person of a warehouse shall maintain a register showing all

accounting entries into and removal of goods from his warehouse and shall indicatethe value, quantity of goods removed, their marks and numbers as well as the rateof duty and amount of duty involved.

> First and last pages of the register should be pre-authenticated by the owner ofthe warehouse or his authorized agent.

(4) Responsibility of the registered person:> The registered person of a warehouse shall be responsible for due reception of

the goods into the warehouse and deliver therefrom, including their safety duringthe period they are lodged in the warehouse.

> The registered person shall be responsible for the payment of penalty or interestleviable i.r.o goods which are warehoused as per provisions of Central Excise Act anthe Rules made thereunder.

(5) Period of warehousing:> Any goods warehoused may be left in the warehouse in which they are deposited, or in

any warehouse to which such goods have been removed, till the expiry of threeyears from the date on which such goods were first warehoused.

> If the registration of a warehouse is revoked or suspended, the excisable goodslodged therein shall either be declared for home consumption on payment of duty orshall be removed to another warehouse without payment of duty.

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(6) Warehouse to store goods belonging to the registered person:> A warehouse shall be used solely for storing excisable goods belonging to registered

person of warehouse alone. He shall not admit or retain in the warehouse anyexcisable goods on which duty has been paid ordinarily, the warehouse shall be usedsolely for storing excisable goods belonging to registered person of warehouse alone.

> The Commissioner of Central Excise having jurisdiction over the warehouse may permitstorage of excisable goods along with the excisable goods belonging to anothermanufacturer.

> The Commissioner of Central Excise having jurisdiction over the warehouse maypermit registered person of the warehouse to store duty paid excisable goods.

(7) Registered person to deal with the warehoused goods:> The owner of the warehouse may sort, separate, pack, or re-pack the goods and make

such alterations therein as may be necessary for the preservation, sale or disposal ofgoods.

EXPORT WAREHOUSING

The excisable goods are kept in a registered warehouse from where such goodsare exported, such warehousing of goods is known as Export warehousing.

(1) Conditions:> Where goods are diverted to home consumption from the warehouse, interest shall

be charged at the rate of 24% p.a. on the duty payable, calculated from the date ofclearance from the factory of production, till the date of payment of duty andclearances

> Exporter shall furnish a general bond (B-3) under Rule 19 of Central Excise Rules,2002, backed by 25% security of the bond amount.

(2) Procedure :> Registration - written request, along with application, to establish a export

warehouse, to Commissioner, who will accord the approval, within sevenworking days of receipt of application

> Execution of bond - general bond in form B-3, by furnishing security equal to 25% ofthe bond amount

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(3) Warehousing procedure:> Central Excise Officer -in-charge of the warehouse will issue certificate in duplicate of

removal in the Form CT-2, indicating details of the general bond executedby the exporter.

> The consignor will prepare an application for removal in ARE-3 Form and aninvoice and follow the procedure specified in Rule 20.

> The officer-in-charge will countersign the application and dispatch to the RangeOfficer having jurisdiction over the factory, within one working day ofreceipt of application.

> The assessee shall maintain private record containing information relating todetails of ARE-3 and invoice and other particulars warehoused goods.

(4) Receipt of goods in a warehouse:> Receipt of goods will be governed by procedure specified under Rule 20.

(5) Packing , re-packing, labelling or re-labelling within the warehouse: >These operations will be governed by procedure specified under Rule 20.> The exporter may procure packing or labelling material and bring itinto the warehouse.> When these processes amounts to manufacture, the goods permitted for

clearance for home consumption shall be determined and assessed accordingly.

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(6) Storage:> Goods brought under the cover of each ARE-3 shall be stored separately or

proper accountal shall be maintained, till these are exported or diverted forhome consumption.

(7) Clearance of goods for export outside India:> For the export of goods from the warehouse, the usual export procedure

relating to export shall be followed.

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Diversion of warehoused goods fro home consumption

> With the permission of AC/DC of Central Excise, goods can be cleared for homeconsumption on payment of duty, interest and other charges in GAR-7 challans

> Credit will be permitted in the Running Bond Account equivalent to the duty involved inthe goods so diverted, which shall not exceed amount of duty debited on the basisof ARE-3

> Goods can also be diverted after clearance of goods from warehouse under ARE-1.The documents will be cancelled as amended. Intimation of cancellation to be given toAC/DC having jurisdiction over warehouse.

> The exporter has to pay an interest at 24% p.a. on the amount of duty payable onsuch goods from the day of clearance till the date of payment of duty.

PROCEDURE FOR REMOVAL OF GOODS AT CONCESSIONAL RATEOF DUTY FOR MANUFACTURE OF EXCISABLE GOODS

(1) Application by manufacturer to obtain the benefit:> A manufacturer who intends to receive subject goods for specified use at

concessional rate of duty, shall make an application in quadruplicate form tojurisdictional AC/DC

> A manufacturer shall make separate application in respect of each supplierof subject goods.

> A manufacturer shall execute a general bond with surety and security.> The bond shall be for such amount as considered appropriate by the said AC/DC, to

cover the recovery of duty liability estimated to be involved at any pint of time.> The application shall be countersigned by said AC/DC, who shall certify that said

person has executed bond to his satisfaction i.r.o end use of subject goods andindicate particulars of such bond.

> Out of 4 copies, one copy shall be forwarded to jurisdictional Range Superitendentof the manufacturer of the subject goods, two copies shall be handed overto manufacturer and one copy shall be retained by the AC/DC.

> One copy of the application received by the manufacturer, shall be forwarded bysaid manufacturer to the manufacturer of subject goods.

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(2) Procedure to be adopted by manufacturer of subject goods:> On the basis of the application received from the manufacturer, the manufacturer of subject

goods shall avail benefit of the exemption notification.> The manufacturer of subject goods shall record on the application the removal details, such as

number, date of invoice, description, quantity and value of subject goods and amount of exciseduty paid at concessional rate.

(3) Procedure to be adopted by recipient of subject goods:> The manufacturer receiving subject goods has to give information to the concerned authorities

and has to maintain proper records relating to such goods and submit a quarterly return to AC/DCby 10the of the following month.

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CENVAT CREDIT RULES, 2004

RULE 1. Short title, extent and commencement.

RULE 2. DEFINITIONS

(1) inputs means

(a) All goods used in the factory by the manufacture of the final product; or

(b) Any goods including accessories, cleared along with the final product, the value of

which is included in the value of the final product and goods used for providing free

warranty for final products; or

(c) All goods used for generation of electricity or steam for captive use; or

(d) All goods used for providing any output service;

But excludes

(A)Light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

(B) Any goods used for

(a) Construction or execution of works contract of a building or a civil structure

or a par thereof; or

(b) Laying of foundation or making of structures for support of capital goods,

except for the provisions of service portion in the execution of a works

contract or construction service as listed under clause(b) of section 66E of the

Act.

(C) Capital goods except when used as parts or components in the manufacture of a

final product;

(D) Motor vehicles;

(E) Any goods, such as food items, goods used in guesthouse, residential colony, club

or a recreation facility and clinical establishment, when such goods are used

primarily for personal use or consumption of any employee; and

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(F) Any goods which have no relationship whatsoever with the manufacture of a

final product.

(2) input services means any service, --

(a) Used by a provider of (output service) for providing an output service; or

(b) Used by a manufacturer, whether directly or indirectly, in or in relation to the

manufacture of final products and clearance of final products upto the place of

removal,

And includes services used in relation to modernisation, renovation or repairs of a

factory, premises of provider of output service or an office relating to such factory or

premises, advertising or sales promotion, market research, storage upto the place

remova, procurement of inputs, accounting, auditing, financing, recruitment and

quality control, coaching and training, computer networking, credit rating, share

registry, security, business exhibition, legal services, inward transportation of inputs

or capital goods and outward transportation upto the place of removal;

But excludes, --

(A)Service portion in the execution of a works contract and construction services

including service listed under clause (b)of section 66E of the Finance Act(herein

referred as specified services) in so far as they used for

(a) Construction or execution of works contract of a building or a civil structure

or a part thereof; or

(b) Laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services; or

(B) Services provided by way of renting of a motor vehicle, in so far as they relate to

a motor vehicle which is not a capital goods; or

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(BA) service of general insurance business, servicing, repair and maintenance, in o

far as they relate to a motor vehicle which is not a capital goods, except when used by

(a) A manufacturer of a motor vehicle in respect of a motor vehicle manufactured by

such a person; or

(b) An insurance company in respect of a motor vehicle insured or reinsured by such

person; or

(C) Such as those provided in relation to outdoor catering, beauty treatment, health

services, cosmetic and plastic surgery, membership of a club, health and fitness

centre, life insurance, health insurance and travel benefits extended to employees

on vacation such as Leave or Home Travel Concession, when such services are

used primarily for personal use or consumption of any employee;

(3) capital goods means, --

(A)The following goods names only:-

1. All goods falling under Chapter 82, Chapter 84, Chapter 85,Chapter 90, of the

first Schedule to the Excise Tariff Act;

2. Pollution control equipment;

3. Components, spares and accessories of the goods specified at (1) and (2);

4. Moulds and dies, jigs and fixtures;

5. Refractories and refractory material;

6. Tubes and pipes and fittings thereof;

7. Storage tank,

8. Motor vehicles other than those falling under tariff headings

8702,8703,8704,8711 and their chassis[but including dumpers and tippers], used

(1) In the factory of the manufacturer of the final products, but does not include

any equipment or appliance used in an office; or

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(1A) outside the factory of the manufacture of the final products for

generation of electricity for captive use within the factory; or

(2) For providing output service;

(B) Motor vehicle designed for transportation of goods including their chassis registered

in the name of the service provider. When used for

(1) Providing an output service of renting of such motor vehicle; or

(2) Transportation of inputs and capital goods used for providing an output service; or

(3) Providing an output service output service of courier agency;

(C) Motor vehicle designed to carry passengers including their chassis, registered in the

name of the provider of service, when used for providing output service of

(1) Transportation of passengers; or

(2) Renting of such motor vehicle; or

(3) Imparting motor driving skill;

(D)Components, spares and accessories of motor vehicles which are capital goods for the

assessee;

RULE 3 - CENVAT CREDIT

Rule 3(1) : A manufacturer of a final product, or a provider of output service shall be allowed to

take cenvat credit of duties paid on procurement of inputs, capital goods received in the factory

of manufacturer and input services taken by the manufacturer of final products or by the provider

of output service.

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Following are the various duties paid and the availment mechanism of credits there of

Customs Service tax

Basic Excise Duty (BED ) Additional duty of Customs

u/s 3(1) of the Customs Act

1962 ie CVD

Service tax

Special Excise Duty (SED) Additional duty of customs u/s

3(5) of the Customs Act 1962

Education cess on Service tax

(EC)

Education cess (EC) - Secondary and higher

education cess on service tax

(SHEC)

Secondary and higher

education cess (SHEC)

-

National calamity contingency

duty (NCCD)

Health cess

Clean energy cess

Additional duty of excise on

Goods of special

importance(ADD-GSI)

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Additional duty of excise on

textile and textile articles

(ADD-T & TA)

The cenvat credit on BED, SED, Service tax, CVD and special CVD (SAD) can be

utilized to pay any duty other than clean energy cess.

The cenvat credit of SAD ie additional duty of customs levied under section 3(5) of the

Customs Act 1962 cannot be availed by an output service provider.

Out of the above table [NCCD, AED (T&TA),EC and SHEC and Health cess paid on

Excisable goods can be utilized to pay only respective duties ie the credit on such duties

can be specifically utilized for making payment of the same duties and not against any

other duty.

EC and SHEC on service tax can be utilized to pay EC and SHEC on service tax as well

as EC and SHEC on manufactured products.

ADD(GSI) can be utilized for paying ADD(GSI) and BED and SED.

The balance in the Cenvat credit A/c cannot be utilized to pay any duty on

products which are covered under Exemption notification 1/2011 CE.

The goods falling under this Exemption notification are liable to a nominal duty

of 1% and thus such duty has to be paid in cash only. These goods are also

covered under the definition of Exempt goods and thus no cenvat credit can be

claimed for payment of duty on such goods.

Also the balance in cenvat credit A/c cannot be utilized for making payment of

duty on goods mentioned under serial number 67 and 128 of Notification

12/2012 CE. Even the duty payable on these goods is at a nominal rate of 1%.

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Rule 3(2) : If at the time of removal the exemption on goods is withdrawn then credit is allowed

on Raw Material , and inventory which was in WIP stage or Inputs contained in final product.

Rule 3(4): The balance in the Cenvat credit account can be utilized to pay the following,

Any duty of Excise on any final product.

An amount equivalent to Cenvat credit taken on inputs which are removed as such or

after partial usage.

An amount equivalent to Cenvat credit taken on capital goods if such capital goods

are removed as such.

An amount payable under Rule 16(2) of the Central Excise Rules 2002.

Ie: if goods sold earlier are brought back in the factory cenvat credit is

availed on the same. When such goods are resold an amount equal to cenvat credit

availed on them shall be paid.

Payment of service tax on output service rendered.

However, if the service tax has to be paid on reverse charge mechanism then in such case

balance in Cenvat A/c cannot be utilized but the same has to be paid in cash.

Rule 3(5): If the inputs or capital goods on which cenvat credit has been taken, are removed as

such from the factory, or the premises of the service provider then an amount equivalent to

cenvat credit availed on such inputs or capital goods has to be paid. Such removal shall be made

under the cover of invoice.

However no amount equivalent to cenvat credit availed earlier is payable , if such inputs

or capital goods are removed by the service provider for providing output service. Also no

amount is payable if goods are removed for providing free warranty services.

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Eg : JCB machine is a capital good. But when such machine is removed by the service

provider for providing land leveling services, no amount equivalent to cenvat credit availed

earlier is required to be paid .

RULE 3(5A) : If the capital goods on which cenvat credit has been availed earlier are removed

after being used then an amount equal to {Cenvat credit availed as proportionately reduced

by % reduction per quarter or part thereof based on staraight line method} has to be paid at

the time of removal. Such reduction computation has to be made from the date of taking cenvat

credit.

For computer and computer peripherals

For each quarter in the first year 10% per

quarter

For each quarter in the second year 8% per quarter

For each quarter in the third year 5% per quarter

For each quarter in the fourth year 1% per quarter

For each quarter in the fifth year 1% per quarter

For any capital goods other than computer and computer peripherals the reduction will

be made at 2.5% per quarter.

Thus if any capital goods are removed after being subject to usage then amount as

mentioned above has to be paid. It has to be kept in mind that the calculations have to

be made from the date of availing cenvat credit. Also we should see that the date

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belongs to which quarter ie April-June, July-September, October-December or

January to March.

The date even if falls in between any quarter still the entire quarter has to be

considered in which the date falls.

if the date of credit is say 15th September 2013, then we will consider first

quarter as July-September 2013 and the 1st year will get over in the quarter

ending June 2014.

One thing to be remembered in this rule is that the duty payable on removal of

capital goods after usage will be duty as calculated by applying above

reduction or duty payable on transaction value at the time of removal

whichever is higher.

Rule 3(5B)

When goods are written off fully before being put to use then an amount

equivalent to CCR availed has to be paid at the time of write off.

Rule 3(5C)

Wherever duty is ordered to be remitted under Rule 21 of the Central Excise

Rules on any final products then the Cenvat credit taken on the inputs used in

manufacture of such goods shall be reversed.

Reversal of cenvat credit :

Eg: In an accounting entry format.

1. Original entry at the time of purchase

Purchase A/c..Dr 1000

Input CCR A/c Dr 100

To Vendor A/c 1100.

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2. After duty on final product is remitted under Rule 21 if credit is to be

reversed , then either the credit amount will be charged of to P&L A/c or to

Purchase A/c..

Purchase/Profit and Loss A/c..Dr 100

To Input CCR A/c 100

RULE 4. CONDITIONS FOR ALLOWING CENVAT CREDIT.

Inputs should be received in the factory of the manufacturer. In case of a

service provider the inputs, if they have been sent to the location of provision

of service the service provider should possess a documentary evidence for

claiming the credit.

Cenvat credit on capital goods received in the factory or in the premises of

service provider or outside the factory to be used in generation of electricity

for captive use can be availed maximum upto 50% in the first year.

In case the assessee is a eligible SSI unit then he can claim the entire Cenvat

credit on the capital goods in the same financial year.

The amount recorded in as cenvat credit cannot be considered for claiming

depreciation under section 32 of the Income tax Act 1961.

Eg: If asset is purchased for Rs 1,00,000/- and Excise duty in addition is @ 10

% ie Rs 10,000/-. The invoice total becomes Rs 1,10,000 /-. However the

depreciation can be claimed only on Rs 1,00,000/-.

The capital goods even if are bought on Hire purchase, lease or any loan

arrangement still the buyer will be given the benefit of the credit of the same.

RULE 5. REFUND OF CENVAT CREDIT

Refund = (Export turnover goods+ Export turnover of services) / Total Turnover* Net CCR

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RULE 5A. Refund of CENVAT credit in specified areas.

RULE 5B. Refund of CENVAT credit to service providers providing services taxed on reverse

charge basis.

RULE 6. OBLIGATION OF A MANUFACTURER OR PRODUCER OF FINALPRODUCTS AND A PROVIDER OF OUTPUT SERVICE.

Rule 6(1): No cenvat credit on on inputs and input services will be allowed to the extent they are

used in the manufacture of exempt goods or consumed in rendering of exempt services.

Rule 6(2): Maintain separate Accounts for

1. Inputs and input services used for manufacturing exempt products/rendering exempt

services and.

2. Inputs and input services which are used for manufacturing taxable products/rendering

taxable services.

Rule 6(3): If the assessee does not wish to maintain separate accounts as mentioned in Rule 6(2)

then he can make a Adhoc payment of duty @ 6% has to be made on all exempted goods cleared

and on all exempt services rendered.

If any duty is paid on the exempt final product, the same shall be reduced from the above duty

being paid.

Rule 6(3A): Formula based reversal. Using this method the credit on inputs or input services

can be proportionately reversed . In the first month of any year or first month of adoption of this

method whichever is earlier a provisional reversal % is determined to reverse the credit of inputs

used in the manufacture of exempt goods/rendering of exempt services or for input services

consumed for manufacture of exempt goods/rendering exempt services. Such provisional

reversal is then carried for the entire year. And at the end of the year the provisionally paid tax is

reassessed. At the end of year again calculation is done considering actual data and any duty due

is paid off.

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1. Let us understand the formula based reversal.

Calculation of cenvat credit to be reversed on inputs used in rendering exempt

services.

A= Cenvat credit attributable to inp