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7/30/2019 Overview of Central Excise Law and Procedures
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Overview of Central Excise
Law & ProceduresMadhukar N Hiregange.Bcom, FCA, DISA(ICAI)
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Levy of Central Excise =
Cenvat Indirect tax more than 2300 yr old in
India
Whole of India
On produce / manufacture in India
Not on Goods but Activity
Ownership immaterial
Slowly moving into a value additiontax rather than manufacturing tax
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Cenvat/ ED- A duty on
-> goods
-> which are excisable
-> manufactured in India -> for home consumption
-> at rates specified
-> on value as defined -> with set off of previous duty
-> on removal
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Excisable Goods
Goods movable and marketable
Immovable means permanently attached to
the ground. Now it maybe preferable to opt for making
goods liable rather than not.- credits areavailable to manufacturers/ serviceproviders.
Not to Items in State list List II VIIschedule of Constitution Of India.
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Manufacture 2(f)(i)
Any process incidental or ancillary tothe completion of a manufactured
product New product with Distinct Name,
Character and Use Emerges
A converted to BA to A+ or A- may not be manufacture
( possible under Service Tax)
Trade understanding important
.
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Sec. 2(f)(ii)
Specified in Chapter Notes asamounting to manufacture (84
heading an sub headings) Packing, Re-packing, Labelling, Re-
Labelling, drawing, Mixing, Diluting
etc. Trader can be called a manufacturer
Consumer products food, cosmetics,
chemicals, fabrics, breaking ships etc
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2(f)(iii)- Activities of
packing etc Deems the activity of packing, labeling, affixing price
tax or alteration of the price tag or any other
processes to render the goods marketableApplicable for the goods listed in Schedule III to the
Act (96 headings)
Mainly food, chemicals, cosmetics, lubricants, tiles,white goods- pressure cookers, razors, automobileparts etc)
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Classification &
Exemption Not specified in CET unworkable
machinery
Specified but no rate set out Attracting Nil rate rice, wheat
Exempted agarbattis
Left Hand side Rule Exemptions cost benefit analysis
Exemptions- conditions to be followed.
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Small Scale Exemption
Not.8/2003 as amended.
One of more manufacturers from one
factory By one manufacturer from one or
more factories.
All products/ locations to beconsidered.
Not available for Branded goods unlessin rural area
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8/2003
OE supplies possible within 150 lakhs
Eligible units less than 400 Lakhs of
manufactured products ( including nilrate)
Eligibility upto Rs..150 lakhs ONLY. Nocredit. Net effect saving of 0-16 lakhs or
loss of 0-12 lakhs depending oncustomer.
Exports/ Branded goods/As suchremovalsnot considered for thecalculations
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Locational Exemptions
North East of India
Kutch
Jammu & Kashmir Himachal Pradesh
Chattisgarh 3 years time provided
Uttaranchal - same ++ No IT, CST 1% - in short time maybe
closed.
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Options for Exports
Scheme Duty drawback of Customs and/or CE
DEPB Scheme
AdvanceAuthorisation (DEEC)
DFRC Scheme
EPCG Scheme Procurement of goods w/o payment of
duty.
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Job Work- Options
Rule 4(5)(a)- Direct, JW-.> JW, DirDes. CG for JW
214/86
Loan Licensee
83 & 84/94
Govt/ Defence Not.
On payment of Duty
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Self Assessment
Onus on the manufacturer to comply
Ensure that payments are made in
time
Ensure that returns are filed in time
Material movement documented well
Ready for the Visits by DeptPreventive
Ready for Audits by Dept.
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Demands- Appeals etc.
Show Cause Notice
Reply/ Personal Hearing
Adjudication / Order Appeal to C(A) + Stay Appl
PH / Order
Appeal to Trib + Stay
High Court
Supreme Court
Alternative Settlement Commission
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Extended Period when
not applicable Details rqd already with dept.
difference of opinion
assessee under bona fide belief
dept. aware
No deliberation proved Elements of mens rea absent
Removal took place under cover of
invoice
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Audit Party
It is an audit not an investigation.
Should be after adequate notice wherein
what is the time period should bementioned.
If extension reqd another letter maybe sent.
No power to force reversal.
They are to provide info to Range whowould seek compliance and if assessee feelsdifferent and they are convinced on liability
SCN to be issued.
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Self Check- Value additive
Since this area has considerable costsinvolved internal audit of this area
required. Advantages: -> Compliance with laws
-> No surprises
-> Past period demands avoided -> Benefits under law claimed
IDEALY AN INDIRECT TAX AUDIT
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Cenvat Credit Rules 2004
Madhukar N HiregangeBCom, FCA, DISA(ICAI)
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To Whom Credit is
available? To Manufacturers under Central Excise
To Mfr. & Taxable Service
Providers(SP)
To Mfr. & Tax. & Non Taxable SP
To Taxable SPs
To Taxable & Non Taxable SPs
To Job workers paying duty onconsumables
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Credit of which duties
and taxes? Central Excise duty BED, SED,
Additional duty of customs on imports.
Additional duty of excise T & T and GSI.
Education cess & SHE Cess Credit onExcise Duties.
Service tax. Education cess & SHE Cess Credit on
Service Tax.
NCCD duty, Cess on Tea
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Credit on what basis?
Excise duty credit based on exciseinvoices and bills of entry & challans
raised by the large tax paying unit Excise duty invoice of manufacturer,
dealer, depot, importer, consignment
agent. Service tax invoice, challan of input
service provider and input servicedistributor issued on or after 10.9.2004.
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Conditions- Inputs
Eligible input/input service as per definition
On valid document- Invoice with details,
Banking company Advise / counterfoil From genuine sources
The connection should be established ingeneral
Account of usage maybe necessary.
Receipt into the premises of service provideris not must.
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Conditions for credit-
Capital Goods Eligible as per definition
Not used exclusively in exempted goods/
service Upto 50 % in year of receipt and Balance
(50) % in any subsequent year ofpossession. Not required for moulds, dies,
tools etc.,
No depreciation on credit claimed
Receipt into the premises of service provider
is must.
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Conditions Input
Services Used by manufacturer whether directly or
indirectly in or in relation to manufacture &
clearance of products upto place of removal Used by taxable service provider for
providing an output service
And includes initial services ( modernisation,
repairs, sales promotion, and activitiesrelating to businesssuch as auditing,.
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Credit Bifurcation
Services exclusively used in nontaxable services ( trading) No Credit
Services exclusively used in taxableservices- 100%
Specified common services (16)100%
( AMC, Security, Construction..)
Other common servicesproportionate
As er formulae
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Utilisation
Cenvat Credit on Inputs/ CG Can be usedfor paying CED, ST,Cess
ST credit on input serv Can be used forpaying the CED, ST, Cess
Additional duty of Customs @ 4% is notavailable for paying ST.
Cess Credit can be used only for CessPayment
Same for NCCD, AED
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Credit in case of
exempted goods Inputs/Input service used exclusively for
exempted goods No credit
Inputs/Input service exclusively used formanufacture of excisable goods Full Credit
Inputs partially used for excisable andexempted
Option 1. Separate records - take credit onlyused for that used in excisable goods.
Option 2. No separate records take creditbased on the computations prescribed under
Rule 6
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Input Service Distributor
The Head Office, Sales Office,Corporate Office may spend centrally
on services These may need to be distributed for
the credit to be availed at each of thepremises of multiple registration
entities. By way of an invoice the same can be
spread out.
Presently no norms on the % ages.
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Refund for exporters
Rule 5 - Cenvat + ST credit refundavailable to manufacturer clearly
Specific refund for services specifiedunder Not 18 & 19/2009 as amended (many of the services supposedly after
removal) Not available for deemed exports
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Valuation Under Central
ExciseMadhukar N Hiregange
Chartered Accountants
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Valuation for Sale
Section 4A- MRP based less abatements
Different MRP for different regions
Composite of other items Transaction Value Sec 3(2) Tariff Rate- Cigarettes, Sugar
Sec 4 TV - Invoice Price if at arms length,
time and place of delivery, not relatedparties, no additional consideration
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Modes of Valuation
Transaction Price - Invoice price when:
- Time of delivery is point of sale
- Place of delivery is point of sale
- Not to related person
- No additional Consideration Accrues
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What is a sale ? Section 2(h) sale with its grammatical
variations and cognate expressions,
means any transfer of thepossession of goods by one personto another in the ordinary course of
trade or business for cash or deferredpayment or other valuableconsideration.
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Modes of Valuation
MRP- Sec. 4A
On Goods reqd to
have printed rates-Weights &Measures Act
Specified
On MRP -Abatements
Tariff Rates-3(2)Sugar, Pan Masala,
Branded Regd.Garments
Deemed Mfr- 2(f)(ii) Chemical,
Garments,Cosmetics, Drawing.
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Valuation - Not a sale
Sample
Warranty Gifts/Donations
Captive Cons
Supply of Dies/Moulds
Interest on adv Related Persons
As Per Central
At comparable
--
COP + 10 %
Add Prorated value
Duty on Notional
At Relatives SP
Valuation Rules
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Valuation Job Work
Under Valuation Rules 2000
Ujagar Prints Grey Fabrics-now it is governed byRule 10A
Material Cost (FOC) + Packing material (FOC) Cost+ Job Work charges of others paid directly bycustomer + freight upto Job Worker premises +Unloading + Materials used by Job Worker +Conversion cost-now it is governed by Rule 10A
Less Cenvat credit on all the inputs-now it isgoverned by Rule 10A
PRESENTLY BEING REVIEWED
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Questions??
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