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Indirect Tax Certification Course - Central Excise

Indirect Tax Certification Course - Central Excise. Rajesh Kumar T.R. B’com , LLB, FCA, DISA. Revenue from different streams of taxes. Constitutional Aspects of Taxation. Part XII – Finance, Property, Contracts and Suits.

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Indirect Tax Certification Course - Central Excise

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  1. Indirect Tax Certification Course - Central Excise Rajesh Kumar T.R. B’com, LLB, FCA, DISA

  2. Revenue from different streams of taxes

  3. Constitutional Aspects of Taxation

  4. Part XII – Finance, Property, Contracts and Suits Article 265 of the Constitution of India - No tax shall be levied or collected without the authority of law

  5. Part XI – Relation Btwn Union – States - 245 • Parliament Make Laws – Whole or any part of the Territory of India • State Legislature – Whole or any part of the State • No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation

  6. Article 246 • Parliament has exclusive power to make laws of matters covered in List I (union List) of VII Schedule • State Legislature has exclusive power to make laws of matters covered in List II (State List) • Concurrent List – Both have powers

  7. Union List- List -I Entry 83. Duties of customs including export duties. Entry 84. Duties of excise on tobacco and other goods manufactured or produced in India except- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. Entry 92C – Taxes on Services Entry 97 - Any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists. State List- List - II Entry 51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. Entry 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. Seventh Schedule

  8. Entry 84 of Union List • Duties of excise on tobacco and other goods manufactured or produced in India except: • alcoholic liquors for human consumption; • opium, Indian hemp and other drugs and narcotics, • but including medicinal and toilet preparations containing alcohol or any substance including in sub-paragraph (b) of this entry (eg. Medical syrups for cold/cough)

  9. Entry 51 of state list • Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:- • alcoholic liquors for human consumption • opium, Indian hemp and other narcotic drugs and narcotics • but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry

  10. Entry 97 of Union List • any other matter not included in List II, III and any tax not mentioned in list II or III • This is residuary powers within the hands of Union. • Challenge of levy of any new Central tax, has to pass the test of proving that it is beyond this residuary powers irrespective of what the tax is named/characterised as.

  11. Basic Elements of Taxation • Levy – Will define the event upon which the duty/tax gets attracted • Assessment – Quantification of the levy attracted • Collection – The mechanism by which the Governments would collect the assessed tax

  12. Levy and collection • Levy – collection – meaning • Somaiya Organics Ltd Vs State of UP, 2001 (130) ELT 3 (SC) – the word collection in Art.265 would mean physical realization of tax, which is levied or imposed. Levy and collect are not synonymous terms. Levy means assessment or charging or imposition of tax, collect means physical realization.

  13. Tax • Art.366(28) of Const. of India – Taxation includes the imposition of any tax or impost, whether general or local or special, and ‘tax’ shall be construed accordingly.

  14. What is Direct Tax • The Central Board of Revenue Act, 1963 defines ‘direct tax’ to mean any duty leviable or tax chargeable under Estate Duty Act, 1953, Wealth-tax Act, 1957, Expenditure Tax Act, 1957, Gift Tax Act, 1958, Income-tax Act, 1961, Super Profits Tax Act, 1963, Interest Tax Act, 1974, Hotel Receipts Tax Act, 1980, and any other duty or tax which, having regard to its nature or incidence, may be declared by the Central Government, by notification in the official gazette to be a direct tax.

  15. Court’s views • Eri Beach Company Ltd Vs Attorney General of Ontario, AIR 1930 PC 10 • direct tax is one which is demanded from the very person who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another.

  16. Introduction to Central Excise Law

  17. Sources of CE law • Central Excise Act, 1944 • Rules • CE Rules, 2002, • Cenvat Credit Rules, 2004, • CE (Appeal) Rules, 2001, • CE (Advance Rulings) Rules, 2002, • CE (Settlement of cases) Rules, 2007, • CE (Removal of Goods at Concessional Rate of duty for manufacture of excisable goods) Rules, 2001,

  18. Sources of CE law • CE Valuation (Determination of Price of Excisable Goods) Rules, 2000, • CE (Compounding of Offences) Rules, 2005, • CE (Determination of Retails Sale Price of Excisable Goods) Rules 2008 • Central Excise Tariff Act, 1985 • Notifications • Case laws and Circulars

  19. Charging/Levy Section - 3 • There shall be levied and collected in such manner as may be prescribed • a duty of excise to be called the Central Value Added Tax (CENVAT) • on all excisable goods • (excluding goods produced or manufactured in special economic zones)] • which are produced or manufactured in India as, and at the rates, set forth in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985

  20. Elements of Levy • Production/Manufacture • In India • Of Goods • Excisable (Set out in 1st & 2nd Sch. To CETA subjected to duty)

  21. Sec. 3 – Other Aspects • Goods Manufactured in EOU and brought to other place in India • Duties of Excise to be paid • Amount equal to • the aggregate of the duties of customs which would be leviable on like goods produced or manufactured outside India if imported into India. • Valuation would be based on Customs • Goods Manufactured by or on behalf of Government would be same like any other Mfr. • Power to fix Tariff values to C.G.

  22. Manufacture – Definition – 2(f) “Manufacture” includes any process, - • i) incidental or ancillary to the completion of a manufactured product; AND • ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; OR

  23. Manufacture – Definition – 2(f) • iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;

  24. Manufacture - analysis • Definition starts with the word “includes” • 3 limbs in the definition • 2nd and 3rd limb – “Deemed manufacture”

  25. Manufacture • UOI Vs Delhi Cloth & General Mills Co.ltd, 1977 (1) ELT J.199 (SC) – manufacture implies a change, but every change is not manufacture and yet change of an article is the result of treatment, labour and manipulation. But something is necessary and there must be transformation; a new and different article must emerge having a distinctive name and character or use. Also see South Bihar Sugar Mills ltd Vs UOI, 1978 (2) ELT J.336 (SC).

  26. Manufacture • Empire Industries ltd Vs UOI, 1985 (20) ELT 1 (SC) – to constitute manufacture it is not necessary that one should absolutely make out a new thing because it is well settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand (scientifically). It is transformation of matter into something else that would amount to manufacture. That something is a question of degree.

  27. Manufacture • What comes out after processing is a different commercial commodity having its distinct character, use and name and is commercially known as such, is an important consideration in determining whether there is a manufacture.

  28. Manufacture • UOI Vs Parle Products, 1994 (74) ELT 492 (SC) - Whether or not something results in manufacture would depend on the facts of the case but any number of processes undertaken which do not result in a commercially different commodity cannot result in manufacture.

  29. Manufacture • Ujagar Prints Vs UOI, 1988 (38) ELT 535 (SC) – Prevalent and generally accepted test to ascertain whether there was manufacture was whether the change or the series of changes brought by application of processes take the commodity to the point where, commodity can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged because of the result of the processes.

  30. Manufacture • There might be borderline cases where either conclusion can be reached with equal justification. Insistence on any sharp or intrinsic distinction between processing and manufacture results in an over simplification of both and tends to blur their interdependence in cases.

  31. Manufacture - processes • Manufacture involves a series of processes. • A process is one of the activities undertaken for manufacture of a product from input materials.

  32. Process amounting to Manufacture • Conversion of jumbo rolls of photographic films into small flats and rolls in the desired sizes – Indian Cine Agencies Vs CIT • Purification and filtration done to product hydrochloric acid and sulphuric acid marketable in the international market – CCEx Vs Alok Enterprises

  33. Processes not amounting to Manufacture • Process of slitting and cutting of steel sheets and polyester films, which are used for lamination, as the resultant product was not having different character, name and use. • Pickling and oiling of metals as preparatory steps does not amount to manufacture – Circular 927/17/2010 – deemed in 2012 • Process of cleaning “used mobil oil doesn’t amount to manufacture as no new commercial commodity comes into existance.

  34. Manufacture vs production • Dictionary meaning of ‘produce’ – to bring forward, to bring forth or out, to bring (to a specified condition), to bring into existence or being, to work up from raw material, manufacture (material) objects. • Hyderabad Asbestos Ltd Vs UOI, 1980 ELT 735 – manufactured and produced were synonymous – same test should be applied. • Produced used in respect of natural items.

  35. Deemed manufacture • Processes which may not amount to manufacture in their natural meaning • Brought under tax ambit by the artificial definition • Processes mentioned in CETA as manufacture • Third schedule in CETA – repacking, re-labelling, putting or altering retail sale price etc. – mostly consumer goods.

  36. Deemed Manufacture 2(f)(ii) • Processes which are specified in relation to any goods in the Section Notes or Chapter Notes to the First Schedule to CETA; • Mere specification of a process in the Tairff entry not sufficient; • Should be specifically stated that the process amounts to manufacture.

  37. Deemed Manufacture 2(f)(ii) – Example

  38. Deemed Manufacture 2(f)(ii) – Example

  39. Deemed manufacture 2(f)(iii) • Goods specified in Third Schedule to CETA • Packing or repacking in a unit container • Labelling or re-labelling of containers including the declaration or alteration of retail sale price on the container or • Adoption of any other treatment on the goods to render the product marketable to consumer.

  40. Deemed manufacture 2(f)(iii) • Air Liquide North India Pvt. Ltd. Vs CCEx. [2011] 271 ELT 321 (SC) • Relabeling and repacking of gas in small cylinders • Helium gas rendered marketable to ultimate consumers thereof • Amounts to manufacture

  41. Manufacturer • Person who carries on the activity of manufacture. • Job worker • Brand owner not manufacturer – Cibatul Ltd Vs UOI, 1978 (22) ELT 302 (SC) – principal to principal basis. • Should not be dummy.

  42. Goods • Art.366(12) – Goods include all materials, commodities and articles. • Sale of Goods Act, 1930 – section 2(7) – Goods – every kind of moveable property other than actionable claims and money; and includes stocks and shares, growing crops, grass and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale.

  43. Goods • UOI Vs Delhi Cloth Mills, 1997 (1) ELT J.199 (SC), - in order to be goods, the articles must be capable of coming to the market to be bought and sold. Therefore the items must be moveable and marketable.

  44. Goods • Moveability: • DCM case • South Bihar Sugar Mills Vs UOI, 1978 ELT J.336 (SC) The articles must be something, which can ordinarily come or can be bought to the market to be bought and sold. As opposed to moveable goods, immoveable property cannot be brought to the market to be sold.

  45. Goods • Section 3(36) GC Act, 1897 – moveable goods mean property of every description except immovable property • Section 3(26) GC Act, 1897 – immoveable property shall include land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth.

  46. Goods • Marketability: • Capability of a product of being put into the market for sale. • Union Carbide India ltd Vs UOI, 1986 (24) ELT 169 (SC) – An article must be something which can ordinarily come to the market to be bought and sold. Articles in crude or elementary form are not dutiable as they are merely intermediary products and not goods. Aluminum cans or torch bodies produced by extrusion process – neither sold nor marketable – not goods.

  47. Goods • CCE Vs Ambalal Sarabhai Enterprises, 1989 (43) ELT 214 (SC) – Duty of excise is on the manufacture of goods and for an article to be goods, it must be known in the market as such or must be capable of being sold in the market as goods. Actual sale is not necessary. Usage in captive consumption is not determinative of whether the article is capable of being sold in the market or is known in the market as goods.

  48. Goods • Even transient items/articles can be goods, provided they are known in the market as distinct and separate articles, having separate uses. Thus, goods with unstable character can be theoretically marketable if there was a market for such transient types of articles, but one has to be take a practical view on the basis of available evidence.

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