Approach To Understand Central Excise

1. Approach To Understand Central Excise By CA. Sudhir V S

2. Learning Objectives • What Act & Rules applicable • When Central Excise is attracted? • What is manufacture? + Who is manufacturer? • Principles of Classification • Principles of Valuation • Some value added + Cost Control in Central Excise • Questions/ Doubt clearance throughout session

3. Act & Rules • Central Excise Act, 1944 • Central Excise Tariff Act, 1985 • Central Excise Rules, 2002 • CENVAT Credit Rules, 2004 • Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 • Others • Notifications • Circulars • Case Laws

4. Act Case Laws Rules Indirect Tax Laws Trade Notices Circulars No Law above the Constitution of India

5. Types of Duties • Basic Excise Duty • Special Excise Duty • Additional Duties of Excise – (Textiles and Textile Articles) • Additional Duties of Excise - Goods of Special Importance • National Calamity Contingent Duty • Education cess • Secondary and Higher Education cess

6. Determination of Excisability of a product Step 1 : “Goods” exist; movable and marketable Step 2 : Product under List II (State List) or List III (Concurrent List) of the VII Schedule not covered by Central Excise. Step 3 : Classify the product as prescribed in the Central Excise Tariff Act,1985. Broad category or specific coverage Entry is not clear then the reference to the Rules of Interpretation

7. Determination of Excisability of Product Step 4 : Whether the process is a Deemed Manufacture? Activity like packing, labeling, repacking etc. are undertaken, On products as mentioned in Chapter notes and Third Schedule Step 5 :The process whether amounting to manufacture. Comparing the Incoming material and outgoing material Name, character or use.

8. Determination of Excisability of Product Step 6 :If the item is intermediate product avail credit on inputs Pay duty on the finished goods Pass on credit to the industrial users Step 7 :The product may be so competitive It cannot bear any duty of excise. Can be located at like Kutch or North India, Himachal Pradesh Contd..

9. Determination of Excisability of Product Step 9 : Decision for Registering Made at the point Where no other economic or legal opinion exists. Step 10: The trader who wishes to pass on the duty paid on goods traded Could also be registered.

10. What are Goods? • The definition under the Sale of Goods Act, 1930 • Goods must be moveable, saleable/marketable • Explanation to Section 2(d) of CE Act, 1944 -states ‘goods’ include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable

11. What is Manufacture? • Process undertaken would amount to manufacture as understood under the Central Excise • The incoming material and the final outgoing material are to be compared with respect to their name, character or use. • Ensured that processes not amounting to manufacture are not described as manufacture • Result in attempts to deny credit

12. What is Removal? • Removal means the physical act of shifting/moving the goods • Under excise- the self-removal procedure • No excisable goods on which any duty is payable - shall be removed from any place where they are produced or manufactured or from warehouse without payment of duty • Rate of duty and tariff valuation would be done on the date of removal.

13. What is classification? • Ascertaining the tariff heading/sub-heading under which the product is categorized • In line with Central Excise Tariff Act -Based on HSN • See the Interpretative Notes at the beginning of the Tariff + Notes in the Section and Chapter • Rules for interpretation

14. Classification-Rules • Rule 2(a)-classification of an article referred to in a heading, even if that article is incomplete or unfinished, or is presented in an unassembled or disassembled form. • Rule 2(b)-This rule –on mixture or combination of materials or substances, ->headings in which there is a reference to a material or substance also applies to that material or substance mixed or combined with other materials or substances.

15. Classification Rules • Rule 3: classifying goods –prima facie classifiable under several headings. (a)Specific over general description (b) materials or components which give essential character (c)under the heading which occurs last in the numerical order of headings which equally merit attention • Rule 4-heading covering goods akin to such goods • Rule 5 – packing material

16. Valuation • Duty Based on capacity • Advalorem • Sec 3- Tariff Value Fixed • Notified under RSP • Set out in Third Schedule • Transaction Value • Exception to TV – Goods sold; delivery at time & place of removal; unrelated ; price only consideration.

17. Valuation Rules • Rule 5 – Sold other than factory – deduction for freight • Rule 6 – Sole consideration – Alternatives • Rule 7 – Depot /Consignment agent • Rule 8 – Captive consumed • Rule 9 – Related person • Rule 10 – Interconnected/ holding • Rule 10A – Dispatched from JW premises Cum duty if not collected

18. Tax Planning under Central Excise • Availment of SSI Exemption vis-à-vis Payment of Duty • Tax Planning for Central Excise duty paid under Rule 6 of Central Excise Valuation Rules • Inter Unit Transfer • Tax planning in selecting appropriate status of the entity • Tax Planning for the Export Transactions

19. Tax Planning under Central Excise • Tax Planning for Leasing Transactions • CENVAT Credit on Capital Goods i.e. Machinery which is used for Exempted products • Adoption of Method under Rule 6 of CENVAT Credit Rules, 2004 • Intimation to the department • Facing the departmental Audit

20. Cost Control • Accommodation bills- Strictly No • Regular, timely credit availment • Job workers exemption –not to claim • Examination of provision of services • Vendors / customer education • Checks and Balances as for rest – SOP, Internal Audit, Stage wise authorisation- integration to ERP • Internal Audit to include IDT [ CE ] in scope • Reconciliation of tax + credits

21. Other Cost Control • Missed credits due to earlier issues, preventive directions, AG audit • Avoid common mistakes [many other than discussed] • Adequate disclosure of activities, valuation, reverse charge, credit availment, books of account, major contracts • Built into MIS- monthly quarterly etc. reaching the top.

22. General - IDT • Adequate Importance to IDT – SOP - Training - Integration to ERP - Not considered for Internal Control / Risk Analysis– authorization - Auditors – Statutory, Tax & Internal may not check [ or limited] - Not part of Top Management MIS

23. General - IDT • Adequate Importance to IDT ..cont.. – Revenue Officers are Empowered and Corrupt – Nobody want to deal - Lack of Co-ordination of Production/ Marketing/ Procurement with Compliance Team • Departmental Interaction – Oral- both ways? Training/ Awareness to Top Management + Non Finance Executives [ Especially Sales/ Purchase] Enhanced Regular Training for Compliance Team

24. ANY MORE QUESTIONS??? sudhir@hiregange.com