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Welcome to Excise Duty

In India, there are huge numbers of list for taxes, which are paid for different purposes. Suchas Income tax, VAT, CST, Service tax, Customs,Octroi/LBT, Entertainment Tax Etc. All these taxes have aim to collect for some reason and its help to Indian Economy. One Such tax which is existing in the manufacturing Sector is the Excise Duty. So let us know all about the Excise Duty…

What is Excise Duty?

As per Section 3 of Central Excise duty Act, “There shall be levied & collected in such manner as may be prescribed duty of excise on all excisable goods (Excluding goods produced or manufactured in SEZ ) produced or manufactured in India. In shortly, Excise duty is a duty on manufacture or production of excisable goods in India. SEZ (Special Economic Zone) area is kept out of the ambit for the levy of Excise duty. Excise duty is not levied on imported good because of these goods are not produced or manufactured in India. .

Which Entry gives power to levy excise duty?

Entry No. 84 of Union list gives power to levy Central Excise duty. Duty of excise on tobacco and other goods manufactured or produced in India, except alcoholic liquors for human consumption, but including medical and toilet preparation containing alcohol, opium or narcotics. Alcoholic liquors for human consumption are subject to the state government for levying excise duty.

What are main pillars of Excise duty?

There are four main pillars to understand the concept of Central Excise duty and these are in following ways:

  1. Duty Liability                             :- When excise duty is due and liable to pay…?
  2. Valuation                                    :-On what value of goods, excise is to be paid..?
  3. Classification of goods            :- On which rates, central excise is to be paid and these rates are described under central Excise tariff act..?
  4. CENVAT                                       :- CENVAT means in simple words it is Setoff available on input Excisable goods or services.

What are basic requirement for Excise Duty?

There are four main points requiring for levy excise duty which are as follows:

  1. Duty is on goods.
  2. Goods must be excisable goods.
  3. Goods must be manufactured or produced.
  4. Such manufactured or production should be in India.

Unless and until these four conditions are satisfied, central excise can’t be levied.

What are goods?

Goods mean an article or substance which is produced in India and it is a moveable and marketable. These conditions are requiring for levying the excise duty. The term marketable does not necessarily means marketed. In such transaction, actual marketing is not necessary. Mere mention in central excise tariff is not sufficient. That means even if goods are mentioned in the Central Excise Tariff Act, 1985, but these goods are not being capable of marketable, then excise duty is not levying on it.

Which goods are excisable goods?

The term ‘excisable goods’ means the goods which are specified in the first schedule to the Central Excise Tariff Act, 1985, as being subject to a duty of excise and includes salt.

What is the definition of manufacture?

Manufacture means bringing into existence a new substance. Manufacture is end result of one or more processes, through which original commodity passes. Manufacture implies a change but every change is not manufacture. A new & different article must emerge having a distinctive name, character or use. There is a concept of deemed manufacture, in this two conditions are there.

  1. Process specified as amounting to manufacturing in central excise tariff. So, there are various processes in different chapter.
  2. Repacking, relabeling, putting or altering MRP is deemed manufacture in case of about around 144 articles covered under MRP valuation provision.

Who is liable to pay excise duty?

The liability to pay excise duty is always on the manufacturer or producer of goods. There are three types of parties who can be considered as manufacturers:

  1. A person who actually brings new & Identifiable product into existence.
  2. Those who get the goods manufactured by employing hired labour.
  3. Those who get the goods manufactured by other parties i.e. Job Worker.

What are rates of Excise duty?

The standard and valorem rate of duty of excise is being increased from 12.36% to 12.5% from 1-mar-2015. Specific rates of excise duty are charging on petrol, diesel, cement, cigarettes & tobacco products by central government. In some cases, partial or full exemption is available.

What is classification system of excise?

The excisable goods are classified by using 8-Digit system. Description with eight digits is termed as ‘Tariff item’. A Tariff item under eight digit system would be interpreted as follows:- 

Particulars

Description

First Two Digits (33)

Refers to chapter No.

Subsequent Two digits (3305)

Refers to tariff Heading

Subsequent Two digits (3305 90)

Refers to sub heading within a heading.

Last Two digits (3305 90 40)

Refers to tariff Item.

Example : Tariff Entry 3305 90 40 Covers “Hair dyes (Natural, Herbal or Synthetic)” the classification can be understood as –

33 refer to chapter 33 ‘Cosmetic or toilet Preparations, essential oil etc.’

05 refer to Heading ‘Preparations for use on the hair’

90 refer to Sub-Heading ‘Other’

40 refer to the item ‘Hair dyes (Natural, Herbal or Synthetic)’.

What is the taxable event in central excise?

Manufacture or production of excisable goods in India is taxable event. Central excise duty is charge on manufactured goods & not on sale of goods that means even if goods are not sold, excise duty should be payable on it. Captive consumption, free sample, intermediary goods etc. are also liable to central excise duty even from these goods no revenue is generate. An ownership criterion is irrelevant in paying excise duty.

Case

Duty is payable at the time of

Goods are manufactured and sold, free sample

Goods are removed from factory/warehouse

Goods are manufactured and used as captive consumption, intermediary goods

Goods are removed for their intended use

What is the conclusion from above?

Excise duty is a duty on manufacture or produced of excisable goods in India. Goods must be moveable and marketable. New & identifiable product known in the market should emerge, except in case of deemed manufacture. Clearances of goods are not the taxable event i.e., manufacturing activity is taxable event.

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