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Excise duty borne by customer ?

Aditya Jain (Final (New) November 2011) (763 Points)

10 November 2011

Why is it said that Excise is borne by Manufacturer and Sales tax is eventually borne by customer ? Fact is when goods are removed from the place of production, the invoice contains both VAT and Excise Duty and this is eventually passed on through wholesalers and retailers and eventually to customers . So fact is that Customer bears 2 types of taxes on the same product - VAT and also Excise Duty .

Please clarify me on this . Because what i think is Government collects Tax in 2 forms for the same product . On one single product, Government collects tax in the form of Excise Duty and VAT at the time of Manufacture and subsequently also it collects VAT for the value addition from the flow of goods through Wholesalers and Retailers .

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7 Replies

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14477 Points)
Replied 10 November 2011

Excise duty is a duty in the goods manufactured and NOT on the Goods Sold. Hence sale value is not taken, only the COST OF PRODUCTION forms the basis of Excise Duty.

VAT is a multi-point tax on value addition which is collected at different stages of sale with a provision for set-off for tax paid at the previous stage/tax paid on inputs.

Aditya Jain (Final (New) November 2011) (763 Points)
Replied 10 November 2011

But at the time of goods being sent from the manufacturer to wholesaler or any agent, the invoice contains both VAT and Excise . So its atleast a 2 form tax on one single amount . If a manufacturer invoices goods worth Rs.1,00,000 then he charges Excise Duty - 16% + Cess on 1,00,000 and also VAT 4% on same amount of Rs.1,00,000 . So isnt it tax collected in 2 different forms for the same amount of Rs.1,00,000 ???

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 11 November 2011

Originally posted by : Aditya Jain
	But at the time of goods being sent from the manufacturer to wholesaler or any agent, the invoice contains both VAT and Excise . So its atleast a 2 form tax on one single amount . If a manufacturer invoices goods worth 1,00,000 then he charges Excise Duty - 16% + Cess on 1,00,000 and also VAT 4% on same amount of 1,00,000 . So isnt it tax collected in 2 different forms for the same amount of 1,00,000 ???

at manufacturing point excise duty is charged at the time of clearance,

at trading points excise duty is not claimed as input, and as trader is not a manufacturer, he is not entitled to pay excise duty, but the goods are deemed as duty paid from the point of manufacture,

sales tax/ vat/ cst is the tax which is charged on sales, not on manufacturing, so its get charged and paid at the time of sales, while excise is a manufacturing tax, hence its charged only at the point of manufacture.

HS Negi (Senior Executive- F&A) (590 Points)
Replied 11 November 2011

Dear Aditya

In a simple manner, Excise is a manufacturing tax. When you have manufactured some finished products, then you are being liable to pay excise duty . But there is a provision in excise, to pay excise duty at the time of its clearance.

So on the other hand, Sales tax is chagred at the the of SALE. so it is called sales tax. Sales tax can be on form of VAT & CST.

When there is a inter unit transfer of goods, excise duty wil be paid but sales can not be . Because sale has not taken the place.

Hope, the things are clear now.

Regards

HS Negi

Aditya Jain (Final (New) November 2011) (763 Points)
Replied 11 November 2011

Hey thanks for the explanation . I am clear now that Sales tax is on Sales and Excise Duty is on manufacture . The example of Inter Unit transfer made things clear .

But the point is still the same right ? On the same amount, Excise Dpartment also claims Tax at time of clearing and Also Sales tax Department claims tax when the clearing of goods is done to SELL it to someone .

If i do a costing of Inter Unit Transfer of a good passing through 3 process :

Process 1 - Cost - 30000 - I Pay E.D. on 30000

Process 2 - Cost - 25000 - I Pay E.D. on 25000

Final Process 3 - Cost 45000 - I Pay E.D. on 45000

Then when i sell such a Finished Good worth Rs.1,00,000 adding my margin 10% - Rs.1,10,000 then i pay Sales Tax on entire 1,10,000 . So the portion of Rs.1,00,000 is being Taxed 2 times . One by the Excise Department and one by Sales Tax Department right ?

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 12 November 2011

Originally posted by : Aditya Jain

Hey thanks for the explanation . I am clear now that Sales tax is on Sales and Excise Duty is on manufacture . The example of Inter Unit transfer made things clear .

But the point is still the same right ? On the same amount, Excise Dpartment also claims Tax at time of clearing and Also Sales tax Department claims tax when the clearing of goods is done to SELL it to someone .

If i do a costing of Inter Unit Transfer of a good passing through 3 process :

Process 1 - Cost - 30000 - I Pay E.D. on 30000

- it should be the transaction value e g materials plus processing charges

Process 2 - Cost - 25000 - I Pay E.D. on 25000

- if process 2 is done on process 1, then process 1 value would be added when making clearance from process 2 site

Final Process 3 - Cost 45000 - I Pay E.D. on 45000

- it will add process 1 and 2 value also

Then when i sell such a Finished Good worth 1,00,000 adding my margin 10% - 1,10,000 then i pay Sales Tax on entire 1,10,000 . So the portion of 1,00,000 is being Taxed 2 times . One by the Excise Department and one by Sales Tax Department right ?

if the goods move from one manufacturer to another for further process, then the goods would be taxed in whole at the time of clearance, ( input credit can be availed by manufacturer on past receipt)

sales tax is payable on goods value + ED value