What is Central Excise ?

Excise duty is one of the indirect taxes, and it is levied on

manufacture or production of goods with in the country.
Following are the some of the Act & Rules which govern
Central Excise.
1. Central Excise Act, 1944 (CEA).
2. Central Excise Tariff Act, 1985 (CETA).
3. Central Excise Rules, 2002.
4. Central Excise Valuation Rules, 2000.
5. Cenvat Credit Rules, 2004.
6. Notifications issued by Central excise Dept.
7. Circulars issued by Central excise Dept.
Entry no. 84 of union list I of Seventh Schedule of India constitution
empowers central govt. to levy Excise duty on all goods except.
1. Alcoholic Liquors for human consumption.
2. Opium, Indian Hemp and other narcotic drugs.
• C.E. Duty can be levied on any article if all following conditions are
satisfied.
a)Duty is on goods (movable & Marketable)
b)Goods must be excisable i.e. mentioned in schedule to CETA 1985
c)Goods must be manufactured or produced
d)Such Manufacture or production must be in India
• Goods manufactured or produced in SEZ are “excluded excisable goods”
no Excise Duty is leviable on such goods.
• Excise Duty extends to the whole of India both on land and sea (upto 200
Nautical Miles).
Taxable Event
Taxable Event in Excise in Manufacture or production in India.
 Tax Liability Duty is Payable Even When

Manufacturing • Good are used within Factory.

Process complete and • Goods are Captive Consumed in
Fit For Sale. Factory for further Manufacture.
• Goods Given as Free Sample.
• Goods given as Free Replacement.

On
• Molasses Produced in Khandasari
Manufacturer
Sugar Factory.
or
• When good Stored in
producer
Warehouse.
of
• Job work under the notification
Excisable
No. 214-86/CE
Goods.
 Valuation of Excisable Goods
1. Specific Rate:- This Duty is payable on the unit of Measurement like Length,
Weight, Volume etc.
2. Compounded Levy Method:- Under this method a manufacturer has to pay
prescribed duty for specified period on the basis of production capacity i.e.
capacity of the plant and machinery.
3. Production Capacity:- This is based on production capacity, without
reference to actual production.
4. M.R.P Valuation:- The price at which packaged goods are offered to sale to
the ultimate consumer.
• Good must be covered under provisions of standards of weights & measures Act.
• Central Govt. notifies Goods Covered by this method and also notifies
abatement of duty applicable to each goods.
5. Tariff Valuation:- In this method government fixes the Tariff Value. Duty is
payable as a percentage of Tariff Value.
6. Advalorem Basis:- In this Duty is expressed as %(Percentage) of the value of
commodity.
 VAT
VAT (Value Added Tax) means that the tax is payable only
on value addition to commodities and on the service
render.
• VAT is consumption based tax.
• VAT is a multi-point tax without having double taxation
or multiple taxation.
• It reduces cost of production benefiting both consumer
and the businessman.
In INDIA we follow Duel VAT system
1. CENVAT (Central Value Added Tax) at central level
covering Central Excise Duty, corresponding
Countervailing Duty on Imports and Service Tax.
2. State VAT at state level to cover state sales tax.
 CENVAT at Central Level
Modvat (Modified Value Added Tax):- It was introduced in India
in 1986 at Central Level. The system was restrictive in nature
and it is was replaced with introduction of present VAT System
(CENVAT) in 2002.
Following are some of the draw back of MODVAT:-
• It has separate provisions for Capital Goods.
• It requires submission of declaration in respect of inputs and capital
goods.
• It contains separate provisions for waste and Scrap.
• Narrow definition for capital goods.
• Credit can be availed only on duplicate copy of invoice.
• It prescribe statutory registers RG23A, RG23B, and RG23C, RG23D are to
be maintained
• With regards to capital goods, credit can be availed only if the capital
goods are installed and ready to put into use.
 CASCADING EFFECT
• Earlier Excise Duty is Collected in different stages
of production i.e. tax or duty is payable right from
the first stage of manufacturing activity till it
reaches the ultimate consumer of the goods.
• If tax is based on selling price of product, the tax
burden is goes on increasing as raw material and
final product passes from one stage to another.
• In simple words “cascading effect” means tax on
tax.
• To eliminate cascading effect of taxes by tax
credit system. This is done through mechanism of
input tax credit. This is the basic purpose of Vat.
 Process Process Distributor Wholesaler Retailer
A B C D E
Raw Material 10,000
(+) Excise Duty @ 10% 1,000

Cost of Material (A) 11,000 17,600 27,060 28,060 29,160

Before
Introduction Manufacturing Expenses 3,000 4,000 - - -
Profit 2,000 3,000 1,000 1,100 1,440
of CENVAT Value
Addition (B)---> 5,000 7,000 1,000 1,100 1,440
Value of Goods (A) + (B) 16,000 24,600 28,060 29,160 30,600
Excise Duty @ 10% 1,600 2,460 - - -
17,600 27,060 28,060 29,160 30,600

Process Process Distributor Wholesaler Retailer

A B C D E
Raw Material 10,000
(+) Excise Duty @ 10% 1,000
After Cost of Material (A) 11,000 16,500 24,200 25,000 26,100
Less: Input Credit 1,000 1,500 NIL NIL NIL
Introduction (A)----> 10,000 15,000 24,000 25,000 26,100
of CENVAT Manufacturing Expenses 3,000 4,000 NIL NIL NIL
Profit 2,000 3,000 1,000 1,100 1,440
Value
Addition (B)---> 5,000 7,000 1000 1,100 1,440
Value of Goods (A) + (B) 15,,000 22,000 25,000 26,100 27,540
Excise Duty @ 10% 1,500 2,200 NIL NIL NIL
16,500 24,200 25,000 26,100 27,540
CENVAT Credit:- Means Excise duty and service tax paid on inputs (like
raw material, fuel etc) for manufacturing of goods is deducted from
the excise duty payable on the goods manufactured.
Silent features of CENVAT Scheme:-
• The scheme is applicable to all Excisable goods & to all services used in the
manufacture of a product.
• The object of the scheme is to remove or reduce cascading impact on the
price of the goods.
• In case of inputs credit in the duty can be given immediately on receiving
them. In case of capital goods 50% in year of purchase and remaining 50% in
subsequent year.
• CENVAT credit earned on any of the input items can be used to pay output tax
of any final product..
• In order to be eligible for CENVAT Credit, the duty paid inputs should be used
in or in relation to the manufacture of dutiable finished goods. No CENVAT
credit is available if the final product is exempted.
• CENVAT Credit is allowed on the basis of documentary evidence of payment of
duty which is basically the Invoice.
• For claiming CENVAT Credit there is no need to maintain statutory book or
accounts, but records have to be maintain which requires all information as
required by those registers.
• One to one relation not required.
“Inputs” Means:-
• All goods used in the factory by manufacturers for manufacturing
final products.
• Any goods including accessories the value of which is included in
the value of final product.
• Input includes material or items used in the manufacture of capital
goods.
• Materials used for generation of electricity or steam for captive use.
• Material used for packing- for all types of packing viz primary
packing, special packing etc.
• All the raw material or items used in the form of solid, liquid or gas
excluding - LDO(Light Diesel Oil), HSD(High Speed diesel Oil) or
Motor spirit etc.

Note:- 1. Credit can be taken as soon as inputs are received in factory.

2. Inputs were stolen from the store or factory or damaged or
destroyed due to natural calamity like fire or flood etc. is not
eligible for CENVAT Credit.
“Input Services” Means:-
Any services used by the manufacturer either directly or indirectly in
connection with manufacturing of goods and clearance of goods upto
the place of removal.
Following are the services eligible:-
1. Services used for renovation, modernization of factory.
2. Advertisement or Sales.
3. Market Research.
4. Storage upto the place of removal.
5. Activities related to business- Accounting, Auditing, Financing
recruitment, Quality Control, training, Computer network, Credit
rating, Share registration, Inward transportation of inputs and Capital
goods & outward transportation up to the place of removal.
6. Imported Services.
“Capital Goods” means:-
1. All goods falling under chapter 82, 84, 85, 90 under heading 6805.
2. Grinding wheels and the like and parts falling under heading 6804.
3. Spares, components, and accessories of the goods specified above.
4. Pollution control equipment.
5. Moulds and dies, jigs and fixtures.
6. Refractories and refractory material.
7. Tubes, pipes and fittings and
8. Storage tank.
All above goods used:-
1) In the factory of the manufacturer of final product.
2) Equipment(Outside Factory) used for generation of electricity for
captive consumption.
3) Installation is not required.
4) Capital goods obtained on hire purchase/lease/loan also eligible.
5) Used exclusively for exempted final products and output services
not eligible. If used partial for eligible final products can avail full
Cenvat credit.
3) In-house production of Capital goods, inputs eligible for Cenvat
credit and capital good exempted for excise duty.
4) Depreciation cannot be availed on Cenvat Portion.
5) 50% in the year of purchase and 50% in the next year. This is not
applicable for SSI, 100% can be taken in 1st year itself.
6) Capital good used in office are not eligible for Cenvat Credit.

Removal of Capital Goods.

As Such – Amount equal to Excise duty paid.
AS Scrap – Amount equal to Excise duty paid on Scrap.
After use – “Amount” is payable equal to Cenvat credit
taken as reduced by 2.5% per quarter.
 Duties eligible for CENVAT credit rule 3(1).
1. Basic Excise duty.
2. Special Excise duty.
3. Additional Excise duty
4. If goods are imported Counter Vailing Duty (CVD) is also eligible
for CENVAT Credit.
5. Additional Customs Duty of 4%. (not to service providers)
6. National Calamity Contingent Duty (but not on mobile phones).
7. Service tax, Education cess and SAH Education cess paid on input
service.
8. Education Cess.
9. Secondary and Higher Education Cess.
10. Amount paid on inputs or capital goods removed as such or after
use.
11. Duty paid by EOU.
 Utilization of CENVAT
Basic Excise Duty (B.E.D) B.E.D
Service Tax NCCD
Education Cess
Additional Customs Duty u/s 3(5) SAH Education Cess
Education Cess on E.D & S.T Education Cess
SAH Education Cess on E.D & S.T SAH Education Cess
Additional Excise Duty Additional Excise Duty

• Inputs & capital goods can be sent outside as such or after processing to a job
worker for further processing, repairs, reconditioning or any other purpose, but
these should be brought back within 180 days.
• CENVAT Credit not allowed if final product is exempted.
• CENVAT Credit cannot be utilized for payment of interest.
• Cannot be utilized for payment of ST when tax is payable under reverse Charge.
• Credit of inputs can be refunded if final product is exported and no duty
drawback is claimed.
• Eligible Documents for Cenvat Credit:- Invoice of Manufacturer, Bill of Entry, 1st
stage and 2nd stage dealer Invoice.
 Rule 6
• As per Rule 6(1) if assessee is manufacturing exempted as well as dutiable
goods and/or providing taxable as well as exempted services, and availing
CENVAT Credit, the CENVAT CREDIT shall not be allowed on such quantity
of inputs which is used in the manufacture of exempted goods .For this
purpose the manufacture [in case of inputs] or output service provider [in
case of service] may follow either of following 2 methods.

• Maintain Separate A/C:- If the manufacturer shall maintain separate

accounts for different goods.

• Not to maintain separate A/C:- If manufacturer of goods is not

maintaining separate account, shall have to reverse the “amount” equal to
CENVAT CREDIT in following manner.
• Option 1:- 6% of value of exempted goods(if he is manufacturer) & 6%
exempted services ( if he is service provider).
• Option 2:- Pay an ‘amount’ equal to the proportionate CENVAT CREDIT
attributable to exempted final product/exempted output Services .
 REGISTRATION
• Every person Who- Produces, Manufactures, Carries on trade, holds private store room
of warehouse must be registered under section 6 of C.E. Act.
• Dealers or Importers can issue excise invoice only if they having excise Reg. No.
• Form A1 is used for registration and for any changes regarding business.
• Application submitted to A.C/D.C
• 15 digit Reg. no. is allotted to assessee called E.C.C within 7 days from the date of
application.
• Reg. Certificate is issued in prescribed from ‘RC’.

Exemption for Registration.

• Manufacturers who is not manufacturing excisable goods.
• SSI Units whose turnover is less than the SSI Exemption limit.
• Users of excisable goods.
• A Unit in SEZ.

Penalty for Non-Registration- It is an offence under Rule 25(1)(c) of C.E. Rules. Under sec 9
of CEA and imprisonment can be imposed. In addition contravening goods can be
confiscated.
A daily stock of goods manufactured or produced has to be maintained by every
assessee. [Rule 10(1) of Central Excise Rules] this is called Daily Stock Account.
DSA Should contain following details.
- Description of Goods Manufactured or Produced.
- Opening Balance
- Quantity produced or manufactured.
- Inventory of goods
- Quantity Removed
- Assessable Value
- Amount of Duty Payable
- Particulars regarding amount of duty Actually Paid.
• For each product separate DSA is to be maintained and that on daily basis.
• First & last page of DSA should be authenticated by manufacturer or his agent.
• DSA must be preserved for 5 years.
Penalty (if not maintained):- Under Rule 25(1)(b) of C.E Rules up to duty payable
on goods can be imposed and offending goods can be confiscated.
 Payment of Excise Duty
Normal Units SSI Units

Montly Quarterly

• By 5th of following month/quarter.

• In case of e-payment it has to be paid on 6th of following month/quarter.
• For the month of March duty is payable on 31st March, not in the
following month/Quarter

• Duty can be paid through current account (PLA) and /or Cenvat Credit.
• PLA Popularly known as Personal Ledger Account.
• Assessment is basically invoice based self-assessment.
• Payment of duty can be made on next day if due day falls on holiday.
• If duty is not paid on due date, assessee is liable to pay the outstanding
amount along with interest @18%.
• Mandatory e-payment if annual excise duty payment exceeds Rs. 10 lakhs.
If have 15 Digit Current Deposited in Payment of duty
ECC Number Account (PLA) bank by GAR-7 By using PLA (Dr.)
 RETURNS
Form of Return Description Who is required to file Time limit for filing Returns
ER-1 Monthly Return by Manufacturers not eligible for SSI 10th of following month.
large units Concession
ER-2 Return by EOU EOU Units 10th of following month.
ER-3 Quarterly Return by SSI Assessees eligible for SSI concession 10th of nex month of the
(even if he does not avail the concession) quarter.
ER-4 Annual Financial Information Assessees paying duty of Rs. One crore or Annually by 30th November of
Statement more per annum succeeding year.
ER-5 Information relating to Principle Assessees paying duty of Rs. One crore or Annually, by 30th April for the
Inputs more per annum curren year.
ER-6 Monthly Return of Receipt and Assessees required to submit ER-5 return 10th of following month.
consumption of each of principal
inputs
ER-7 Annual Installed Capacity Statement All assessees, except manufacturers of biris
and matches without aid of power and rein-
forced cement concrete pipes
ER-8 Quarterly Return Assessees paying 1% excise duty and not Quarterly within 10 days after
manufacturing any other goods close of quarter

1. e-filing of return was mandatory for all assesses.

2. “Automation of Central Excise and Service Tax” (ACES) can be used for obtaining
registration online and filing returns. w.e.f 1-10-2011
3. No specific provision for submission of revised return for manufacturers. Service
providers have to file revised Cenvat return within 60days. Rule 9(11) Cevat cr.
Rules
 PENALTY
Penalty can be imposed under Rule 25 of CE Rules and under section
11AC (Mandatory Penalty) of CE Act.
Rule 25:- Penalty imposed under this rule for violations mentioned
below.
1. Removing excisable goods in contravention of Excise Rules or
Notification
2. Not accounting for excisable goods manufactured, produced or
stored.
3. Engaging in manufacture, production or storage of excisable goods
without applying for registration certification.
What is Penalty ?
a) Confiscation of Contravening Goods.
b) Penalty upto duty payable on such contravening goods or Rs. 2000
(W.E.H)
Note:- Only finished goods can be confiscated under Rule 25 not Raw
material or Semi-Finished Goods.
 Penalty under section 11AC of CE Act
If Specific Record are Maintained
Penalty under this section is Mandatory Penalty. It states that where duty not Levied
or paid or has been short levied or short paid or erroneously refunded by any
reason of
1. Suppression of facts
2. Willful Misstatement.
3. Fraud.
4. Collusion.
5. Contravention of any of the provisions of Act or Rules with intention to evade
tax.
What is Penalty ?
A mandatory penalty equal to the duty short paid or not paid or erroneously refunded
Recent Changes in this Section:-
In case of fraud, suppression, willful mis-statement
1. Mandatory Penalty will be equal to 50% of duty if transactions were recorded in
specified records.
2. Assessee can pay duty with interest plus penalty @ 1% per month (Maximum
25%), before show cause notice and inform the department.
 If Specific Record are not Maintained
Penalty equal to the duty short paid or not paid or
erroneously refunded.
Note:-
1. No one has power to reduce or to increase this penalty.
2. If Penalty under section 11AC of CEA is imposed,
penalty under Rule 25 cannot be imposed.
SHOW CAUSE NOTICE
With in One Year:-
(a) Duty of excise has not been levied or paid
(b) Short levied or paid
(c) Erroneously refunded.
With in Five Years:-
Remission of Duty on Lost/Destroyed Goods.
“Remission” means waiver or cancellation of Excise duty legally
Payable.
Section & Rule involved is Section 5 of CEA & Rule 21 of CE Rules.
As per Rule 21 of Central Excise Rules, Remission of duty can be granted in
the following cases:-
1. Goods have been lost or destroyed by natural causes.
2. Goods have been lost or destroyed by unavoidable accident.
3. Goods are claimed by manufacturer as unfit for consumption or for
marketing.
Notes:-
1. Application for remission should be submitted before removal of goods
from factory.
2. Cenvat credit taken on inputs to be reversed if duty remitted on final
product.