Before

THE SANMARIANS

X PLORINGCISE

S. Jaikumar, AdvocateSwamy Associates

25th MAY 2002

EXCISE DUTY

• MANUFACTURE

– INCIDENTAL OR ANCILLARY PROCESSES

TOWARDS COMPLETION

– CHAPTER OR SECTION NOTES

– NOTIFIED PROCESSES (YET TO TAKE EFFECT)

EMERGENCE OF A NEW PRODUCT

EMERGENCE OF A NEW PRODUCT

• MANUFACTURE RESULTING IN GOODS, WITH DISTINCT AND SEPARATE IDENTITY

• MARKETABILITY

• ENTRY IN CENTRAL EXCISE TARIFF

DUTIABILITY

• LEVY ON MANUFACTURE

• PAYMENT OF DUTY ON CLEARANCE

• CLEARANCE INCLUDES REMOVALS WITHIN THE

FACTORY FOR FURTHER MANUFACTURE

TYPES OF LEVY

• SPECIFIC RATE OF DUTY

• VALUE BASED DUTY

• COMPOUNDED LEVY

VALUE BASED DUTY

• TARIFF VALUE - SECTION 3 (2)

• TRANSACTION VALUE - SECTION 4

• MRP BASED DUTY - SECTION 4 A

– Notified under the Act

– Required to be affixed with MRP on the package

under the Standards of Weights & Measures Act.

TRANSACTION VALUE (TV)

• There should be a “SALE”.

• Delivery should be at the time and place of

removal.

• Assessee and the buyer should not be “RELATED

PERSONS”.

• Price should be the sole consideration for the

sale.

WHAT IS TRANSACTION VALUE?

• Price actually paid or payable for the goods.

• Includes any amount the buyer is liable to pay to

the assessee in connection with the sale.

• Either payable at the time of sale or at any other

time.

INCLUSIONS

• advertising or publicity

• marketing and selling organisation expenses

• storage, outward handling, servicing

• warranty , commission or any other matter.

• Third party inspection charges

• Design, development and engineering charges

• All types of packing cost

• Accessories

• Royalties and Commissions

• Erection and Commissioning charges

• Advertisement borne by dealers

Any other matter - includes

EXCLUSIONS

• All taxes

• Interest on delayed payments

• Optional warranty

• Annual Maintenance charges

• Bank charges, including hundi charges

• Discounts made known at the time of removal

and is passed on to the buyer

• If there is no sale

• If the time of removal and delivery is different

• If the place of removal and delivery is different

• If the assessee and buyer are related

• If the price is not the sole consideration

WHAT IF THE (TV) REQUIREMENTS ARE

NOT SATISFIED?

Take the help ofVALUATION RULES

• Rules 1, 2 and 3 - Preliminaries • Rule 4 - Where there is no sale• Rule 5 - Where place of delivery is different from

place of removal• Rule 6 - Where price is not the sole consideration• Rule 7 - Where place of removal is different from

factory• Rule 8 - Where goods are captively consumed for

further manufacture• Rule 9 and 10 - Where the buyer and the assessee

are related persons/inter connected undertakings• Rule 11 - Best judgement

VALUATION RULES, 2000

RULE 4

• When the goods are not sold and if not

specifically covered by any of the other rules.

• In such cases the assessable value shall be based

on the value of “such goods” sold by the

assessee at any nearest point of time.

• Eg. Free supply, Physician’s samples, Gifts etc.

RULE 5

• If the goods under assessment are delivered at a

different place, the value shall be exclusive of the

actual cost of transportation from the place of

removal to the place of delivery.

• Exclusion of cost of transportation is permitted only

if it represents actuals and is shown in the invoice.

• Cost of transportation includes freight and

insurance.

• “EQUALISED FREIGHT” concept is no more in vogue.

RULE 6

• If there is any additional consideration .

• The money value of such additional

consideration, flowing directly or indirectly from

the buyer to the assessee has to be included.

Additional consideration- includes

• Value of materials, components, parts, packaging

materials etc.

• Value of tools, dies, moulds, drawings, blue

prints, technical maps, charts, engineering,

development, art work, design work and plans

and sketches, etc.

– Value to be included either on one time basis or

ammortised on life time basis.

– Life to be certified by a Chartered Engineer.

RULE 7

• If the sale is made at depots, premises of

consignment agents or any other place (Stock

Transfers).

• The value shall be the “NORMAL TRANSACTION

VALUE” of such goods sold from the above

places, at or about the same time and if not at a

time nearest to the time of removal.

EXAMPLE OF NORMAL TV

The following sales were made from the Depot

11.5.2002 700 pieces Rs.110 per piece

16.5.2002 900 piece Rs.120 per piece

17.5.2002 1000 pieces Rs.90 per piece

17.5.2002 800 pieces Rs.100 per piece

The value for the clearance made today shall be Rs.90, being the “NORMAL TRANSACTION VALUE”, at the nearest time of removal (17.5.2002), at which greatest aggregate quantity of goods (1000 pieces) , are sold at the depot.

BEWARE OF SEC.11 D

RULE 8

• If the goods are not sold but are used for

consumption by the assessee or on his behalf, in

the production of other articles, the value shall

be 115 % of cost of production.

• CENVAT credit - availed on inputs, not to be

included, while arriving the cost of production.

RULE 9 AND 10 • When goods are sold through the related person,

then the “normal transaction value” at which the related person sells such goods, shall be the value for assessment.

• If related person consumes such goods for further manufacture, recourse under Rule 8.

• Related person - means

- Relatives (As defined in the Companies Act).

- Buyer being a relative and a distributor of the

assessee or a sub-distributor of such distributor.

- Being so associated that the assessee and buyer

have interest in the business of each other,

directly or indirectly.

• Interconnected undertakings - as defined under Section 2 (g) of MRTP Act, 1969.

EXAMPLES FOR RELATED PERSON TRANSACTION

ASSESSEEA

“B”CAPTIVELY CONSUMES

“B” SELLS TO A RELATED PERSON“D” WHO SELLS

IN RETAIL

“B” SELLSTO NON RELATED

PERSON “C”

RELATED PERSON

B

SELLS GOODS TO

TV SHALL BE THE PRICECHARGED BY“B” TO “C”

TV SHALLBE THE PRICECHARGED BY“B” TO “D”

TAKE RECOURSE

TO RULE 8

RULE 11

• Best judgement

• If the value cannot be determined under the

foregoing Rules.

• The value can be determined using reasonable

means consistent with the principles and general

provisions of these Rules and Section 4(1) of the

CEA,1944.

• Eg. Valuation in case of job worker as pronounced

in the case of Ujagar Prints.

CENVAT

• Duties of Excise paid on inputs and capital goods are allowed as CENVAT credit.

• Duties of Excise includes BED, SED, AED, NCD and CVD.

• CENVAT credit on AED and NCD to be utilised only against respective duties.

• Deemed credit available for apparels of Ch.62. • Restricted credit for purchases from 100 % EOUs.• Special dispensation for goods manufactured in

NE Region and Kutch.

INPUTS

• All goods used in or in relation to the manufacture of final products whether directly or indirectly whether contained in the final product or not.

- except high speed diesel oil and petrol.

• Lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of Electricity or steam used for manufacture of final products or for any other purpose within the factory of production.

CAPITAL GOODS

• All goods falling under Chapters 82, 94, 85, 90,

68.02 & 6801.10

• Pollution Control Equipment

• Components, spares & accessories of the above

• Moulds and dies

• Refractories and refractory materials

• Tubes, pipes and fittings thereof

• Storage tank

FEATURES OF CENVAT SCHEME

• No declarations are required.

• Credit can be availed either on Original /

Duplicate / Triplicate copy of the invoices.

• No specific time limit to avail credit – shall be

availed “immediately”.

• No format of any Register has been prescribed.

• Erstwhile 57 E Certificate for differential duty

dispensed with - Supplementary invoice would

suffice.

CONDITIONS FOR CAPITAL GOODS CREDIT

• The capital goods should be used in the manufacturing process and should not be an office equipment.

• Only 50 % of the duty paid can be availed in the year of receipt.

• The balance 50 % can be availed in any subsequent financial year.

• If the capital goods are to be removed during year of receipt, the balance of credit can be availed before such removal.

• No depreciation should be claimed under IT Act, on the duty portion availed as credit.

F A Q

• Can inputs / capital goods be sent out of factory?

• How to return the rejected inputs?

• How to deal with “written off” inputs / capital goods ?

• Can the inputs be directly received in job worker’s place? If yes, when the credit can be availed?

• Can the final products be cleared directly from the job worker?

• What to be done in case of manufacture of both dutiable and exempted final products by using common inputs?

RECEIPT OF DUTY PAID GOODS (RULE 16)

• GOODS CAN BE BROUGHT INTO THE FACTORY FOR :

- Remaking

- Refining

- Reconditioning

- Any other reason

FEATURES OF RULE 16

• Erstwhile D3 intimation is not required.

• Any duty paid goods can be brought in.

• On receipt, CENVAT Credit can be availed, on such goods

– On assessee’s own invoice.

– Buyer’s CENVATable invoice.

– Otherwise, jurisdictional Commissioner has to be approached with collateral evidence.

• If the process does not amount to manufacture, the goods

can be cleared upon reversal of the credit availed.

• If the process amounts to manufacture, appropriate duty

as per Section 4 or 4 A of the CEA, 1944, shall be paid.

• Adequate records have to be maintained.

• No time limit as to receipt / despatch of goods.

Rule 173 H vs Rule 16

• Intimation in Form D3 has to be filed

• Verification by Range

Inspector has to be

done

• Register in form Annexure V has to be maintained

• No credit can be availed on Receipt of Goods.

• No duty payable on removal of goods

• No intimation is

required

• No verification is

required

• No format for the Register is prescribed

• Credit can be availed on receipt of Goods.

• Credit taken has to be reversed on removal.

RULE 173 H

• Goods can be brought in only within a period of one year or warranty period, whichever is greater. Otherwise Commissioner’s permission is required.

• Goods can be brought in for

being remade, refined,

repaired, reconditioned or

for any similar processes.

RULE 16

• No such time

restriction is imposed.

• Goods can be brought for being remade, refined, reconditioned or for any other purpose.

If the process done amounts to manufacture, it was earlier governed under Rule 173 L and now in built under Rule 16 (2).

JOB WORK(SUB-CONTRACTING)

CENVAT availed inputs (Erstwhile Rule 57 F (4) and

presently Rule 4 (5) of CENVAT Credit Rules, 2002)

Other raw materials.

One time declaration under Notification

No. 214/86.

Inputs / raw materials can be cleared either as

such or after processing.

Inputs can be delivered directly to the job

worker.

The processed goods can either be returned to

the assessee or directly removed from the job

worker.

JOB WORK - DOCUMENTATION

• Inputs can be removed on assessee’s own

document / challan.

• Registers showing removal and return of inputs

have to be maintained.

• Job worker shall also maintain a register

showing receipt and removal of processed inputs

• Incase of direct supply of inputs to the job

worker, the supplier’s invoice to mention job

worker’s premises.

JOB WORK - CONDITIONS

• The processed goods have to be returned within

180 days.

• If not, proportionate credit on inputs has to be

debited.

• Such debit can be credited back on receipt of

such processed goods.

• Scrap, if any, has to be returned along with the

processed goods to the assessee.

• Otherwise, such scrap shall be cleared on

payment of appropriate duty by the job worker.

DIRECT REMOVAL BY JOB WORKER• Assessee has to obtain permission from the Commissioner

either on case to case basis or for one year (renewable every financial year).

• Assessee has to prepare a challan as specified by the Commissioner.

• Assessee has to prepare the invoice for the goods which are to be removed from the job worker, pay duty and send the invoice to the job worker.

• In case if the inputs are directly supplied to the job worker, assessee has to avail CENVAT credit at the time payment of duty.

• Job worker has to fill the date and time of removal and clear the goods under the assessee’s invoice.

• Job worker has to return the triplicate copy of the said invoice and also the challan back to the assessee.

• Any other conditions imposed by the Commissioner at the time grant of permission have to be complied with.

OTHER RAW MATERIALS (CENVAT CREDIT NOT AVAILED)

• Can be cleared on assessee’s own document.

• In cases of clearance of processed goods directly

from job worker – same procedures as prescribed

for CENVAT availed inputs.

• Scrap – as already dealt under CENVAT availed

inputs.

SHORT RECEIPTS BY THE CONSIGNEE

SHORT SUPPLY

• If the consignee demands supply of shortage, such supply can be made without payment of duty.

• If the consignee short passes the invoice, refund under Section 11 B can be claimed.

• In both the cases, the burden of proof as to short supply lies with the assessee.

TRANSIT LOSS

• No relief under excise

law.

SAMPLES

• Quality control samples (Retains)

• Returnable samples (Evaluation / Fair / Exhibition

etc.)

• Non-returnable samples

QUALITY CONTROL SAMPLES (RETAINS)

• If retained and accounted for in stock register, no

need to pay duty.

• Remission can be sought on destruction.

• If removed appropriate duty has to be paid.

RETURNABLE SAMPLES

• Appropriate duty as per Rule 4 of Valuation Rules

has to be paid upon removals.

• At the time of return credit can be taken as

provided in Rule 16.

REMISSION

• LOST

• DESTROYED

• UNFIT FOR CONSUMPTION OR MARKETING.

NO CENVAT CREDIT TO BE REVERSED ON REMISSION

LOST

• Lodging of FIR

• Reasonable care should have been taken to

prevent such loss.

DESTROYED

• UNAVOIDABLE ACCIDENT

• NATURAL CAUSE

UNFIT FOR CONSUMPTION OR MARKETING

• Test report from Government recognised

Laboratory.

• To be destroyed in the presence of Central Excise

Officers.

EXPORTS

• Manufacturer - Exporter

• Merchant - Exporter

• Benefits -

– Procurement of raw materials without payment of duty.

– Clearance of export goods either without payment of duty or rebate, if duty was paid.

– Drawback as applicable - Can be claimed on filing the shipping bill.

– Option of self sealing / certification.

MANUFACTURER - EXPORTER

• UNDER L.U.T. (without payment of duty)

- Recredit upon proof of Export

- Customs Endorsed ARE-1

- Self attested shipping bill (export promotion

copy)

- Self attested bill of lading

• ON PAYMENT OF DUTY

– Rebate upon proof of Export

• UNDER BOND (On behalf of Merchant Exporter)

– No Bank Guarantee / Surety in case of privileged

sector.

MERCHANT - EXPORTER

• To execute B-1 bond with the jurisdictional

AC / DC or Maritime Commissioner.

• No bank Guarantee / Surety for privileged sector.

• To obtain CT-1 Certificate (in lots of 25).

• Concept of “BLOCK TRANSFER” dispensed with.

• PROOF OF EXPORT - as already dealt with.

RECORDS AND RETURNS

• RG1 – Daily stock register• CENVAT Register• Personal Ledger Account• Register under Rule 16• Invoices under Rule 11• Challan / Register for job work movement• Input invoices• ER-1 returns• BOND / LUT / PROOF OF EXPORT / ARE-1 / CT-1• All records pertaining receipt, purchase, storage,

manufacture, delivery and sale of inputs / capital goods and finished products

• 5 years records to be preserved

THANKS

asksa@vsnl.net