BUDGET 2016 EXCISE DUTY IMPLICATIONS ON JEWELLERY SECTOR

LEVY OF EXCISE DUTY What is Manufacture?:- Manufacture includes any process,  incidental or ancillary to the completion of a manufactured product – 2(f)(i);  Which is specified in relation to any goods in the section or chapter notes of the first schedule to the CETA as amounting to manufacture – 2(f)(ii) Levy Vs. Payment:-  Levy on manufacture  Payment – Deferred to time of removal from factory/ place of manufacture;

Manufacture Note 13 to Chapter 71:- “The process of affixing or embossing trade name or brand name on articles of jewellery or on articles of goldsmiths or silversmiths wares of precious metal or of metal clad with precious metal, shall amount to manufacture”. Embossing or fixation:- brand name? Trade name? House mark? ASTRA PHARMACEUTICALS (P) LTD. Vs. CCE – 1995 (75) ELT 214 (SC)

MEANING OF ARTICLES OF JEWELLERY Defined under Note 9 to Chapter 71 :-  “articles of jewellery” means: a)any small objects of personal adornment (for example, rings, bracelets, necklaces, brooches, ear-rings, watch-chains, fobs, pendants, tie-pins, cuff-links, dress-studs, religious or other medals and insignia); and b)articles of personal use of a kind normally carried in the pocket, in the handbag or on the person (for example, cigar or cigarette cases, snuff boxes, cachou or pill boxes, powder boxes, chain purses or prayer beads) These articles may be combined or set, for example, with natural or cultured pearls, precious or semi-precious stones, synthetic or reconstructed precious or semi-precious stones, tortoise shell, mother of pearl, ivory, natural or reconstituted amber, jet or coral.

RATES NIL1%6%12.5% Articles of silver jewellery other than those studded with diamonds & other precious stones Articles of Jewellery (7113) (Without availing credit on inputs & capital goods) (Credit of Input Service available ) Articles of goldsmiths or silversmiths wares of precious metal bearing brand name (With credit facility Articles of Jewellery (7113) (with cenvat credit facility) Articles of goldsmiths or silversmiths wares of precious metal not bearing a brand name Articles of goldsmiths or silversmiths wares of precious metal bearing a brand name (Without availing credit on inputs & input services)

TAXABILTY & DATE OF LEVY  Exemption Withdrawn from Manufacture on or after midnight of – Taxable  Manufactured before & in closing stock?  Rule 5 of CER, 2002 – Date for determination of Duty & Tariff valuation – Rate and value in force on the date when such goods are removed from factory  CCE Vs. Vazir Sultan Tobacco Co. Ltd. – 1996 (83) ELT 3 (SC)

Who has to Pay? Liability to Pay – Manufacturer Time of Payment – Removal from factory Who is Manufacturer? Shop owner/ retailer/ raw material supplier? Karigar/ Job – worker – Rule 12AA What is factory? Shop/ Showroom/work – shop? Karigar’s work – shop?

SMALL SCALE EXEMPTION (SSI)  Benefit of SSI Exemption available based on value of clearance:-  Eligibility – Domestic Turnover in previous year < Rs. 12 Cr.  Exemption – Current Financial year up to clearances of Rs. 6 Cr.  No exemption – Manufacturer affixes the brand name owned by another person.  Customer brings gold/ old jewellery. Jeweller charges only making charges - Manufacturer? - SSI?

REGISTRATION  Manufacturer to take registration.  Which premises needs to be registered?  Normally each factory to get registered  Special Treatment – Separate registration not required  Centralised Registration Introduced for the first time  Notification 5/2012 – CE (NT) dated – limited to CH. Heading 7113  Requirement – Premise with centralised billing or centralised accounting system  Centralized Registration Vs Common Registration

REGISTRATION …… Contd Place of manufacture vs. place of removal vs. place of registration Place of manufacture: Actual activity of manufacturer performed. - workshop of jeweller - Showroom (deemed manufacture) Place of removal: Place from where goods are sold to customers or consumption in market. - Workshop - Showroom (Sales point to customers) Place of registration: Any place with centralised billing or centralised accounting system of business Centralized Registration – Option or Compulsion?

VALUATION  Transaction Value – Sale Price at time & place of removal  Circular No. 1021/9/2016 – CX dated i.All payments of central excise duty will be based on the first sale invoice value; ii.Central Excise Authorities will not challenge the valuation given in the invoice;  Can circular provide for the valuation mechanism?  CCE Vs Dhiren Chemical Industries – 2002 (143) ELT 19 (SC) Circular Binding on Department  CCE Vs Ratan Melting & Wire Industries – 2008 (231) ELT 22 (SC) Circular Contrary to law – No existence

VALUATION…… Contd  Jewellery sent from workshop/job workers premises to showroom o Duty Payment at the time of removal from place of manufacture o Computed on transaction value if available o Else, Determine under Valuation Rules.

VALUATION …… Contd PRACTICAL SITUATIONS :- Case – I :- Goods removed from workshop (jewelers premises) to Showroom:-  Rule 7 of the Valuation Rules – Price prevalent at the showroom at the time of removal of goods from workshop Case – II :- Goods sold directly from job workers premises to customer:-  Rule 10A(i) of the Valuation Rules – Normal transaction value as existed between the principal manufacturer (Jeweler) & Customer. Case – III :- Goods removed from job workers premises to Showroom:-  Rule 10A(ii) of the Valuation Rules – Price prevalent at the showroom at the time of removal of goods from workshop

VALUATION …… Contd PRACTICAL SITUATIONS :- Case – IV :- Goods removed from job workers premises to Showroom where further finishing or embossing of brand name or trade name is done :-  Job worker – Rule 10A(iii) of the Valuation Rules – 110% of Cost of production  Showroom – 1% on transaction value Case – V :- Goods manufactured by one registered manufacturer for other registered manufacturer Say Company A & Company B are registered manufacturers. B gets goods manufactured from A on job – work basis?  Operate under Notification 214/86 – CE dated

VALUATION …… Contd PRACTICAL SITUATIONS :- Case –VI :- Goods removed by Company A to Company B who are related under Excise Act Say Company A, a manufacturer sells manufactured goods to Company B who is related concern of A  Rule 9 of the Valuation Rules – Price adopted by B at the same time of sale to unrelated buyers.

RETURNS  Duty to be paid monthly by 6 th of succeeding month.  Return to filed on quarterly basis by 10 th of the following month in which the quarter ends. ER – 8. CENVAT CREDIT  3 types of cenvat credit available to a manufacturer:-  Inputs – Any goods used within the factory in or in relation to manufacture of final product.  Capital Goods - Specified goods of Chapter 82,84,85, 90,6804 & 6805 etc.  Input Services - Any services used in or in relation to manufacture to final product.

CENVAT CREDIT Applicability of Rule 6 of CCR  Rule 6 is applicable in cases where manufacturer manufactures both excisable goods & exempted goods & bars me from taking credit in respect of inputs & input services used in relation to manufacture of Exempted product.  Inputs – Quantitative Basis  Input Service – Common Input Services based on the formula prescribed under Rule 6.  Applicability of Rule 6 in case of a jeweler:-  Jewellery manufacturer manufacturing Articles of jewellery (1% regime) & also manufacturing articles of silver(Exempted) Articles of jewellery (1% regime) & articles of goldsmiths or silversmiths bearing a brand name (1% Regime) (Condition no. 25)

INDIRECT TAXES LITIGATION STRATEGIES

LITIGATION STRATEGY Start of a Litigation  Issuance of a Show Cause Notice.  Demand upto which period can be raised in a Show Cause Notice :- 2 years in normal cases 5 years in cases of matter involving fraud, suppression, willful misstatement etc.  Which matters needs to be contested:- Merits Limitation

LITIGATION STRATEGY Compouding of a Show Cause Notice  Cases not involving Fraud, Suppression etc.  Within 30 days of issuance of SCN – Pay tax + Interest - Deemed Closure  Cases involving Fraud, Suppression etc.  Within 30 days of issuance of SCN – Pay tax + Interest + 15% penalty - Deemed Closure  Compounding – Co-noticee discharged when main notice compounds In case of contesting the Show Cause Notice:-  Preferably all grounds to be taken (Merits + Limitation)  Adjudication to be done with 4 corners of the SCN - CCE Vs Ballarpur Industries Limited – 2007 (215) ELT 489 (SC)

LITIGATION STRATEGY Order in Original (Passed by AC/DC/ADC)  File an appeal before Commissioner (Appeals)  Within 60days +30days COD  Make 7.5% of pre deposit (PLA / Cenvat) Order in Original (Passed by Commissioner)  File an appeal before Tribunal  Within 3 months  Make 7.5% of pre deposit (PLA / Cenvat)

LITIGATION STRATEGY Compouding of a Order – in – Original (OIO)  Cases not involving Fraud, Suppression etc.  Within 30 days of communication of OIO – Pay tax + Interest + 25% penalty  Cases involving Fraud, Suppression etc.  Within 30 days of communication of OIO – Pay tax + Interest + 25% penalty

LITIGATION STRATEGY Order in Appeal passed by Commissioner (A)  File an appeal before Tribunal  Within 3 months  Make additional deposit of 2.5% (PLA / Cenvat) Whether Compouding possible after an Order – in – Appeal? No

LITIGATION STRATEGY Order passed by the Tribunal  File an appeal before High Court – Question involving interpretation of Law  Within 180 days of the communication of order Order passed by the High Court  File an appeal before Supreme Court  Code of Civil procedures to apply

LITIGATION STRATEGY Monetary limits for filing appeal by Department before CESTAT/ High Courts/ Supreme Court:-  CESTAT : Rs. 10,00,000/-  High Courts : Rs. 15,00,000/-  Supreme Court : Rs. 25,00,000/