1. Approach To Understand Central Excise
By CA. Sudhir V S

2. Learning Objectives What Act & Rules applicable
When Central Excise is attracted?
What is manufacture? + Who is manufacturer?
Principles of Classification
Principles of Valuation
Some value added + Cost Control in Central Excise
Questions/ Doubt clearance throughout session

3. Act & Rules Central Excise Act, 1944 Central Excise Tariff Act, 1985
Central Excise Rules, 2002
CENVAT Credit Rules, 2004
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000
Others
Notifications
Circulars
Case Laws

4. No Law above the Constitution of India
Act
Case Laws
Rules
Indirect Tax Laws
Trade Notices
Circulars
No Law above the Constitution of India

5. Types of Duties Basic Excise Duty Special Excise Duty
Additional Duties of Excise – (Textiles and Textile Articles)
Additional Duties of Excise - Goods of Special Importance
National Calamity Contingent Duty
Education cess
Secondary and Higher Education cess

6. Determination of Excisability of a product
Step 1 : “Goods” exist; movable and marketable Step 2 : Product under List II (State List) or List III (Concurrent List) of the VII Schedule not covered by Central Excise. Step 3 : Classify the product as prescribed in the Central Excise Tariff Act,1985. Broad category or specific coverage Entry is not clear then the reference to the Rules of Interpretation
Determination of Excisability of a product

7. Step 4 : Whether the process is a Deemed Manufacture?
Determination of Excisability of Product
Step 4 : Whether the process is a Deemed Manufacture?
Activity like packing, labeling, repacking etc. are undertaken,
On products as mentioned in Chapter notes and Third Schedule
Step 5 :The process whether amounting to manufacture.
Comparing the Incoming material and outgoing material
Name, character or use.

8. Determination of Excisability of Product
Step 6 :If the item is intermediate product avail credit on inputs
Pay duty on the finished goods
Pass on credit to the industrial users
Step 7 :The product may be so competitive
It cannot bear any duty of excise.
Can be located at like Kutch or North India, Himachal Pradesh
Contd..

9. Determination of Excisability of Product
Step 9 : Decision for Registering
Made at the point
Where no other economic or legal opinion exists.
Step 10: The trader who wishes to pass on the duty paid on goods traded
Could also be registered.

10. What are Goods? The definition under the Sale of Goods Act, 1930
Goods must be moveable, saleable/marketable
Explanation to Section 2(d) of CE Act, 1944
-states ‘goods’ include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable

11. What is Manufacture?
Process undertaken would amount to manufacture as understood under the Central Excise
The incoming material and the final outgoing material are to be compared with respect to their name, character or use.
Ensured that processes not amounting to manufacture are not described as manufacture
Result in attempts to deny credit

12. What is Removal?
Removal means the physical act of shifting/moving the goods
Under excise- the self-removal procedure
No excisable goods on which any duty is payable
- shall be removed from any place where they are produced or manufactured or from warehouse without payment of duty
Rate of duty and tariff valuation would be done on the date of removal.

13. What is classification?
Ascertaining the tariff heading/sub-heading under which the product is categorized
In line with Central Excise Tariff Act -Based on HSN
See the Interpretative Notes at the beginning of the Tariff + Notes in the Section and Chapter
Rules for interpretation

14. Classification-Rules
Rule 2(a)-classification of an article referred to in a heading, even if that article is incomplete or unfinished, or is presented in an unassembled or disassembled form.
Rule 2(b)-This rule –on mixture or combination of materials or substances, ->headings in which there is a reference to a material or substance also applies to that material or substance mixed or combined with other materials or substances.

15. Classification Rules
Rule 3: classifying goods –prima facie classifiable under several headings.
(a)Specific over general description
(b) materials or components which give essential character
(c)under the heading which occurs last in the numerical order of headings which equally merit attention
Rule 4-heading covering goods akin to such goods
Rule 5 – packing material

16. Valuation Duty Based on capacity Advalorem Sec 3- Tariff Value Fixed
Notified under RSP
Set out in Third Schedule
Transaction Value
Exception to TV – Goods sold; delivery at time & place of removal; unrelated ; price only consideration.

17. Cum duty if not collected
Valuation Rules
Rule 5 – Sold other than factory – deduction for freight
Rule 6 – Sole consideration – Alternatives
Rule 7 – Depot /Consignment agent
Rule 8 – Captive consumed
Rule 9 – Related person
Rule 10 – Interconnected/ holding
Rule 10A – Dispatched from JW premises
Cum duty if not collected

18. Tax Planning under Central Excise
Availment of SSI Exemption vis-à-vis Payment of Duty
Tax Planning for Central Excise duty paid under Rule 6 of Central Excise Valuation Rules
Inter Unit Transfer
Tax planning in selecting appropriate status of the entity
Tax Planning for the Export Transactions

19. Tax Planning under Central Excise
Tax Planning for Leasing Transactions
CENVAT Credit on Capital Goods i.e. Machinery which is used for Exempted products
Adoption of Method under Rule 6 of CENVAT Credit Rules, 2004
Intimation to the department
Facing the departmental Audit

20. Cost Control Accommodation bills- Strictly No
Regular, timely credit availment
Job workers exemption –not to claim
Examination of provision of services
Vendors / customer education
Checks and Balances as for rest – SOP, Internal Audit, Stage wise authorisation- integration to ERP
Internal Audit to include IDT [ CE ] in scope
Reconciliation of tax + credits

21. Other Cost Control
Missed credits due to earlier issues, preventive directions, AG audit
Avoid common mistakes [many other than discussed]
Adequate disclosure of activities, valuation, reverse charge, credit availment, books of account, major contracts
Built into MIS- monthly quarterly etc. reaching the top.

22. General - IDT Adequate Importance to IDT – SOP - Training
- Integration to ERP
- Not considered for Internal Control / Risk Analysis– authorization
- Auditors – Statutory, Tax & Internal may not check [ or limited]
- Not part of Top Management MIS

23. Enhanced Regular Training for Compliance Team
General - IDT
Adequate Importance to IDT ..cont..
– Revenue Officers are Empowered and Corrupt – Nobody want to deal
- Lack of Co-ordination of Production/ Marketing/ Procurement with Compliance Team
Departmental Interaction – Oral- both ways?
Training/ Awareness to Top Management + Non Finance Executives [ Especially Sales/ Purchase]
Enhanced Regular Training for Compliance Team

24. ANY MORE QUESTIONS???