Before

1

• Before
• THE SANMARIANS

S. Jaikumar, Advocate Swamy Associates
25th MAY 2002
2
EXCISE DUTY

• MANUFACTURE
• INCIDENTAL OR ANCILLARY PROCESSES TOWARDS
  COMPLETION
• CHAPTER OR SECTION NOTES
• NOTIFIED PROCESSES (YET TO TAKE EFFECT)
• EMERGENCE OF A NEW PRODUCT

3
EMERGENCE OF A NEW PRODUCT

• MANUFACTURE RESULTING IN GOODS, WITH DISTINCT AND
  SEPARATE IDENTITY
• MARKETABILITY
• ENTRY IN CENTRAL EXCISE TARIFF

4
DUTIABILITY

• LEVY ON MANUFACTURE
• PAYMENT OF DUTY ON CLEARANCE
• CLEARANCE INCLUDES REMOVALS WITHIN THE FACTORY
  FOR FURTHER MANUFACTURE

5
TYPES OF LEVY

• SPECIFIC RATE OF DUTY
• VALUE BASED DUTY
• COMPOUNDED LEVY

6
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.

7
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.

8
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.

9
INCLUSIONS

• advertising or publicity
• marketing and selling organisation expenses
• storage, outward handling, servicing
• warranty , commission or any other matter.

10
Any other matter - includes

• 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

11
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

12
WHAT IF THE (TV) REQUIREMENTS ARE NOT SATISFIED?

• 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

Take the help of VALUATION RULES
13
VALUATION RULES, 2000

• 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

14
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, Physicians samples, Gifts etc.

15
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.

16
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.

17
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.

18
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.

19
EXAMPLE OF NORMAL TV
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
20
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.

21
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.

22
EXAMPLES FOR RELATED PERSON TRANSACTION
23
SELLS GOODS TO
ASSESSEE A
RELATED PERSON B
B CAPTIVELY CONSUMES
B SELLS TO A RELATED PERSON D WHO SELLS IN
RETAIL
B SELLS TO NON RELATED PERSON C
TV SHALL BE THE PRICE CHARGED BY B TO C
TV SHALL BE THE PRICE CHARGED BY B TO D
TAKE RECOURSE TO RULE 8
24
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.

25
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.

26
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.

27
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

28
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.

29
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.

30
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
  workers 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?

31
RECEIPT OF DUTY PAID GOODS (RULE 16)

• GOODS CAN BE BROUGHT INTO THE FACTORY FOR
• - Remaking
• - Refining
• - Reconditioning
• - Any other reason

32
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 assessees own invoice.
• Buyers 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.

33
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.

34

• RULE 16
• No such time restriction is imposed.
• Goods can be brought for being remade, refined,
  reconditioned or for any other purpose.

• RULE 173 H
• Goods can be brought in only within a period of
  one year or warranty period, whichever is
  greater. Otherwise Commissioners permission is
  required.
• Goods can be brought in for being remade,
  refined, repaired, reconditioned or for any
  similar processes.

If the process done amounts to manufacture, it
was earlier governed under Rule 173 L and now in
built under Rule 16 (2).
35
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.

36
JOB WORK - DOCUMENTATION

• Inputs can be removed on assessees 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 suppliers invoice to mention job
  workers premises.

37
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.

38
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 assessees
  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.

39
OTHER RAW MATERIALS (CENVAT CREDIT NOT AVAILED)

• Can be cleared on assessees 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.

40
SHORT RECEIPTS BY THE CONSIGNEE

• TRANSIT LOSS
• No relief under excise law.

• 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.

41
SAMPLES

• Quality control samples (Retains)
• Returnable samples (Evaluation / Fair /
  Exhibition etc.)
• Non-returnable samples

42
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.

43
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.

44
REMISSION

• LOST
• DESTROYED
• UNFIT FOR CONSUMPTION OR MARKETING.
• NO CENVAT CREDIT TO BE REVERSED ON REMISSION

45
LOST

• Lodging of FIR
• Reasonable care should have been taken to prevent
  such loss.

46
DESTROYED

• UNAVOIDABLE ACCIDENT
• NATURAL CAUSE

47
UNFIT FOR CONSUMPTION OR MARKETING

• Test report from Government recognised
  Laboratory.
• To be destroyed in the presence of Central Excise
  Officers.

48
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.

49
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.

50
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.

51
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

52

• THANKS

asksa_at_vsnl.net