Basic Procedures including
Classification under Central
Excise; Demands and Penalties
under Central Excise Law
Bharat Raichandani
Advocate
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CLASSIFICATION
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To impose taxes at different rates.
Need to know the details of trade.
Standardization and methodical
system of classification.
Avoid over-simplicity
Avoid unnecessary differentiation
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USED BY
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Customs authorities
Statisticians
Carriers
Producers
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EVOLUTION
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Brussels Tariff Nomenclature 1949
Customs Co-operation Council
Nomenclature 1974
Harmonized System of Nomenclature
1988
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Harmonised System
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Harmonized System of Nomenclature
Used as basis for National Customs
Tariff – CTA 1975
Used as basis for Levying excise duty
in India – CETA 1985 – 28-2-1986
VAT – 2005 many states
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General structure
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Multi-purpose nomenclature
Headings grouped in Chapters
Chapters grouped under Sections
Arranged in 21 Sections
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STRUCTURE contd…
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General Rules for the interpretation
of the System
Section Notes, Chapter Notes, Subheading Notes.
Headings arranged in a systematic
order
Headings, where appropriate subdivided into sub-headings
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Structure contd…
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Headings and sub-headings, which,
together with the
Section Notes, Chapter Notes and
sub-heading notes and
Interpretative Rules ,
Provide for a systematic and unfiorm
classification of goods.
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SECTION AND CHAPTER NOTES
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Certain Sections and Chapters have
Notes.
These notes form an integral part of
the Tariff and have the same legal
force as the Interpretative Rules.
Some of these notes are grouped
under the title “Sub-heading notes”.
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FUNCTION OF SECTION AND
CHAPTER NOTES
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The function of the notes is to define
the precise scope and limits of each
sub-heading, Heading (group of
headings), Chapter or Section.
General definition delimiting the
scope of
-a sub-heading or
-heading or
-the meaning of particular term:
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INTERPRETATIVE RULES
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There are six Rules for interpretation of
the Tariff..
Rule 1 takes precedence over all the
following Rules.
Rule 1 – classification to be determined by
the terms of the Heading
and of the Section or Chapter Notes.
Only where the terms of the headings or
Section/Chapter Notes do not otherwise
require, other Rules come into play.
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Interpretative Rule 2(a)
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Extends the scope of the heading
To cover not only the Complete
article but also articles
incomplete and unfinished
-Provided – as presented –
it has the essential character of
the complete or finished article.
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Interpretative Rule 2(a)
contd…
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Extends the scope of the heading
to cover also the Complete or
finished article Presented in
unassembled Or disassembled
form in the same heading as
assembled articles.
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Second part of Rule 2(a)
In this case also incomplete
and unfinished
-Provided – as presented – it has
the essential character of the
complete or finished article.
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Interpretative Rule 2(b)
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Goods consisting of more than
one material or substance, must
be classified according to the
principles of Rule 3.
Question :
application of Rule 2(b) to
Imported through different Ports
Cleared from different factories
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Interpretative Rule 3(a)
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Goods should be classified in the heading
giving the most specific description.
If two or more headings, each refer
To only one of the materials or substances
contained in mixed or composite goods, or
to only some of the articles included in a set
put up for retail sale,
those headings are to be regarded as
equally specific in relation to those goods.
This is so even if one of them gives a more
complete description than the other.
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SPECIFIC vs GENERAL
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Description by name is more
specific than description by class
Description which more clearly
identifies them – where
identification is less complete.
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Interpretative Rule 3(b)
To apply only if Rule 3(a) fails for --Mixtures
-composite goods consisting of
different materials,
-composite goods consisting of
different components;
-goods put up in sets for retail sales
-To be classified in the heading
appropriate to the material or
component which gives them their
essential character
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Test of essential character??
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Vary between different kind of
goods.
Nature of the material
Nature of the component
Bulk Quantity Weight or Value
Role of a constituent material in
relation to use of the goods.
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Interpretative Rule 3(c)
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Applicable for goods not
classifiable in terms of Rule 3(a)
or 3(b).
Goods should be classified in the
heading which occurs last in
numerical order amongst those
which equally merit
consideration.
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Interpretative Rule 4
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Goods which are not specifically
covered by any heading (e.g.
because they have newly
appeared on the world market)
Shall be classified in the heading
appropriate to the goods to
which they are most akin.
21
Interpretative Rule 5(a)
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Governs classification of cases, boxes
and similar containers presented with
the articles for which they are
intended.
Shall be classified with such articles
when of a kind normally sold
therewith.
This rule will not apply to containers
which give the whole the essential
character.
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Interpretative Rule 5(b)
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Governs classification more generally
to packing containers presented with
the goods they hold.
To be classified with the goods, if
they are of a kind normally used for
packing such goods.
This will not apply where they are
suitable for repetitive use.
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Interpretative Rule 6
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Sub-headings of a Heading
According to the terms of the subheadings.
Related sub-heading notes.
In terms of the above Rules.
Sub-headings at the same level are
comparable.
Within a single heading, the choice of a
• single dash sub-heading may be made
• Only on the basis of the texts of
• the competing single dash sub-headings.
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Harmonized system
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Uses 6 digit nomenclature
Each Heading is identified by four
digit code.
First two digits indicate the Chapter.
Later two digits indicate the position
of the heading in the Chapter
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HSN vs CTA - CETA
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HSN uses 6 digits
CETA uses 8 digits
8 digits referred to as Tariff item
Rate of duty is indicated against
tariff item
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Division of Headings
Heading further sub-divided into
-One or more Single dash– sub-heading of
the Heading
-One or more Double dash-- sub-heading of
the single dash sub-heading
-One or more Triple dash---sub-heading of
the double dash sub-heading
-One or more Four dash----sub-heading of
the triple dash sub-heading
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Rate of duty
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Customs Act
• Section 12
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Customs Tariff Act
• Section 2
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Central Excise Act
• Section 3
• Section 2(d)
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Rate of duty
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Eight digit description is referred to as
“Tariff item”
Rate of duty is indicated against the “Tariff
item”
If the rate of duty is left “blank”, then
there is no levy.
If “nil” is indicated in the rate of duty
column, it denotes that the levy is
attracted but the rate chargeable is NIL.
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CLASSIFICATION
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How to approach
State of goods
Principles
Selecting section / chapter
Question to be asked
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APPROACH TO
CLASSIFICATION
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Clearly understand the product
Description of the product
Qualities/properties of the product
Functions of the product
Field of Industry in which used
Source of energy–mechanical /thermal/
hydel/electrical
Chemical formula
Stage of the product – raw-rough / semi
finished / finished
Worked / not worked etc.
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Process by which it is obtained/
Method of manufacture
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Distillation
Solvent extraction
Purification
Concentration
Welding
Extrusion
Moulding
Pressing
Forging/casting
Mining
Chemical synthesis
Formulation
Mixing
Re-packing from bulk
By product of
Residue of
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Selecting Section / Chapter
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Sections are arranged
progressively
Natural or made therefrom
Derived therefrom
Man made
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Questions to be asked
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Whether the Section throws you out.
If yes, no need to look into any of the chapters
within the said Section.
If the Section does not throw you out,
Whether the Chapter throws you out
If yes, no need to look into any of the Headings
within the said Chapter
Within the chapter see the description of the
Heading which
Accommodates you.
Thereafter find out the sub-heading which covers
you.
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PRINCIPLES OF
CLASSIFICATION
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Statutory definition
Common parlance/trade parlance
Dictionary meaning
Scientific or technical meaning
IS Glossary
Primary function
Advertisement claims
End use
Residuary entry
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Demands and Penalties
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DEMAND UNDER SECTION 11 A
Show cause notice :
Who Can Issue
• Proper officer
• Proper officer means an officer who is
assigned those functions by Central
Board of Excise & Customs (CBEC) or
Commissioner
• Officers of DGCEI also empowered
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Section 11A
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SCN when to be issued :
If excise duty :
has not been levied or
has been short levied or
has been erroneously refunded
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Section 11 A
•
Time limit for issuing SCN :
•
Normal period
relevant
•
Extended Period: Five years from
relevant
date
: One Year from
date
(in cases of collusion, wilful mis-statement or
suppression of facts)
38
Section 11A
Extended period of five years when
there is
a)
Wilful
Suppression/Misstatement
b)
c)
Fraud
Collusion
with intention to evade duty
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Section 11A
Suppression should be wilful
(Tamilnadu Housing Board vs CCE
74 ELT 9)
b) No suppression if all facts disclosed
c)
No suppression if facts which were
not required to be disclosed, are
not disclosed
d)
No suppression if bonafide belief
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Section 11A (2)
Conclusion of proceedings if full duty,
interest and 25% of duty as
penalty amount, is paid
If
part amount of duty is paid,
proceedings to continue for balance
amounts
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Section 11A (2B)
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Circumstances in which SCN need
not be issued
If duty is paid with interest before
SCN and the officer is duly informed
This applies only in cases of normal
period of limitation
If extended period invoked, issuance
of SCN cannot be stopped
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Section 11A
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Necessary ingredients of SCN
- Should give all essential particulars and
amount demanded
- Should state nature of contravention
and provisions contravened
- Charges/Allegations to be informed
alongwith grounds
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Cotspun’s Case
1999 (7) SCC 633.
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Supreme Court held :
If excise duty paid on the basis of
classification list approved by the
Department, there cannot be any
short levy and no show cause notice
under Section 11A can be issued
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Amendment to Section 11A
overcame Cotspun’s ratio
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There can be a short levy even if classification
lists were approved and SCN’s could be issued
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retrospective effect was given i.e from 17-111980 when Section 11A of the Central Excise Act
came into effect
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No amendment to Rule 10
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Amendment to Section 11A did not
validate the action taken under Rule 10 of
the erstwhile Central Excise Rules, 1944
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Therefore Cotspun’s ratio still applies to
erstwhile Rule 10
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Cotspun’s case applies to
Customs Act
Since there was an amendment in Section 11 A of
Excise Act only ,
And no such amendment in corresponding Section
28 of Customs Act
Cotspun’s ratio will apply to Customs Act and there
cannot be any short levy if department has
approved, assessed or accepted value or rate of
duty
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Some issues
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Applied for rectification of mistakeNo appeal filed- What is the position?
Appeal is time barred beyond
condonable period – What happens?
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Some issues
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Can commissioner (appeals) condone
delay beyond period of 30 days?
Singh enterprises 2008 (221) ELT
163 (SC)
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Some issues
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Can department file appeal under
section aggrieved person for the
purpose of filing an appeal
Narendra P Unrao 15 ELT 275
(T).
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Some issues
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Power of commissioner (appeals) to
remand matter back to adjudicating
authority
MIL India limited 2007 (210) ELT
188 (SC)
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Section 11 D
Any amount collected by a person
who is liable to pay duty,
from a buyer,
 representing the same as duty of
excise,
shall be deposited with Central Govt
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Time Limit under Section 11D
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No time limit prescribed to issue SCN
under Section 11 D
Does time limit under Section 11A
apply to Section 11D
What can be a reasonable time to
issue SCN under Section 11D
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Amendment to Section 11D
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W.e.f 10/05/2008
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Any person who collects the amount
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And not “every person liable to pay
duty”
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Penalties under Central Excise
Act
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Section 9 Offences and penalties
Section 9 AA offences by companies
Section 9 C presumption of culpable
mental State.
Penalty under section 11 AC
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THANK YOU
E:
M:
b_raichandani@yahoo.com
09820875305
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