By CA. Sudhir V S
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
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
Act
Case Laws
Rules
Indirect
Tax Laws
Trade Notices
Circulars
No Law above the
Constitution of India
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
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 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.
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..
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.
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
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
What is Removal?
 Removal
means
the
shifting/moving the goods
physical
act
of
 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.
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
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.
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
Valuation
A. Duty Based on capacity
B. Advalorem
1. Sec 3- Tariff Value Fixed
2. Notified under RSP
3. Set out in Third Schedule
4. Transaction Value
5. Exception to TV – Goods sold; delivery at time &
place of removal; unrelated ; price only
consideration.
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
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
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
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
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.
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
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
sudhir@hiregange.com