Presented By
CA Swatantra Singh,
B.Com , FCA, MBA
Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
1
Basic of Central Excise
MANUFACTURE AND EXCISIBILITY
 Section 3 of Central Excise Act, 1944.
 Basis of Levy.
 What is Manufacture?.
 CE Law gives only a truncated definition for
manufacture – Includes Deemed Manufacture.
 Widest definition is available in Foreign Trade Policy
– but that is not applicable to CE Law.
…contd
The statutory definition of manufacture in
central excise act

“Manufacture” includes any process—
(i) Incidental or ancillary to he completion of a
manufactured product;
(ii) Which is specified in relation to any goods
in the section or chapter notes of the First
Schedule to the central excise tariff as
amounting to manufacture
Continued……..
 (iii) Which in relation to the goods specified
in the Third Schedule involves packing or
repacking of such goods in a unit container or
labeling or re-labeling of containers including
the declaration or alteration of retail sale price
on it or adoption of any other treatment on
the goods to render the product marketable to
the consumer
Continued……
 And the word “manufacturer” shall be construed
accordingly and shall include not only a person
who employs hired labor in the production or
manufacture of excisable goods, but also any
person who engages in their production or
manufacture on his own account.
…contd
 Leading cases – Decisions of Supreme
Court.
- ‘Formation of a new Article’
Vide Hawkins Cookers Ltd Vs Collector [- 1997 (96)
ELT 507 SC.
- ‘A new distinct and commercial commodity.’
Vide TISCO V.O.I[2004(164) ELT 372 SC.
The accepted wisdom about manufacture in
central excise
 Manufacture implies a change; but not every change is
a manufacture. A new product should emerge from the
raw material stage with a new name, new use and
marketability.
2) Ingredients of excisablity
 Fact of Manufacture.
 Entry availability in CE Tariff.
 Marketability.
Manufacture in central excise
 Two concepts
 Actual substantive manufacture & Deemed
manufacture
 Actual substantive manufacture – does it include mere
processing?
 Deemed manufacture
What is deemed manufacture?
 Process or activity specified in section or chapter notes
– for example:
 Labeling or re labeling of containers
 Repacking from bulk packs to retail packs
 Adoption of any other treatment to render the product
marketable to the consumer
Continued….
 Addition of chemicals and other ingredients to
certain products of tariff heading 3808
 In relation to products of heading no 3920 & 3921 –
process of metallization or lamination or
lacquering
 In relation to some products of heading 7013 – the
process of printing , decorating or ornamenting
Continued….
 In relation to flat-rolled iron & steel products under
chapter 72 – the process of hardening or tempering
 In relation to articles of iron and steel under chapter
73 – the process of galvanization
Continued….
 In relation to motor vehicles under chapter no 87 –
building a body or fabrication or mounting or fitting of
structures or equipment on the chassis falling under
8706
3) Select Decided cases in Manufacture
Affixing Information stickers on goods imported does
not amount to Manufacture.
-CCE Vs Proctor & Gamble Home Products 2004 [167] ELT
173 – [TRI – D].
Erection of imported Power Plant does not amount to
manufacture.
-Spectrum Power Generating Co. Ltd VCCE –
2004(177)ELT 968 [Tri-D].
Conversion of old, diesel operated Buses into CNG
Buses does not amount to Manufacture.
…contd
…contd
-Nugas Technologies India (P) Ltd. VCCE [-171 ELT 376
Tri-D].
Gold Plating of watch cases does not amount to
Manufacture.
-Commissioner Vs Divya cases – 2004[169]ELT225[Tri-D]
 Mixing of chocolate Powder with Sugar and Skimmed
Milk to form drinking chocolate does not amount to
Manufacture – CCE Vs Fountain Consumer Appliances
Ltd – 2004 [171] ELT 329 (Tri – Chennai)
…contd
Branding, polishing and affixing MRP on locks
acquired from artisans does not amount to
Manufacture.
Key locks (I) P Ltd Vs CCE – 2004(165) ELT,74 –(Tri-D).
Printing of date of Manufacture is a Legal
requirement and hence it is a Process of
manufacture.
- Surat Beverages (P) Ltd Vs Commissioner 2004
(165) ELT313 [Tri- Mumbai].
Rubber lining/ Painting/ Cutting/ Welding/of Iron
and Steel pipes and Tanks does not amount to
manufacture.- Tega (I) Ltd Vs CCE – 2004(164)ELT390
[SC]
…contd
Transformation of Catalyst into spent Catalyst does not
amount to Manufacture.
-CCE Vs Deepak Fertilizers & Petro Corp.Ltd.- 2004 (178)ELT
686 [Tri-M].
The Test of Marketability is a Burden of Revenue.
-FGP(I) Ltd Vs U.O.I – 2004(168) ELT 289 [SC]
Testing/ Gardening/ Certification of Helium gas cylinders
before Sale is an activity amounting to manufacture.
- Commissioner Vs Air liquide North (I) P. Ltd - 2004[174]ELT
201 [Tri - Del].
4]Valuation – The Crux of the matter
Tending to become more like an opinion poll.
Section 4 and 4A/ Valuation Rules 2000.
What is Transaction value?.
Requirements for acceptance of Transaction Price
Sale of goods.
For Delivery, at the time and place of removal
Seller and Buyer not related.
Price is the sole consideration for sale.
The legal fiction created by the definition of time of
removal – let us note this
A tour of the valuation rules 2000
 The official name for the rules is this – Central
Excise Valuation ( Determination of price of
excisable goods) Rules, 2000
 These rules apply when any of the ingredients of
transaction value is missing
 The rules are used for ascertaining the “normal
transaction value” at which the greatest aggregate
quantity of goods are sold
The valuation rules….
 They are 11 rules in all
 Rule 1 – name & entry into force from 1-7-2000
 Rule 2 – definitions
 Rule 3 – exhortation to decide the value (when the
transaction value is unavailable or unacceptable)
The valuation rules….
 Rule 4 – ascertainable equivalent price of such goods –
nearest in time to the time of removal of goods from
the factory – margin adjustment on account of
differences in dates of delivery allowed
 Rule 5 – cases when the delivery of goods is at a place
other than the factory
The valuation rules…..
 Rule 6 – when there is additional consideration to the
sale not reflected in the transaction price charged –
solution: monetize the additional consideration and
add it up to the tax value
 Rule 7 – Depot / branch sales – solution: adopt the
nearest prevailing depot price
Valuation rules….
 Rule 8 – captive /self consumption/use – solution: tax
value is 110% of the cost of production of the goods (as
per CAS 4)
 Rule 9 – sales to related persons – solution: resale price
of related person / 110% of the cost where the related
person does not resell but consumes or uses for self
Valuation rules….
 Rule 10 – sales to inter-connected undertakings
/holding company /subsidiary company – solution:: do
as per rule 9 above.
 Rule 10A – job work on behalf of a principal
manufacturer – solution: resale price of the principal
manufacturer
 Rule 11 – residual method
5) Exclusions From Value
-By Statute
Excise Duty.
Sales Tax.
Other taxes such as Octroi, entry tax.
-By Court / Tribunal Decisions
Trade Discount.
Cash Discount/ Prompt Payment discount.
Turn over discount.
Quantity discount.
Year – end/ Bonus discount.
… contd
…contd
Freight and Freight insurance, including equalised Freight.
Bought – out items [not integral/ critical to Product].
Carry bags for Laptops.
Syringe bought out and supplied with P & P medicines.
Computer Software ( discuss with NCR case)
Third party Inspection charges at the instance of and borne
by the buyer.
Excess of Freight collected over actual expenditure on freight.
Interest on receivables
…contd
Erection, Commissioning charges if products emerge as
…contd
immovable property.
Free items supplied with products.
Advertising charges borne by the client – buyer on his own
account.
Additional warranty charges.
Notional interest on Advances/ deposits from buyers not
influencing the price.
Straw supplied with Juice.
Rental paid on durable and returnable container
Liquidated damages received for non- lifting of molasses
6) Inclusions into Value
-By Statute
Advertising.
Publicity.
Marketing/ Sales Promotion.
Storage/ Outward handling.
Servicing.
Warranty.
Commission.
-By Tribunal/ Court Decisions
Dharmada.
Design/ Development/ Engineering.
…contd
…contd
Royalty.
Amortised Cost of tools/ dies/
moulds received from buyers.
Interest on inventory.
Value of waste retained by Jobworker.
Packing.
Cost of material supplied by
Customer.
7) Valuation When goods are assembled at site
Is it a Composite/ turnkey/ works
contract?
Excise duty is not leviable on
immovable property but on Parts /
Components/ goods already
manufactured.
Case Studies – Lifts/ Boiler Plants/
Industrial Furnaces.
8) Valuation in Jobwork
When does Jobwork amount to Manufacture?.
Labor/ Jobwork charges + Raw material costs are includible
in assessable value.
Ujjagar Prints etc Vs U.O.I.
Empire Industries Vs U.O.I.
Pawan Biscuits Co. Vs CCE.
Is buyer’s profit margin includible in Assessable Value in the
hands of Jobworker?.
Food Specialities Ltd Vs U.O.I.
Continued…….
 The impact of new valuation rule 10A
 The Central Board of Excise & Customs circular no
902/22/2009 dated 20-10-09 in the case of vehicle body
builders
 Job work exemption under notification no 214/86
9) MRP based Valuation
Section 4A/ weights & Measurements Act.
MRP minus prescribed abatement is the assessable
value.
Region – wise MRP accepted
If different MRPs are printed, the maximum MRP will
be taken as the basis.
Sale of phones with MRP fixed, to customer, by phone
companies U/S 4A only.
Multi – Piece Packages.
10) Refunds & Rebates
Section 11B/ Rule 18/ cenvat Rule 5/ Section 11BB.
One year time limit / Provision for Interest.
Theory of unjust enrichment.
Refund claim thro’ credit notes – what happens?
Mafatlal Industries Vs U.O.I.
 L&T Sargent Lundy Ltd Vs CCE
11)SSI Exemption
Notification no: 8/ 2003 as amended.
Basic ceiling Rs.1.5 Cr.
Outer ceiling Rs. 4 Cr.
Only listed goods benefit.
Use of Trademark/ symbol/ brand of
another person disentitles.
…contd
Perennial issues – Clubbing of
Clearances and use of Brand name.
Use of Foreign – owned Trade mark/
Brand name by Indian SSI Units.
Clearances Excluded / included for
Computing Rs.1.5 Cr and Rs 4 Cr. Value
Caps.
Valuation of Depot Sales
(Stock Transfer)
Where the excisable goods are transferred to :a depot/premises of consignment agent/branch/any other
place ,
from where those excisable goods are to be sold, in that case,
the “Assessable Value “ shall be
• The price at which maximum no. of goods are sold,
• At the branch,
• At the time of removal from factory.
Example of Stock Transfer
Factory
Sent to Branch on
01/01/07
Ex-factory Price = Rs. 500
Branch
Received
on
10/01/07
Price on 10/01/07 = Rs. 800
Sale on 15/01/07
Price on 15/01/07
= Rs.900
Ex-Depot Price = Rs. 700
A.V. shall be Rs. 700 on which E.D. will be charged.
Valuation of Captive Consumption
 A.V shall be :-
(Cost of Production)*110%
even if the same or
identical or,
comparable goods
are manufactured & sold by the same assesee.
Manner of Payment
Last Day :- 5th day of the following month
(Exception :- in case of goods removed
during the march :- 31st March)
Explanation :- The “date of presentation”
of the cheque shall be the
date on which duty is paid,
subject to “realization” of that
cheque
Excise Invoice
 The Invoice shall be serially numbered & shall contain:-
(a). Registration Number
(b). Description of goods
(C). Classification
(d). Time & Date of Removal
(e). Mode of Transport & Vehicle Registration No.
(f). Rate of duty
(g). Qty. & Value of goods
(h). Amt. of duty
(i). Address of concerned Central excise Division.
 It shall be prepared in Triplicate (Buyer/Transporter/Assesee).
 Before using Invoice book, the serial no. should be intimated to Superintendent.
Return & AFIR
 Return submission :- (a). Monthly
(b).Form ER-1
within 10 days from
the close of month.
 Annual Financial Information Statement (AFIR) :-
* Annually
* Form ER-4
* 30th November of succeeding year
* filing only if duty of Rs. 1 crore or mor has been paid
through “PLA”
Records Required To Be Maintained
 RG-23A- Part I (Stock Account of Input
Goods)
 RG-23A- Part II (Credit on Input Goods)
 RG-23C- Part II (Credit on Capital Goods)
 RG-1 (Daily Stock Account)
 PLA
(Personal Ledger Account)
RG-23A (Part I) Register
 The Receipt,
 Disposal,
 Consumption,
 Inventory of Inputs & Capital Goods.
RG-23A (Part II) Register




The Assessable Value,
Duty Paid,
Cenvat Credit taken or utilized,
Persons from whom Input/Capital Goods are procured.
Conditions for allowing Cenvat Credit on “Input” Goods : 100% credit immediately on receipt of Input goods
 Credit shall be taken on Process Losses
but not on Storage & Transit Losses
 Input does not includes LDO, HSD, Petrol.
RG-23C (Part II) Register




The Assessable Value,
Duty Paid,
Cenvat Credit taken or utilized,
Persons from whom Input/Capital Goods are procured.
Conditions for claiming Cenvat Credit on Capital Goods : 50% in the year of receipt.
 Remaining 50% in subsequent year (if in possession)
but possession not necessary for components, spares& accessories, refractory &
refractory material, moulds & dies.
 Exception :- 100% allowed if capital goods cleared in the year of
receipt itself.
 Credit on non-specified machine is not allowed.
Daily Stock Account
 Maintain Proper Records on a daily basis regarding :-
(a). Description of goods manufactured
(b). Opening Balance
©. Goods manufactured
(d). Goods removed
(e). Inventory
(f). A.V of goods
(g). Duty payable
(h). Actual duty paid
 The first & last page of account shall be duly authenticated.
 Preserve Records for 5 years after the end of F.Y. to which records
pertains.
Personal Ledger Account
 The “Credit” in taken when duty is deposited through
TR-6 Challans.
 The “Debit” is passed when duty is required to be
paid.
 2 copies of PLA & TR-6
---- To be filed with ER-1.
Job Work
 If Input/Capital goods not received back within 180
days, then Cenvat Credit taken on those goods has to
be reversed.
 Exception :- Jigs, Fixtures, Moulds.
Returns Raj in central excise
 ER 1 – monthly – due by the 10th of the following
month
 ER 2 – monthly, for EOU – due by the 10th of the
following month
 ER 3 – quarterly for SSI units – due by the10th of the
following quarter
Continued….
 ER 4 – Annual financial statement for units paying
INR I crore in excise – due by the 30th of April of the
following year
 ER 5 – CENVAT – Annual Return of information
relating to principal inputs – due by 30th April of the
following year – some class of manufacturers given
exemption
Continued……
 ER 6 – monthly return of principal cenvat inputs due
by the 10th of the following month – some class of
manufacturers given exemption
 ER 7 – Annual Installed capacity statement – due by
the 30th April of the following year
Important procedures in central excise
 Issue of invoice under Rule 11 of central excise rules
2002
 Provisional assessment under Rule 7 & finalization
 Time and manner of payment of duty under Rule 8
 Remission of duty under Rule 21 for
damaged/defective/unfit/unmarketable goods
Important procedures in central excise
 Credit of duty paid on sales returns under Rule 16
 Rule 16-A – removal of any inputs as such or partially
worked outside the factory for testing, repair etc
 Rule 16-B – removal of semi-finished products for
further work / finishing and return
Important procedures in central excise
 Rule -16C – removal of finished goods outside for test
etc & return
 Export without payment of duty as well under claim
for rebate of duty – LUT (UT1), Bond, ARE
 Removal of excisable goods without duty for export
warehousing under Rule 20
Penal provisions in central excise – simply
draconian & colonial
 Prosecution for select offenses under section 9 of the
Act
 Demand of duty under section 11A with normal time
limit of one year and 5 years for cases where
suppression of facts by the assesses is alleged
 Time limit for adjudication of SCN
Penal provisions in central excise
 Interest for delayed payment under section 11AB
 Penalty equal to duty under section 11AC in cases
involving suppression of facts.
 Penalty under Rule 25 – maximum upto duty or Rs
2000/-whichever is greater, with confiscation of the
goods
Penal provisions in central excise
 Rule 26 – penalty for abettors , transporters, issuers of
false invoices – max upto duty or Rs 2000/- whichever
is greater
 Rule 27 – general penalty where no penalty is specified
for any offense in the rules, max of Rs 5,000/- with
possible confiscation of the goods
Penal provisions in central excise
 Tax default – penalty under rule 8 – daily clearance on
payment of duty in cash, plus prohibition of using
cenvat credit, till dues are paid up.
 Rule 12CC – blanket powers given to the department to
impose restrictions on Manufacturers and Dealers
involved in tax evasion
Penal provisions in central excise
 Section 11DDA – power to order provisional
attachment of property to protect “Revenue” during he
pendency of proceedings
 Section 14 – power to issue summons
 Section 13 – power to arrest
CENVAT CREDIT
 The foundation of the value-added tax system
 Avoids cascading effect of tax on tax on tax
 Integrates goods and services
 Cenvat credit Rules 2004 – apply to Manufacturers &
Service providers
Cenvat credit rules – what is the gain?
 Input stage duty relief in the form of tax credit to –
 Capital goods
 Inputs
 Input services
Cenvat credit – Capital goods
 All goods falling under the following chapters –
 Chapter 82 – tools etc
 Chapter 83 – miscellaneous articles of base metals
 Chapter 84 – machinery, equipment etc
Capital goods…..
 Chapter 85 – electrical / Electronic machinery &
equipment etc
 Chapter 90 – optical, photographic, medical ,
checking, measuring equipment etc
 Abrasives under heading no 6805
 Grinding wheels & the like under heading 6904
Capital goods……
 Pollution control equipment
 Components, spares & accessories of the goods for the
above two categories
 Moulds, dies , jigs and fixtures
 Refractories, and Refractory materials
 Tubes, pipes and fittings thereof
 Storage tank
Capital goods…
 Used in the factory of the manufacturer of final
products, but does not include any equipment or
appliance used in the office
 Or, used for providing output service
 Motor vehicles registered in the name of the following
service providers are allowed – courier agency, GTA,
Rent a cab operator , tour operator, outdoor caterer
Capital goods….
 Ownership of capital goods is not required for a
manufacturer or service provider except for the motor
vehicle credit
 Credit to be taken for 50% of the duty in the first year
and the rest in any subsequent year
 Depreciation under Income tax prohibited
Capital goods…..
 The 50% restriction does not apply to special CVD
of 4% paid on imported capital goods
 Removal of capital goods requires reversal of credit
– 2.5% depreciation on credit for every quarter of
use
 Removal on scrapping of capital goods requires
payment of duty on transaction value
Capital goods….
 Provision for removal of capital goods for test, repair
etc
 Moulds, dies , jigs and fixtures can be deployed at the
premises of the job worker
 Capital goods can be produced and used in the factory
of production for manufacture of excisable goods –
duty exempt
Capital goods….
 Capital goods on which credit is taken should not be
solely used in the manufacture of exempted goods
 Capital goods which are not defined in the CCR but
used in the factory of production will qualify for credit
as “Inputs”. – Benco Products Vs CCE – CESTAT larger
bench decision
INPUTS
 Wide definition in the CCR
 “Inputs” means all goods except light diesel oil,
high speed diesel and petrol
 Used in or in relation to the manufacture of final
products
 Whether directly or indirectly
 Whether contained in the final product or not
Inputs….
 Inputs include -- Lubricating oils
 Greases
 Cutting oils
 Coolants
 Accessories of the final products
Inputs…
 Goods used as…
 Paint or packaging material or as fuel or for generation
of electricity or steam
 Used in or in relation to the manufacture of final
products or for any other purpose
 Within the factory of production
Inputs……
 For service providers:
 All goods except light diesel oil, high speed diesel ,
petrol and motor vehicles
 And used for providing output service
 Inputs will not include cement, angles and
channels, CTD / TMT bars & other items used for
construction in the factory / building or in laying
of foundation or structural support of capital
goods
Input services





For manufacturers:
Any service used by a manufacturer
Whether directly or indirectly
In or in relation to the manufacture of final products
And clearance of final products upto the place of
removal
Input services…..
 For service providers:
 Any input service used by a provider of output service
for providing an output service
Input services allowed to both
manufacturers to service providers






Services used in relation to –
Setting up
Modernization
Renovation
Repairs
Of a factory or the premises of the service provider
Common services….






Or an office relating to such factory or the premises
Advertisement
Sales promotion
Market research
Storage upto the place of removal
Procurement of inputs
Common services….
 Activities relating to Business “such as” –
 Accounting
 Auditing
 Financing
 Recruitment and quality control
 Coaching and training
Common services….
 Computer networking
 Credit rating
 Share Registry
 Security
 Inward transportation of inputs & capital goods
 Outward transportation upto the place of removal
Important features of cenvat credit
 Input credit can be availed immediately on receipt of
the goods accompanied by the relevant invoice
 No one-to-one correlation between input and output
 Cenvat credit is a legal and vested right
Important features of cenvat credit
 Input service tax credit should be taken only after
settling the service supplier invoice with value and tax
 Transfer of credit on transfer of business allowed
 Transitional credit
Important features of cenvat credit
 Importance of new rule 6 in CCR 2004
 Options there under
 Maintain separate accounts
 Or pay 5% on the value of exempted goods and six %
on the value of exempted services
Important features of cenvat credit
 Or take credit proportionate to the taxable turnover as
per formula prescribed
 Inputs & capital goods & input services should not be
exclusively utilized in the manufacture / provision of
exempted goods or exempted services
 Clearances to EOU/SEZ/BTP/STP/EHTP & exports will
not require reversal of credit
Important features of cenvat credit
 Storage of inputs outside the factory allowed subject to
applying for the same
 Significance of tax invoice in CENVAT credit system
 First stage dealer/second stage dealer/input service
distributor
Adjudication Proceedings
under Service Tax
Provisions at a Glance
 Section 14 of CEA, 1944 - Power to summon persons to




give evidence and produce documents in inquiries under
this Act
Section 73 of FA, 1994 - Recovery of service tax not levied
or paid or short-levied or short-paid or erroneously
refunded
Section 73A of FA, 1994 - Service Tax Collected from any
person to be deposited with Central Government
Section 73B of FA, 1994 - Interest on amount collected in
excess
Section 73C of FA, 1994 - Provisional attachment to
protect revenue in certain cases
88
..Provisions at a Glance
 Section 73D of FA, 1994 - Publication of
information in respect of persons in certain cases
 Section 74 of FA, 1994 - Rectification of mistake
 Section 75 of FA, 1994 - Interest on delayed
payment of service tax
 Section 83A of FA, 1994 – Power of Adjudication
 Section 87 of FA, 1994 - Recovery of any amount
due to Central Government
89
Power to summon persons to give evidence and
produce documents in inquiries
 Sub section (1) of Section 14 of CEA, 1944
 Any Central Excise Officer duly empowered by the Central
Government in this behalf, shall have power to summon
any person whose attendance he considers necessary
either to give evidence or to produce a document or any
other thing in any inquiry which such officer is making for
any of the purposes of this Act. A summons to produce
documents or other things may be for the production of
certain specified documents or things or for the
production of all documents or things of a certain
description in the possession or under the control of the
persons summoned.
90
Inquiry before Show Cause Notice
 F.No 137/39/2007-CX-4 dated 26-2-2007 and F.No. 137/39/2007-CX-4 dated 21-1-2008
 At
first
instance:
For
calling
for
information/documents normally the mode of
communication should be either in the form of a
telephone call or by way of sending a simple letter.
 Second instance: Issuance of summons should be
resorted to, only when the above mentioned modes of
communications are found to be ineffective or are
likely to jeopardize revenue interest or when it is
essential to ensure personal presence of the person
concerned to tender evidence or record statement in
connection with a service tax evasion case;
91
….Inquiry
 Simple Notices are not summons
 Simple notices are not summons but, it should be an
endeavor that no notice should left unattended /
unreplied.
 Even if some notices are wrong, must be replied politely.
 Precautions during inquiry proceedings
 Inquiry before issuance of show cause notice is very
critical stage and therefore, must be handled carefully.
92
…..Inquiry
 Making statement in the course of inquiry
◦ Statement must be given carefully. It is difficult to rebut
the statement later.
◦ Statement can be used against the person making such
statement.
◦ Where statement is to be retracted, it should be
retracted as soon as possible.
 Collected cheques under force during inquiry:
◦ There is power with the department to collect / recover
amount during inquiry.
93
…Forced recovery during
investigation
 In NARESH KUMAR & COMPANY Versus UOI [2010 -
TMI - 77634 – CALCUTTA - HC] has held that, The
authority concerned has no jurisdiction or authority
to collect any amount at the time of raid simply it is
not empowered legally to do so.
 Also see: ABHISHEK FASHIONS PVT. LTD. versus
UOI [2006 -TMI - 701 - HIGH COURT OF GUJARAT]
- In absence of any statutory provision on the basis of
which any such recovery can be made, the action of
the respondent authorities in collecting the cheques
from the petitioner cannot be sustained in law
94
Power of Adjudication – S. 83A
Not. 30/2005 dt. 10/8/2005 and 48/2010 dt. 8/9/2010
 Superintendent of Central Excise
◦ Not exceeding Rs. one lakh (excluding the cases
relating to taxability of services or valuation of
services and cases involving extended period of
limitation.)
 Assistant Commissioner of Central Excise or Deputy
Commissioner of Central Excise
◦ Not exceeding Rs. five lakhs (except cases where
Superintendents are empowered to adjudicate.)
95
…Power of Adjudication – S. 83A
 Joint Commissioner of Central Excise
 Above Rs. five lakhs but not exceeding Rs. fifty lakhs
 Additional Commissioner of Central Excise
 Above Rs. twenty lakhs but not exceeding Rs. fifty lakhs
 Commissioner of Central Excise
 Without limit
96
Show Cause Notice – Section 73
Normal Period of Limitation
 (1) Where any service tax has not been levied or paid
or has been short-levied or short-paid or erroneously
refunded, the 2[Central Excise Officer] may, within
one year from the relevant date, serve notice on the
person chargeable with the service tax which has not
been levied or paid or which has been short-levied or
short-paid or the person to whom such tax refund has
erroneously been made, requiring him to show cause
why he should not pay the amount specified in the
notice:
97
….SCN - Section 73
Extended Period of Limitation
 PROVIDED that where any service tax has not been levied or
paid or has been short-levied or short-paid or erroneously
refunded by reason of—
(a) fraud; or
(b) collusion; or
(c) wilful misstatement; or (d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of
the rules made thereunder with intent to evade payment of
service tax,
by the person chargeable with the service tax or his agent, the
provisions of this sub-section shall have effect, as if, for the
words "one year", the words "five years" had been substituted.
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SCN – Period of limitation
 Explanation: Where the service of the notice is
stayed by an order of a court, the period of such
stay shall be excluded in computing the aforesaid
period of one year or five years, as the case may be.
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SCN – Relevant Date
 (6) For the purposes of this section, "relevant date" means,—
(i) in the case of taxable service in respect of which service tax has not
been levied or paid or has been short-levied or short-paid—
 (a) where under the rules made under this Chapter, a periodical
return, showing particulars of service tax paid during the period to
which the said return relates, is to be filed by an assessee, the date on
which such return is so filed;
 (b) where no periodical return as aforesaid is filed, the last date on
which such return is to be filed under the said rules;
 (c) in any other case, the date on which the service tax is to be paid
under this Chapter or the rules made thereunder;
(ii) in a case where the service tax is provisionally assessed under this
Chapter or the rules made thereunder, the date of adjustment of the
service tax after the final assessment thereof;
(iii) in a case where any sum, relating to service tax, has erroneously been
refunded, the date of such refund.
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Contents of SCN
 SCN should not be vague or ambiguous
 SCN must be specific
 RUD should be supplied with SCN
 Corrigendum to SCN may be issued but no new
ground be raised
 No corrigendum after submission of reply to SCN
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Serving of SCN – Section 37C of
CEA, 1944
(1) Any decision or order passed or any summons or notices
issued under this Act or the rules made thereunder, shall
be served,—
 (a) by tendering the decision, order, summons or notice,
or sending it by registered post with acknowledgement
due, to the person for whom it is intended or his
authorised agent, if any;
 (b) if the decision, order, summons or notice cannot be
served in the manner provided in clause (a), by affixing a
copy thereof to some conspicuous part of the factory or
warehouse or other place of business or usual place of
residence of the person for whom such decision, order,
summons or notice, as the case may be, is intended;
………….
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…Serving of SCN – Section 37C of
CEA, 1944
 (c) if the decision, order, summons or notice cannot be
served in the manner provided in clauses (a) and (b), by
affixing a copy thereof on the notice board of the officer or
authority who or which passed such decision or order or
issued such summons or notice.
(2) Every decision or order passed or any summons or notice
issued under this Act or the rules made thereunder, shall
be deemed to have been served on the date on which the
decision, order, summons or notice is tendered or
delivered by post or a copy thereof is affixed in the manner
provided in sub-section (1).
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Serving of SCN
 Mere issue of SCN is not sufficient, it has to be served




on the person
Refusal to accept notice is due service of notice
In case of partnership firm, SCN can be issued to any
partner
In case of company, SCN can be issued to any of
director, secretary or principal officer
Notice to agent is valid.
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Reply to SCN
 Submission of Reply to SCN with 30 days or extended




period as sought.
Assessee can take inconsistent and contrary stands
Assessee can raise dispute to demand on different
grounds
If the statement of a third person relied upon by the
department, assessee can demand cross-examination
of such person and have statement by such person.
Personal hearing may be opted. In case the officer is
changed, new officer should give personal hearing.
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Challenge to invoking of extended
period of limitation
 Where extended period of limitation has been invoke,
carefully examine the SCN to see:
◦ Whether, allegation for invoking extended period is specific
◦
◦
◦
◦
or general.
Which of the allegation has been invoked.
Calculate period before knowledge of facts to the department
and after knowledge of facts to the department.
What evidences have been adduced by the department to
prove its allegation.
Whether department has discharged its initial burden to
prove the allegation.
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Challenge to invoking of extended
period of limitation
 Mere non declaration is not sufficient but a positive
mis declaration is necessary


See: circular no. 5/92 dated 13/10/192 CE
PADMINI PRODUCTS Versus CCE [2008 -TMI – 42519 –
SC = mere failure or negligence on the part of the producer
or manufacturer either not to take out a licence in case
where there was scope for doubt as to whether licence was
required to be taken out or where there was scope for
doubt whether goods were dutiable or not, would not
attract Section 11-A of the Act.
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…. Challenge to extended period of
limitation
 Suppression, miss declaration must be willful
 Intention to evade duty is not mere failure to pay duty. It





must be something more.
Mere inaction is not suppression
Mere ommission to give correct information is not
supression it is willfull
No suppression if assessee was ignorant about legal
provisions
No suppression if assessee had a bonafide belief.
If there is a confusion prevailing in field, no suppression
108
…. Challenge to extended period of
limitation
 If there is a clarificatory circular, it is a ground of banafide






belief.
Contradictory judgments on of the tribuanl or courts are
valid ground of no suppression.
No suppression if department is aware of facts
No suppression if SCN were issued on the same subject
If demand is based on return, no suppression
No suppression in case of PSU / govt. undertakings
No suppression if figures were disclosed in published
balance sheets.
109
…. Challenge to extended period of
limitation
 Revenue neutral position
 Where assessee is able to take the cenvat credit of tax
paid, suppression can not be held
 But, mere availability of cenvat credit is no conclusive
that there was no suppression of facts.
Suppression of facts is a question of facts and must be
challenged accordingly.
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Others aspects of SCN and demand
 Demand based on third party’s records without
considering other parameters are not sustainable.
 Demand based on mere presumption is not
sustainable.
 In case of normal period of limitation, if service tax
with interest is deposited before issuance of SCN, no
notice would be served and penalty be imposed.
 In case of extended period of limitation, where service
tax with interest and 25% penalty is deposited, no
notice would be issued and penalty be imposed.
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Forced Recovery ST from third
person – Section 87(b)
 Section 87(b) empowered the central excise officers to
recover the amount from the third person.
 O.N.G.C. LTD. Versus DC. OF CCE [2010 -TMI - 77636
- ANDHRA PRADESH HIGH COURT] – recovery can
not made from the third parties merely by issuing
notice in the absence of assessment order.
.
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Swami Vivekananda said…..
 The lamp is constantly burning out, and that is its life.
If you want to have life, you have to die every moment
for it. Life and death are only different expressions of
the same thing looked at from different standpoints;
they are the falling and the rising of the same wave,
and the two form one whole. One looks at the "fall"
side and becomes a pessimist another looks at the
"rise" side and becomes an optimist.
(KARMA-YOGA – Chapter VIII)
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EXCISE AUDIT
TYPES OF AUDIT IN
CENTRAL EXCISE DEPT
INTERNAL AUDIT
SPECIAL AUDIT U/S
14A &14AA
STATUTORY AUDIT BY
C&AG
PROCEDURES IN EXCISE AUDIT
 ANNUAL & MONTHLY PROGRAMME
 SELECTION OF ASSESSEE
 PRELIMINARY DESK REVIEW
 TOUR OF THE PLANT
 INTERVIEW OF KEY PERSONNEL
 EVALUATION OF INTERNAL CONTL
 PREPARATION OF AUDIT PLAN
 CONDUCT OF AUDIT
 PREPARATION OF AUDIT REPORT
REQUIREMENT ON THE PART OF CA
 WELL VERSED WITH THE ACCOUNTING
SYSTEM ADOPTED BY VARIOUS UNITS
 SHOULD NOT BE A COST AUDITOR FOR THE
SAME UNIT
 CAS-4 CERTIFICATIONS NOT ISSUED FOR THE
SAME UNIT
 SOUND WORKING KNOWLEDGE OF CENTRAL
EXCISE LAWS ESPECIALLY EXCISE AUDIT,
CENVAT & VALUATION
WHAT IS EXPECTED OF COST ACCTS
 TO SCRUTINISE ER-5 & ER-6 RETURNS
 TO VALIDATE, INTERPRET & ANALISE DATA AS
PER THESE RETURNS
 TO IDENTIFY VALUATION ISSUES IN CASE OF
RELATED UNITS
 TO VALIDATE & INTERPRET CAS-4
CERTIFICATE
SCOPE OF THE WORK
 SUCH ASSIGNMENTS ARE SELECTIVE IN NATURE
 SERVICES OF CA ARE ONLY ADVISORY IN NATURE
 ONLY FOR DESK REVIEW
 REPORT OF CWA FORM PART OF WORKING
PAPERS OF DEPT.
LIMITATIONS OF WORK
 CWA NOT ALLOWED TO VISIT UNITS
 CONFLICT OF INTEREST
 PART OF AUDIT TEAM & NOT INDEPENDENT
COMPLETELY
 ONLY EMPANELLED CWA ARE CONSIDERED
 ONE/TWO DAYS ONLY
DOCUMENTS TO BE SCRUTINISED
 MONTHLY RETURNS
 ER-5 & ER-6 RETURNS
 ANNUAL REPORT W.R.T. QUANTITATIVE DETAILS
 COST AUDIT REPORT
 CAS-4 CERTIFICATE
REPORTING




FORMAT TO BE DESIGNED BY INSTITUTE
IT IS IN THE NATURE OF ADVISE NOTE
TO BE SUBMITTED TO SUPT. INCHARGE OF TEAM
TO BE COMPLETED BEFORE AUDIT SCHEDULE
POINTS TO PONDER
 TREND ANALYSIS OF CENVAT/DUTY
 RISK LOSS ANALYSIS
 INPUT/OUTPUT RATIO
 VALUE ADDITION
 RECONCILIATION OF DUTY
 OTHER RATIOS
WHAT TO KNOW FROM P&L
SALE VALUE AND ED PAID
PURCHASE AND CENVAT
LOSS BY FIRE/THEFT
WRITING OFF OF OBSOLETE ITEMS
DISCOUNT RECEIVED/PAID
OTHER INCOMES
DEPRECIATION
WHAT TO KNOW FROM P&L
ROYALTY/TECH KNOW HOW
DESIGN & DEVT. CHARES
INSURANCE CLAIMS
ERRECTION CHARGES – ST ANGLE
EXCISE DUTY PAID
STATISTICAL TECHNIQUES
RISK ASSESSMENT
RIST LOSS ANALYSIS
TREND ANALYSIS
ABC ANALYSIS
INPUT-OUTPUT RATIO
RISK LOSS ANALYSIS
IN RESPECT OF –
EXCISE DUTY PAID OF FINISHED GOODS
CENVAT ON INPUT vs PURCHASES
SALES REVENUE WITH INCOME TAX AND SALES
TAX RETURNS
RLA – ED PAID – STEP 1
NOTE DOWN DUTY PAID AS PER RT12
DEDUCT ED RELATING TO PREVIOUS PERIODS,
EXPORT GOODS, INPUTS CLEARED AS SUCH,
WASTE, MISC HEAD OF PLA, ETC.
NET DUTY PAYABLE ON FINISHED GOODS
RLA- STEP 2
TOTAL SALE VALUE AS PER P&L a/c
DEDUCT SALES TAX (as per sales tax returns)
DEDUCT EXPORT VALUE, SCRAP SALE VALUE,
VALUE OF EXEMPTED GOODS, TRADING GOODS,
ETC.
GET SALE VALUE OF DUTIABLE GOODS
RLA – STEP 3
IF NET SALE VALUE IS INCLUSIVE OF ED,
CALCULATE ED PAYABLE AS
NET SALE VALUE x16
116
IF NET SALE VALUE IS EXCLUDING ED,
ED PAYABLE IS
SALE VALUE x 16/100
RLA – STEP 4
COMPARE THE ED AS PER RT12 (step 1)
With
ED PAYABLE AS PER P&L a/c (step3)
If the difference is very negligible, ignore
Otherwise, we have to ask for reconciliation by the
assessee.
RATIO ANALYSIS
SALES TO RAW MATERIALS
SALES TO OTHER INCOME
SALES TO DISCOUNT
SALES TO SCRAP SALES
SALES TO EXPORTS
SALES TO DEBTORS
SALES TO EXCISE DUTY
CONTENT OF COST AUDIT REPORT
1
REPORT BY COST AUDITOR
2
DETAILS OF ASSESSEE
3
COST ACCOUNTING SYSTEM
4
FINANCIAL POSITION
5
EXPENSES TO BE SPECIFIED
6
RATIOS
7
RAW MATERIALS
8
POWER AND FUEL
9
WAGES AND SALARIES
10
STORES AND SPARES
11
DEPRECIATION
12
OVERHEADS
13
ROYALTY/TECH KNOW-HOW
14
SALES
15
ABNORMAL COSTS
16
OTHER ITEMS
17
AUDITOR’S OBERVATIONS
EXPENSES/INCOMES
TO BE SPECIFIED
j)
Expenses to be specified
Expenditure on spl exhibitions
Expdr.-abonormal or non-recurring
c)
Incomes to be specified
Abnormal or non-recurring incomes

RATIOS & RAW MAT
Cost of production on Cap Employed
Actual production vs Installed capacity
Cost of major RM consumed
Specify Significant transport cost
Analysis of variances
Comment of Inventory accounting
STORES AND SALES
COMMENT ON THE METHOD
OF STORES ACCOUNTING
NON-MOVING ITEMS OVER 2 YRS
PRODUCT-WISE SALES REALISATION
EXPORT REALISATION-PROFIT?
AUDITOR’S OBSERVATION
PRINCIPLE DEVIATIONS
NEGLIGENCE & NON-COMPLIANCE
SCOPE OF INTERNAL AUDIT
AGREEMENTS OF SALE/PURCHASE
SEPARATE ANNEX FOR DIFF
UNITS
Presented By
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
139