Central Excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption. The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers.
The term "excisable goods" means the goods which are specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 , as being subject to a duty of excise and includes salt.
The term "manufacture" includes any process,
- Incidental or ancillary to the completion of a manufactured product; and
- Which is specified in relation to any goods in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; or
- Which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling 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.
As incidence of excise duty arises on production or manufacture of goods, the law does not require the sale of goods from place of manufacture, as a mandatory requirement. Normally, duty is payable on 'removal' of goods. The Central Excise Rules provide that every person who produces or manufactures any 'excisable goods', or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rules or under any other law. No excisable goods, on which any duty is payable, shall be 'removed' without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided. The word 'removal' cannot be necessarily equated with sale.
The removal may be for:-
- Sale
- Transfer to depot etc.
- Captive consumption
- Transfer to another unit
- Free distribution
Thus, it can be seen that duty becomes payable irrespective of whether the removal is for sale or for some other purpose.
Rules for levy of Central Excise
In India, excise duty is levied in accordance with the provisions of Central Excise Act, 1944 . It is the basic Act which lays down the law relating to levy and collection of Central Excise duty. The Act empowers the Central Government to make rules in pursuance of the Act. According, the following set of rules have been framed:-
The Central Excise law is administered by the Central Board of Excise and Customs (CBEC) . Central Board of Excise and Customs is a part of the Department of Revenue under the Ministry of Finance , Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs and Central Excise duties, prevention of smuggling and administration of matters relating to Customs, Central Excise and Narcotics to the extent under CBEC's purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise Commissionerates and the Central Revenues Control Laboratory.
Different kinds of Excise Duties
- Basic Excise Duty : This is the duty leviable under First Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule.
- Special Excise Duty : This is the duty leviable under Second Schedule to the Central Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is leviable on very few items.
- Additional Duties of Excise (Textiles and textile Articles):-his duty is leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles ) Act, 1978 . This is leviable at the rate of fifteen percent of Basic Excise Duty payable on specified textile articles.
- Additional Duties of Excise (Goods of Special Importance) :-duty is leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 on the specified goods mentioned in its First Schedule.
- National Calamity Contingent Duty - Normally known as NCCD. This duty is levied as per section 136 of the Finance Act, 2001, as a surcharge on specified goods.
- Excise Duties and Cesses Leviable Under Miscellaneous Act - On certain specified goods, in addition to the aforesaid duties, prescribed rate of excise duty and cess is also leviable.
- Education Cess on excisable goods is levied in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 or any other law for the time being in force.
Classification of goods and rates of Excise Duty
In order to determine the rate of excise duty on a good, classification is prerequisite. Excise duty payable is based on the classification of goods given in the Central Excise Tariff Act, 1985 (CETA) . The Act gives a list of items chargeable to Central Excise duty. It is divided into 96 Chapters grouped in twenty Sections. Each of these twenty sections relates to broader class of goods such as Section I relates to Animal and Dairy Products, Section VI relates to Products of Chemical and Allied Industries, while Chapter XI relates to Textiles and Textile Articles.
The Central Excise Tariff Act was amended in 2004. Earlier there was six digits classification code for classification of the goods, which has been replaced by 8 digits classification code. With introduction of this 8 digits classification code, a detailed classification of the goods is now available. The classification of items is significant because it is only the proper classification , which leads to determination of rate of duty.
In Central Excise Tariff, against each item a rate of duty has been prescribed. These are normally termed as "tariff rates". In order to determine the rate of duty on a particular product, first find out the chapter heading under which the item is classifiable. Against that classification, the corresponding tariff rate has to be read with the exemption notification, if any. Thus, effective rate of duty on an item is obtained.
Some commodities may be subject to ‘special duty of excise' prescribed under the Central Excise Tariff Act, 1985 . Certain goods may also be subject to duty under some other Acts such as Additional Duty of Excise (Goods of Special Importance) Act, 1957 or certain Cess.
For more details visit our Section on 'Taxation'.
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