1. SOME IMPORTANT ASPECTS

GENERAL - Central Excise Duty is renamed as "Central Value Added Tax" (CENVAT) w.e.f. 12.5.2000.

1. BASIC CONCEPTS

Basic pre-requisites for levy of Central excise duty - In order to acquire basic working knowledge in relation to law on Central Excise, understanding of some of the basic concepts of Central Excise would be very much essential.

In order to attract levy of excise duty: There should be production or manufacture of goods in India. Such excisable goods should be specified in the Schedule to Central Excise Tariff Act, 1985 (CETA). The term “goods” in turn would indicate that they are movable as well as marketable.

2. MANUFACTURE

In order to levy central excise duty, it is necessary that a new article should come into existence as a result of manufacturing activity. Unless there is manufacture, excise duty is not payable. (Hawkins Cookers Ltd. V/s Collector - 1997 ELT 507 S.C.). Section 2(f) of the Central Excise Act,1944 (CEA) defines "manufacture" as: "manufacture" includes any process: (i) incidental or ancillary to the 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 Act, 1985, as amounting to manufacture, or (iii) which in relation to goods specified in Third Schedule, [MRP Goods] involves packing or repacking of such goods in a Unit container or labeling or rebelling 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.

The statutory definition would indicate that "manufacture" under Central Excise has to be construed in Two ways: (A) "general concept" of manufacture: (B) "deemed concept" of manufacture.

• General concept- The general concept of manufacture has been a subject matter of discussions in a number of cases by the Supreme Court. Some of the leading case laws on the subject are UOI vs. Delhi Cloth and General Mills Co. Ltd. 1 ELT J 199 (SC), South Bihar Sugar Mills vs. UOI 2 ELT J 336 (SC), Empire Industries Ltd. Vs. UOI 20 ELT 179 (SC), Food Packers 6 ELT 343 (SC), Sterling Goods vs. State of Karnataka 26 ELT 3 (SC), Siddheshwari Cotton Mills P. Ltd. vs. UIO 39 ELT 498 (SC), Mafatlal Fine Spg. & Mfg. Co. Ltd. vs. CCE 40 ELT 218 (SC), State of Maharashtra Vs. Mahalaxmi Stores 152 ELT 30 S.C. In the Delhi Cloth Mills case the Apex Court observed that: 'an activity or process, in order to amount to manufacture must lead to emergence of a new commercial product, different from the one with which the process was started. In other words, it should be article with different name, character and use.' 'Manufacture' implies a change but every change in raw material is not manufacture. Something more is necessary. There must be such transformation of raw material intoa new and different article emerges having a distinct name character and use. In the case of Mahalaxmi Stores, the Hon. Supreme Court observed that "Every type of variation of goods or finishing of goods would not amount to manufacture unless it results in emergence of new commercial commodity. Repair or reconditioning of an article does not amount to manufacture because no new goods come into existence.

• Deemed concept of manufacture- Section 2(f) (ii) and (iii) of CEA, provides for concept of deemed manufacture. If an activity, in relation to specified goods, is specified as amounting to manufacturing activity in the relevant Chapter Notes/Section Notes of CETA, then such activity would amount to manufacture and the resultant products would attract levy of excise duty. [Section 2(f) (ii)]. To illustrate, normally an activity of repacking from a bulk pack to smaller packs would not amount to manufacture under the general concept. However in Chapter 29 such an activity is specified as amounting to manufacture by way of a Chapter Note. Such activity would therefore be deemed to be manufacture in relation to goods falling under Chapter 29 and attract levy of Central Excise duty, irrespective of the principles relating to manufacture under the general concept. Similarly Section 2(f) (iii) provides for a deeming fiction that in relation to goods specified in Third Schedule, [MRP goods] the activities of packing or repacking in a Unit container or labeling or rebelling 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, shall amount to "manufacture".

3. PERSON LIABLE FOR MAKING PAYMENT

The Excise Duty is payable by a manufacturer. The concept of 'manufacturer' is relevant for fixation of liability of Central Excise Duty. Section 2 (f), of the CEA, while defining 'manufacture' states that the word 'manufacturer' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.

As per the statutory definition, there are two categories of the persons who can be termed as a manufacturer. (i) persons who manufacture the goods themselves on their own account (including on job work basis) and (ii) persons who get the goods manufactured through hired labour. If the hired labour is an employee, his employer will be considered as manufacturer. The relationship of servant and master must be established in order to treat the employer as manufacturer.

4. EXCISABLE GOODS

According to Section 2(d) of CEA: "Excisable goods" means goods specified in the first schedule and the second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt".

The term "goods" has not been defined under CEA/CER. Article 366 (12) of the Constitution of India which gives an inclusive definition of the term "goods": "Goods" includes all materials, commodities and articles".

1. The Hon. Supreme Court in DCM case has observed that an article can be called 'goods' if it is known to the market as such and ordinarily come to the market for being bought and sold. Actual sale of the article is not important but, it must be capable of being bought and sold.

2. The concept of goods' and test of marketability has been discussed in detail by Supreme Court ruling in the case of Moti Laminates Pvt. Ltd. vs. CCE 76 ELT 241 (SC), wherein it is observed that: "The duty of excise is being on production or manufacture which means bringing out a new commodity, it is implicit that such goods must be usable, moveable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty, linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling". An Explanation has been added to Section 2(d) to define the term "goods" as including any article, material or substance which is capable of being bought and sold for a consideration and that such goods shall be deemed to be marketable.

3. It may happen that in the course of manufacture of final products, various other articles arise at intermediate stages which are elementary or unfinished or which are crude, impure or unrefined or which have short shelf life. Such articles not being acceptable to the consumer or being capable of coming to market to be bought and sold are not ‘excisable goods’.

4. Immovable property or articles embedded to earth, buildings and civil structures are permanently being affixed to earth and hence, didn’t have characteristics of goods and hence, not under the purview of Central excise levy.

5. An article or product even if specified under a specific heading/sub-heading in the Schedule to CETA but if the same is not marketable,it may not constitute 'goods' so as to attract excise duty.

5. CLASSIFICATION - Central Excise Tariff, Classification of excisable goods and general principles of classification.

1. Proper classification of excisable goods is essential for determination of correct Central excise liability. Classification consists of determining the Chapter, Heading and Sub-headings of Central Excise Tariff Act, 1985 under which the goods iscovered. Accordingly, classification of every product consists of 8 digits and is regarded as CETSH. Tariff.Classification is also relevant for determining eligibility to exemptions which are mostly specified with reference to the tariff headings/sub-headings of CETA.

2. The rates of Central Excise duty are specified in the Schedule to CETA which contains the Rules of Interpretation and the Section/Chapter Notes which serve as statutory guidelines for classification. The said Schedule contains 98 Chapters grouped in 21 sections, each section relating to a broad class of goods. The CETSH code is in line with the system adopted for export-import tariff. Also, a standard unit of quantity is specified for each tariff item to facilitate the collection, comparison and analysis of trade statistics.

3. Some of the general principles of classification of goods, laid down by the Supreme Court and other judicial authorities, are explained hereunder in brief :

1. Classification is to be based on statutory definition, if any, and in the absence thereof on trade or common parlance, [CCE vs. Fusebase Eltoto Ltd. 67-ELT 30 (SC): Indian Cable Co. Ltd. Vs. CCE - 74 ELT 22 (SC); Metagraphs Pvt. Ltd Vs. CCE-88 ELT 639 (SC): United Copiex (India) Pvt. Ltd. vs. CST - 94 ELT 28 (SC)].

2. It is an accepted principle of classification that the goods are to be classified according to their popular meaning as understood in the commercial sense and not as per the scientific/technical meaning [Plasmac Machine Mfg. Co. Pvt. Ltd. Vs. CCE 51 ELT 161 (SC)]. However, where the tariff heading/sub-heading itself uses highly scientific and technical terms, the scientific/technical meaning shall take precedence over the commercial/trade parlance [UOI vs. Sahney Steel and Press Works Ltd. 58 ELT 38 (SC)]. Also, classification according to commercial nomenclature or trade understanding should be avoided where the statutory context in which the tariff entry appears requires otherwise. [Akbar Badruddin Jiwani vs. Collector of Customs 47 ELT 161 (SC)].

3. Normally, classification is to be done with reference to the specific wordings of the headings/sub-headings as mentioned in the tariff. However, where the goods in question are capable of being called by more than one name, the classification is to be done with reference to the most appropriate name and for this purpose, the basic functional/character/use would become more relevant. The functional aspect was considered by the Supreme Court in Atul Glass Industries Ltd. vs. CCE 25 ELT 473 (SC): Indian Tool Manufacturers vs. CCE 74 ELT 12 (SC): CCE vs. Kumudam Publication (P) Ltd 96 ELT 226 (SC).

4. Section 37B of CEA empowers the CBEC to issue instructions to field formations for the purpose of maintaining uniformity in application of the law including the matters of classification of goods and levy of duty. Such instructions / guidelines are neither binding on the assessee nor the Appellate/Adjudicating authorities. However, these are binding on the departmental authorities and the courts may compel compliance with such instructions as are for the benefit of the assessee [British Machinery Supplies Co. Vs. UIO 86 ELT 449 (SC), Ranadey Micronutrients vs. CCE 87 ELT 19 (SC) CCE vs. Koreas (India) Ltd 89 ELT 441 SC].

5. An established practice of classification cannot be changed without cogent reasons, Refer Collector v. Tata Iron & Steel Co. 13 ELT 113 CEGAT. The Civil appeal filed by CCE was dismissed [Refer 94 ELT A133 (SC)]. Any change in classification of goods can take effect prospectively only [CCE. Vs. Cotspun Ltd. 99 ELT 24 (SC)].

6. Section 11A empowers the department re-opening of a decided classification and assessment but re-opening is not permissible on account of mere change of opinion Shahnaz Aruvedics v/s CCE 2004 (173) ELT 337(All). The Department appeal against this judgment is dismissed by the Hon. Supreme Court.

6. VALUATION

Since most of the excise duty rates specified under CETA are on ad valorem basis, valuation is very important for determination of excise duty liability. CEA provides for 4 methods for valuation viz. (a) fixation of Tariff Values u/s. 3 (2) of CEA by the Government (b) Determination of Assessable Value in accordance with provisions of Section 4 of CEA and (c) Determination of value with reference to Retail Sale Price (RSP) of the goods in accordance with provisions of Section 4A of CEA. (d)Duty based on production capacity

6.1. Tariff Value - In respect of few products Tariff Value is fixed by the Central Government. These values are incorporated in the relevant tariff entry itself and the Excise duty for such products are to be paid with reference to the Tariff Values.

6.2 Transaction Value. –In Transaction value, assessable value of excisable goods is chargeable on excisable goods is with reference to value will be Transaction Value. It requires the fulfillment of all conditions being: The Goods should be sold at the time and place of removal, Buyer and assessee should not be related, Price should be the sole consideration for the sale and each removal will be separately fixed. The following are important constituents of principles of transaction value.

1. In respect of almost all the excisable goods (exception being few goods where Tariff Value is fixed in terms of Section 3(2) of CEA), the value is to be determined on the basis of "transaction value" which is defined very broadly. It includes all elements of cost imparting value to the goods on the basis of the principles enunciated by Supreme Court in the cases of Bombay Tyres International Ltd. and MRF Ltd. It specifically includes any amounts that a buyer is required to pay in connection with sale or by reason of sale and includes amounts in respect of (a) Advertising & Publicity (b) Marketing & Selling organization expenses (c) Storage (d) Outward handling (e) Servicing (f) Warranty (g) Commission.

2. Each sale now could have a different value based on specific transaction value of that sale transaction. In cases where the sale price is cum duty price, transaction value will be considered as inclusive of excise.

3. Department Circular No.354/81/2000 dated 30.6.2000 clarifies that following charges, if separately recovered from buyers, would be includible in value of goods (a) Packing charges, ordinary or special (b) Warranty charges for optional or mandatory warranty (c) Advertising or publicity charges recovered from buyers.

Following would not be includible in determining value.

1. Interest charged or receivable for delayed period i.e. beyond normal credit period.

2. Discounts - Cash discount, quantity discount, year-end discount and like.

4. Difference in time of removal and delivery - The value, in such cases, is required to be determined on the basis of the price at which such goods are sold for delivery at any time nearest to the time of removal of such goods after making reasonable adjustment for the time difference.

5. Difference in place of removal and delivery - In such cases, the actual transport cost incurred for transport of goods from the place of removal to the place of delivery is to be excluded from the transaction value on an average or equalized basis.

6. Clearances to depots, premises of consignment agents or any other premises. - If goods are cleared from place of manufacture or bonded warehouse and transferred to depot, premises of consignment agent or any other place of premises from where they are sold, the value of such goods would be the normal transaction value, i.e. the transaction value at which greatest aggregate quantity of such goods are sold from such place. It there is no sale at the time of removal, the normal transaction value at the time of nearest to the time of removal is required to be adopted.

7. Price not the sole consideration for sale - In such cases, additional consideration flowing directly or indirectly from the buyer is required to be added to the transaction value. It is now clarified, by way of an Explanation, that money value of the following goods and services supplied free of cost or at concessional price for use in connection with manufacture of goods would have to be added to the transaction value if the same is not included in sale price.

• Value of materials, components, parts and similar items relatable to such goods;

• Value of tools, dies, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;

• Value of material consumed, including packaging materials, in the production of such goods;

• Value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and used for the production of such goods.

Such value may be apportioned in appropriate circumstances; e.g. dies may be used in manufacture of number of pieces, in which case, the money value thereof would have to be apportioned over total pieces manufactured by use of such dies.

8. Captive consumption - In such cases, the value is now deemed to be 110% of the cost of manufacture or production.

9. Sale to or through related person - In cases where the persons are deemed to be related on account of (a) Their being relatives (b) Their being relatives and distributor or sub distributor or such distributor and (c) Their being associated in a manner that they have direct or indirect interest in the business of each other the value would be the price at which maximum aggregate quantity of such goods is sold by such related person to an unrelated person at the time of removal of goods. If, however, the related person does not sell to unrelated person, the value shall be the price at which goods are sold to the related buyer who sells such goods in retail.

If the related person does not sell goods but consumes them captively, the value would be the value of would be 110% of cost of manufacture of such goods.

The same principles would also apply where the relationship is on account of the manufacture and buyer being interconnected undertaking and the two undertakings are related in the manner specified above or are holding and subsidiary.

10. For goods manufactured on job work basis, on behalf of a person, commonly known as principal manufacturer, Rule 10A , inserted w.e.f. 1-3-2007, prescribes that value for payment of excise duty would be based on the sale value at which the principal manufacturer sells the goods as against the practice of valuation of such goods as cost of materials plus job charges.

11. In all other cases, the value is required to be determined using reasonable means consistent with the principles and general provisions of the valuation rules and section 4(1) of the CEA.

12. Overruling the SC’s decision in the case of Fiat India Pvt Ltd [2012(283) ELT 161 (SC), an amendment in Rule 6 of valuation rules is made to clarify that, no additional consideration is flowing directly or indirectly from the buyer to the assesse, when excisable goods sold by manufacturer at a price less than its manufacturing cost and profit.

6.3. RSP based levy - Some of the important features of RSP based assessments are given hereafter in brief.

• Section 4A of CEA empowers Central Government (CG) to specify goods on which duty will be payable based on 'retail sale price'.

• The goods should be covered under provisions of Legal Metrology Act, 2009.

• CG can permit reasonable abatements (deductions) from the 'retail sale price'. While allowing such abatement, CG shall take into account excise duty, sales tax and other taxes payable on the goods.

• If more than one 'retail sale price' is printed on the same packing, the maximum of such retail price is to be considered.

• The 'retail sale price' is the maximum price at which excisable goods in packaged forms are sold to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc.

• CG is required to issue a notification in the Official Gazette specifying the commodities for which the provision is applicable and the abatements permissible.

More than 130 commodities are covered under RSP based levy.

The definition of RSP, as mentioned in Explanation I to Section 4A of CEA, covers cases where the governing law on such goods permits declaration of RSP exclusive of any tax, local or otherwise. For example, Drug Price Control Order (DPCO) prescribes for declaration of RSP excluding local taxes in respect of certain medicines falling in its ambit. Provisions of Section 4A of CEA are also amended so as to:

• Provide that in case of affixing higher RSP subsequent to clearance of goods on payment of duty on a lower RSP, the excise duty would be leviable on the basis of such higher RSP affixed later on.

• Assume powers to ascertain the RSP of goods having no RSP declared or the declared RSP being tampered with, obliterated or altered and;

• Assume powers to make rules for such ascertainment.

The central Government has notified, w.e.f. 1.3.2008, Central Excise (Determination of Retail Sale price of Excisable Goods) Rules, 2008 to provide for the manner of determination of retail sale price where the same is not declared on the packages or tempered or altered.

6.4. Capacity based levy - Section 3A provides for levy of excise duty on the basis of capacity of production in respect of notified goods. The Central Government is empowered to notify such goods and also the procedure for the payment of duty on such goods. It is currently being levied in respect of Pan Masala products and stainless steel pattas and pattis.

7. CENVAT

CENVAT Scheme is explained in a concise form for easy understanding;

7.1. CENVAT Scheme is comprised in CENVAT Credit Rules, 2004 notified vide Notification No. 23/2004-C.E. (N.T.) effective from 10.9.2004. It extends to whole of India except, the state of Jammu and Kashmir.

7.2. Credit is allowed in respect of Cenvat and service tax across goods and services.

7.3. "capital goods" (CG) eligible for CENVAT Credit are:

1. All goods falling under Chapter 82,84,85,90,and heading No. 6805 and certain items falling under sub-heading No. 6804 and wagons of sub-heading 860692 of the First Schedule to the CETA;

2. Pollution control equipment;

3. components, spares and accessories of the goods specified at (i) and (ii) above.

4. Moulds and dies, jigs and fixtures

5. Refractory and refractory materials;

6. Tubes and pipes and fittings thereof

7. Storage tank

8. Motor Vehicles other than those falling under Tariff headings 8702,8703,8704,8711 and their chassis.

9. dumpers or tippers falling under chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985

[Note: "Capital goods" will include any equipment or appliances used in an office. As far as service providers are concerned, motor vehicles, dumpers tippers etc are capital goods only for certain specific service providers only]

7.4 "inputs" eligible to CENVAT Credit means all goods used in the factory by manufacturer of final products, and includes accessories of the final products cleared along with the final product, goods used for providing free warranty for final products, or for generation of electricity or steam for captive use or for providing an output service. Capital goods with value of ₹10000/- per piece shall also be considered as inputs.

"inputs" does not include:

1. light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol.

2. goods used for construction of a civil structure, laying foundation of a building (except for provision of certain specified taxable services)

3. motor vehicles

4. any goods such as food items, goods used in a residential colony, guest houses, when such goods are used primarily for personal use or consumption of any employee or any goods which have no relationship whatsoever with the manufacture of final product.

7.5 CENVAT is eligible on inputs and capital goods being used by manufacturer or service provider at any place.

7.6 “input service “ means any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacturer of final products and clearance of final products up to the place of removal or used by a provider of output service for providing an output service and includes services used in relation to modernization, renovation, or repairs of a factory or an office relating to such factory, advertisement or sales promotion, market research, storage up to a place of removal, procurement of inputs, accounting, auditing, financing, recruitment, and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services and inward transportation of inputs or capital goods and outwards transportation up to the place of removal.

“Input Service” does not include:

1. input services used for construction or execution of works contract of a building or a civil structure or part thereof or laying of foundation or making of structures for support of capital goods (except for provision of certain specified taxable services)

2. Renting of a motor vehicle service pertaining to motor vehicle which is not a capital goods

3. services in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health or fitness center, life insurance, health insurance, and travel benefits extended to employees on vacation such as leave or home travel concession, when such services are used primarily for personal use or consumption of any employee

7.7 The Specified Duties (SD) that are eligible for availment of credit under CENVAT Scheme are;

1. The duty of excise specified in the First Schedule to CETA;

2. The duty of excise specified in the Second Schedule to CETA;

3. The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978);

4. The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance)Act, 1957 (58 of 1957);

5. The National Calamity duty leviable under Clause 129 of Finance Act, 2001 as amended by clause 161 of the Finance Act, 2003.

6. The additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) above,

7. The additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act(Not eligible to service providers)

8. The additional duty of excise leviable under section 157 of the Finance Act, 2003.

9. The service tax leviable under section 66, 66A or 66B of the Finance Act, 1994.

10. The additional duty of excise leviable under Section 85 of the finance Act,2005

7.8 Krishi kalyan Cess is levied under section 161of the Finance Act, 2016. CENVAT Credit in respect of inputs can be taken immediately on receipt of inputs in the factory of the manufacturer as per TRU circular released by the department. However, no corresponding amendments have been made in Cenvat credit Rules, 2004.

7.9 CENVAT Credit in respect of CG received in a factory can be taken to the extent of 50% of SD paid on such CG in the financial year of receipt of such CG and the balance 50% of credit can be taken in the subsequent financial year(s) subject to the condition that CG (other than components, spares, accessories, refractory materials, moulds and dies and goods of Ch. 6805/6804 CETA) are still in possession and use of the manufacturer in such year. However, an eligible SSI unit can take the 100% Cenvat credit duty paid on of CG goods in the year of installation. Cenvat credit in respect of CG allowed even if, the capital goods are acquired by him on lease, hire purchase or loan agreement from a financing compay.

7.10 CENVAT credit in respect of input services can be taken upon receipt of invoice, bill or specified documents. However, person needs to reverse such CENVAT credit taken on input services whose payment of the value of input service and service tax is not made within three months of the date of Invoice.

7.11 Manufacture or service provider must claim CENVAT credit on inputs and input services within a period of one year from date of issue of Invoice, Bill or document. Thereby, CENVAT credit is not available after lapse of prescribed statutory time-limit of one-year. However, no time limit is prescribed for availment of CENVAT on CG.

7.12 CENVAT Credit can be availed in respect of SD paid on Inputs/CG received and used in the factory. However, no credit of SD paid shall be allowed on CG which is exclusively used in the manufacture of exempted goods.

7.13 CENVAT Credit cannot be availed if a manufacturer claims depreciation under Income Tax Act on the SD paid on such CG under ITA.

7.14 The CENVAT Credit may be utilized for payment of any duty of excise on any final products manufactured by the manufacturer or for payment of duty on inputs or CG themselves if such inputs are removed as such or after being partially processed, or such CG are removed after being used.

7.15 Credit in respect of SD specified in 7.6 (iii) and (v) above shall be utilized only towards payment of respective duties on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves if such inputs are removed as such or after being partially processed.

7.16 CENVAT Credit shall be allowed even if any inputs as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final product, or for any other purpose, and it is established form the records, Challans or memos or any other document produced by the assessee availing the CENVAT Credit that the goods are received back in the factory within 180 days of their being sent to a job worker. Similarly, CENVAT credit on capital goods shall be allowed if such capital goods are sent to the factory of the job-worker, for use in the manufacture of its products, However, such capital goods shall be received back within the factory of the manufacturer within 2 years. If the inputs or the CG are not received back within 180 days or 2 years respectively, than the manufacturer shall pay an amount equivalent to the CENVAT Credit attributable to the inputs or CG by debiting the CENVAT Credit or otherwise. However, the manufacturer can take the CENVAT Credit again when the inputs or CG are received back in his factory. Now, principal manufacturer can obtain CENVAT credit of materials transferred to all sub-sequent job workers in a chain. No CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services for a period of two years from the date of commencement of the commercial production

7.17 CENVAT Credit shall also be allowed in respect of Jigs, fixtures, moulds and dies sent by a manufacturer of final products (FP) to a job worker for the production of goods on his behalf and according to his specifications.

7.18 CENVAT credit is not allowed on inputs/inputs services used in relation to manufacture of exempted goods/exempted services. Manufacture engaged in both dutiable and exempted Final products has following recourse available before him:-

1. Pay an amount equal to six percent/seven percent of value of the exempted goods/exempted services. However, such amount shall not exceed the amount of CENVAT credit availed.

2. Pay an amount determined by Rule 6(3A) of CENVAT Credit Rules.

7.19 The above provisions of Rule 6 would not apply to clearances to SEZ, EOU, EHTP, STP, for specified international projects, for exports under Bond and gold or silver falling under Chapter 71 of CETA arising in the course of manufacture of copper or zinc by smelting, power projects (subject to conditions).

7.20 CENVAT Credit can be taken by the manufacture on the basis of invoice, Bill of Entry or any other specified documents indicating payment of duty. Credit would be admissible even if inputs/CG are purchased from a First Stage/ Second Stage dealer. A list of specified documents for availment of CENVAT Credit is given hereafter.

7.21 Manufacturer of FP is required to maintain proper records for the receipt, disposal, consumption and inventory of inputs/CG in which relevant information regarding value, duty paid, supplier etc. is recorded.

7.22 The manufacturer of FP is required to submit within 10 days from the close of each month a monthly return in the prescribed form. However, no such separate return is prescribed. Regular returns like ER-1, ER-3 etc. shall be deemed to be the returns required under CCR, 2004.

7.23 Unutilized CENVAT Credit on account of change in ownership or change in site of factory resulting from sale, merger, amalgamation, lease or transfer to a Joint Venture is permitted to be transferred.

7.24Exporter can apply for refund of Credit of SD paid on inputs and input services used in FP cleared for export, under certain circumstances, provided the manufacturer does not avail duty drawback or claim rebate of duty under CER. The claim for refund needs to be made within a period of 12 months as specified in Section 11B of the Central Excise Act, 1944. Further, CENVAT credit of SD on inputs/input services used for FP exported can be utilized against duty liability on domestic clearances.

7.25 Action for recovery of any CENVAT Credit wrongly availed/utilized can be initiated by CED within 2 year/5 years depending upon the circumstances. Now, SCN can be issued by Department for recovery of CENVAT credit availed wrongly though not utilized.

7.26 Mandatory interest is payable at the rate of 15% p.a. from the first day of the month succeeding that in which duty ought to have been paid.

7.27 Under certain circumstances mandatory penalty up to an amount equivalent to the amount of credit disallowed can be levied.

7.28 List of eligible documents for availment of CENVAT Credit.

The CENVAT Credit shall be taken by the manufacturer on the basis of any of the following documents, namely;-

1. an invoice issued by -

1. manufacturer for clearances of-

• inputs or capital goods from his factory or from his depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer;

• Inputs or capital goods as such;

2. a first stage dealer or a second stage dealer, in terms of provisions of Central excise Rules 2002.

2. a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or from his deport or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty of customs leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any provisions of the Act or of the Customs Act, 1962 or the rules made hereunder with intent to evade payment of duty.

Explanation: - supplementary invoice shall also include challans or any other similar document evidencing payment of additional amount of additional duty of customs leviable under section 3 of the Customs Tariff Act:

3. a bill of entry;

4. a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office.

5. challan for payment of service tax on reverse charge basis made by the service recipient

6. An invoice, a bill or challan issued by a provider of input service on after 10 day of September 2004

7. An invoice, a bill or challan issued by an input service distributor under rule 4A of the Service tax Rules 1994.

8. Invoice / supplementary invoice in case of additional duty of customs under sub section (5) of section 3 of the Customs Tariff Act, 1975 shall be allowed only if said document contain an indication regarding no credit of the said additional duty shall be admissible.

8. SSI EXEMPTION SCHEME

The Central Excise Notifications granting concessions based on Value of Clearances of units are referred to as "SSI Exemption Scheme”. Notification No. 8/2003 provides for eligibility, conditions and procedures to avail such exemption. Full exemption from excise is available upto the first clearances not exceeding ₹ 150 Lakhs in the year.

8.1 Specified Goods - The benefit is only available to specified excisable goods covered in the Notification.

8.2 For availment of benefit of SSI Exemption Scheme it is essential that the aggregate Value of Clearances of all excisable goods cleared during the year for home consumption in the preceding financial year does not exceed ₹ 400 Lakhs (12 Crores in case of Jewellery Manufacturer). The aforesaid limit will apply to clearances affected by (i) A single manufacturer from one or more factories or (ii) One or more manufacturers from the same factory.

8.3 For the purpose of determining the eligibility limit of 400Lakhs/12 Crores of aggregate value of clearances of all excisable goods for home consumption in the preceding financial year the following clearances shall not be taken into account:

1. Clearances to FTZ/SEZ/100% EOU/EHTP/STP/UNO/International Organization

2. Clearances bearing the brand name of trade name of another person

3. Clearances of intermediate goods/goods captively consumed in case the final product is eligible for SSI exemption

4. Clearances exempt under specific job work notifications (Notification no. 214/86-C.E., dated 25.03.1986 or No. 83/94-C.E., dated 11.04.1994 or No. 84/94-C.E., dated 11.04.1994

5. Turnover of Non-excisable Goods

6. Turnover of traded items

8.4 The Manufacturer having clearances below 150 Lakhs (6 crores in case of jewellery manufacturer) has an option of paying full duty at normal rate and avail CENVAT and not obtain benefit under Notification No. 8/2003-CE. Such option shall be exercised before effecting clearances at the normal rate of duty. Such option once exercised cannot be withdrawn during the remaining part of the financial year. While exercising this option the manufacturer shall inform in writing to the Officer.

8.5. For the purpose of availing exemption of the first clearances of ₹ 150 Lakhs/ 6 Crores, the following clearances shall not be taken into account.

1. Clearances chargeable to NIL rate of duty or exempted from payment of duty (other than exemption based on quantity or value of clearances)

2. Clearances bearing brand name or trade name of another person,which are ineligiblefor the grant of this exemption scheme.

3. Clearances of specified goods which are used for captive consumption within the factory.

4. Clearances of goods for export

9. REGISTRATION

Registration is the first step towards compliance of Central Excise.Other procedures follow thereafter.

9.1 According to Rule 9 of CER, every person, who produces, manufactures, carries on trade, holds private store room or warehouses, an importer or otherwise uses excisable goods is required to be registered. CBEC has been empowered to specify persons or class of persons who may not require such Registration.CBEC has vide Notification No. 36/2001 - CE (NT) dt. 26.6.2001, exempted the following persons from Registration.

1. The persons who manufacture excisable goods which are chargeable to nil rate of duty or remain fully exempt from the whole of the duty of excise leviable thereon subject to conditions specified in that notification and other conditions Viz; (a) the manufacturer makes a declaration in the specified form while claiming exemption under this notification (b) that where the exemption from the whole of the duty of excise leviable on the said goods is granted, based on the value of clearances made in a financial year (hereinafter referred to as, "full exemption limit"), no such declaration shall be filed, if the aggregate value of the said goods cleared: (i) by a manufacturer from one or more factories or (ii) from any factory by one or more manufacturers, for home consumption, was less than the specified limit (90 Lakhs) during the preceding financial year or in case of a new factory or manufacturer, such value of clearances is estimated to remain less than the specified limit during the current financial year.

2. Every manufacturer who gets his goods manufactured on his account from any other person subject to the conditions that the said manufacturer authorizes the persons, who actually manufactures or fabricates the said goods to comply with all procedural formalities under CEA/CER.

3. The persons manufacturing excisable goods by following the warehousing procedure as required by or under the Customs Act, 1962 subject to the specified conditions.

4. The person who carries on wholesale trade or deals in excisable goods except first stage dealer or second stage dealer as defined in CENVAT Credit Rules, 2004;

5. The person who uses excisable goods for any purpose other than for processing or manufacturer of any goods availing benefit of exemption extending concessional rate of duty.

6. Manufacturer exporter and 100% EOU having no clearances for home consumption. Clearances for exports to Bhutan & Nepal are not considered as exports for this purpose.

9.2 In order to avail exemption from registration a declaration is required to be filed in prescribed form. The Application is required to be made online in Form A-1 and a copy of the printout signed by the manufacturer is required to be submitted.

9.3 The application for registration is required to be made prior to or within 30 days of the commencement of manufacture or engaging in the specified activities.

9.4 The application for Registration is required to be made to the jurisdictional SCE, in the prescribed form

9.5 Other important points

1. Premises - Registration is required to be obtained in respect of every manufacturing premise. If there are more than one premises requiring registration separate registration is required to be obtained for each of the premises. In the context of manufacturers, premises would include factory where manufacturing activity is carried out or go-down where goods are stored. However, a person having 2 or more manufacturing can obtain single registration for all the premises if such premises are located within a close area in the jurisdiction of a Range Superintendent and such units have interlinked manufacturing process. Further, such units must not be availing area based exemption benefits. Manufacturers of Jewellery have been granted the option of Centralized registration irrespective of the jurisdiction of its various premises.

2. Time limit - Registration is required to be granted within 7 days of receipt of application.

3. Validity - Each Registration Certificate granted shall be valid only for the premises specified in such certificate and the products mentioned therein.

4. Transfer of Business - Upon transfer of business by a registered person to another person, the transferee should obtain a fresh certificate.

5. Change in Constitution - Any change in constitution of a Firm, Company or Association of persons like change in Partners/Directors etc. shall be intimated to the Central Excise office within 30 days of such a change by way of amendment in registration details. However, new registration is required to be obtained in the case involving change in PAN Number.

6. De-Registration - Every registered person, who ceases to carry on the operation for which he is registered, shall de-register himself and surrender his Registration Certificate with the Supt. Central Excise.

7. Revocation - Any Registration Certificate granted maybe revoked or suspended by the proper officer if the holder or any person in his employment is found to have committed a breach of any conditions of CEA/CER or has been convicted of an offence u/s. 161 read with section 109 or 116 of the Indian Penal Code.

10. PENAL PROVISIONS, INTEREST AND OTHER MISC. PROVISIONS

Penalty is being levied for non-payment, short payment of duty of excise made by assessee. Said default from assesseecould occur on account of bona-fide reasons or mala-fide intentions. The following table summarizes the quantum of penalty to be borne by assesse in such cases:

10.2 The above penal provisions have been brought by Finance Act 2015-16 and it could be applied for transitory cases of Central excise short paid or not paid and no SCN is issued before 14.05.2015 or Central excise short paid or not paid and SCN is issued but no Adjudication order is passed before 14.05.2015.

10.3 Interest on delayed payment of duty is levied at 15% p.a. Also, in case of delay in payment beyond one month, an additional penalty @ 1% of duty amount per monthis applicable.

10.4 Search of Premises: Section 12 F empowers Joint Commissioner /Additional Commissioner of Central Excise, either himself or through any Central Excise Officer to search any place if he has reasons to believe that any documents or books or things, which shall be useful for or relevant to any proceedings under the Act are secreted in such place and seize such documents or books or things.

10.5 Prosecution - Offences committed under CEA/CER could also become liable to prosecution proceedings. Any evasion of duty exceeding ₹ 2 crores is liable for prosecution resulting into imprisonment up to seven years and fine. Such an offence is made cognizable and non bailable.

Any evasion of duty not exceeding ₹ 2 Crores is also liable for prosecution resulting into imprisonment up to three years and/or fine.

11. CENTRAL EXCISE AUDIT

11.1 Audit Agencies - The Central Excise Audit is normally conducted by two agencies viz. (i) Central Excise Audit Department of Comptroller and Auditor General of India viz., (CAG) and (ii) The Internal Audit Department of the Central Excise and Customs.

11.2 CAG Audit - This audit conducted by the audit party from the office of the Accountant General is, in fact, conducted by the Central Excise Department (CED). It is a system of audit which confines itself to classification and valuation of excisable goods or leakage of revenue on account of misuse of CENVAT Credit. It also undertakes the checks relating to the availment of exemption from Excise Duty by virtue of any exemption notification issued by CED.

11.3 Department Audit - The CED has its internal audit wing which conducts selective audit of the manufacturing concerns. Large-scale assessees are generally subjected to audit once in a year whereas small scale and medium scale units are audited once in two years. The selection as well as frequency of the audit usually depends upon revenue potential and suspect status of the unit. An audit party consisting of one Supt. of Central Excise and two or three Inspectors spend two to seven days in a factory for audit depending upon volume of work involved. The audit party inter alia; (i) Check clearance invoices selectively with private and statutory records of the factory to see generally that valuation and assessment are correct. And (ii) Check statutory records with factory's private records balance sheet etc.

One of the significant aspects of EA-2000system is to make selection of companies more scientific rather than based on the normal rules of turnover. Various parameters such as excise payment, evasion of duty, goods manufactured, profit profile industry output-input norms, trend analysis and internal control systems would be used to decide whether a company shall be subject to in-depth audit or not. Detailed instructions in regard to New Excise Audit-2000 have been issued vide CBEC Circular No. 491/57/99-CX, dt. 28.10.1999.

11.4 Statutory Audit under CEA - Sections 14A and 14AA have been inserted in the CEA, by the Finance Act, 1995 and Finance Act, 1997, enacting provisions relating to Statutory Audit under specified circumstances.

1. Valuation Audit - Section 14A provides that if at any stage of enquiry investigation or any other proceeding, the Officers not below the rank of ACCE having regard to the nature of the case and interest of revenue is of the opinion that the value of the goods have not been correctly declared or determined by the manufacturer or any other person, he may, with the prior approval of the Chief CCE direct such manufacturer or such person to get the accounts of his factory, office, depot, distribution or any other place audited by the cost accountant/chartered accountant nominated by the Chief CCE. The said cost account and shall submit the report within the period specified by the CCE duly signed and certified by him mentioning therein particulars as may be specified.

2. Special CENVAT Audit - Section 14AA provides that if the CCE has reasons to believe that a manufacturer has availed or utilized credit of duty under the Rules which is not within the normal limit having regard to nature of excisable goods produced or manufactured the type of inputs used and other relevant factors as he may deem appropriate or has availed duty by reason of fraud, collusion or willful misstatement or suppression of facts, he may direct such manufacturer to get the accounts of his establishment audited by a Cost Accountant/chartered Accountant nominated by him. The Accountant so nominated shall submit a report for such audit duly signed and certified by him to the said CCE.

11.5 Internal Audit by Assessee - In view of introduction of reforms in Central Excise procedures and consequent shifting or responsibility from CED to the assessee for determination of correct excise duty liability, conduct of regular audits by an assessee himself has gained increased significance.

Internal Central Excise Audit may be conducted (i) by an assessee's organization itself or (ii) By an independent firm of professional viz. Chartered Accountants/Cost Accountants.

Such audits could be carried out: On a continuous basis; On a periodic basis, for a specific area/activity. To illustrate; CENVAT Scheme, New Projects, Exports, Job Work, Inventory Refunds etc.

The types of functional areas which can be subject matter of Audit in relation to Central Excise are Concepts, Exemptions, Valuation, procedures, Documentation and Records.

12. SHOW CAUSE NOTICES/ADJUCATION AND APPEALS

12.1 A SCN is issued when a manufacturer is suspected of evasion or short payment of duty or when duty is erroneously refunded. The said show cause notice can be issued within 2/5 years of the relevant date. After providing an opportunity to the assessee to represent his case an order of adjudication is passed raising the demand.

12.2 A manufacturer can file an Appeal to Comm. of CE, (Appeals) against order of CEO. No fees payable for this appeal.

12.3 An appeal against the order of Comm. Of CE (Appeal), is required to be filed before the Customs, Excise, & Service Tax Appellate Tribunal CESTAT. The Fees for filing an appeal to CESTST is ₹ 1000/- if the Demand is for ₹ 5 Lakhs or less. ₹ 5000/- if the demand is for more than 5 Lakhs but not exceeding ₹ Fifty Lakhs. and ₹ 10,000/- if the demand is more than ₹ Fifty Lakhs.

12.4 Section 35F had been amended and now mandatory pre-deposit shall be paid by assesse preferring an appeal before first appellate authority, CESTAT. Mandatory Pre-deposit of 7.5% /10% of duty demand is required to be deposited before First appellate authority or second appellate authority respectively. Hence, no separate application is required to be filed for stay.

12.5 An appeal against the order of CESTAT is to be filed before the Hon. Jurisdictional High Court if the dispute involves determination of any question pertaining to law other than valuation and classification. For the disputes related to valuation & classification the appeal will lie before the Hon. Supreme Court.

13. RETURNS

A manufacturer can also revise its periodical/annual returns.

14. Recovery of dues from Third Party.

Section 11 provides that money due to government from any person other than from whom money is due , can be recovered from that other person, after giving a proper notice, if that other person holds -money for or on account of the first person.