CENTRAL EXCISE

A BIRDS EYE-VIEW
------- By R.K.DEODHAR

INTRODUCTION

What is tax
Lord Justice Holmes of U.S. Supreme Court has defined tax
as under
Tax is the price which we pay for the civilized society.
Types of taxes
Taxes are broadly classified into two categories as
Direct Taxes.
Indirect Taxes.
Direct taxes are paid and borne by the same person
whereas
Indirect taxes are paid by one person and borne by another
person.
Examples of Direct Tax: are Income Tax, Wealth Tax, Gift
Tax.
Examples of Indirect Tax: are Excise, Customs, Sales Tax,
Service Tax.

In 1990-91, share of Indirect Taxes was about 80% of the

total tax revenue whereas that of Direct Taxes was 20%.
In 2008-09, share of Indirect Taxes was 48% and the share
of Direct Taxes has increased to 52%.
Share of Central Excise duty alone was 27% and share of
Customs Duty was around 25%.
Share of Income tax was 20% and that of Corporate Tax was
28%.
In the financial year 2007-08,first time the collection from
Direct Taxes exceeded Indirect Tax collection.
Service tax has been introduced from 1994 and its share is
10% of the Total Tax Revenue in the year 2008-09.

Constitutional Background
Constitution of India came into existence on 26th
January, 1950 and it is the Supreme Law in the country.
All the laws and rules are subordinate to the
Constitution. India is a union of states. Central
Governments has certain powers and State Governments/
Union Territories have certain powers.
Article 246 of the Constitution indicates the bifurcation of
these powers and the details are listed in three lists of the
Seventh Schedule of the Constitution.
List I.( Union List.) contains the matters which can be
dealt with by Central Government. e.g. Defence. Foreign
Affairs, Banking etc.
List II (State List) Contains the matters which can be
dealt with by State Government. e.g Public Health, Police,
Agriculture etc.
List III ( Concurrent list ) contains the matters which can
be dealt by both Central Government as well as State
Government. e.g Criminal Law, Trust, Trade Unions etc.

Excise Duty and Sales Tax appear in Union List as well as

State List. Excise duty levied under Union List is called
Central Excise duty and the excise duty levied under State
List is called State Excise duty. Similarly, Sales Tax is also
divided into two types viz., Central Sales Tax and State
Sales Tax.
State Excise duty is levied only on three goods viz.,
Alcoholic Liquor, Opium and Narcotics and on all other
goods manufactured in India, Central Excise Duty is levied.
Central sales tax is collected on the sale of goods which
takes place in the course of Inter-state trade whereas state
sales tax is collected if the goods are sold within the state.

Landmark changes in Central Excise Law:

In India, Excise Duty was first levied on cotton yarn in
1894, and then gradually on other products like Motor
Spirits (1917), Kerosene (1922), Silver (1930), Sugar and
Matches (1934). Many more goods got covered under the
net of Excise duty after 1943.
In 1944, a consolidated Act was passed, viz., Central
Excises & Salt Act, 1944 which is still in force with the
changed name as Central Excise Act, 1944.
Earlier each commodity was covered under the Tariff
item but with the enactment of Central Excise Tariff Act,
1985, the goods are classified under various Chapter
Headings based on the classification under Harmonised
System of Nomenclature (HSN).

To avoid cascading effect (i.e. tax on tax) of taxation,

MODVAT (Modified Value Added Tax) scheme was
introduced with effect from 1.3.1986 which is now known as
CENVAT (Central Value Added Tax) scheme with effect from
1.4.2000.
MODVAT was introduced only for certain inputs in 1986
but was extended to Capital Goods also with effect from
1994.Today,practically all the inputs are covered under
Cenvat Credit scheme with major types of Capital Goods.
In 1992, Excise licensing (on annual basis) was
scrapped and was replaced by one time registration.
In 1994, system of Excise Gatepass and submission of
Price List was abolished and was replaced by Excise
Invoice.

In the same year, Dealers Registration was introduced

covering First Stage and Second Stage Dealers.
In 1995, submission of Classification List was
abandoned. Self assessment procedure was introduced
w.e.f. 1996.
In 1999 the rates of Central Excise Duty were reduced
from 22 to only three, i.e, 8%, 16% and 24% and since
2000, most of the goods attract 16% duty.
In 2000, all statutory records were abolished and a new
Section 4 and Valuation Rules were introduced for the
purpose of valuation of goods
Central Excise Rules, 1944 were scrapped w.e.f.
1.4.2001 and new set of rules was introduced.
In 2004, new Cenvat Credit Rules, 2004 were
introduced in which the Excise Duty as well as Service Tax
were included for the first time.

Legal Framework of Central Excise Law

a) Central Excise Act, 1944: This is the basic Act providing
charging of duty, valuation, offences and penalties, powers
and duties of officers, adjudication and appeals etc.
b)Central Excise Rules, 2002: These deal with the detailed
procedures of Central Excise Law.
c)Cenvat Credit Rules, 2004: These cover the provisions
relating to Cenvat credit on inputs and capital goods as
well as on Service Tax..
d)Central Excise (Appeals) Rules, 2001: These rules cover
the appellate procedure.
e)Central Excise Valuation ( Determination of Price of
Excisable Goods) Rules, 2000 :- These rules deal with the
valuation of goods where valuation is not possible under
section 4 of the Central Excise Act, 1944.

f) Central Excise (Settlement of Cases) Rules, 2001 :These contain the provisions where assessee wants to
settle the dispute with the Government.
g) Central Excise (Removal of goods at concessional rate
of duty for manufacture of Excisable Goods) Rules 2001:These relate to the procedure for removing the goods
under special circumstances.
h) Central Excise Tariff Act,1985:-This Act classifies all the
goods into various Sections,Chapters & Chapter-Headings
& rates of duties.
i) CEGAT(Procedures) Rules,1982:- These provide for the
procedures to be followed in CEGAT(now called CESTAT i.
e. Central Excise & Service Tax Appellate Tribunal.)
j) Notifications:- These are issued by Ministry of Finance &
are of two types viz. C.E. Notifications & N. T.(Non-Tariff)
Notifications- C.E. Notifications are issued when there are
any changes in the rates of duty whereas N.T.

Notifications are issued prescribing the changes in the Central

Excise Rules & Procedures.
k) Board Circulars:- Central Board of Excise & Customs, the
highest administrative body in Central Excise & Customs,
issues Circulars giving clarifications on various matters.
l) Trade Notices:-These are issued by Chief Commissioners &
Commissioners of Central Excise & Customs giving
clarifications & prescribing procedures.
m) Case-Laws:-CESTAT, High Courts & Supreme Court gives
various judgments in the Central Excise matters which are
bindings on the Trade as well as on the Department.

Administrative Set-Up of Excise Department

Ministry of Finance
|
Central Board of Excise & Customs
|
Chief Commissioner
|
Commissioner
|
Additional Commissioner
|
Joint Commissioner
|
Deputy Commissioner
|
Assistant Commissioner
|
Superintendent
|
Inspector

NATURE OF EXCISE DUTY

Constitution Of India
Entry number 84 of List I (Union list) of Seventh
Schedule to the Constitution of India reads as follows:
Duties of Excise on tobacco and other goods manufactured
or produced in India, except alcoholic liquors for human
consumption, opium, narcotics, but including medical and
toilet preparations containing alcohol, opium and narcotics.
Central Excise Act, 1944
Section 3(a) of the Central Excise Act, 1944 states that
there shall be levied and collected in such manner as may
be prescribed duties on all Excisable goods (excluding
goods produced or manufactured in Special Economic Zone
which are produced or manufactured in India and at the
rates, set forth in the First Schedule to the Central Excise
Tariff Act, 1985).

Basic Conditions
1] The duty is on goods.
2] The goods must be excisable.
3] The goods must be manufactured or produced in
India.
Goods Manufactured In S.E.Z are not
Exempted
Goods but excluded goods.
Taxable Event

Taxable Event is that event, which on its occurrence,

creates or attracts the liability Supreme Court
Good Year India Ltd. Vs. State Of Haryana (1990) 76
STC 71.

Manufacture or production in India of an Excisable

article is a taxable event for Central Excise, though duty
can be levied and collected at a later stage for

administrative convenience S.C. Shree Synthetics Ltd.

Vs. UOI 1999 (113) ELT 774.
Removal from factory is not a taxable event.

Person Liable To Pay Excise Duty

Every person who produces or manufactures any
Excisable goods or who stores such goods in a
warehouse, shall pay the duty. [Rule 4 (1)].
In case of molasses manufactured in Khandsari Sugar
Factory, the duty is payable by the person who procures it
Rule 4 (2).
Normally, the person who actually manufactures the
goods is liable to pay the duty. In case of job work, if the
conditions under Not. No. 214/86 dated 25.03.86 are
satisfied, the job worker is exempted form paying the duty
as the raw material supplier undertakes the duty payment.
Similarly, if the goods are falling under CH. No 61 or 62
(i.e, Readymade garments), the raw material supplier is
liable to pay the duty Rule 4 (3).
Duty is payable even if not collected from the customer.

Rate Of Duty
Though the taxable event is manufacture, duty becomes
payable on the removal of goods from the factory and the rate
of duty will be the rate which is applicable on the date of
removal of goods Rule 5.
In case of molasses, the rate will be the rate applicable on
the date of receipt of molasses in the factory of the procurer.
Types of Excise Duty
Basic Excise Duty (also known as Cenvat) is levied on all
manufactured goods mentioned in First Schedule to Central
Excise Tariff Act, 1985.
Ad Valorem Rate of duty is the duty which is based on the
value of goods.
Specific rates of duty is the duty which is fixed per unit of
measurement of the goods e.g, per number, per M.Ton etc.

Other Duties
In addition to Central Excise duty, following duties are
also levied on certain goods
a) Excise duty in case of clearances by EOU/FTZ/SEZ:
(Equal to Customs Duty)
b) National Calamity Contingent Duty.
c) Additional duty on goods of special importance.
d) Additional duty on textile articles.
e) Duty on medical and toilet preparation.
f) Cess:- Cesses are of various types but following
two types are very commoni) Education Cess 2% on Central Excise Duty.
ii) Secondary & Higher Education Cess 1% on
Central Excise Duty.

Manufacture, Goods and Excisable Goods.

Definition Of Manufacture:
There is no definition of manufacture under Central Excise
Law.
Section 2(f) of the Central Excise Act, 1944 states as under
Manufacture includes any process
a) incidental or ancillary to the completion of manufactured
product and
b) which is specified in relation to any goods in Section or
Chapter Notes of the First Schedule to the Central Excise Tariff
Act, 1985 as amounting to manufacture, or
c) 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 relabelling 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.

Manufacture and Production

The word production is used to cover items like tobacco,
tea, coal, ores, etc i.e, basically which is made available
from earth or by plantation. The word manufacture is used
to denote the goods which are brought into existence by
human efforts and with the help of machines etc i.e,
basically in the factories.
Most of the items which are produced are either not
excisable at all or are exempt from duty.

Concept of Manufacture as per Courts

Since there is no exhaustive definition of manufacture

in Excise Law, the definition has been emerged out of decided
Case laws by the courts and the tribunals. The most
important Case regarding manufacture is Union Of India Vs.
Delhi
Cloth Mills Co. Ltd. AIR 1963SC 791 = 1977(1) E.L.T 199.
Supreme Court has ruled out in this case that
manufacture implies a change but every change is not
a manufacture. From manufacturing process, a new and
different article must emerge having a distinctive
name,use and character.
This view has been taken by Hon. Supreme Court &
High Courts in many other cases and hence this has been
accepted by trade as well as the Department.

-- Trade Parlance Test

Trade Parlance means how the goods are regarded by
those who deal in them. For deciding as to whether a
particular process is a manufacturing process or not, this
Trade Parlance Test has to be applied, i.e, whether the
processed commodity is known differently by the trade as
compared to original commodity e.g, Assembly of
components of air conditioner in car does not amount to
manufacture as no distinct commodity comes into
existence; or printing color & logo on glass bottle is not a
manufacturing process.
Identity of original article must be lost.
Assembly can be manufacture if different
commodity comes into existence.
There can be manufacture even if the resultant
product falls under the same Chapter Heading.

Decided Case Laws on Manufacture

1] Recording of sound on duty paid magnetic cassette tapes.
2] Making Pan Masala.
3] De-husking of paddy to rice.
4] Fruit Pulp to Fruit Drink.
5] Conversion of LDPE, HDPE granules into moulding powder.
Decided Case Laws on Not Manufacture
1] Only cutting and sizing.
2] Testing and inspection.
3] Slitting of jumbo rolls into smaller rolls.
4] Cleaning and Washing.
5] Cutting and polishing granite stones.
6] Making a new model from old machine.
7] Reduction in size by drawing / cold rolling of wires.
8] Repairs and reconditioning.
9] Electroplating, polishing, coating.
10] Changing color of a product.

Deemed Manufacture
The processes explained in ii) and iii) in Section 2 (f) are
considered as processes resulting into Deemed Manufacture.
It means that applying the principles of court cases, the
processes are not actually manufacturing processes but
those are considered as manufacturing processes because
law says so.
Examples of Deemed Manufacture:
Labelling, Relabelling, Packing, Repacking.
Building a body on a duty paid chasis.
Printing, decorating or ornamenting on glazed ceramic
tiles, glass mirrors.
Galvanizing of Articles of Iron and Steel.
Recording of sound or other phenomena on audio or video
tapes.

Manufacturer:

- Sec 2 (f) states that the word manufacturer shall be understood 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.
The above definition covers two categories:
a)Persons who manufacture goods themselves on their
own account &
b)Persons who get the goods manufactured through
hired labour. A hired labour is one who hires himself out to
work for and under control of another for wages (e.g jobworker).

 Raw material supplier is not to be considered as

Manufacturer unless he undertakes to pay the duty
under Not No.214/86.
Independent contractor is a manufacturer even if he
manufactures the goods in the premises of the raw
material supplier.
Brand name owner is not the manufacturer, even if he
supplies the material.
Loan Licensee is not the manufacturer.
Labour Contractor, supplying only labour, is not the
manufacturer.

Goods

Definition: There is no definition of goods in Central Excise

Law.
Sale Of Goods Act, 1930 defines goods as follows:
Goods means any kind movable property other than
actionable claims and money and includes stock and
shares, growing crops,grass and things attached to and
forming part of the land which are agreed to be severed
before sale or under the contract of sale.
Goods must be movable:
Immovable Property or property attached to earth is not
goods and hence duty cannot be levied on it. e.g.
construction of building, plants, bridges etc are immovable
property and not goods.

Goods must be marketable

Supreme Court has decided in many cases that the
goods must be capable of being bought and sold in the
market. Those must be known in the market. It is also ruled
out that actual sale is not necessary. Similarly, because an
item is mentioned in the Tariff, it does not become dutiable
unless it is marketable e.g. Crude PVC films manufactured by
the assessee for captive consumption are not marketable at
that stage and hence are not dutiable. In the case of Indian
Aluminium Co. Ltd, the Supreme Court has decided that only
because an item is sold, it does not become goods if it is not
known as a commercial product in the market e.g Dross and
Skimmings arising during manufacture of Aluminium.

Some Examples of Goods

Electricity, Gas and Steam,Waste and Scrap.
Drawings and Designs.
Intermediate goods, if those are marketable.
What are not Goods:
Immovables are not goods. Plant and Machinery
erected at site is immovable property and are not goods.
Huge tanks, though not embedded to earth, but erected at
site, stage by stage, cannot be physically moved as such
without dismantling and hence are not goods. Trusses,
columns and structures erected at site are not movable
and hence are not Goods.
Turn key projects consisting of bought out items,
installation and supervision are not goods if finally the
equipment is attached to earth.
Goods having very short life are not goods e.g, sand
moulds used in foundries.

Excisable Goods

One of the essential conditions is that the Goods must

be excisable.
Section 2 (d) of the Central Excise Act, 1944 defines
Excisable goods as Goods specified in the First and the
Second schedule to the Central Excise Tariff Act, 1985 as
being subject to a duty of excise and includes salt.
Explanation to Section 2(d) has been added which
states that Excisable goods includes any article, material
or substance which is capable of being bought & sold for a
consideration & such goods shall be deemed to be
marketable.
Excisable but exempt goods are those goods which are
mentioned in the schedules to CETA, 1985 but exempt
by a notification.

 Non Excisable Goods are those goods which are not

mentioned in the schedules.
Goods with Nil rate of duty are those goods which are
mentioned in the Schedules with a rate of duty
mentioned as Nil against them.

CLASSIFICATION
Introduction:
Excise Duty is levied on all the Excisable Goods
manufactured in India and hence thousands of goods
attract the duty. For the purpose of proper identification
and differentiation of the goods, it becomes necessary to
group them in some logical method. This is called the
classification of goods.
Background of Classification:
The need for classification was felt all over the world
and hence World Customs Organisation developed a coding
structure which is known Harmonized System Of
Nomenclature (HSN). This was not followed in India till 1986.
Till that time, we were having our own classification which was
different for Central Excise and for Customs. This was
creating lot of problems in our international trade and hence in

order to have uniformity, we also adopted HSN for the

purpose of classification of goods for Central Excise as well
as Customs purpose.
Earlier each group of goods used to be called Tariff
Item whereas now, it is known as Chapter Heading. In
1985, Central Excise Tariff Act was passed which became
effective from 28.02.1986.
Central Excise Tariff Act, 1985
This Act is one of the smallest Acts in our country which
contains only 4 sections. There are two schedules to this
Act which are as follows
First Schedule: This contains a list of goods on which
Basic Excise Duty (CENVAT) is levied. This is divided
into 20 Sections and 96 Chapters.
Second Schedule has been abolished.

Third Schedule: This contains a list of goods which are

covered under MRP based valuation as per Section 4A of
the Central Excise Act, 1944.
Sections Under CETA:
First Schedule covers almost all the goods. It is divided
into 20 Sections and each Section contains various Chapters.
A Section is a broad group of goods whereas Chapters contain
further sub groups of the goods.Following is the list of
Sections along with the broad groupings

Section No.
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI
XVII
XIII
XIX
X

Section Heading
Chapter No.
Animal products
2 to 5
Vegetable products
7 to 14
Animal or vegetable fats
15
Prepared food stuff, beverages
16 to 24
Mineral products
25 to 27
Chemicals fertilizers soaps etc.
28 to 38
Plastics and rubber and articles
39 to 40
Leather and articles
41 to 43
Wood, cork, straw and their articles
44 to 46
Pulp, paper, paperboard and articles
47 to 49
Textile and textile products
50 to 63
Footwear, head gear, umbrellas etc.
64 to 67
Articles of stone, plaster, ceramic glass
68 to 70
Pearls and precious metals
71
Base metals and articles of base metals
72 to 83
Machinery and mechanical appliances etc. 84 & 85
Vehicles, aircraft, vessels etc.
86 to 89
Optical, photographic, medical, clocks etc. 90 to 92
Arms and ammunitions
93
Miscellaneous manufactured articles
94 to 96
[ Note : - Chapter numbers 1,6,10,12 and 77 are blank ]

Chapters under CETA :

Each Section is subdivided into Chapters. As mentioned
earlier, there are 96 Chapters out of which 5 Chapters are
kept blank for future purpose. Section contains a broad
grouping where as Chapter contains further classification
of goods in that broad group. e.g. Section XV contains
Base Metals and Articles of Base Metals. It contains the
following Chapters

CHAPTER NO.
Chapter 72
Chapter 73
Chapter 74
Chapter 75
Chapter 76
Chapter 77
Chapter 78
Chapter 79
Chapter 80
Chapter 81
Chapter 82

Chapter 83

DESCRIPTION
Iron and steel
Articles of iron and steel
Copper and articles thereof
Nickel and articles thereof
Aluminum and articles thereof
Blank
Lead and articles thereof
Zinc and articles thereof
Tin and articles thereof
Other base metals
Tools, implements, cutlery, spoons and
forks of base metals, parts thereof of base
metals
Miscellaneous articles of base metals

Chapter Heading and Sub-Heading number :

Each Chapter is further divided into Chapter Headings
and Chapter Subheadings. Chapter Heading denotes a
particular class of goods within the Chapter whereas Chapter
Sub-Heading denotes further classification of goods within
that Chapter Heading. A sample of Chapter 78 is shown
below for better understanding : Chapter 78
Lead and Articles thereof
Headings No. Sub-Heading No. Description of goods Unit Rate of duty
(1)
(2)
(3)
(4)
78.01
Unwrought Lead
780110 00
- Refined Lead
Kg.
8%
7801 91 00

-Other
-- Containing by weight
antimony as the principle
other element
Kg.

8%

Significance of Dashes :Single Dash ( - ) at the beginning of the description

indicates a group, whereas Double Dashes ( - - ) indicates a
sub group .Triple Dashes (--- ) &
Four Dashes ( ----) indicate sub-classification of the product
immediately preceding the triple or four dashes.

Tariff Rates Of Duty & Effective Rates of Duty:

Column No. 4 in the schedule indicates the rate of duty
applicable on the goods. These rates are suggested by the
ruling Government and are approved by the Parliament.
These rates are called Tariff Rates and are maximum rates
at which the duty can be levied by the Government (barring
emergency situations).
These rates need not be effective rates of duty. If the
government decides to give partial or full exemption to the
goods, Government issues notifications prescribing such
exemptions and then such rates become the effective rates
at which the duty becomes payable by the assesses.

Rules for Interpretation

C.E.T.A. 1985 contains five rules for interpretation
summary of these rules are as under
Rule 1 :- The titles of Sections and Chapters are provided for
ease of reference only. For legal purpose classification shall
be determined according to the terms of headings and relative
Section or Chapter notes.
Rule 2 (a) :- If incomplete or unfinished goods have attained
the essential character of complete or finished goods, then
any reference in a heading shall apply to such incomplete or
unfinished goods.e.g. Motor vehicle not fitted with tyres or
battery, bicycles without saddles and tyres. Chapter heading
will also apply to the goods complete or finished removed
unassembled or disassembled.e.g. SKD or CKD conditions.
(b) :- Any reference in a heading to a material or substance
shall be taken to include a reference to mixtures or
combinations of that material, or substance with other
materials or substances e.g. Articles of gold will also include
an article which is made partly of Gold.

Rule 3 (a) :- The heading which provides the most specific

description shall be preferred to a heading providing a more
general heading. VIP bag is a Plastic Article (Ch.No.39) in
general paralance but there is specific entry for
Suitcase/Briefcase under Chapter Heading No. 4201.10 and
hence it should be classified under this heading only.
(b) :- Mixtures, composite goods consisting of different
materials, components etc. , which cannot be classified by
reference to (a) above shall be classified as they consisted of
material which gives them their essential character, e.g. Pen
Stand with clock will be regarded as Pen stand only and not
as Clock.
(c) :- When the goods cannot be classified in accordance to
above rules, they
shall be classified under the heading which occurs last in the
numerical order.e.g. Electrical insulating self adhesive tape can
be classified as self adhesive tape under Chapter No. 39.19 as
well as Electrical insulator under chapter number 85.46. Hence
it should be classified under Chapter No. 85.46.

Rule 4 :- Goods which cannot be classified in accordance with

the above rules shall be classified under the heading
appropriate to the goods to which they are most akin (similar).
Rule 5 :- Sub-headings can be compared only at the same
level i.e. if one heading contains 5 6 Sub-headings, these
Sub-headings can be compared with each other. Similarly this
rule states that Section Notes and Chapter Notes also will
apply, unless the context otherwise requires.
General Explanatory Notes :The interpretation rules are also followed by two
explanatory notes viz.
1) These relates to dashes &
2) This states that % indicates % to value of the goods.

4.10 Principles of Classification :1] Trade Paralance :While classifying the goods, most important test of trade
paralance must be applied i.e. how the goods are
understood by the people who deal in them e.g.
a) Glass Mirror should not be classified as articles of
glass but it should be considered as Mirror.
b) Plastic torch is not an article of plastic but it is different
commodity.
2] Statutory definitions overrides Trade Paralance.
3] H.S.N & Classification: C.E.T.A.,1985 nowhere states that notes in HSN will be
applicable for interpreting the Tariff but Supreme Court and
other have consistently taken a stand that HSN can be
taken as a basis for classification unless Tariff Heading is
not aligned with HSN.

4] End Use & Classification :Generally end use is not an important criteria for
classification unless classification is related to function of
goods. e.g. Laminated Safety Glass will be classifiable as
Laminated Safety Glass only even if it is used a part of
Motor Vehicle. However Plastic Pipes and pipe fittings
manufactured with an intention of being used as a part of
irrigation system should be classified as parts of irrigation
system only and not as Plastic Pipes.
5] Dictionary meaning /Technical Literature: In absence of any statutory definition, dictionary
meanings or technical literature can be referred to for the
purpose of classification.
6] Advertisement / product literature: This cannot be considered for the classification.

6] Classification of Parts: a) Classification of parts is relevant for the parts of

machinery, equipments, vehicles, etc. covering Chapter
Nos. 82 to 96. Relevant Section Notes and Chapter
Notes mention about the classification of parts falling
under the respective Section and Chapters.
b) Normally, parts suitable solely for a particular
machine should be classified in the same Heading
Number in which main item falls. Many Chapter
Headings are specifically created for the parts e.g.
C.H.No 87.08 covers parts of motor vehicles, C.H.No.
85.38 covers parts of control panels, boards, etc.
7] Parts of general use are defined under Note 2 to
Section XV which includes springs, bolts, screws, tube
and pipe fittings, ropes, cables, etc. Such parts of
general use should be classified in their respective
Chapter Headings and not as a part of a machine or
equipment in which they are used.

d) Part of part is part of whole e.g. tyre is a part of

bicycle, valve is a part of tyre, hence valve is a part of
bicycle.
e) Parts are different than Accessories: Parts are
essential for the functioning of the article, whereas
accessories are not essential but they add to the utility
of the article, e.g. Engine of a scooter is a part whereas
mirror is an accessory.

VALUATION.

Basis Of Calculation Of Duty:

i) Assessable value under section 4 (Ad Valorem duty)
ii) Maximum Retail Price Under Section 4A
iii) Specific duty
iv)Tariff Value.
Assessable Value under Section 4:
On most of the goods, the duty is levied on Assessable
Value. This is called Ad-Valorem Duty. How to decide the
Assessable Value is a matter of dispute for so many years and
hence a detailed study of various provisions and case laws is
required to understand the concept of valuation.
Section 4 of the Central Excise Act, 1944:
This Section prescribes the method of deciding the value of the
goods.

Section 4 (1) reads as under

Where under this Act, the duty of Excise is chargeable
on any excisable goods with reference to their values, then, on
each removal of the goods, such value shall
In a case of where the goods are sold by the assessee, for
delivery at the time and place of the removal, the assessee
and the buyer of the goods are not related and the price is the
sole consideration for the sale, be the transaction value;
In any other case, including the case where the goods are
not sold, be the value determined in such manner as may be
prescribed.
Essential Conditions Under Section 4 (1)(a)
1] Goods must be sold
2] Delivery at the time and place of removal is important.
3] Assessee and buyer should not be related to each
other.
4] Price is the sole consideration for the sale.

Place Of Removal:
It means a) a factory or any other place or premises
of production or manufacture of the excisable goods;
b) a warehouse or any other place or premises wherein
the excisable goods have been permitted to be deposited
without payment of duty from where such goods are removed .
Related person:
The person shall be deemed to be related if
a) they are interconnected undertakings;
b) they are relatives;
c) amongst them, the buyer is a relative and a
distributor of the assessee, or a sub-distributor of
such distributor, or,
d) they are so associated that they have interest,
directly or indirectly, in the business of each other.

Transactional Value:
It means the price actually paid or payable for the
goods, when sold, and includes in addition to the amount
charged as price, any amount that the buyer is liable to pay to,
or on behalf of the assessee, by reason of or in connection
with the sale, whether payable at the time of the sale or at any
other time, including, but not limited to any amount charged
for, or to make provision for, advertising and publicity,
marketing and selling organization, expenses, storage,
outward handling, servicing, warranty, commission or any
other matter; but does not include the amount of duty of
excise, Sales Tax and other taxes, if any, actually paid or
actually payable on such goods.

5.2.7. Essentials of Valid Sale:

Section 2 (h) of The Central excise Act,1944,
defines Sale as
Sale and Purchase within their grammatical
variations and cognate expressions, means any
transfer of goods by one person to another in the
ordinary course of trade or business for cash or
deferred payment or other valuable consideration.
Sale under Central Excise is different than Sale
under Sale of Goods Act,1930. Under Sale of Goods
Act, 1930, the property i.e. ownership must be
transferred to the buyer where as under Central
Excise,Sale includes hire purchase and lease also.
But the following are not Sale under Central Excise
a) Stock transfer i.e. transfer to depot/branch.
b) Job work/ processing.
c) Free samples.
d) Hypothecation.

a) Price must be sole consideration :This means that apart from price, no other benefit
should flow from the buyer to the seller. If there is any
additional consideration other than price, then Transaction
Value will not be the basis for the valuation of Goods.
Examples of additional consideration
a) buyer supplies material.
b) buyer supplies moulds, dies, tools etc.
b) Price Actually paid or payable :Payment should be by reason of , or in connection of
the sale :As per Oxford dictionary the meaning of by reason of is
motive or cause. This indicates cause and efect
relationship. The term connected with must be considered
to imply or substantial or direct connection and not remote
and doubtful connection. In relation to is different from in
connection with Mere relation is not enough, connection is
required.

Inclusions in Transaction Value :1] Packing charges/cost of packing material (except

durable and returnable containers)
2] Cost of drawings, designs etc.
3] Compulsory after sales service charges.
4] Royalties charge
Exclusions from Transactional Value :1] Trade Discount
2] Cash Discount
3] Interests on advances if there is no nexus( relation)
between advance and the price
4] Actual Transportation Cost
5] Transport Cost on Equalised Basis
6] Installation and Erection Expenses
7] Interest on receivable.

Central Excise Valuation (Determination of price

of Excisable Goods) Rules 2000
Rule no 1 : Short Title and Commencement.
Rule no 2 : Definitions
Rule no 3 :-Value of goods under clause (6) of sub section(1)
of section 4 of the act should be determined as per these
rules.
Rule no 4 : If the goods are not sold, then the value should be
taken on the basis of value of such goods sold by the
assessee at any other time nearest to the time of removal,
subject to reasonable adjustment. (e.g. Free samples, goods
supplied under warranty)

Rule no 5 : if the goods are sold at a different place other than

the factory gate, then the value should be taken as Transaction
Value, excluding the cost of transportation from that place of
removal up to the place of delivery. It is clarified that the cost of
transportation means either the actual cost of transportation or
the equalised cost of Transportation. It is also clarified that cost
of transportation from the factory and the place of removal is
not excludible.
Rule no 6 : If the price is not the sole consideration, the value
of the goods shall be determined as the aggregate of such
transaction value and the amount the money value of any
additional consideration flowing directly or indirectly from the
buyer to the assessee.

Examples :1] Value of materials, components, parts and similar

items related to such goods.
2] Value of tools, dies, moulds, drawings, blue prints,
technical maps and charts and similar items.
3] Value of material consumed, including packaging
materials, in the production of such goods.
4] Value of engineering, development, art work, design
work and plans and sketches undertaken elsewhere than in
the factory of production and necessary for production of
such goods.

Rule no 7 :- If the goods are sold from Depot, premises of

consignment agent or any other place from where the goods
are sold and where the seller and buyer are not related, then
the value shall be normal transaction value of such goods sold
from such other place at/ or about the same time or at the time
nearest to the time of removal.
Rule no 8 : Where the goods are consumed captively, then the
value shall be cost of production/ manufacture + 10%
Rule no 9 : Where the goods are sold to or through related
person, the value shall be normal transaction value at which
the goods are sold by such related person to the buyer or if the
goods are not sold, then the retail price of such goods. if the
related person does not sell the goods but consumes them
captively, then the value shall be determined according to Rule
8.

Rule no 10 : Where the goods are sold to or through

interconnected undertaking who is also a related person or
a holding company or subsidiary company, then the value
shall be determined in accordance with Rule 9. in any other
case, the value shall be determined as if they are not
related persons.
Rule 10A :- Where the goods are manufactured by a job
worker on behalf of a person ( i.e. principal
manufacturer) then
a) in a case where the goods are sold by the principal
manufacturer from the factory of the job worker &
where the principal manufacturer & the buyer are not
related & the price is the sole consideration , the
value shall be the transaction value of the said goods
sold by the principal manufacturer,

b) in a case where the goods are not sold by the

principal manufacturer but are transferred to some other
place from where the said goods are sold, the value shall
be the normal transaction value of such goods sold from
such other place at or about the same time or at the time
nearest to the time of removal of the said goods from the
factory of the job worker,
c) in any other case, the provisions of these rules shall
apply.
Rule no 11 : If the value of the goods can not be
determined under any of the rules, then the value shall
be determined using reasonable means consistent with
the principles and general provisions of these rules and
section 4 .

VALUE BASED ON MAXIMUM RETAIL PRICE

Section 4A of the Central Excise Act, 1944:This section specifies the circumstances and the conditions
under which the value of the goods should be determined
based on the Maximum Retail Price. These are as under:
1] The goods must be covered under the provisions of
Standards of Weights & Measures Act, 1976.
2] The goods must be covered under the Third Schedule to
C.E.T.A., 1985.
3] Third Schedule also mentions about the abatements
from M.R.P. for each goods.
4] If more than one retail price is printed on the packing,
highest of such retail prices will be considered.
5] Retail price includes all taxes, freight, commission,
packing and forwarding charges etc.
6] Where different retail sale prices are declared on
different packages for the sale in different areas, the sale price
shall be the value for such area.

So far 92 items are covered under this scheme. Some of

the examples are as follows:ITEM
ABATEMENT
1) Chocolates
30%
2) Biscuits
35%
3) Ice-Cream
30%
4) White Cement
30%
5) Tooth Paste
35%
6) Carbon Paper
35%
7) Footwear
35%
8) Glazed Tiles
40%
9) Electric Fans
35%
10) Refrigerators
35%

Certain clarifications issued by C.B.E. & C:1) If the provisions of Standards of Weights & Measures Act,
1976 do not apply, duty is payable on the basis of section 4.
2) If the goods are sold in wholesale, valuation should be as
per Section 4. hence, it is possible that the same commodity
would be sometimes assessed under Section 4 &
sometimes under section 4A.

Deemed Manufacture:As per Section 2(f)(iii), packing or repacking of the goods

covered under Third Schedule in a unit container or
labellling 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 amounts to manufacture.

Confiscation of goods : Section 4(A):

If the assessee removes the goods without declaring
the Retail Price on the packages or declares a price which
does not constitute the sale consideration or tampers with,
obliterates or alters the price after the removal of goods,
such goods are liable to confiscation.
Valuation under Job Work :Where job worker is a manufacturer (i.e. where Not. No.
214/86 is not followed), the value of the goods shall be
determined on the basis of Rule 10A of The Valuation Rules,
2000.

SPECIFIC DUTY
If the duty is payable on the basis of certain
measurement unit like weight, length, nos. etc., it is called
as specific duty. In such case value of goods has no
relevance. Examples:
1) Cigarettes other than filtered cigarettes of length Rs.
78 per Thousand not exceeding 60 mm.
2) Sugar, other than khandsari sugar-Rs. 34 per quintal
.TARIFF VALUE
In some cases, tariff values are fixed by Central
Government. This is Notional Value for the calculation of
the duty payable. This is fixed under section 3(2) of the
Central excise Act, 1944.
Presently, tariff Values are fixed only for two commodities
viz.1] Pan Masala packed in retail packs of less than 10
grams per pack.
2] Readymade garments falling under C.H. No. 6101.00 &
6201.00.

PRACTICAL EXAMPLES ON VALUATION :1] B. Ltd. manufactures two products viz. Eye Oinment & Skin
Oinment. Skin Oinment is a specified product under Section
4A of The Central Excise Act, 1944. The sales prices are Rs.
43/- & Rs.33/- respectively. Sales Price included 8% Basic
Excise Duty, 2% Education Cess & 1% Secondary & Higher
Education Cess. It also included CST of 2%.
Additional information :Units cleared :- Eye Oinment 1,00,000 units.
Skin Oinment 1,50,000 units.
Deduction under Section 4A is 30%.
Calculate the total excise duty on both products.

2] An assessee sells the goods to ABC Co. Ltd for Rs. 10,000/on 15th Dec. 2004.The buyer is a related person as
defined under Section 4(3) ( b) of The Central Excise
Act,1944. On that date, the net price ( excluding excise
duty) of related person to an unrelated buyer was
Rs.12,000/-. What will be the assessable value in each of
the following cases ?
a) The related person sells the goods to an unrelated
buyer on 5th Feb. 2004 at Rs. 12,500 exclusive of excise
duty.
b) The related person sells the goods to unrelated buyer
on 10th Feb.2004 at Rs. 11,000, exclusive of excise duty.
c) The buyer is treated as related person as it is an
interconnected undertaking in relation to manufacturer.
However the buyer is not a holding company or subsidiary
company of the assessee. Buyer & seller do not have
interest in each other.

3] An assessee has a factory at Kolkata. As a sales policy, he

has fixed uniform price of Rs. 2000/- per piece ( excluding
taxes) for sale anywhere in India. Freight is not shown
separately in his Invoice. During Financial year 2004-05, he
made following salesa) Sale at factory gate at Kolkata 1200 pieces No
transport charges.
b) Sale to buyers in Gujarath 600 pieces . Actual
transport charges incurred Rs. 28,000/-.
c) Sale to buyer in Bihar 400 pieces Actual transport
charges incurred Rs. 18,000.
d) Sale to buyers in Kerala 1000 pieces Actual
Transport charges Rs. 54,000/-.
Find assessable value.

4] Determine the assessable value in each of the following

circumstances .
Quote relevant Section/ Rule under Central Excise Law.
a) A Ltd. sold the goods to B Ltd. at a value of Rs. 100 per
unit & B Ltd. sold the goods to C Ltd. at a value of Rs. 110/per unit. A ltd. & B Ltd. are related whereas B Ltd. & C Ltd.
are unrelated.
b )A Ltd. & B Ltd. interconnected undertakings under
MRTP Act. A sells the goods to B Ltd. at a value of Rs. 100
per unit & to C Ltd. at Rs. 110/- per unit, who is an
independent buyer.
c) A ltd. sells the goods to B Ltd. at Rs. 100 per unit. The
said goods are captively consumed by B Ltd. in its factory. A
Ltd. & B Ltd. are unrelated. The cost of production of goods
to A Ltd. is Rs. 120 per unit.
d) A Ltd. sells motor spirit to B Ltd.at Rs. 31/- per Ltr. But
Motor spirit has administered price of Rs. 30/- per Ltr. fixed
by Govt.

REGISTRATION
SECTION 6 / RULE 9:Every person who produces, manufactures, carries on trade,
holds private store - room or warehouse or otherwise uses
excisable goods, shall get registered.
NOT. NO 35/2001 (N.T.) DT. 26.06.2001:
A] Application for Registration:
Every person who wants to get registered shall apply in the
prescribed Form A-1. Broad Contents of the form are as under:
1] Name and address of the applicant.
2] PAN of the Applicant.
3] Constitution: Proprietorship, Partnership, Company
4] Boundaries of the premises.
5] Name, designation and address of the person signing
the application.
6] Name, address and PAN of the Proprietor/Partner/
Director. 7] Details of the Bank Account.

8] Major Excisable Goods to be manufactured with Chapter

Heading nos.
9] Major inputs used in the manufacture with Chapter
Heading Nos.
B] Separate Registration should be obtained for each
premises.
C] Registration Certificate in the prescribed form RC containing
Registration No. shall be granted within seven days of the
receipt of the application.
D] Where the registered person transfers his business to
another person, the transferee shall get himself registered
afresh.
E] Where a registered person is a firm or a company or an
AOP, any change in the constitution shall be intimated within
30 days of such change.
F] Every person who ceases to carry on the operation shall deregister himself by making a declaration in a specified form.

G] A registration certificate shall be revoked or suspended if

the holder is found to have committed breach of any
provisions of Act or Rules.
H] A Registration Certificate or a copy of thereof shall be
exhibited in a conspicuous part of the registered premises.
I] Registration is permanent.
J] Each registered person is given Excise Control Code. This is
15-digit code based on PAN of the assessee. First 10 digits
represent PAN. Next two digits are either XM (for
manufacturer) or XD (for dealer). Last three digits are numeric
codes representing the number; assessee must mention ECC
No. in his Invoice, TR-6 Challans, ER-1 etc.

EXEMPTION FROM REGISTRATION:

Not. No. 36/2001 (N.T.) dated 26.06.2001 grants the
exemption under the following circumstances:a] If the goods are completely and unconditionally exempt
from the duty.
b] If the goods are exempt based on the value of annual
turnover of Rs. 150 lakhs subject to certain conditions.
(A simple declaration should be filed when the turnover
reaches Rs. 90.00 lakhs.)
c] If the goods got manufactured from others.
d] If the goods are manufactured in the Customs Bonded
Warehouse (i.e. EOU, FTZ, STP, etc.)
e] Wholesale and Retail Dealers are exempt from
Registration unless they want to issue Cenvatable
Invoices.
f] Users of excisable goods.
g] Job workers are exempt if the conditions under Not. No
214/86 are satisfied

6.8 -PENALTY FOR NON REGISTRATION:

Penalty under rule 25 (1) (c) can be levied up to
Rs.2,000/- or the amount of duty of contravening goods
whichever is higher. In addition, the goods can be
confiscated. Imprisonment of minimum 6 months and
maximum 7 years also can be imposed.

STORAGE & ACCOUNTING OF GOODS

MEANING OF FACTORY
Section 2 (e):
Factory means any premises, including the precincts
thereof, wherein or in any part of which excisable goods other
than salt are manufactured, or wherein or in any part of which
any manufacturing process connected with the production of
these goods is being carried on or is ordinarily carried on.
STORAGE OF GOODS:
1] Manufactured goods can be stored in a factory without
payment of duty.
2] The duty is payable only when the goods are removed
from the factory.
3] There is no separate place required to be earmarked
(earlier called as BSR) where the goods can be stored.
4] There is no time limit within which the goods should be
removed from the factory.

DAILY STOCK ACCOUNT

a) Under Rule 10 (1), a Daily Stock Account should be
maintained by every assessee.
b) There is no prescribed form of Daily Stock Account.
c) Daily Stock Account must contain the following
particulars
1] Description of goods manufactured or produced.
2] Opening balance
3] Quantity manufactured or produced.
4] Quantity removed (on payment of duty or without
payment of duty.)
5] Assessable value of goods removed
6] Duty Amount
7] Closing Balance.

d) Daily Stock Account must be maintained on a daily basis.

The postings must be completed after the end of the shift (in
case factory is running only in one shift) or before the end of
the first shift of the next day (if the factory is running in three
shifts.)
e) When entry is required to be made:
As soon as the goods are completely manufactured, duly
tested and packed, the entry should be made in the DSA.
Hence, unless the goods are in the marketable stage, entry
need not be made in DSA.

STORAGE FOR TRADING

There is no specific Rule restricting the trading activity from

the factory. But it is advisable to inform the Excise Authorities
about the same. Department has clarified that trading of
identical goods should not be done from the factory without
the prior permission of the Commissioner.
.

STORAGE OUTSIDE THE FACTORY:

Rule 4 (4) of The Central Excise Rules,2002 states that The

Commissioner may allow any assessee to store the
goods outside the factory without payment of duty subject
to certain conditions.

REMISSION OF DUTY

Once the goods are manufactured, the duty liability

arises. However, duty can be waived on the goods in the
following circumstances
a] If the goods are destroyed or damaged in the factory
by natural causes, or by accident.
b] If the goods become unfit for consumption for
marketing,
The remission can be given by The Superintendent if
the duty is less than Rs.10,000/-, by the Assistant Deputy
Commissioner.

If the duty is less than Rs.1,00,000/-, by Joint

Commissioner / Deputy Commissioner if the duty is less
than Rs.5,00,000/- and by the Commissioner if the duty is
more than Rs.5,00,000/DIFFERENCE IN DSA AND PHYSICAL STOCK:
If the goods are found short as compared to DSA stock,
the duty can be demanded and if the goods are found in
excess, the goods can be confiscated. In both the cases, the
penalty also can be levied.
PENALTY FOR NOT MAINTAINING DSA:
Under Rule 25 (1) (b), the penalty can be imposed up to
the amount of duty payable on the goods and the goods can
be confiscated.

CLEARANCE OF GOODS

INVOICE:
Clearance means removal of goods from the
factory. Rule 11 of the Central Excise Rules, 2002 makes it
compulsory to prepare an Invoice when the goods are to be
removed from the factory. It reads as under:
No excisable goods shall be removed from a
factory or a warehouse except under an invoice signed by
the owner of the factory or his authorized agent.
CONTENTS OF THE INVOICE:
1] Serial Number
2] Registration Number
3] Description and Classification of goods.
4] Time and Date of Removal.
5] Quantity and Value of the goods.
6] Rate of Duty.
7] Duty payable on the goods.

THREE COPIES OF INVOICE:

According to Rule 11, three copies of the Invoice
should be prepared as follows:
Original Copy being marked as ORIGINAL FOR
BUYER.
Duplicate Copy being marked as DUPLICATE FOR
TRANSPORTER.
Triplicate Copy being marked as TRIPLICATE FOR
ASSESSEE.
ONLY ONE INVOICE BOOK:
At any time, only one Invoice Book should be in use,
unless specially permitted by the Assistant Commissioner.
PREAUTHENTICATION OF INVOICE:
The owner or the Working Partner or the Managing
Director or the Company Secretary or any person duly
authorized for this purpose shall authenticate each foil of the
Invoice book before being brought into use.

Assessees paying duty more than Rs. 5 Crores from P.L.A.

are exempt from the pre-authentication.
In case of computer generated Invoices, authentication can
be done after those are printed.
INTIMATION OF THE SERIAL NUMBER:
Before making use of the Invoice Book, the Serial
Numbers of the same shall be intimated to the
Superintendent.
DEALERS INVOICE:
All the provisions applicable to manufacturers Invoice
are applicable to the Dealers Invoice also.In addition , such
Invoice should also contain the details about the
manufacturer, assessable value, duty paid by the
manufacturer etc.

SELF REMOVAL AND PHYSICAL CONTROL:

All goods, except Cigarettes, can be removed by the
assessee himself. This is known as Self Removal Procedure.
In case of Cigarettes, such Invoice shall be countersigned by
the Inspector of the Central Excise under his supervision. This
is known as Physical Control Procedure.
ROUNDING OFF OF DUTY IN INVOICE:
The amount of duty shown in the Invoice should be
rounded off to the nearest Rupee as provided under Section
37D of the Act, and the amount so rounded off should be
indicated both in words as well as figures.
COMPUTERISATION OF INVOICES:
1] Computerisation is freely permitted and no permission is
required.
2] Pre printed computer stationery is allowed.
3] Triplicate copy should be retained in bound book form.
.

4] Generation of serial number of Invoice by computer at the

time of printing is permitted.
5] Authentication can also be done after the Invoice is printed
CANCELLATION OF INVOICE:
1] Intimation of a cancelled Invoice should be sent to the
Superintendent on the same date.
2] Along with the intimation, the original copy of the cancelled
Invoice also should be sent to The Superintendent.
3]Triplicate copy of the invoice should be retained by the
assessee in the Invoice Book.

PREPARATION OF INVOICE WHEN GOODS ARE

DISPATCHED THROUGH MORE THAN ONE VEHICLE.
a) In such a case the assessee has to inform to Assistant
Commissioner / Deputy Commissioner at least 48 hours
prior to removal of goods.
b) Assistant Commissioner / Deputy Commissioner should
verify the details.
c) A separate invoice should be made in case of each
vehicle.
d) Manufacturer will pay the entire duty on the first such
Invoice (Parent Invoice) on the basis of entire value of the
goods.
e) The details of the removals and the duty payment shall
be entered in Daily Stock Account.

f) Photocopy of the duplicate copy of the parent Invoice duly

attested by the authorized signatory shall accompany each
conveyance.
g)CENVAT credit shall be taken only on the receipt of
Parent Invoice and the entire consignment.
WEIGHMENT OF GOODS OUTSIDE THE FACTORY:
a) In certain cases, due to non availability of
weighbridges inside the factory, the goods have to be
loaded in a vehicle and weighed outside.
b) Prior Permission should be obtained from the Assistant
Commissioner / Deputy Commissioner.
c) Permission is granted for a period of one year.

d) A pre printed serially numbered challan duly

authenticated by the Superintendent should be used.
e) A record of outward and inward movement should be
maintained.
f) Weighment should be done at the nearest
weighbridge.
g) Challan Number should be quoted on Invoice.
INVOICE FOR CAPTIVE CONSUMPTION: RULE 5 (2)
If the goods are used within the factory, the date of removal
will be the date on which the goods are issued for such use.
Only one invoice per day can be prepared.

SUPPLEMENTARY INVOICE:
According to Rule 7 (1) (b) of Cenvat Credit Rules,
2004, a supplementary invoice should be prepared for the
differential duty to be paid in addition to the original duty
amount. On the basis of such supplementary invoice, the
consignee can avail the Cenvat credit.
It is also provided that in case of fraud, suppression of
facts or willful misstatement, supplementary invoice cannot
be prepared.

CHAPTER NINE :PAYMENT OF DUTY

9.1 PERIOD FOR PAYMENT OF DUTY :Assessees who are not enjoying any exemption/
concession have to pay the duty by 5th of the next month.
Assessees who are enjoying any exemption/concession
have to pay the duty by 15th of the next month.

9.2 PAYMENT OF DUTY THROUGH CENVAT

CREDIT :Duty can be paid by utilising Cenvat credit balance
available with the assessee as on the last date of the
month.Credit on Inputs,Capital Goods as well as Input
Services can be utilized together for this purpose.

9.3 PAYMENT OF DUTY THROUGH P. L.A. :1] Personal Ledger Account is an account current in which
the assessee deposits an amount for payment of duty.
2] The money has to be deposited in any branch of State
Bank of India or any other nominated bank.
3] This account does not carry any interest & can be used
only for paying the Excise duty.
4] The amount is to be deposited through GAR-7 Challan &
the assessee gets credit for the same.When the duty has
to be paid,the amount of duty should be debited.The
balance does not get lapsed & the refund of the balance
is possible only at the time of surrendering the
Registration.P.L.A.has to be maintained in triplicate.There
is no requirement of maintaining minimum balance.

5] Two copies have to be submitted to the Excise

Department alongwith the return & one copy has to be
retained by the assessee.
6] Form of P.L.A.is prescribed by the Govt.
7] Assessees paying more than Rs.50 Lakhs from P.L.A.
shall deposit the duty electronically.

9.4 GAR-7 CHALLAN :1] This is a challan through which the amount has to be
deposited into the bank in order to take credit in P.L.A.
2] There is a prescribed form of GAR-7 Challan.
3] It is a single page challan having a provision for the
counterfoil to be retained by the assessee.

3] GAR-7 Challan should be serially numbered for each

Financial Year.
4] Account Head code has to be mentioned in GAR-7
Challan e.g.0038 is the code for Central Excise
Duty,0044 is the code for Service Tax etc.
5] Payment of rent, interest, penalty etc. should be made
directly through GAR-7 Challan & there is no need of
taking the entry in P.L.A.
9.4 DEPOSIT OF CHEQUE IS THE DATE OF
PAYMENT :Rule 8(1) provides that the date of deposit the
cheque in the Bank is considered as the date of
payment of duty unless the cheque is
bounced. Hence it is very important to take an
acknowledgement from the Bank
for the deposit of the cheque. It does not

matter even if the cheque gets cleared after few days.But

if the cheque gets bounced,then it will be considered as
non-payment of duty & penalty & interest will also be
payable.
9.5 INTEREST FOR NON-PAYMENT OR DELAYED
PAYMENT OF DUTY :Rule 8(3)of The Central Excise Rules, 2002 provides
that in case the duty is not paid in time , interest will be
levied at the prescribed rate ( at present the rate is 13%
p.a.)
Rule8(3A) of the said Rules provides that if the delay is
more than 30 days, then the assessee loses the benefit of
monthly payment of duty as well as of utilisation of Cenvat
Credit till the date he pays the outstanding duty including
interest.It means he will have to PAY the duty from PLA &
that also at the time of each removal of goods from the
factory.

CHAPTER 10 :OTHER PROCEDURES

10.1 :- PERIODIC RETURNS:Rule 12 of The Central Excise Rules, 2002 provides that
every assessee has to submit a monthly return called ER-1 by
10th of the next month.
S.S.I units have to file a quarterly return called ER-3 by
20th of the month succeeding the quarter.
Returns should be submitted to The Range Superintendent
Returns should be submitted in quintuplicate (5 copies).
There is a prescribed form of ER-1. The contents are
follows:A] Details of the manufacture, clearance & duty payable
1) Chapter Heading No.
2) Unit of Quantity
3) Quantity Manufactured
4) Quantity cleared
5) Assessable Value

6) Duty
7) Notification availed
8) Rate of duty
9) Duty Payable
10) Provisional Assessment No. (If any)
B] Details of duty paid:1) Duty Code
2) Cenvat
3) Account Current
4) Total duty Paid
C] Details of Cenvat credit availed & utilized:1) Opening Balance
2) Credit availed on Inputs
3) Credit Availed on Capital Goods
4) Total Credit availed
5) Credit utilized 6) Closing Balance

D] Details of other payment mode

1) Arrears of duty
2) Interest
3) Miscellaneous Payments
There is a separate form of Quarterly Return to be
submitted by the Registered Dealers.
Documents required to be submitted along with the
Return:1] Copies of GAR-7 Challans
2] Copies of P.L.A.
3] Summary of Excise Duty paid.
4] Details of Cenvat Credit availed.

10.2 ELECTRONIC MAINTENANCE OF RECORDS/

RETURNS
1] Any record/return can be maintained/prepared on
computer.
2] No specific permission is required.
3] Records can be kept on any electronic media e.g.
floppies, hard discs, CDs, etc.
4] The print outs of records & documents must be taken
out at the end of the month & kept in bound books, folders.
5] Proper back-ups should be taken.
6] On demand, assessee should submit the software &
hardware details to the Department.

10.3:- EXPORT PROCEDURE:A] There are two procedures of Export:1) Export without payment of duty.
2) Export under Rebate (refund).
B] The goods have to be cleared under an Invoice. In addition
to Invoice, a prescribed form A.R.E-1 has to be prepared by
the Exporter.
C] Copies of A.R.E-1 are as follows:1) Original White
2) Duplicate Buff
3) Triplicate Pink
4) Quadruplicate Green
5) Quintuplicate (Optional)

D] Distribution of ARE-1 Forms:If the consignment is cleared under the supervision of

Excise Superintendent, he will make endorsement on all the
copies of ARE-1. He will return the original & duplicate
copies to the exporter. Third copy will be sent to the officer
with whom the letter of undertaking/Bond is submitted.
Quadruplicate copy will be retained by the Superintendent.
At the time of export, original, duplicate& quadruplicate
(optional) copy will be submitted to the Customs Officer
along with the goods. These will be examined & the export
will be allowed. He will make endorsement on all copies of
A.R.E-1. The duplicate copy will be returned to the exporter.
In case of self-certification, original, duplicate &
quintuplicate copies of A.R.E-1 will be directly sent to the
customs authorities along with the goods.

Triplicate & quadruplicate copies will be submitted to the

Superintendent within 24 Hours after clearance of goods.
He will endorse both the copies & hard cover triplicate
copy to the exporter in a sealed cover to be submitted to
the customs authorities.
E] CT-1 Certificate :This is required only when Bond is executed by
Merchant Exporter. He can obtain CT-1 certificate in lot of
25.Part-I of the form is certified by the Superintendent
regarding the execution of Bond. The merchant exporter
has to send CT-1 to the manufacturer from whom goods
are to be procured for export. Before sending CT-1
certificate, merchant exporter has to debit estimated
amount of duty in the Bond Register. On the basis of CT-1
certificate, the manufacturer can clear the goods for export
without payment of duty by making suitable entries in Part
II of CT-1.

F] Letter of Undertaking/ B-1 Bond:The manufacturer-exporter can furnish a letter of

undertaking in Form UT-1.HE need not execute any
bond.UT-1 is valid for a period of 12 calendar months. The
manufacturer exporter is required to submit the proof of
export. The merchant exporter has to execute B-1 Bond
equivalent to the duty amount & he has to furnish a Bank
Guarantee equivalent to 25% of the Bond amount.
G] Export must take place within six months from the date
of removal of goods from the factory.
H] Export under rebate claim:As mentioned earlier, the goods can be exported first on
payment of duty & then claiming the rebate of duty paid. The
rebate is not available for the export made to Nepal &

Bhutan. The rebate claim can be filed with the Maritime

Commissioner or with The Assistant Commissioner with
whom the Letter of Undertaking/Bond is submitted. The
claim has to be filed within one year from the date of export.
Along with rebate claim, all the documents like ARE1,Invoice,Bill of Lading, Shipping Bill etc. are to be enclosed.
Rebate is also available of the duty paid on inputs used in
manufacture of export goods.
10.4 :- RETURN OF DUTY PAID GOODS TO FACTORY :1] Duty paid goods can be brought back to the factory as
per the provisions of Rule 16 of The Central Excise Rules,
2002.
2] The goods can be received for repairs, reconditioning,
remaking, testing or for any other purpose.
3] As soon as the goods are received, the entry should be
made in a separate register recording the details like the
description of goods, quantity, from whom the goods are
received etc.

4] The goods must accompany the duty paying document

like Invoice on the basis of which the assessee can avail
Cenvat credit as if they are inputs.
5] If the process is only repairing, reconditioning, testing
etc., the Cenvat credit has to be reversed at the time of
removing the goods from the factory after processing.
6] If the process amounts to manufacture, the assessee
has to pay the duty on the value of the goods as per the
provisions of Section 4.
7] When the goods are removed from the factory, the
suitable entries are to be made in the register.
8] If the above procedure cannot be followed, then a special
permission is required from the Commissioner of Central
Excise & Customs.

10.5 :- JOB-WORK :1] Definition of Job-work::-Not.No.214/86 dt.25-3-1986

defines job-work as processing or working upon of raw
material or semi-finished goods supplied to job-worker so
as to complete a part or whole of the process resulting in
the manufacture or finishing of an article or any operation
which is essential for the aforesaid process.
2] Job worker will be exempt from the payment of duty only
when the conditions under Not.No.214/86 are followed.
Otherwise job-worker will be considered as a manufacturer
& will be liable to pay the duty.
3] Under Not.No.214/86, following procedure is to followeda] Raw material supplier has to give an undertaking to
the Excise Department that he will be responsible for
any duty liability regarding the goods manufactured on
job-work.

b] He has to send the material on a separate Challan.

Challan should be in triplicate. Two copies should be
sent along with the material. Job-worker will have to
return the goods after job-work is complete on the
duplicate copy of the Challan.
c] A separate Register should be maintained by both i.e.
the supplier of the material & the job-worker in which
the entries are to be made about the movement of
material.
4] The goods must be returned within 180 days from the
date of removal of material.
5] In case the supplier of the material has taken any Cenvat
Credit on the material, there is no need of reversing the
credit provided the goods are returned within 180 days. If

the goods are not returned, then he has to reverse the credit.
He is entitled to take credit again when the goods are
received in the factory.
6] If the procedure under Not.No.214/86 is not followed,
then the job worker is considered as a manufacturer & he
will have to pay the duty on the assessable value which will
be calculated on the basis of Transaction Value i.e.the price
at which the goods are sold by the principal manufacturer to
his customer.
7] Only by supplying the material, the supplier does not
become a manufacturer. His liability arises only when the
undertaking is given by him under Not.No.214/86.
8] Use of own material by the job-worker is no bar under
Central Excise Law.
9] Material can be directly sent to job-worker from the
supplier of the manufacturer & the goods after job-work also
can be directly sent to the customer from the job-workers
premises.

CHAPTER 11 : CENVAT
11.1 : Background of CENVAT
CENVAT (Central Value Added Tax) has its
origin in VAT (Value Added Tax) which is common in other
parts of the world for a long time. In India, it was first
introduced with the name of MODVAT (Modified Value Added
Tax) in 1986. In the modern production methodology, raw
material passes through various processes till it reaches
finally to the ultimate user. At every stage, a new commodity
emerges which attracts various taxes like Central Excise
Duty, Sales Tax etc. This results in tax on tax which is called
cascading effect.

One of the basic principles of taxation is that tax should not

be charged on tax and to avoid this cascading effect,
MODVAT Scheme (now known as Cenvat Scheme) was
introduced. Cenvat Credit Rules were introduced for the first
time on 01.03.2000 which were revised in 2001 and 2002.At
present Cenvat Credit Rules, 2004 are in force. Broadly,
under this scheme, duty paid on inputs & capital goods &
service tax paid on input service can be utilized for payment
of Excise Duty on finished products or for payment of
Service Tax on output service.

11.2: Rule No. 1: Short Title, Extent And

Commencement:A] These Rules are called as Cenvat Credit Rules,
2004.
B] These are applicable to the whole of India but
nothing contained in these Rules relating to
availment & utilization of credit of Service
Tax apply to the State of Jammu & Kashmir.
C] These Rules came into force with effect from
10th day of Sept. 2004.

11.3: Rule No. 2: Definitions:a) Capital Goods means A] The following goods namely 1] All goods falling under Chapter 82, 84,
85, 90, Heading No. 6805,grinding wheels &
the like & parts thereof falling under
C.H.No.6804.
2] Pollution Control Equipments.
3] Components, spares and accessories of
the goods specified at (i) & (ii) above.
4] Moulds and Dies, jigs & fixtures.
5] Refractories and refractory material.
6] Tubes and pipes and fittings thereof &
7] Storage tank.

used
i) in the factory of the manufacturer of the final
products, but does not include any equipment or appliance
used in an office or
ii) for providing output service.
B] Motor vehicles registered in the name of the provider of
output service for providing specified taxable services.

b) Final Products :Final products means excisable goods

manufactured or produced from inputs or using
input services.

c) First Stage Dealer First Stage Dealer means a dealer who purchases the
goods directly from the manufacturer or from the depot of
the manufacturer or from the consignment agent of the
manufacturer under cover of an Invoice or from an importer
or from the consignment agent of the importer under cover
of an Invoice.
d) Second Stage Dealer Second Storage Dealer means a dealer who purchases
the goods from the First Storage Dealer.

e) Inputs i) Inputs means all goods, except light diesel oil, High
Speed Diesel Oil & motor spirit (petrol), used in or in relation
to the manufacture of the final products whether directly or
indirectly & whether contained in the final product or not and
includes lubricating oils, greases, cutting oils, coolants,
accessories of the final product cleared along with the final
product, goods used as paints, packing material or as fuels
or for generation of electricity or steam used for
manufacture of final products or for any other purpose,
within the factory of production.
Ii) All goods except LDO, HSD, Motor spirit & motor
vehicles used for providing any output service.
Explanation:
Inputs include goods used in the manufacture of capital
goods which are further used in the factory of production.

f) Input Service :It means any servicea) used by a provider of taxable service
for providing an output service.
b) used by the manufacturer, whether
directly or indirectly, in or in relation to
the manufacture of final products &
clearance of final products upto the place
of removal,
and includes services used in relation to
setting up, modernization, renovation or
repairs of a factory, premises of the
provider of the output services or an
office relating to such factory or premises,

advertisement or sales promotion, market research,

storage upto the place of removal, procurement of inputs,
activities relating to business, such as accounting, auditing,
financing, recruitment & quality control, coaching &training,
computer networking, credit rating, share registry, and
security, inward transportation of inputs or capital goods &
outward transportation upto the place of removal.

g) Input Service Distributor :It means an office of the manufacturer or producer of the
final products or provider of output service, which receives
invoices issued under Rule 4 A of Service Tax Rules, 1994
towards purchases of input services & issues invoice

bill or as the case may be a challan for the purposes of

distributing the credit of service tax paid on the said
services to such manufacturer or producer or provider of,
as the case may be.
h) Output Service :-

It means any taxable service provided by the provider of

taxable service to a customer, client, subscriber, policy
holder or any other person, as the case may be.
I) Job work :It means processing or working upon of raw material or
semi-finished goods supplied to the job worker, so as to
complete a part or whole of the process resulting in the
manufacture or finishing of an article or any operation which
is essential for aforesaid process.

11.4: Rule No. 3: CENVAT CREDIT:A manufacturer of the final products or service provider shall
be allowed to take credit of a) Basic Excise Duty as specified in First Schedule.
b) Additional Duty of Customs (C.V.D.)
c) Additional Duty of Excise leviable under Additional
Duties of Excise (Goods Of Special Importance )Act,
1957 & Additional Duties of Excise( Textile & Textile
Articles) Act,1978.
d)Additional duty of Customs leviable under sub-section
(5) of Section 3 of Customs Tariff Act
e) National Calamity Contingent Duty.

f) Service Tax.
g) Education Cess on Excisable Goods & Taxable
Services
h) Secondary & Higher Education Cess on Excise Duty
& Service Tax
paid on- i) any input or capital goods received in the
factory of the manufacturer of the final products or
premises of the provider of output Services,
ii) any input service received by the
manufacturer of final products or by the provider of
output services
2) Cenvat credit shall be available to the manufacturer
of the final products or to the service provider, on the
inputs lying in stock or in process or contained in the
finished goods stock on the date on which the final
products become excisable or output services
become taxable.

3) Cenvat credit can be utilized for payment of

a) Central Excise Duty on any final product,
b) Service tax on any output service,
c) Any amount equal to Cenvat Credit taken on Inputs
or Capital Goods themselves if such inputs are
removed as such or after being partially processed
or such Capital Goods are removed as such.
d) Any amount payable under Rule 16(2) of Central
Excise Rules, 2002.
4) Cenvat Credit shall be utilized only to the extent such
credit is available on the last day of the month/quarter
for payment of duty or tax in relation to that
month/quarter.

5) When the inputs or Capital Goods, on which Cenvat

Credit has been taken, are removed as such from the
factory, the manufacturer shall pay an amount equal to
the credit availed on such inputs or capital goods and
such removal shall be made under cover of an Invoice.
Such payment shall not be required to be made where
any inputs are removed outside the premises of the
service provider for providing output service. Such
payment shall also not to be made in case of Capital
Goods are removed from the premises of the service
provider.
6) If the Capital Goods on which Cenvat Credit has been
taken, are removed after being used, the manufacturer or
the service provider shall pay an amount equal to the
Cenvat Credit taken on the said Capital Goods reduced
by 2.5% of each quarter of a year or part thereof from the
date of taking Cenvat Credit.

7) If the Capital Goods are cleared as waste & scrap, the

manufacturer shall pay an amount equal to the duty
leviable on transaction value.
8) The amount paid as mentioned above shall be eligible
for taking Cenvat credit as if the person paying such
amount has paid the duty.
9) If the value of any input or capital goods before being
put to use on which Cenvat Credit has been taken is
written off or where any provision to write off fully has
been made in the books of account, then the
manufacturer shall pay an amount equivalent to
Cenvat Credit taken in respect of said inputs or capital
goods. But if said inputs or capital goods are
subsequently used in the manufacture of final products,
the manufacturer shall be entitled to take the credit paid
earlier.

10) Where on any goods , the payment of duty is ordered

to be remitted under Rule 21 of Central Excise Rules,
2002, the Cenvat Credit taken on the inputs used in
the manufacture of such goods should be reversed.
11) Cenvat Credit on the Inputs or Capital Goods
manufactured in 100% EOU, HTP & STP can be
taken as per the formula prescribed in the Rules.
12) Cenvat Credit in respect of Additional Duties of
Excise & National Calamity Contingent Duty can be
utilized only towards payment of Additional Duty of
Excise or National Calamity Contingent Duty.
13) Credit of Education Cess & Secondary & Higher
Education Cess can be utilized only for the payment
of Education Cess & Secondary & Higher Education
Cess respectively.

Rule No.4 :-Conditions For Allowing Cenvat

Credit:1] Cenvat Credit in respect of Inputs may be taken
immediately on receipt of the inputs in the factory.
2] Cenvat Credit in respect of Capital Goods may be taken
to the extent of 50% in the financial year in which the
Capital Goods are received.But credit of Additional Duty
levied under sub-section(5) of Section 3 of Customs
Tariff Act in respect of Capital Goods can be taken in full
immediately after the receipt of Capital Goods in the
factory.
3] The balance amount of credit may be taken in any
financial year provided the capital goods are in the
possession and use of the manufacturer.

This condition is not applicable to components, spares,

accessories, refractories and refractory materials, tools &
dies.
4] Whole amount of Cenvat Credit on Capital Goods is
available if the Capital Goods are removed in the same
financial year in which they are received in the factory.
5] Cenvat Credit in respect of Capital Goods shall be
allowed even if the Capital Goods are acquired on lease,
hire purchase or loan agreement from a financing
company.
6] Cenvat Credit in respect of Capital Goods shall not be
allowed to the extent of amount claimed as depreciation
under Section 32 of the Income Tax Act, 1961.

7] Inputs or Capital Goods can be sent outside to a jobworker for processing, testing, repairing, re-conditioning or
for any other purpose. Such inputs or Capital Goods must
be returned within 180 days from the date of removal from
the factory. If they are not received back within 180 days,
manufacturer has to debit the amount equivalent to the
Cenvat Credit on such inputs or Capital Goods. He can
avail the credit when the inputs or the capital goods are
received in the factory.
8] Jigs, Fixtures, Moulds and Dies can be sent out for taking
out production of goods from a job-worker.
9] Final products can be cleared directly from the premises
of the job-worker provided a prior permission is taken from
The Commissioner of Central Excise & Customs.Such
permission shall be valid for a period of one year.
10] Cenvat credit in respect of input service shall be allowed
on after the day on which payment is made of the value of
the input service & he service tax as indicated in Invoice,
bill or challan.

11.6:- Rule 5 : REFUND OF CENVAT CREDIT:

1] Cenvat credit availed on inputs used in the manufacture of
goods which are cleared for export under Bond or a letter
of undertaking can be utilized towards payment of duty on
the goods cleared for the home consumption or towards
payment of service tax on output service.
2] Cenvat credit availed on inputs used in the intermediate
products cleared for exports also can be utilized towards
payment of duty on the goods cleared for the home
consumption or towards payment of Service Tax on output
service.
3] In case such adjustment is not possible, the manufacturer
can claim refund of such Cenvat credit.
4] No such refund is permissible in case the manufacturer
avails duty drawback benefit or claims rebate of duty or
service tax.

11.7 :- Rule 6: COMMON INPUTS/INPUT

SERVICES:1] Cenvat credit shall not be allowed on such inputs which
are used in the manufacture of exempted goods or for
provision of exempted output services, except in the
following circumstances.
2] Where the manufacturer avails Cenvat Credit on inputs
or input services which are used in the manufacture of
dutiable as well as exempted final goods or exempted
output services, then the receipt, consumption and inventory
of inputs or input services meant for use in the in the
manufacture of dutiable final products/taxable output
services and the exempted goods/output services and shall
take Cenvat credit only on the quantity of inputs /input
services which are intended for use in the manufacture of
dutiable goods or taxable output services.

3] The manufacturer, opting not to maintain separate

account shall follow either of the following options
a) the manufacturer shall pay an amount equal to 5%
of the total value of exempted goods & the provider of
output service shall pay an amount equal to 6% of
value of the exempted service or
b) the manufacturer of goods or provider of service
shall pay an amount equivalent to the Cenvat Credit
attributable to inputs & input services used in, or in
relation to , the manufacture of exempted goods or for
provision of exempted services subject to the
conditions & procedure specified in Sub Rule 3(A) of
this Rule.

4] No Cenvat Credit shall be allowed on the Capital Goods

which are exclusively used in the manufacture of
exempted goods or for providing exempted service, other
than those goods which are exempted based on the value
or quantity of the clearances made in a financial year.
5] The above provisions are not applicable to the
exempted goods if they are
a)Cleared to a unit in 100% E.O.U, SEZ, STP, HTP or
b) Supplied to United Nations or an International
organization or supplied to projects for which the
exemption is granted under Not. No. 108/95 dated
28.08.95.
c) Cleared for export under Bond, or
d) Gold or Silver falling under C. H. No. 71 arising out
of manufacture of copper or zinc by smelting.

11.8 :- RULE 7 :- MANNER OF DISTRIBUTION OF

OF CREDIT BY INPUT SERVICE
DISTRIBUTOR :The Input Service Distributor may distribute the Cenvat
Credit subject to the following conditions
a) the credit distributed against a document does not
exceed the amount of service tax paid thereon,
b) credit of service tax attributable to service used in a
unit exclusively engaged in manufacture of
exempted goods or providing exempted service
shall not be distributed.
11.9 :- Rule 7A :- DISTRIBUTION OF CREDIT ON INPUTS
BY THE OFFICE OR ANY OTHER PREMISES OF
OUTPUT SERVICE PROVIDER :A service provider shall be allowed to take credit on
inputs & capital goods received , on the basis of an invoice
or a bill or a challan issued by an office or premises of the
said provider.

11.10:-Rule 8:- STORAGE OF INPUTS OUTSIDE

THE FACTORY:
The Deputy Commissioner/Assistant Commissioner may, in
exceptional circumstances, allow the manufacturer to store
the inputs on which Cenvat Credit has been taken, outside
the factory premises if there is shortage of space.
Provided if such inputs are not used in the manner
specified in these Rules, the manufacturer shall pay an
amount equal to the credit availed in respect of such inputs.

11.11:-Rule 9: DOCUMENTS AND ACCOUNTS:1] Cenvat Credit can be taken on the basis of any of the
following documents
a) An Invoice issued by
i) A manufacturer from his factory or from his depot
or from the place of his consignment agent.
ii) An importer from his depot or his consignment
agent.
iii) A first stage dealer or a second stage dealer.
b) A supplementary invoice issued by a manufacturer
or importer, in case additional duty has to be paid
except in cases where the duty is payable on
account of fraud, collusion or misstatement or
suppression of facts or contraventions of any
provisions of Acts or Rules.

c) A bill of entry.
d) A certificate issued by an appraiser of customs in
respect of goods imported through a Foreign Post
Office.
e) A challan evidencing payment of Service Tax by the
person liable to pay Service Tax ,
f) An invoice , bill or a challan issued by Service
provider,
g) An invoice, bill or challan issued by an Input Service
Distributor.

2] Cenvat Credit shall not be denied on the grounds that

any of the documents mentioned above does not contain
all the particulars required to be contained if such
documents contains details of payments of duty,
description of the goods, assessable value and address
of the factory or warehouse.
Provided the Deputy Commissioner/Assistant
Commissioner is satisfied that the duty or the Service tax
of which the Cenvat Credit has been availed, has been
paid on input or input service& such inputs or input
service have been received & accounted for in the books
of account of the receiver, he may allow the Cenvat
Credit.
3] The Cenvat Credit on the goods purchased from a first
stage or a second stage dealer shall be allowed only if
such dealer maintains proper records.

4] The manufacturer shall maintain proper records for the

receipt, disposal, consumption and inventory of the inputs
and capital goods containing the information regarding
the value, duty paid, the person from whom the inputs or
Capital Goods have been procured and the burden of
proof regarding the admissibility of Cenvat Credit shall lie
upon the manufacturer taking such credit.
5] The manufacturer or service provider shall maintain
proper records containing the abovementioned
information in case of input services also on which credit
has been availed.
6] The manufacturer shall submit within ten days from the
close of each month to the Superintendent a monthly
return in the prescribed form. SSI unit shall file a quarterly
return within 20 days from the close of the quarter.

7] First Stage /Second Stage Dealer shall submit a return in

the specified form within 15 days from the end of the
quarter.
8) Service provider shall submit a return in the specified
form within 25 days from the end of the half year.
9) Input Service Distributor shall submit a half yearly
statement giving the details of credit received &
distributed during the half year within 25 days from the
end of half year.

11.12 :- Rule 9A :- INFORMATION RELATING TO

PRINCIPAL INPUTS
A manufacturer shall furnish to the Superintendent,
annually by 30th April of each financial year, a declaration
in the prescribed form,in respect of each of the excisable
goods manufactured , the information about quantity of
principal inputs required for use in the manufacture of unit
quantity of each final product.

He shall also submit the information within 10 days of each

month, about the receipt & consumption of each principal
input. At present, the manufacturers who are paying the
duty more than Rs.1 Crore p.a. from P.L.A. ,only have to
submit the above information.

11.13:-RULE 10: TRANSFER OF CENVAT

CREDIT:1] If a manufacturer shifts his factory to another site or the
factory is transferred on account of change in ownership
or on account of sale, merger, amalgamation, lease or
transfer of the factory, then, the manufacturer shall be
allowed to transfer the Cenvat Credit lying unutilized in his
account to such transferred, sold, merged, leased or
amalgamated factory.

2] The transfer of Cenvat Credit shall be allowed only if the

stock of inputs as such or in process or the Capital Goods
are also transferred along with the factory to the new site
or ownership.
3] Similarly, the credit of Service Tax also shall be
transferred in the abovementioned circumstances.

11.14 :-RULE 11: TRANSITIONAL PROVISION:A manufacturer who opts for SSI exemption and who has
been taking Cenvat Credit on inputs before such option is
exercised, shall pay an amount equivalent to the Cenvat
Credit allowed to him in respect of inputs lying in stock or
in process or contained in final products lying in stock on
the date when such option is exercised and if any balance
is left shall lapse.
Similar provisions apply to the service provider.

11.15 :- Rule 12 :- SPECIAL DISPENSATION IN RESPECT

OF INPUTS MANUFACURED IN FACTORIES LOCATED
IN SPECIAL AREAS OF NORTH EAST REGIONS,KUTCH
DISTRICT, JAMMU & KASHMIR & SIKKIM.
11.16 :- Rule 12A :- PROCEDURE & FACILITIES FOR
LARGE TAX PAYER :11.17 :- Rule 12 AA :- POWER TO IMPOSE RESTRICTIONS
IN CERTAIN TYPES OF CASES.
11.18 :- RULE 13 :- POWER OF CENTRAL GOVT.TO
NOTIFY GOODS FOR DEEMED CENVAT CREDIT.

11.16:- RULE 15: CONFISCATION AND PENALTY:

1] If any person takes Cenvat Credit in respect of inputs or
capital goods wrongly or without taking reasonable steps or
contravenes any of the provisions of these rules, shall be
liable to a penalty not exceeding the duty on the excisable
goods or Rs.2,000 whichever is greater.
2] In case, where a Cenvat Credit is taken wrongly on
account of fraud, willful misstatement, collusion or
suppression of facts, then the manufacturer shall also be
liable to pay penalty as per Section 11AC of the Act.

3] If any person takes Cenvat Credit in respect of Input

Service wrongly or without taking reasonable steps, then
the person shall be liable to a penalty not exceeding
Rs.2,000/-.
4] In case, where a Cenvat Credit in respect of Input
Service is taken wrongly on account of fraud, willful
misstatement, collusion or suppression of facts, then the
person shall also be liable to pay penalty as per Section
78 of the Finance Act, 1994.

11.16 :- Rule 15 A :- GENERAL PENALTY :Whoever contravenes any provision for which no penalty
has been provided in the rules, ha shall be liable to a
penalty which may extend to Rs.5,000/-.

11.17 :- Rule 16 :- SUPPLEMENTARY PROVISION

CHAPTER 12 : EXCISE AUDIT

12.1 CHECKS BY DEPARTMENTAL OFFICERS :Various checks have been devised by Excise Department to
reduce revenue loss. These are as undera) Visits by officers.
b) Stock Taking.
c) Road checks.
d) Preventive checks.
e) Central Excise Intelligence.
f) Excise Audits i) Departmental Audit , ii) EA-2000,
iii) CERA Audit. iv) Valuation Audit v) Cenvat Credit
Audit.
12.2 DEPARTMENTAL AUDIT :a) Audit means verification & scrutiny of records &
documents in order to establish that the assessee is following
all the rules & regulations & maintaining records properly.

b) Audit section works under each Commissionerate &

normally headed by Assistant Commissioner/Deputy
Commissioner.
c) Audit party normally consists of 2/3 inspectors & one
Superintendents. These Audit parties visit the factories
periodically.
12.3 FREQENCY OF AUDIT :C.B.E.& C.circular No.731/47/2003 CX. Dt.1-8-2003
prescribes as follows
a ) All EOU units Mandatory audit every year.
b) Units paying duty over Rs. 1 Crore p.a. through PLA
Audit of 10 days
every year.
c) Units paying duty between Rs. 10 Lakhs & Rs. 1 Crore
p.a. through P.L.A. Audit of 7 days at least once in two
years.
d) Units paying duty less that Rs. 10 Lakhs p.a. through
P.L.A Audit of 5 days at least once in five years.

d) Units paying duty less that Rs. 10 Lakhs p.a. through P.L.A
Audit of 5 days at least once in five years.
12.4 :- EXCISE AUDIT -2000 :Since most of the statutory records were abolished in the
year 2000, routine Departmental Audit became redundant.
Hence Govt. introduced E.A.2000 in December 1999 which is
based on audit system followed by Govt. of Canada. This is a
very exhaustive audit covering all the aspects of the business.
12.5 :- DEPARTMENTAL INSTRUCTIONS FOR E.A.2000 :[ C.B.E.& C.Circular No.491/57/99 dt.28-10-1999,
514/10/2000 dt.16-2-2000 & 551/47/2000 dt.27-9-2000 ]
a) 15 days prior notice should be given to the assessee.
b) Audit should normally completed within 5 to 7 days.
c) Assistant Commissioner/Jt. Commissioner should join
the audit team for few days.

d ) Audit party will not issue any summons. It will not carry
out searchor seizure.
e) Audit party will not issue show cause notice.
f) Proper data base will be created.
g) It will be carried out by trained staff.
h) Asst.Director ( Cost) must accompany the audit team if
required.
i) Audit party must check source documents/records relating
to production, storage, clearances etc.
k) Audit work shall be properly documented in working
papers.
l) Assessee profile shall be created.
m) Director General ( Audit) will monitor the work of E.A.
-2000.

12.6 :-PROCEDURE FOR E.A.2000 :C.B.E.& C. has explained the following procedure
a) Selection of assesee Selection of assessee is based on
risk factors i.e.assessees who have bad track record like
evasion cases, major audit objections etc.
b) Desk Review :- Advance information is to be gathered
about the assessee like published Balance Sheet, annual
statements etc.
c) Gathering & documenting assessee information :- This is
normally done by sending a questionnaire to the assessee.
d) Touring of premises :- Auditors actually visit the factory
premises to see the running of the operations, procedures,
records etc.
e) Audit Plan :- Based on the information & experience, an
Audit Plan is prepared to list areas which appear to be
vulnerable from revenue point of view.

f) Verification :- Verification means conduct of actual audit.

g) Audit objection & Audit para :- If auditor finds instances of
short payment of duty, he is required to discuss the issue
with the assessee. If he is not satisfied with the explanation,
he will record the same as Audit Objection or audit Para in
his report.
h) Ignore procedural lapses :- Auditor is advised not to take
formal objection to mere procedural lapses. He should
discuss the same with the assessee & advise him to follow
the correct procedure.
i) Audit Report :- At the end of audit , auditor should prepare
Audit Report incorporating all audit objections.

12.7 RECORDS WHICH CAN BE VERIFIED :1] Daily Production Reports

2] Daily Stock Account
3] Invoices
4] Cenvat Credit Invoices
5] Cenvat Credit Registers
6] TR-6 Challans
7] P.L.A.
8] Goods Receipt Notes.
9] Gate Registers
10] Input- Output Ratio
11] Physical Stock Taking Fi
12] Material Issue Notes
13] Scrap Records
14] P& L A/C & B/ Sheet
15] Debit Notes & Credit Notes.
16] Transport Documents
17] Power Consumption
18] Employee Records
19] Cost Records/ Cost Audit File 20] Income Tax Returns
21] Sales Tax Returns
22] Purchase Register
23] Internal Audit Reports
24] Pending Excise Cases
25] Marketing Pattern
26] Various Discounts offered
27] Fixed Assets Register
28] Job work Records.
29] Stock declared to Banks.
30] Excise Correspondence File

12.8 :- CERA AUDIT :Comptroller & Auditor General of India also carries out
audit. This is called Central Revenue Audit or CERA. This
Audit Report is submitted to the President of India & laid
before each house of the Parliament. Frequency
of CERA is dependent upon the revenue figures i.e. CERA is
conducted of large units.
12.9 ;-VALUATION AUDIT :Section 14 A of The Central Excise Act, 1944 provides for
Valuation Audit if the Commissioner is of the opinion that the
value has not been correctly declared by the assessee. This
has to be carried out by a practicing Cost Accountant after an
order has been issued by The Assistant Commissioner/
Deputy Commissioner with the prior approval of The
Commissioner. Cost Accountant will be appointed by The
Chief Commissioner. The Audit fees & expenses will have to
be paid by the Excise Department.

12.10 ;- CENVAT CREDIT AUDIT :Section 14 AA of The Central Excise Act, 1944 provides
for Cenvat Credit Audit when The Commissioner has reason
to believe that Cenvat credit availed is not normal or the
credit has been availed on account of fraud, suppression of
facts etc. This has to be ordered by the Commissioner. This
also has to be carried out by a practicing Cost Accountant
appointed by TheCommissioner.

CHAPTER 13 :- SMALL SCALE INDUSTRIES

13.1 :- NO DEFINITION OF SSI UNIT :Nowhere in Excise Law, the word SSI is used.Hence
there is no definition of SSI. Everywhere the words like the
units enjoying exemption based on the value of clearances
have been used.
13.2 :- NOTIFICATION NO.8/2003 DT.1-3-2003 :This Notification allows the manufacturer to enjoy the
exemption from the payment of duty up to a clearance value
of Rs.150 Lakhs in any financial year provided he does not
claim Cenvat Credit on inputs, Capital Goods & Input
Services. After crossing this limit, he has to start paying the
duty & then he can claim Cenvat Credit.

13.3 :- CONDITIONS FOR CLAIMING THE EXEMPTION :1] Manufacturer has to opt for the exemption at the
beginning of the year i.e. before the first clearance made in
the financial year. He has to file a declaration to that effect
with the Assistant Commissioner.
2] Once such option is exercised, it cannot be changed in
that financial year.
3] The exemption is available for Basic Excise duty only.
4] The exemption is available for every financial year.
5] The Notification also exempts the goods manufactured
& captively consumed.
6] The exemption is available only to the specified goods.
7] For calculating the turnover, the value of clearances
from all the factories of a manufacturer is to be considered.
8] The aggregate value of the clearances of all excisable
goods by a manufacturer from one or more factories or from
a factory by one or more manufacturers should not exceed
Rs.400 Lakhs in the preceding financial year.

9] For determining the aggregate value of the clearances , the

following clearances shall not be taken into account ;a) Clearances of exempted goods or the goods with Nil
rate of duty.
b) Clearances of goods exported.
c) Clearances of goods bearing Brand Name or Trade
Name of another person.
d) Clearances of goods captively consumed in the factory.
10] The exemption is not available to the goods bearing
Brand Name/Trade Name whether registered or not. Brand
Name/Trade Name means a name or mark such as symbol,
Monogram, label, signature or invented word or writing
which is used in relation to such specified goods so as to
indicate a connection in the course of trade between such
specified goods & some person using such trade name or
mark.

Branded goods bearing a brand name of Khadi & Village

Industries Commission, National Small Industries
Corporation & other specified organizations shall enjoy the
exemption. Similarly the branded goods being in the nature
of Components & parts of any machinery or equipment or
appliances & are cleared for use of original equipment or
appliances are also eligible for exemption provided the
procedure laid down under Central Excise (Removal of
goods at concessional rate of duty for manufacture of
excisable goods ) Rules,2001 is followed. The exemption is
also available to the branded goods manufactured in a
factory located in a rural area.
11] The aggregate value of clearances for this Notification
means the value of clearance for home consumption
only.These clearances include the clearances made to
Nepal & Bhutan.

13.4 :- OTHER EXEMPTIONS TO SSI UNITS ;1] Goods manufactured in rural areas by Co-operative
societies.
2] Specified goods of Village & Cottage industries.
13.5 :- OTHER PREVILEGES OF SSI UNIT :1] Quarterly Return.
2] No declaration upto a turnover limit of Rs.90 Lakhs.
3] No visits of Excise officers without written permission
from the
Assistant Commissioner.
4] Audit once in two years.

CHAPTER 14 :ASSESSMENTS,
DEMANDS,RECOVERY & APPEALS ETC.
14.1 :- ASSESSMENT :a) Assessment means determining the tax liability.
b) Assessee :- Rule 2(e) of Central Excise Rules, 2002
states that Assessee means any person who is liable to
pay duty or a producer or a manufacturer of excisable
goods or a registered person of a private warehouse in
which excisable goods are stored & includes an authorized
agent of such person.
c) Self assessment :- Except in case of cigarettes,
assessment is self-assessment which means assessee
has to himself assess the duty payable on excisable goods.
He has to prepare the Invoice on which he has to show the
assessable value & the duty amount. He has to submit a
monthly/quarterly return, maintain all the necessary records
himself. The departmental officers will scrutinize the returns
, if required, ask certain clarifications from the assessee.
However, no assessment order is issued.

d) Physical control :- In case of cigarettes,the Superintendent

or Inspector shall assesee the duty payable before removal
of goods.Each Invoice is countersigned by the Central
Excise Officer & the goods are physically removed under
their supervision.
e) Provisional assessment :- Rule No.7 of Central Excise
Rules, 2002 makes a provision for Provisional
Assessment.It has to be requested by the assessee.He can
request when he is unable to determine the value of the
goods or he is unable to determine the rate of duty.He has
to apply to the Assistant Commissioner giving the reasons
for same. Assistant Commissioner, if he is satisfied, shall
order for the provisional assessment. Assessee has to
execute a Bond in the prescribed form. The Invoices & the
returns should be marked as Provisionally assessed vide
order No.--- dated ---. The Assistant Commissioner must
pass the final order within six months from the date of the
provisional assessment. Extension up to one year can be

permitted by the Commissioner & beyond one year by the

Chief Commissioner. After final assessment, differential duty
will have to be paid or the refund can be filed.Interest also is
receivable or payable from the date of final order till the date
of payment of duty or refund.No penalty will be levied. Final
order is appellable.
f) Best Judgment Assessment :- There is no specific provision
for Best Judgment assessment in Excise Rules except Best
Judgment valuation under Central Excise Valuation Rules,
2000.C.B.E.&C. in its manual has stated that that where
assessee fails to provide records or information &
department is unable to issue demand, best judgment
method should be used to raise the demand on collateral
evidence.

14.2 :- DEMAND OF CENTRAL EXCISE DUTY :a) Demand of duty may arise in the following casesi) Non-acceptance of assessable value by Excise
authorities.
ii) Exemptions, notifications claimed by the
assessee are not acceptable to the Department.
iii) Classification is not acceptable.
iv) Goods removed without payment of duty.
v) Erroneous refund of duty.
b) Show Cause Notice :Section 11A of Central Excise Act,1944 states that
when the duty is not paid or short paid or not paid or
short levied or not levied or any duty which has been
erroneously refunded , a short Cause Notice can be
issued within a period of one year from the relevant
date. In case of fraud, suppression of facts etc.,

the show cause notice can be issued within a period of

five years from the relevant date. The relevant date
means the date on which the monthly/quarterly return is
filed or if the return is not filed, then the date on which the
return should have been filed. In case of erroneous
refund, the date is the date on which the refund has been
paid.
14.3 OTHER POINTS RELATING TO SHOW CAUSE
NOTICE :1] Simple letter asking to pay the duty is not a Show
Cause Notice.
2] No Show Cause Notice should be issued in case the
assessee pays the duty before issue of Show Cause
Notice.
3] Show Cause Notice covering one year period can be
issued by The Superintendent if the duty amount is
below Rs. 2.00 lakhs. If the duty involved is more than

Rs. 2.00 lakhs but below Rs. 20.00 lakhs, the Show Cause
Notice can be issued by The Assistant Commissioner & if
the demand is more than Rs. 20.00 lakhs, the same has
to be issued by The Commissioner.In case of suppression
of facts, fraud etc., the Show Cause Notice can be issued
by The Assistant Commissioner if the demand is upto Rs.
20.00 lakhs. Above Rs. 20.00 lakhs demand, the Show
Cause Notice should be issued by the Commissioner.
4] Show Cause Notice must be complete in all respects &
duty signed by the proper officer.
5] Show Cause Notice must be served to the Assessee.
6] Wrong mention of Rule or Section does not vitiate Show
Cause Notice.
7] Corrigendum to Show Cause Notice can be issued
clarifying the earlier Show Cause Notice, but no
additional charges can be made in the Corrigendum.

8] Adjudicating authority cannot go beyond the Show Cause

Notice.
9] In case of charge of suppression of facts, fraud etc. the
burden is on the Department to prove the same.
14.4 REPLY, HEARING & ORDER :1] C.B.E. & C. has prescribed a time limit of one year for
giving the reply to the Show Cause Notice.
2] Reply should be complete & exhaustive.
3] As a principle of natural justice, the assessee should be
allowed to appear in person & argue the case. This is
known as personal hearing.
4] Same officer who has given personal hearing should
pass an order.
5] C.B.E. & C. has clarified that the adjudication order
should be issued within 6 months from the date of
personal hearing.

6] Demands for the period up to one year can be

adjudicated by The Assistant Commissioner. Demands
beyond the period of one year have to be adjudicated by
The Commissioner.
7] Order must specify the amount of duty, penalty & interest
& it cannot go beyond Show Cause Notice. Order must
be a reasoned order / speaking order.
14.5 APPEALS :1] All provisions of appeals are governed by Central Excise
(Appeals) Rules, 2001.
2] Aggrieved person only can file an appeal.
3] Appeal can be filed against an order passed by The Asst.
Com./ Joint Com. / Add. Com. Or Commissioner or
Commissioner (Appeals) or CESTAT ( Central Excise &
Service Tax Appellate Tribunal )

4] Time limit for filing an appeal :- In case of appeal to

Appellate Commissioner, the time limit is two months from
the date of receipt of order & in case of appeal to CESTAT
& Supreme Court, the time limit is three months.
5] Appeal against the order by The Asst. Com. / Joint Com. &
Additional Commissioner has to be filed with The
Commissioner (Appeals). Appeal against the order passed
by The Commissioner has to be filed with CESTAT & the
appeal against the order passed by CESTAT has to be
filed with The Supreme Court. Appeal also can be filed in
High Court if any question of law is involved.
6] Department also can file an appeal in the similar way.
Time limit for reviewing the orders is three months & time
limit available to file an appeal is one month after the
review.

7] In case of appeal to Commissioner (Appeals), appeal

should be filed in duplicate whereas the appeal to
CESTAT should b filed in quadruplicate.
8] Appeal should be neatly typed & the pages should be
serially numbered.
9] Appeal should be made in the prescribed proforma
alongwith a copy of order appealed against, statement of
facts & grounds of appeal. At least one copy of the
appeal must contain a copy of the order attested by the
Excise Officers.
10] There is no fee for filing an appeal to Commissioner
(Appeals). Only a court fee stamp of Rs. 5/- should be
affixed on one of the sets of appeal. In case of appeal to
CESTAT, fee of Rs. 200/- has to be paid if the duty
involved is less than Rs. 1.00 lakhs & fee of Rs. 1000/has to be paid in case the duty amount is more than Rs.
1.00 lakh.

11] Delay in filing an appeal can be condoned in exceptional

cases by the
proper authorities.
12] Section 35 F of The Central Excise Act, 1944 provides that
the appellant must deposit the duty amount before filing an
appeal. In case of financial hardship, he may apply for the
stay for the pre -deposit of duty.
13] Such pre-deposit of duty is not a payment of duty & the
provisions of refund like time bar etc. are not applicable to
such pre-deposits.
14] Application for stay should be decided within a period of
30 days by The Commissioner (Appeal). CESTAT should
pass the order within 180 days from the date of stay
otherwise the stay gets vacated automatically.
15] C.B.E. & C. has clarified that no coercive action should be
taken during the pendancy of stay.
16] Payment of pre-deposit can be made through Cenvat
Credit.

17] Interest liability continues during the period of stay.

18] Appellate authority can remand the case to lower
authorities in case the authority feels that more
consideration is needed for proper
decision.
14.6 Authorized Representative :- (Rule 12 of Appeals
Rules) :a) Chartered Accountant
b) Cost Accountant
c) Company Secretary
d) Post Graduate in Commerce / Business
Administration.
e) Person who has worked at least for 10 years in
Excise, Customs or Narcotics department.
f) Advocate having certificate of practice in the court.
Advocate has to file Vakalatnama & in other cases,
only authorization letter is sufficient.

14.8 CESTAT :1] Central Excise & Service Tax Appellate Tribunal decides
the appeals filed against the order passed by The
Commissioner & Commissioner (Appeals).
2] There are five Tribunals in the country as under
Northern Bench New Delhi
Western Bench Mumbai
Eastern Bench Kolkata
Southern Bench Chennai
Southern Bench Bangalore
3] Tribunal is a quasi-judicial body & the members are
equivalent to High Court judges.
4] CESTAT (Procedure) Rules, 1982 govern the procedures
to be followed in CESTAT.

5] Normally CESTAT has two members viz. Member

(Technical) & Member (Judicial). In case of important
cases, the matter can be referred to Larger Bench
consisting more number of members. CESTAT has got
one President & one Vice President.
6] Orders passed by CESTAT can be appealed in Supreme
Court.

CHAPTER 15 : OFFENCES & PENALTIES

15.1 :- SECTION 9 OF THE CENTRAL EXCISE ACT, 1944:Whosoever commits any of the following offences , namelya) contravenes any of the provisions of Section 8 of the
Act ( restriction on possession of excisable goods.) or
clause (xxvii) of sub-section 2 of Section 37 of The Act
( registration ),
b) evades the payment of duty payable under this Act,
bb) removes any excisable goods in contravention of any
of the provisions of this Act or any Rules made there
under or in any way concerns himself with such removal,

bbb) acquires possession of , or in way concerns himself in

transporting, depositing, keeping, concealing, selling or
purchasing, or in any other manner deals with any
excisable goods which he knows or has reason to
believe are liable to confiscation under this Act or any
Rule made there under.
bbbb) contravenes any of the provisions of this Act or the
Rules made thereunder in relation to credit of any duty
allowed to be utilized towards payment of excise duty on
final products,
c) fails to supply any information which is required by rules
made under this Act to supply, or supplies false
information,

d) attempts to commit, or abets the commission of any of the

offences mentioned in clauses (a) & (b) of this section,
shall be punishable
i) in the case of an offence relating to any excisable
goods, the duty leviable thereon under this Act exceeds
Rs.One Lakh, with imprisonment for a term which may
extend to seven years & with fine ,
ii) in any other case, with imprisonment for a term which
may extend to three years or with fine or with both.
15.2 : SECTION 9AA :- OFFENCES BY COMPANIES :Where an offence has been committed by a company, every
person who , at the time the offence was committed was in
charge of ,& was responsible to, the company , for the
conduct of the business of the company, as well as the
company , shall be deemed to be guilty of the offence &
shall be liable to be prosecuted against & punished
accordingly.

Provided that nothing in this section shall render any such

person liable to any punishment , if he proves that the
offence was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of
such offence.
15.3 :- SECTION 11AC :-PENALTY FOR SHORT PAYMENT
OF DUTY :Where any duty has not been paid or short paid by
reason of fraud, collusion or any willful mis-statement or
suppression of facts, or contravention of any of the
provisions under the Act or Rules with intent to evade the
payment of duty, the person shall be liable to pay a penalty
equal to the duty not paid or short paid.
Provided that where such duty & interest thereon is paid
within thirty days from the date of communication of the
order, the amount of penalty shall be twenty five per cent of
the duty. Such reduced penalty also should be paid within
thirty days.

15.4 :- RULE 25 OF THE CENTRAL EXCISE RULES,2002 :

CONFISCATION & PENALTY :If any producer, manufacturer, registered person of a
warehouse or a registered dealer
a) removes any excisable goods in contravention of any
of the provisions of these rules or the notifications issued
under these rules; or
b) does not account for any excisable goods produced
or manufactured or stored by him;or
c) engages in the manufacture, production or storage of
any excisable goods without having applied for the
registration certificate required under Section 6 of the Act
or
d) contravenes any of the provisions of these rules or
the notifications issued under these rules with intent to
evade payment of duty,

then, all such goods shall be liable to confiscation & the

producer or the manufacturer or registered person of the
warehouse or a registered dealer shall be liable to a penalty
not exceeding the duty on the excisable goods in respect of
which any contravention has been committed or Rs. Two
Thousand, whichever is greater.
15.5 :- RULE 26 :- PENALTY FOR CERTAIN OFFENCES :Any person who acquires possession of , or is in any way
concerned in transporting, removing, depositing, keeping,
concealing, selling or purchasing , or in any other manner
deals with, any excisable goods which he knows or has
reason to believe are liable to confiscation under the Act or
Rules, shall be liable to a penalty not exceeding the duty on
such goods or Rs. Two Thousand whichever is greater.

15.6 :-RULE 27 :-GENERAL PENALTY :A breach of these rules shall , where no other penalty is
provided herein or in the Act, be punishable with a penalty
which may extend to five thousand rupees & with the
confiscation of the goods in respect of which the offence is
committed.

CHAPTER 16 : POWERS OF EXCISE OFFICERS

16.1 :- SECTION 13 OF THE CENTRAL EXCISE ACT,
1944 :- POWER TO ARREST :Any Central Excise Officer not below the rank of an
Inspector, with prior approval of The Commissioner ,may
arrest any person whom he has reason to believe to be
liable to punishment under this Act or the Rules made
thereunder.
16.2 :- SECTION 14 :- POWER TO SUMMON :Any Central Excise Officer duly empowered by the
Central Govt. shall have power to summon any person to
give evidence or to produce a document or any other thing
in any enquiry. Every such enquiry shall be deemed to be a
judicial proceeding within the meaning of Indian Penal
Code.

16.3 :- SECTION 18 :- SEARCHES & ARRESTS :All searches & arrests shall be carried out in accordance
with the provisions of The Code of Criminal Procedure,
1898.
16.4 :- RULE 22 :- ACCESS TO A REGISTERED
PREMISES :An officer empowered by the Commissioner in this
behalf shall have access to any premises registered under
these rules for the purpose of carrying out any scrutiny,
verification & checks as may be necessary.
Every assessee shall furnish to the officer empowered ,
a list in duplicate, of all the records prepared & maintained
by the assessee for accounting of transactions in regard to
receipt, purchase, manufacture, storage, sales or delivery
of the goods including inputs & capital goods.

Every assessee shall , on demand make available to the

officer ,the records maintained or prepared by him, the cost
audit reports, if any & Income Tax Audit report, if any.
16.5 :- RULE 23 :-POWER TO STOP & SEARCH :Any Central Excise Officer , may search any conveyance
carrying excisable goods in respect of which he has reason
to believe that the goods are being carried with intention of
evading duty.
16.6 : - RULE 24 :- POWER TO DETAIN OR SEIZED
GOODS :If a Central Excise Officer, has reason to believe that any
goods, which are liable to excise duty but no duty has been
paid thereon or the said goods were received with the
intention of evading the duty payable thereon, the Central
Excise Officer may detain or seize such goods.