Monday, 12 December 2011

Central Exise Part 2 for CS/CA/CWA Students

ü      Registration for manufacturers and dealers:
Registration for manufacturer:
Where excise duty is payable, the manufacturer would have to register and he would have no option. Non-registration is not a valid defense for non-payment of duty. For the intermediate goods manufacturer who makes supplies to industrial customer, it maybe preferable not to claim the exemption and take the registration from the start of the enterprise to ensure competitiveness due to the concept of cenvat credit where the capital costs are high and where the duty can be passed on.
Registration for Dealers:
The trader who is registered under central excise can pass on the duty paid on goods traded by him /imported by him to customers who can avail the credit for the same. ( See chapter 4 on Traders Provisions)

Ø      What are the Benefits of Registration?
The small manufacturers would find that in some cases it may be beneficial to opt for registration and payment of duty from day one. The factors which are relevant are as under:-
a.        The ancillary industries to manufacturers who pay excise would always find it beneficial. For instance suppliers of parts of automobiles. ( See table for cost benefit analysis)
b.        The final product manufacturers or the dealers who sell to the consumers directly may find the exemption preferable.
c.        The manufacturer who receives the orders in basic + duties as applicable would find the payment of duty preferable.
d.        The manufacturer who gets an all inclusive price may find exemption preferable.
e.        The manufacturer who adds very low value (assembly, low margin, high turnover orders) may find registration preferable. ( See table for accumulation of credit below)
f.            The manufacturer who engages in exports and local clearances may be able to utilise the credits on inputs used for exports for the payment of duty on local clearances.


ü      Table – I: Comparative Analysis of availing and not availing exemption of a intermediate product


No Exemption
Amount in Rs.
Amount in Rs.
Raw material cost including duty
CENVAT credit availed
Net Cost
Conversion Cost
Total Cost
Profit margin
Basic Selling Price
Excise Duty (Net of CENVAT credit) (10%)
Total selling price
Benefit to the final mfr. by way of

CENVAT credit
Net Cost to the buyer.
Percentage Benefit for Customer

Loss to Supplier

Benefit For Customer for Rs.150 Lakhs of purchase
Rs. 6 Lakhs

Note: The benefit may be shared between the customer and manufacturer. There is a possibility, though not probable that with the coming in of GST this exemption could be done away with totally.

ü      Procedure of Registration under Central Excise for Manufacturers Section – 6 and Rule 9 of Central Excise Rules 2002
Registration under Central Excise is required for every person who produces, manufactures, carries on trade, holds private store-room or warehouse or otherwise uses excisable goods. The registration could be obtained a little prior to crossing Rs. 150 Lakhs which is the exemption limit u/n 8/2003-CE dated 1.3.2003 or after budget amendments or as the product has become excisable or on the manufacturer voluntarily deciding to register.
The procedure for registration manually is as follows:
a.      Form A-1: The applicant should file an application in Form A-1 to the jurisdictional Superintendent of Central Excise in duplicate.
b.      Covering letter: The application could be accompanied by a covering letter indicating the business profile and contain a brief write up on the manufacturing process for his products starting from receipt to dispatch.
c.      Documents: The application can be accompanied by a copy of the partnership deed, Board resolution, Memorandum of Association and power of attorney in case of application being made by person other than the proprietor, partner or director may be provided. [Neither the rule nor the form specify this requirement]
d.      PAN & Address: Mandatorily only the self attested copy of the PAN letter should suffice. But the proof of status as well as proof of premises may be provided along with the authorisation ( in case of company). The details of the Permanent Account Number (PAN) of the Company are to be provided. The PAN, residential and official addresses of the partners or directors or authorized signatories are also required.(copies maybe enclosed). In case of any resistance to accept the form, the same maybe sent by speed/ registered post acknowledgement due.
e.      Tariff Classification: The description and tariff heading applicable of the excisable goods, which are going to be manufactured, are also required. In case manufacturer is not clear on the classification he may consult an expert rather than making a mistake.
f.        Registration Grant: .The registration has to be issued on the same day and if for any technical or other reason it is not possible within the next working day.The jurisdictional ACCE/DCCE shall grant the registration Certificate in specified form containing registration number within 7 days from the receipt of the duly completed application.
g.      Certificate Exhibit: The certificate of Registration or its certified copy should be exhibited in a conspicuous part of the premises.
h.      Fresh registration: Fresh registration has to be sought in the event of change in premises or in case of change in the ownership of the business.
The registration number is based on the PAN number of the registrant. There would be need to get fresh registration in case of change in premises or change in ownership of business. The registration certificate cannot be revoked on flimsy grounds by revenue department.
The revenue department has now ACES software in place to allow the facility of on-line registration to assessees under central excise. The password and user id has to be obtained by submitting details of authorized person’s name and mail id. The password and user id would be intimated by mail, after which the online registration can be done by filling in details like assessee profile, location details, product details along with classification etc.
In case the applicant wants to make an on-line application the additional steps are as follows:
The applicant has to log on the and go to the link Central Excise
(i)            The applicant should obtain the user ID and Password by entering the required details in the necessary columns.
(ii)          Then the user id and password would be provided by mail to the address given provided. On, receiving the mail of user id and password the applicant needs to file Form A-1, which is similar to the earlier Form A-1 which used to be filled up manually.
(iii)         After it is submitted, a print out could be obtained.
(iv)        It is to be submitted along with the PAN card copy, address proof like phone bill or khatha of premises or municipal taxes receipt as well as copies of constitution document of assessee like partnership deed in case of firm, Memorandum of Association, Articles of Association in case of Company would have to be submitted to the jurisdictional officer.
          The registration maybe granted within a maximum of 7 days from date.

Ø      Judicial Decisions on Registration:
1.      Indian Refrigeration Industries v Commissioner [2001 (128) ELT A65 (SC)]: Facts/Issues: The issues involved is whether the unit will be treated as a small scale unit for the purpose of availing exemption from the date of applying for the certificate of registration  or from the date of issue of the certificate by the competent authority;
1.Decision: It was held that the registration certificate to be treated as effective from the date of applying for the certificate and not from the date of issuance.
2.      Daksha Cable Ind. P. Ltd. v CCE [2004 (173) ELT (371) (T-Mum)]: Facts/Issues: There was a revocation of the registration certificate of the business.
2.Decision: It was held that registration to manufacture excisable goods is a substantive right under the law. The revocation of registration certificate on frivolous grounds not valid.
3.      Rama Petrochemicals Ltd. [2004 (173) ELT 475 (T-Mum.)]:Facts/Issues; The registration certificate of assessee was revoked.
3.Decision: Central Excise Act does not lay down any condition that premises in which goods cleared for exports are stored to be registered under Central Excise. Penalty set aside.
ü      When & How to issue invoice?
·         An invoice is the document under the cover of which any excisable goods are to be cleared by the manufacturer or registered dealer. This document indicates the assessment of goods to duty. The invoice has to be signed by the owner of the factory or his authorized agent as informed to the revenue department.
·         The invoice should contain the registration number, name of consignee, description, classification, time and date of removal, rate of duty, quantity, value of goods and duty payable thereon, address of the concerned Central Excise division, mode of transport and vehicle registration number.
·         The invoice under Rule 11 does not have to adhere to a specified format.
·         While preparing an invoice there is no distinction between a dealer and manufacturer.
·         The invoice has to be generated in triplicate marked as (i) Original for buyer, (ii) Duplicate for Transporter, (iii) Triplicate for assessee. An extra copy also may be generated in addition to the above whenever called for.
·         In case of computer generated-invoice, the serial number is allowed to be generated and printed by the computer only if the software is such that same number cannot be generated more than once.
·          Whenever invoices are brought into use a declaration of the numbers is to be made after authentication of the first and last pages of the invoice book. In the Finance Act 2010 the requirement of pre-authentication of invoices has been done away.
·         Only one copy of invoice book shall be in use at a time unless allowed by the Assistant/Deputy Commissioner of Central Excise.
·         In case where assessee requires two different invoice books i.e. separate series for DTA removal and Exports, he may do so by intimating to the jurisdictional Deputy/Assistant Commissioner of Central Excise. The contents of the invoice as per law is provided in rule 11 of Central Excise Rules.

ü      When & How to Pay Duty of Excise?
At present, the assessment is made on self-removal of goods. Assessment means determination of tax liability. The manufacturer himself has to determine the duty liability. However it should be noted that where molasses are manufactured in a khandsari sugar factory the duty liability fastens on the purchaser of molasses. If the goods are correctly classified and the assessable value correctly determined the correct amount of duty can be paid. The following procedure has to be followed by the manufacturers:
1.         The finished goods should be entered in the daily stock account.
2.         The manufacturer could ensure that the details as to the quantity of the goods cleared from factory in the excise invoice raised matches with the packing list, delivery challan (if separately provided), gate passes for the quantities.
3.         The goods cleared should match in description of goods in the purchase order if any, received from the customer. The calculations of assessable value and excise duty payable in the invoice should be done correctly.
4.         An invoice under Rule 11 of CER should be prepared showing the assessable value and Excise duty payable.
5.         The issues/removal entry of finished goods in Daily Stock Account register should be done providing details of value, quantity and duty payable.
6.               It is to be ensured that the goods carrier is provided with “duplicate for transporter” copy of invoice. [This may be put in a cover specifically mentioning in bold “NOT FOR SALES TAX/CHECK POST”]
7.         The rate of duty is that which is applicable on the date of removal of goods from the factory.
8.         The payment of duty may become necessary where the cenvat credits are not sufficient for a particular month. The payment of duty can be made by way of a GAR -7  challan into the designated Bank and proof of the same obtained.
9.      Alternatively duty can be paid electronically through internet banking. This mode of payment is compulsory for the assessee who has paid the duty of Rs. 10 lakhs or more (including the utilization of credits) in the preceding financial year.
10.  The earlier concept of the assessee’s account with Central Excise called the PLA (Personal Ledger Account) has become a voluntary account current maintained by the assessee. This account current would help the assessee to pay the duties in advance and maintain a balance which could help to cover some small errors being committed at a later point of time.
11.  The due date for payment is 5th of succeeding month which could be extended to the 6th of next month if paid electronically. However SSI units can make payment by 5th/6th of month succeeding the end of the quarter. However this method may lead to cash crunch for SSI units unless they plan their cash flow correctly so that cash is set aside to make quarterly payments.
12.  The date of payment would be the date of submitting to the bank provided that the cheque is honoured. The account of the payments and utilisation of the PLA could be maintained in the normal financial accounts of the concern.
13.  Where there is a delay in duty payment in any financial year beyond more than 30 days from due date by the manufacturer there could be an order suspending the duty payment by adjusting duty credit. In such case the assessee would have to clear every consignment after debiting the account current. This is a very harsh measure.

Ø      Judicial Decisions on levy & Removal under Self Removal Procedure
1.      CCE v Vazir Sultan Tobacco Co. Ltd. [1996 (83) ELT 3 (SC)]:Facts/Issues: Sub-section (1) of Section 37 of the Finance Act, 1978 levied a special duty of excise equal to five per cent of the amount of excise duty chargeable on goods, w.e.f. March 1, 1978 till March 31, 1979. The question is whether the goods manufactured prior to March 1, 1978 but removed on or after March 1, 1978 are liable to pay the special duty of excise.
1.Decision: Goods manufactured prior to levy of duty but cleared thereafter not liable to excise duty. The duty is collected at the stage of removal for the sake of convenience.
2.      UOI v Delhi Cloth & General Mills Co. Ltd. 1997 (92) ELT 315 (SC):Facts/Issues: Calcium carbide tapped from the furnace in the liquid form and used within the factory in the manufacture of Acetylene gas not being of a purity that renders it marketable nor it was packed in such a way to make it marketable.
2.Decision: Commodity which is sought to be made liable to duty must be marketable and not a commodity that may by further processing be made marketable.
3.      Indorama Synthetics (I) Ltd. v CCE, Nagpur [2005 (190) ELT 193 (T-Mum)]:Facts/Issues: whether the appellant has to pay/reverse the Cenvat credit in respect of capital goods and inputs lying as such and inputs (raw materials) contained in finished products lying as such and transferred, on change of ownership of premises.
3.Decision: No duty can be imposed on the stock lying in the factory transferred to new owners without any physical removal of goods from the factory.
4.      B.P.L. Electronics Ltd. v CCE, Bangalore [1994 (71) ELT 801 (T-Delhi)]:Facts/Issues: The goods manufactured on their own account, using moulds but, to raise working capital through the bank or financial institutions, the manufacturers have entered into a leasing arrangement with a financial company, by which these moulds are sold to them parting with possession of the same.
4.Decision: The fact of raising an invoice in favour of a financial company does not create a liability for charging duty.
ü      What is Provisional assessment?
Where the manufacturer cannot classify his products under the correct tariff heading as at the time of removal he can opt for ‘provisional assessment’ and discharge the balance of duty / claim a refund on final assessment. For example this is applicable when goods are cleared to sales depots of manufacturer from factory of manufacture and sold there from at future date. Most of the litigation in the future would be in this area as the definition of transaction value appears to be impractical as well as unreasonable

ü      What are the records to be maintained?
(i)      The manufacturer who is registered under Central Excise has to provide a declaration list in duplicate of the books of account, stocks, returns and documents maintained u/r 22(2) of Central Excise Rules 2002 for the recording and control of the stocks and of monetary transactions.
(ii)     The manufacturer has to keep record of quantity of goods manufactured, removed, value of removal, duty paid and the inventory.
(iii)   The receipt, disposal, consumption and inventory of inputs are also to be accounted. [This is very critical  if the cenvat credit has been availed on the inputs]
(iv)   In case the accounts and registers are computerised the details of the software along with the sample reports may be submitted to the revenue department. All types of transactions / activities proposed may be indicated with the ones in doubt as well.
(v)   Where the manufacturer adds some records or discontinues some records/documents from the list that is already filed the intimation of the same would have to be given to the range Superintendent of Central Excise. This disclosure could be evidence that there was no intention of suppression in cases of dispute.
(vi)  The list of executives authorized to sign the invoices, returns and any other document may also be submitted.
It is to be noted that the requirement of pre-authentication of invoices has been done away with by Finance Act 2010.

ü      When and How to File Returns?
Excise returns of manufacturer provides the information on the manufactured products i.e. opening balance, quantity manufactured, quantity cleared either on payment of duty or otherwise, the value of clearance, duty payable and the closing balance for the month. It also provides an abstract of the credits availed and utilized on capital goods, input services as well as inputs as well as the amount of payment in cash along with the proof of the same.
   i.            The monthly excise returns are to be filed by assessees by the 10th of the next succeeding month.
 ii.            The SSI units w.e.f. April 2010 are also required to file returns by the 10 th of the month succeeding the end of quarter.
iii.            It should be noted that an assessee registered under excise would have to file a return even where there is no manufacture or removal of excisable goods during a particular period.
iv.            The ER-1 return should contain details as to the details of manufacture and removals of each final product with reference to the relevant sub-heading under Central Excise Tariff.
 v.            The manufacturer should also get the details as to the following:
1.      Finished goods manufactured and cleared from Daily Stock Account,
2.      Cenvat credits details from cenvat credits register,
3.      Details of goods rejected and repaired/processed,
4.      Details of the goods sent for job work and credit reversals thereon,
5.      Details of capital goods and inputs cleared as such,
6.      Personal ledger account details of cash payments, 

(vi)  Once the details are obtained from registers maintained for the purpose, the figures are to be totaled and checked for accuracy and correctness by comparing the totals with the figures as per the financial ledgers to spot entries that were missed out.
(vii)       The figures as per the registers should then be entered on to the Excise  returns in the relevant columns and boxes. The details that are to be normally entered are – item description, tariff heading, details of nature of clearance (whether export or under notification), duty payable, duty paid through cenvat credit and in cash, details of cenvat credit giving break up of the cenvat credit on inputs, capital goods and input services and utilization of the same etc
(viii)     If the balance of credit on hand at the end of the month is insufficient to pay off the excise duty liability, the shortage should be met through cash payment in the designated bank. If there is a delay in payment, the same is to be paid with interest at 13% p.a. for the delayed period.
(ix)        The returns should be checked for errors in posting if any and then filed with the revenue department with a covering letter. A dated  acknowledgement is to be obtained. Where it is filed electronically, the procedure laid down in the revenue departmental website is to be followed.