Central Excise Duty till 30th June 2017
Central excise duties were levied by the Union Government on commodities manufactured or produced within the country and consumed within the country, as against the State excise duties which are levied on alcoholic drinks, opium, etc. Commodities liable to central excise duties were listed in the Schedule to the Central Excise Tariff Act, 1985 (Act 5 of 1986) which came into effect from 28.02.1986. Prior to this, excisable commodities were contained in the First Schedule to the Central Excise and Salt Act, 1944. The current Tariff was an exhaustive code covering each and every commodity manufactured or produced in the country. Central excise duty was an indirect tax, i.e. each person, rich or poor, is liable to pay tax indirectly on purchase of goods which have already been charged to duty. This tax was administered under the authority of Entry 84 of Union List of the Seventh Schedule read with Article 246 of the Constitution of India.
Central Excise Duty : The Concept
Central Excise duty was an indirect tax levied on those goods which are manufactured in India and were meant for home consumption. The taxable event was 'manufacture' and the liability of central excise duty was arising as soon as the goods were manufactured. It was a tax on manufacturing, which is paid by a manufacturer, who was passing its incidence on to the customers.
The term "excisable goods" was defined as the goods which were specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 , as being subject to a duty of excise and includes salt.
The definition of manufacture was given in Section 2(f) of erstwhile Central Excise Act, 1944.
2(f) : "manufacture" includes any process,
As incidence of excise duty was arising on production or manufacture of goods, the law did not require the sale of goods from place of manufacture, as a mandatory requirement. Normally, duty was payable on 'removal' of goods. The Central Excise Rules provided that every person who produces or manufactures any 'excisable goods', or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rules or under any other law. No excisable goods, on which any duty was payable, shall be 'removed' without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided. The word 'removal' cannot be necessarily equated with sale.
The removal may be for:-
2.Transfer to depot etc.
4.Transfer to another unit
Thus, it can be seen that duty became payable irrespective of whether the removal is for sale or for some other purpose.
Evolution of Excise Taxation
The present system of levy of excise duty began with the establishment of British rule in India and the taxation of salt. The salt duty was an important source of revenue and accounted for about one-tenth of the total tax revenue. In 1920-21 the gross tax revenue was Rs. 60.85 crores, of which the salt revenue was Rs. 6.67 crores. In 1938-39 the salt revenue was Rs. 8.41 crores in total gross revenue of Rs. 81.87 crores. In 1946-47, a year before the salt duty was abolished altogether; it constituted only 3% of the tax revenue. The year 1934 was a milestone in the development of central excise in India when a wide range of new articles were brought within the scope of central excise duty and articles such as sugar, matches and steel ingots came into its ambit. In 1941, during the course of the Second World War, rubber tyres came under excise. Two years later, it was imposed on vegetable products and unmanufactured tobacco, cigars and cheroots by the Finance Act, 1943. In 1944, the Central Excises and Salt Act, 1944 was passed consolidating the various enactments on the subject and imposing new duties on coffee, tea and betel nut. However, betel nut was taken off the list in 1948 because of administrative difficulties. After independence, the first important item to be added to the list was cigarettes in 1948. In the following year excise duty was imposed on mill cloth. In 1954 a large number of additional commodities such as woolen fabrics, electric fans, electric batteries and parts, paper, pigments, colours, enamels, paints, varnishes, blacks and cellulose lacquers were brought under central excise. On 01.03.1956 central excise was levied on soap, straw-boards, vegetable non-essential oils, refined diesel oil and vaporising and industrial fuel oils. In December 1956, rayon, synthetic fibres, yarn and motor cars were added. In 1960, several other items were made excisable, viz., cycle parts, internal combustion engines, electric motors, cinema films, aluminium, tin plates and pig iron. Since then a number of items have been added to the Central Excise Tariff continuously from year to year. In 1975 a general item, namely, item 68, was introduced which covered 'All Other Goods Not Elsewhere Specified'. The Central Excise Tariff Act, 1985 (5 of 1986) was enacted with effect from 28.02.1986 replacing the earlier one. In the new tariff the arrangement of the various Chapters and Headings was on the pattern of the International Harmonised System of Nomenclature (H.S.N.).
Growth of Excise Revenue
Initially the revenue from excise duties was only Rs. 8.72 crore i.e., 29% of the total gross revenue of Rs. 61.37 crores. A decade later, i.e. in 1948-49, excise revenue rose to Rs. 51.66 crore in the total tax revenue of Rs. 385.18 crores, or 13.4%. The collection increased to Rs. 93.31 crores in 1951-52, and further to Rs. 150.57 crores in 1956-57. Additional Excise Duties were levied on the recommendation of the National Development Council in December 1957 in replacement of Sales Tax by the State Government on sugar, textiles and tobacco. These duties levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 were in addition to the duties payable under the Central Excise Act, 1944. The realisations of excise in 1959-60 stood at Rs. 362.57 crores and in 1960-61 at Rs. 379.91 crores. The excise duty collections in 2006-07 was Rs 1, 17, 266 crore. The following table provides the data of Central Excise Revenue from 2000- 01 to 2011 – 12.
|Financial Year||Central Excise Revenue (in Crores)|
Procedures for Collection
Central Excise duties were assessed and collected in accordance with the procedures prescribed in the Central Excise Rules, 1944. Initially the Rules envisaged that excisable goods should first be assessed to duty by the Proper Officer, and then the duty so assessed should be paid, either in cash in a treasury, or adjusted in the Personal Ledger Account of the assessee before the goods were permitted to be cleared from the factory. Again, at the time of clearance of excisable goods, the manufacturers were required to issue a Gate Pass, which was to be signed by the owner of the factory and counter-signed by the Proper Officer. This procedure, called "Physical Control" was in vogue up to 1968. In 1968, with a view to give relief to Trade and Industry, it was decided to replace the physical control by "Self-Removal" procedure under which the manufacturers would be able to clear excisable goods on their own, without the necessity of the Central Excise Officer being present for either assessment of the goods or for granting clearances. Withdrawal of the “Physical Control” naturally necessitated introduction of detailed accounts, but if the private accounts of the manufacturer were found adequate, these could be accepted in lieu of the prescribed accounts by the Collector. A thorough inspection of these accounts should enable the Central Excise Officer to find out whether the duties due to the Government are correctly paid by the assessee. As a corollary, the penalty rules were made more stringent so as to ensure that the new facility is not abused with impunity. In 1994, the “gate pass system” gave way to the “invoice-based system”, and all clearances were being done on the basis of the manufacturer’s own invoice. Another major change was brought about in 1996, when the “Self-Assessment” was introduced which was continuing till 30 June 2017. The assessee was himself assessing his Tax Return and the Department was scrutinising it or conducting selective audit to ascertain correctness of the duty payment. Even the classification and value of the goods had to be merely declared by the assessee instead of obtaining approval of the same from the Department. In 2000, the fortnightly payment of duty system was introduced for all commodities, an extension of the monthly payment of duty system introduced the previous year for Small Scale Industries. On 01.07.2001, new Central Excise (No. 2) Rules, 2001 replaced the Central Excise Rules, 1944. Other rules have also been notified namely, CENVAT Credit Rules, 2001, Central Excise Appeal Rules, 2001 etc. With the introduction of the new rules the procedures were once again simplified. There were only 33 rules as compared to 234 earlier. Classification and price declarations have also been dispensed with, the CENVAT declaration having been dispensed with in 2000 itself.
Central Excise Administration
The Central Excise law was administered by the Central Board of Excise and Customs (CBEC) through its field formations, the Central Excise Commissionerates. For this purpose, the country was divided into 23 Zones and a Principal Chief Commissioner /Chief Commissioner of Central Excise was heading each Zone. There were 208 Commissionerates under these Zones that were headed by the Commissioner of Central Excise. Divisions and Ranges were the subsequent formations, headed by Deputy/Assistant Commissioners of Central Excise and Superintendents of Central Excise, respectively.
Central Excise Tariff Act, 1985
In December, 1985, Central Excise Tariffs was overhauled completely and consequential changes were also made in the Central Excise Act. These changes had the effect of re-modelling the Central Excise Tariff on a more detailed pattern known as the 'Harmonised System' which provided specific and separate headings for each and every type of goods. All the commodities listed in the new Central Excise Tariff had largely the same Headings as in the Customs Tariff. In the sub-headings, the Government of India had created new items to cover all existing types of goods in specific entries, doing away with item 68 altogether. The new Central Excise Tariff gave interpretative notes for each Chapter indicating how the goods are to be classified and there were also overall interpretative rules as in the case of the Customs Tariff.
In 1986 the MODVAT (Modified Value Added Tax) Scheme was introduced. Hitherto excise duty was a multi-stage affair, being charged from each manufacturer even when he sold the goods to another manufacturer for further manufacture. The other manufacturer was again charged to duty on his final products, which pushed up prices along the line. To mitigate this hardship, specific relief and proforma credit were adopted. Under the MODVAT Scheme, a manufacturer can take credit of the duty paid by him on the raw materials purchased so that he now pays excise duty only on the final products. The tax Reforms Committee under the chairmanship of Dr. Raja Chelliah had recommended several far-reaching changes in central excise taxation, some of which had already been implemented and the debate was going on for the introduction of Value Added Tax (VAT). With effect from 01.04.2000, MODVAT Scheme was replaced with "CENVAT Credit Scheme" which was basically similar to the MODVAT Scheme but was much simpler and user friendly. From 01.07.2001 the CENVAT Credit Scheme was being governed by CENVAT Credit Rules, 2001.
Type of Central Excise Duties
Central excise duty was levied by the Union Government by virtue of the powers vested in it under the Constitution. Under Entry No. 84 of List 1 of the 7th Schedule to the Constitution, duties of excise were levied on all goods manufactured or produced in India except—
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs & narcotics,
but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) above.
Basic Central Excise Duty
Levied under the Section 3 of the Central Excise Act, 1944. This duty might be with reference to the value, weight, volume, unit, length or area of the excisable goods. The rates of basic excise duty were given in the Schedule to the Central Excise Tariff Act, 1985. The net proceeds of basic excise duties were allocated between the Union and the States according to prescribed proportion.
Additional Duties and Cesses
These were levied on certain specified goods in terms of various other Statutes as indicated below :
1. The Additional Duties of Excise (Goods of Special Importance) Act, 1957
2. The Additional Duties of Excise (Textiles and Textile Articles) Act, 1978
3. The Beedi Workers Welfare Cess Act, 1976
4. The Coffee Act, 1942
5. The Industries (Development and Regulation) Act, 1951
6. The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act, 1976
7. The Jute Manufacturers Cess Act, 1983
8. The Limestone and Dolomite Mines Labour Welfare Fund Act, 1972
9. The Medicinal and Toilet Preparation (Excise Duties) Act, 1955
10. The Mineral Products (Additional Duties of Excise and Customs) Act, 1958
11. The Oils Industry (Development) Act, 1974
12. The Rubber Act, 1947
13. The Salt Cess Act, 1953
14. The Sugar Export Promotion Act, 1958
15. The Sugar (Special Duty) Act, 1959
16. The Sugar (Regulation of Production) Act, 1961
17. The Sugar Cess Act, 1982
18. The Tea Act, 1953
19. The Textile Committee Act, 1963
20. The Tobacco Cess Act, 1975
Special Central Excise Duty
This was levied as per to Section 37 of the Finance Act, 1978, Special Excise Duty was levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excise Act, 1944. Therefore, each year the Finance Act spelled out that whether the Special Excise Duty shall or shall not be charged, and eventually collected during the relevant financial year.
Road and Infrastructure Cess
An additional duty of excise called the Road and Infrastructure Cess, on the goods being manufactured or produced, at the rates specified for the purpose of financing infrastructure projects had been levied w.e.f. 02-02-2018. The cess was in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force.
Central Excise Duty since 01 July 2017
Goods and Services Tax is often assumed to be a complete unification of all indirect taxes currently levied in India by Central and State governments, but the reality is a little different. Though it is true that most major indirect taxes are subsumed under GST, there are still certain products on which the earlier indirect taxes will be applicable.
Typically, this is when the taxes are either outside the purview of the GST constitutional amendment, or there is an agreement between Centre and States to defer their inclusion.
Following are the products which still carries the levy of excise post GST :
Tax on items containing Alcohol :
- Alcoholic beverages for human consumption has been kept out of the purview of GST as an exclusion mandated by constitutional provision. Sales Tax/VAT has been continued to be levied on alcoholic beverages as per The existing practice. VAT is levied on alcohol purchases in some states, and there will be no objection to that. Excise duty, which is presently levied by the states, may also be unaffected.
Tax on Petroleum Products :
- As for petroleum products, although the GST constitutional amendment provides for levying GST on these products, it allows the timeframe for their inclusion to be decided by the GST Council. Therefore, in the initial years of GST, petroleum products will remain out of the scope of GST.
- The existing taxation system under VAT and the Central Excise Act will continue for both of the commodities listed above.
- This means that Taxation on Petroleum Products is still being administered under Central Excise law