Basics of Excise Duty
Excise Laws are governed by Excise Act 1944 in India. Central Board of Excise and Customs is the key body to govern the statue.
The basic faqs of Excise Acts and Rules are:
Escise duty is levid on which all items?
Excise is a duty charged on manufacturing. If you are a manufacturer* Excise duty may be applicable to you.
What is the limit above which Excise will be applicable?
Excise will be applicable if manufacturing activity in a financial year (April-March) crosses Rs.1.5 crore. However you need to inform Excise department incase the manufacturing crosses Rs.90 Lakh. (Basic Exemption limit-Rs.60 Lakh).
What is Manufacturing?
As per Section 2 (f), Manufacturing means
“manufacture” includes any process, -
- Incidental or ancillary to the completion of a manufactured product;
- Which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers
- Including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer;
and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;
From reading the definition we understand that Manufacturing even includes the Labelling or re-labelling of the containers, on the goods specified in third schedule.
Is Excise applicable to whole India Including Jammu and Kashmir?
Yes, Excise laws extends to whole of India including Jammu and Kashmir.
On which amount the Excise Duty is applicable?
Excise is levied on manufacturing value. The valuation is governed by Section 4 (and applicable rules) of Excise Act.
Which are the goods on which Excise Act is not applicable?
Goods on which state governments charge the taxation are not covered under Excise law. For example Alcoholic beverages.
Please note that Excise Laws are vast in nature and before taking any decision consult an expert.
One of my client has this issue, what should be done?
He is manufacturer of plastic moulds. His manufacturing activities already crossed 1.4 crore and soon will cross 1.5 crore.
He dont want to get in excise registration, he is thinking to outsource the manufacturing and show the rest as trading activity.
Can he do so? Will the purchased of manufactured good with own brand name come under manufacturing activity?
If you read the definition of manufacturing. Labelling or relabelling of goods specified in schedule 3 is considered as manufacturing activity.
Even good manufactured on contract basis are also considered under manufacturing activities.
The only way your client can avoid Excise duty is by buying the product not with his brand name and selling the same.
The exciseability issue araises when the event of manufactuer is completed, the duty liability is fastened and remitted at the time of removal.
What is a manufacture or what is production, a gist of judicial judgements are availible which should provide a aid to form a judgement.
Regarding the querry you have put forth, the minute a activity is said to constitute it as manufacturing, the excise laws are applicable. For simplicity of administration, the provisions of Central excise laws provides for Notification 8/ 2003 dated March 1st, 2003, which provides a mechanisum to provide relief for small scale manufactuers from charging of duty and remittance thereof.
The applicability of mandatory registration are specified under rule 9 of central excise rules 2002, however up to a turnover of Rs. 90 Lakhs. In your case, as assessee has already crossed the limit, the registration is mandatory.
Secondly, even after availing registration the duty chargeability will from the invoice which exceeds Rs. 1.50 crores, and not from Rs.1/-. Upto a turnnover of Rs. 400 Lakhs, the SSI limit shall apply and provisions of Central Excise Act & Rules shall be applicable in modified form.
I suggest a condonation letter be submitted to the required range office of central excise along with application for registration under central excise with details of product and tariff code which is proposed to be manufactured.
I hope have provided sufficient insight on to Central Excise laws and trust me, if you require any further clarification or information please feel free to call up or drop a mail, will do the needful.
CA.Sundeep S Kamath
You really summarised it well. A helpful writing will guide many on this issue. Writings at this level on excise are very available rarely.
Would like to correct something in your reply.
The registration is to be done only if manufacturing crosses 1.5 crore not at 90 Lakh.
Let me update on central excise, the threshold is Rs. 90 Lakhs, pls. refer Notification No. 36/2001-C.E.(N.T) dated 26.06.2001. wherein the threshold limit has been specified.
In addition i advise to refer Page No. 1.8 of Central Excise Manul, for better understanding on excise laws, which should provide much clearer view of provisions of central excise dragaonion laws.
CA.Sundeep S Kamath