Excise Tax in India

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An excise tax can be defined as a kind of indirect taxation that is applicable for goods that are produced and sold within the territorial limits of a country. It is basically different from custom duties, which are levied on goods that have been produced outside a country.

Excise tax is also known as excise duty. The initial purpose of this tax was to help the government generate the maximum possible revenue but in time it has become an important part of fiscal policies and has been playing a critical role in economic growth.

Types of Excise Taxes in India

There are seven types of excise taxes that are presently in operation in India.

Basic Excise Duty

The basic excise taxes are levied as per the First Schedule of the Central Excise Tariff Act, 1985.

National Calamity Contingent Duty

It is also referred to as NCCD and is applied as per the Section 136 of the Finance Act, 2001. It is taken as an additional tax on certain specified goods.

Special Excise Duty

The special excise taxes are taken as per the Second Schedule of the Central Excise Tariff Act, 1985.

Excise Duties and Cess Leviable under Miscellaneous Act

These duties are additional in nature.

Additional Duties of Excise (Textiles and Textile Articles)

This tax is imposed as per the Section 3 of the Additional Duties of Excise (Textiles and Textiles Articles) Act, 1978. This tax has been determined at 15% of the basic excise duty that is being paid on previously mentioned textile articles.

Education Cess

The education cess is applied as per existing law for excise taxes such as the Central Excise Act 1944. These are basically additional in nature.

Additional Duties of Excise (Goods of Special Importance)

This tax is charged as per the First Schedule of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The decisions regarding the special excise taxes are taken on a yearly basis by the Finance Act. Since the tax deals exclusively with manufacturing of products, sale of the same is not regarded as a mandatory requirement.

In case of excise taxes, the duty is paid in case of removal of goods. The following transactions and activities are deemed as removal:
  • Sale
  • Transfer to a different unit
  • Transfer to depots
  • Free distribution
  • Captive consumption

Excise Tax Rules in India

The Central Excise Act 1944 mentions the rules for levying and collecting the central excise duties and gives the Union Government the authority necessary to make rules for implementing the same. The rules are classified under the following heads:
  • The Central Excise Rules, 2002 (Section 143 of the Finance Act, 2002)
  • Consumer Welfare Fund Rules, 1992
  • The Central Excise (Settlement of Cases) Rules, 2001
  • The Central Excise (Advance Rulings) rules, 2002
  • The Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001
  • Central Excise (Compounding of Offences) Rules, 2005
  • Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000

Central Board of Excise and Customs

The Central Board of Excise and Customs (CBEC) are responsible for administering the laws that govern these laws. The CBEC itself is a part of the Union Ministry of Finance’s Department of Revenue.

Following are its main responsibilities:
  • Making policies for collecting and levying central and customs excise duties
  • Managing matters of Customs, Narcotics and Central Excise according to the previously set limits
  • Preventing the smuggling of goods
Its subsidiary organizations have been enumerated as below:
  • Custom Houses
  • Central Revenues Control Laboratory
  • Central Excise Commission rates

Excise Taxes in India

Possible Taxpayers

At a basic level, the producer or manufacturer of goods are responsible for paying the excise duty. Following are the major entities who are supposed to pay these taxes:
  • Ones who have personally manufactured the goods being subjected to taxation
  • Ones who outsource the production of their goods
  • Ones who employ workers and professionals to manufacture or produce their goods.
The central excise duties operate on the basis of two major processes:

Self removal procedure: As per this system, the assessees themselves determine whether they need to pay the taxes and then clear the goods. This process does not involve actual supervision or previous permission the excise officers.

Physical control: In this process, the assessment is done before clearance. Here the officers themselves supervise the products and determine the duty that needs to be levied on the same. The goods have to be moved once the duties are paid. Goods, on which duty has been paid, cannot be kept in the factory without special permission. This facility is only provided to cigarettes.

Classification of Goods

Classification of goods is an important precondition for applying the excise taxes and this categorization has been done in the Central Excise Tariff Act, 1985. This act provides a list of the items that can be subjected to central excise taxes.

The act has 96 chapters that have been divided into 20 sections. The sections deal with a broad array of goods. Some examples may be provided as below:
  • Section I – animal and dairy products
  • Chapter XI – textiles and textile products
  • Section VI – chemical products and related industries
The Central Excise Tariff Act had been modified in 2004 – now 8 digit codes are used for classifying goods as opposed to 6 digit codes that were previously in use.

Goods Valuation

The excise duties are basically ad valorem taxes and the valuation of goods is done as mentioned in the Central Excise Act 1944:

Tariff value: The tariff value is decided by notifications issued by the Central Government and the taxes are decided on the basis of these values.

Transaction value: This is the most commonly used way of determining the assessable worth of a particular good. The important ingredients of this value may be mentioned as below:
  • The good should have been transferred by the assessee for the purpose of delivery at a particular place or time of removal. The word “place of removal” basically means a warehouse or a factory.
  • Price is the only factor considered for selling a good.
  • The buyer and the assessee must not be related.
It needs to be noted that for a goods transfer to be deemed as transaction all the factors should be fulfilled.

Exemption from paying the excise duty

It is important to note in this regard that excise taxes have to be paid on a regular basis unless the person in question is exempted from the same. These taxes need not be paid in case the tax payer is exporting them.

Exceptions are also provided on the basis of the following criteria:
  • Raw materials used
  • Kinds of manufacturing or production processes used
  • Financial worth of clearances or turnover in a fiscal

Punitive Measures

The rates of fine for evading excise taxes normally range from 25 to 50 percent of the tax amount that has not been paid and these rates are determined by various sections of the Central Excise Act.

Last Updated on July 3, 2015

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