2. Before THE SANMARIANS X PLORING CISE S. Jaikumar, Advocate Swamy Associates 25th MAY 2002

3. EXCISE DUTY MANUFACTURE –INCIDENTAL OR ANCILLARY PROCESSES TOWARDS COMPLETION –CHAPTER OR SECTION NOTES –NOTIFIED PROCESSES (YET TO TAKE EFFECT) EMERGENCE OF A NEW PRODUCT

4. MANUFACTURE RESULTING IN GOODS, WITH DISTINCT AND SEPARATE IDENTITY MARKETABILITY ENTRY IN CENTRAL EXCISE TARIFF

5. DUTIABILITY LEVY ON MANUFACTURE PAYMENT OF DUTY ON CLEARANCE CLEARANCE INCLUDES REMOVALS WITHIN THE FACTORY FOR FURTHER MANUFACTURE

6. TYPES OF LEVY SPECIFIC RATE OF DUTY VALUE BASED DUTY COMPOUNDED LEVY

7. VALUE BASED DUTY TARIFF VALUE - SECTION 3 (2) TRANSACTION VALUE - SECTION 4 MRP BASED DUTY - SECTION 4 A –Notified under the Act –Required to be affixed with MRP on the package under the Standards of Weights & Measures Act.

8. TRANSACTION VALUE (TV) There should be a “SALE”. Delivery should be at the time and place of removal. Assessee and the buyer should not be “RELATED PERSONS”. Price should be the sole consideration for the sale.

9. WHAT IS TRANSACTION VALUE? Price actually paid or payable for the goods. Includes any amount the buyer is liable to pay to the assessee in connection with the sale. Either payable at the time of sale or at any other time.

10. INCLUSIONS advertising or publicity marketing and selling organisation expenses storage, outward handling, servicing warranty, commission or any other matter.

11. Third party inspection charges Design, development and engineering charges All types of packing cost Accessories Royalties and Commissions Erection and Commissioning charges Advertisement borne by dealers Any other matter - includes

12. EXCLUSIONS All taxes Interest on delayed payments Optional warranty Annual Maintenance charges Bank charges, including hundi charges Discounts made known at the time of removal and is passed on to the buyer

13. If there is no sale If the time of removal and delivery is different If the place of removal and delivery is different If the assessee and buyer are related If the price is not the sole consideration WHAT IF THE (TV) REQUIREMENTS ARE NOT SATISFIED? Take the help of VALUATION RULES

14. Rules 1, 2 and 3 - Preliminaries Rule 4 - Where there is no sale Rule 5 - Where place of delivery is different from place of removal Rule 6 - Where price is not the sole consideration Rule 7 - Where place of removal is different from factory Rule 8 - Where goods are captively consumed for further manufacture Rule 9 and 10 - Where the buyer and the assessee are related persons/inter connected undertakings Rule 11 - Best judgement VALUATION RULES, 2000

15. RULE 4 When the goods are not sold and if not specifically covered by any of the other rules. In such cases the assessable value shall be based on the value of “such goods” sold by the assessee at any nearest point of time. Eg. Free supply, Physician’s samples, Gifts etc.

16. RULE 5 If the goods under assessment are delivered at a different place, the value shall be exclusive of the actual cost of transportation from the place of removal to the place of delivery. Exclusion of cost of transportation is permitted only if it represents actuals and is shown in the invoice. Cost of transportation includes freight and insurance. “EQUALISED FREIGHT” concept is no more in vogue.

17. RULE 6 If there is any additional consideration. The money value of such additional consideration, flowing directly or indirectly from the buyer to the assessee has to be included.

18. Additional consideration - includes Value of materials, components, parts, packaging materials etc. Value of tools, dies, moulds, drawings, blue prints, technical maps, charts, engineering, development, art work, design work and plans and sketches, etc. –Value to be included either on one time basis or ammortised on life time basis. –Life to be certified by a Chartered Engineer.

19. RULE 7 If the sale is made at depots, premises of consignment agents or any other place (Stock Transfers). The value shall be the “NORMAL TRANSACTION VALUE” of such goods sold from the above places, at or about the same time and if not at a time nearest to the time of removal.

20. EXAMPLE OF NORMAL TV The value for the clearance made today shall be Rs.90, being the “NORMAL TRANSACTION VALUE”, at the nearest time of removal (17.5.2002), at which greatest aggregate quantity of goods (1000 pieces), are sold at the depot. BEWARE OF SEC.11 D

21. RULE 8 If the goods are not sold but are used for consumption by the assessee or on his behalf, in the production of other articles, the value shall be 115 % of cost of production. CENVAT credit - availed on inputs, not to be included, while arriving the cost of production.

22. RULE 9 AND 10 When goods are sold through the related person, then the “normal transaction value” at which the related person sells such goods, shall be the value for assessment. If related person consumes such goods for further manufacture, recourse under Rule 8. Related person - means - Relatives (As defined in the Companies Act). - Buyer being a relative and a distributor of the assessee or a sub-distributor of such distributor. - Being so associated that the assessee and buyer have interest in the business of each other, directly or indirectly. Interconnected undertakings - as defined under Section 2 (g) of MRTP Act, 1969.

23. EXAMPLES FOR RELATED PERSON TRANSACTION

24. ASSESSEE A “B” CAPTIVELY CONSUMES “B” SELLS TO A RELATED PERSON “D” WHO SELLS IN RETAIL “B” SELLS TO NON RELATED PERSON “C” RELATED PERSON B SELLS GOODS TO TV SHALL BE THE PRICE CHARGED BY “B” TO “C” TV SHALL BE THE PRICE CHARGED BY “B” TO “D” TAKE RECOURSE TO RULE 8

25. RULE 11 Best judgement If the value cannot be determined under the foregoing Rules. The value can be determined using reasonable means consistent with the principles and general provisions of these Rules and Section 4(1) of the CEA,1944. Eg. Valuation in case of job worker as pronounced in the case of Ujagar Prints.

26. CENVAT Duties of Excise paid on inputs and capital goods are allowed as CENVAT credit. Duties of Excise includes BED, SED, AED, NCD and CVD. CENVAT credit on AED and NCD to be utilised only against respective duties. Deemed credit available for apparels of Ch.62. Restricted credit for purchases from 100 % EOUs. Special dispensation for goods manufactured in NE Region and Kutch.

27. INPUTS All goods used in or in relation to the manufacture of final products whether directly or indirectly whether contained in the final product or not. - except high speed diesel oil and petrol. Lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of Electricity or steam used for manufacture of final products or for any other purpose within the factory of production.

28. CAPITAL GOODS All goods falling under Chapters 82, 94, 85, 90, 68.02 & 6801.10 Pollution Control Equipment Components, spares & accessories of the above Moulds and dies Refractories and refractory materials Tubes, pipes and fittings thereof Storage tank

29. FEATURES OF CENVAT SCHEME No declarations are required. Credit can be availed either on Original / Duplicate / Triplicate copy of the invoices. No specific time limit to avail credit – shall be availed “immediately”. No format of any Register has been prescribed. Erstwhile 57 E Certificate for differential duty dispensed with - Supplementary invoice would suffice.

30. CONDITIONS FOR CAPITAL GOODS CREDIT The capital goods should be used in the manufacturing process and should not be an office equipment. Only 50 % of the duty paid can be availed in the year of receipt. The balance 50 % can be availed in any subsequent financial year. If the capital goods are to be removed during year of receipt, the balance of credit can be availed before such removal. No depreciation should be claimed under IT Act, on the duty portion availed as credit.

31. F A Q Can inputs / capital goods be sent out of factory? How to return the rejected inputs? How to deal with “written off” inputs / capital goods ? Can the inputs be directly received in job worker’s place? If yes, when the credit can be availed? Can the final products be cleared directly from the job worker? What to be done in case of manufacture of both dutiable and exempted final products by using common inputs?

32. RECEIPT OF DUTY PAID GOODS (RULE 16) GOODS CAN BE BROUGHT INTO THE FACTORY FOR : - Remaking - Refining - Reconditioning - Any other reason

33. FEATURES OF RULE 16 Erstwhile D3 intimation is not required. Any duty paid goods can be brought in. On receipt, CENVAT Credit can be availed, on such goods –On assessee’s own invoice. –Buyer’s CENVATable invoice. –Otherwise, jurisdictional Commissioner has to be approached with collateral evidence. If the process does not amount to manufacture, the goods can be cleared upon reversal of the credit availed. If the process amounts to manufacture, appropriate duty as per Section 4 or 4 A of the CEA, 1944, shall be paid. Adequate records have to be maintained. No time limit as to receipt / despatch of goods.

34. Rule 173 H vs Rule 16 Intimation in Form D3 has to be filed Verification by Range Inspector has to be done Register in form Annexure V has to be maintained No credit can be availed on Receipt of Goods. No duty payable on removal of goods No intimation is required No verification is required No format for the Register is prescribed Credit can be availed on receipt of Goods. Credit taken has to be reversed on removal.

35. RULE 173 H Goods can be brought in only within a period of one year or warranty period, whichever is greater. Otherwise Commissioner’s permission is required. Goods can be brought in for being remade, refined, repaired, reconditioned or for any similar processes. RULE 16 No such time restriction is imposed. Goods can be brought for being remade, refined, reconditioned or for any other purpose. If the process done amounts to manufacture, it was earlier governed under Rule 173 L and now in built under Rule 16 (2).

36. JOB WORK (SUB-CONTRACTING)  CENVAT availed inputs (Erstwhile Rule 57 F (4) and presently Rule 4 (5) of CENVAT Credit Rules, 2002)  Other raw materials.  One time declaration under Notification No. 214/86.  Inputs / raw materials can be cleared either as such or after processing.  Inputs can be delivered directly to the job worker.  The processed goods can either be returned to the assessee or directly removed from the job worker.

37. JOB WORK - DOCUMENTATION Inputs can be removed on assessee’s own document / challan. Registers showing removal and return of inputs have to be maintained. Job worker shall also maintain a register showing receipt and removal of processed inputs Incase of direct supply of inputs to the job worker, the supplier’s invoice to mention job worker’s premises.

38. JOB WORK - CONDITIONS The processed goods have to be returned within 180 days. If not, proportionate credit on inputs has to be debited. Such debit can be credited back on receipt of such processed goods. Scrap, if any, has to be returned along with the processed goods to the assessee. Otherwise, such scrap shall be cleared on payment of appropriate duty by the job worker.

39. DIRECT REMOVAL BY JOB WORKER Assessee has to obtain permission from the Commissioner either on case to case basis or for one year (renewable every financial year). Assessee has to prepare a challan as specified by the Commissioner. Assessee has to prepare the invoice for the goods which are to be removed from the job worker, pay duty and send the invoice to the job worker. In case if the inputs are directly supplied to the job worker, assessee has to avail CENVAT credit at the time payment of duty. Job worker has to fill the date and time of removal and clear the goods under the assessee’s invoice. Job worker has to return the triplicate copy of the said invoice and also the challan back to the assessee. Any other conditions imposed by the Commissioner at the time grant of permission have to be complied with.

40. OTHER RAW MATERIALS (CENVAT CREDIT NOT AVAILED) Can be cleared on assessee’s own document. In cases of clearance of processed goods directly from job worker – same procedures as prescribed for CENVAT availed inputs. Scrap – as already dealt under CENVAT availed inputs.

41. SHORT RECEIPTS BY THE CONSIGNEE SHORT SUPPLY If the consignee demands supply of shortage, such supply can be made without payment of duty. If the consignee short passes the invoice, refund under Section 11 B can be claimed. In both the cases, the burden of proof as to short supply lies with the assessee. TRANSIT LOSS No relief under excise law.

42. SAMPLES Quality control samples (Retains) Returnable samples (Evaluation / Fair / Exhibition etc.) Non-returnable samples

43. QUALITY CONTROL SAMPLES (RETAINS) If retained and accounted for in stock register, no need to pay duty. Remission can be sought on destruction. If removed appropriate duty has to be paid.

44. RETURNABLE SAMPLES Appropriate duty as per Rule 4 of Valuation Rules has to be paid upon removals. At the time of return credit can be taken as provided in Rule 16.

45. REMISSION LOST DESTROYED UNFIT FOR CONSUMPTION OR MARKETING. NO CENVAT CREDIT TO BE REVERSED ON REMISSION

46. LOST Lodging of FIR Reasonable care should have been taken to prevent such loss.

47. DESTROYED UNAVOIDABLE ACCIDENT NATURAL CAUSE

48. UNFIT FOR CONSUMPTION OR MARKETING Test report from Government recognised Laboratory. To be destroyed in the presence of Central Excise Officers.

49. EXPORTS Manufacturer - Exporter Merchant - Exporter Benefits - –Procurement of raw materials without payment of duty. –Clearance of export goods either without payment of duty or rebate, if duty was paid. –Drawback as applicable - Can be claimed on filing the shipping bill. –Option of self sealing / certification.

50. MANUFACTURER - EXPORTER UNDER L.U.T. (without payment of duty) - Recredit upon proof of Export - Customs Endorsed ARE-1 - Self attested shipping bill (export promotion copy) - Self attested bill of lading ON PAYMENT OF DUTY – Rebate upon proof of Export UNDER BOND (On behalf of Merchant Exporter) –No Bank Guarantee / Surety in case of privileged sector.

51. MERCHANT - EXPORTER To execute B-1 bond with the jurisdictional AC / DC or Maritime Commissioner. No bank Guarantee / Surety for privileged sector. To obtain CT-1 Certificate (in lots of 25). Concept of “BLOCK TRANSFER” dispensed with. PROOF OF EXPORT - as already dealt with.

52. RECORDS AND RETURNS RG1 – Daily stock register CENVAT Register Personal Ledger Account Register under Rule 16 Invoices under Rule 11 Challan / Register for job work movement Input invoices ER-1 returns BOND / LUT / PROOF OF EXPORT / ARE-1 / CT-1 All records pertaining receipt, purchase, storage, manufacture, delivery and sale of inputs / capital goods and finished products 5 years records to be preserved

53. THANKS asksa@vsnl.net