How Budget 2017 affected the Central Excise duty – The indirect tax on manufacturers

We are not fortunate yet to have huge numbers of exclusive manufacturers around us. India may be the fastest growing economy in the world, but it largely depends on the imports from across the world. The trade deficit is huge. Thus, there is a lot to be done throughout the developmental phase. The most important, or should say the most respected tax in considered to be the Central Excise tax. Businessmen which manufacturers one thing or the other, directly or indirectly, has to pay a tax to the government. It doesn’t matter, however, if the product is sold or not. The taxes are levied just after the manufacturing process.

The taxes are levied just after the manufacturing process. Hon’ble Finance Minister, Shri Arun Jaitley, in his parliamentarian budget speech 2017 pointed out amendments in the tax regimes of excise taxable goods for the coming year until GST comes to action.

What is an excise duty?

The tax which is levied on certain goods for their production, regardless of the nature of the trading of the manufactured goods. Named as Central Excise duty, the tax is paid on the basis of production of the goods and not during trade, unlike other taxes. Falls under the Excise Duty Act, 1944, The tax on these goods are collected by the Government from the manufacturer of such goods as soon as the goods are in “movable” form. The movement of goods may or may not be directly related to the taxes, the goods are considered movable during:

  • Movement to and from warehouses
  • Sale of goods
  • Usage of the finished product as a raw material of other goods
  • Depot transfer
  • Free distribution

Types of excise duty

The three types of excise duty which exist in India are, basic, additional and special.

Basic – Excise Duty, imposed under section 3 of the ‘Central Excises and Salt Act’ of 1944 on all excisable goods other than salt produced or manufactured in India, at the rates set forth in the schedule to the Central Excise tariff Act, 1985, falls under the category of basic excise duty in India.

Additional – Section 3 of the ‘Additional Duties of Excise Act’ of 1957 permits the charge and collection of excise duty in respect of the goods as listed in the schedule of this act. This tax is shared between the central and state governments and charged instead of sales tax.

Special – According to Section 37 of the Finance Act, 1978, Special Excise Duty is levied on all excisable goods that come under taxation, in line with the Basic Excise Duty under the Central Excises and Salt Act of 1944.

Excise duty liable goods

The goods which are mentioned and referred to the Schedule I and II of the Central Excise Tarrif Act, 1985. Goods which are produced or manufactured in India are liable to pay excise duty. The exemptions of excise duty as referred to in the CETA, 1985, as to the exporters who manufacture and export goods out of India are exempted. Manufacturing means bringing into existence a new substance. Manufacturing is end result of one or more processes, through which original commodity passes. Manufacturing implies a change but every change is not manufacturing. The liability to pay excise duty is always on the manufacturer or producer of goods.

Classification of Excisable goods

The goods manufacturers are allotted a four to eight-digit HSN code. Abbreviated for Harmonized System Nomenclature, HSN code classifies different types of excisable goods. The most important aspect of HSN code is that they are widely accepted in most of the countries. Although major countries use the same and classified sets of HSN codes, some country code varies by a little.

Who pays Excise tax

The liability to pay tax excise duty is always on the manufacturer or producer of goods. There are three types of parties who can be considered as manufacturers:

  • Those who personally manufacture the goods in question
  • Those who get the goods manufactured by employing hired labor
  • Those who get the goods manufactured by other parties

What is CENVAT & ITC

CENVAT credit is a credit in respect of central excise on inputs purchased for the manufacture or duty paid in relation to the manufacture of the final product. CENVAT credit is also available in respect of duty paid on capital goods, which include machinery, plant, spare parts of machinery etc. in other words, instead of paying cash towards central excise on shipment of goods, the exporter can adjust the excise duty paid on the inputs and machinery. Whereas ITC stands for input tax credit, just in case if you are familiar with VAT Input and Output, ITC works in the same spectrum.

For better understanding, Ram Co. Ltd., is a manufacturer of the keyboard, and it purchased certain raw materials from Shyam Co. Ltd., to use it in producing the final product. SCL must have paid excise duty on the materials it manufactured and overcharged RCL by adding it to the selling price. Now RCL also has a finished product and needs to pay excise again on account of manufacturing the keyboard. It also bears the tax burden put in by SCL which amounts to multiple taxations on a single product. Hence, RCL owns a right to take the credit of the excise duty paid by SCL, thus minimizing the tax burden and lowering the cost of the goods manufactured.

Under CENVAT Credit scheme, the benefit of excise duty on inputs is available, instantaneously, when the inputs reach the factory. There is no need to establish any linkage between the inputs and goods manufactured . In case of capital goods, 50% benefit is available in the current year of purchase and balance in the next year. This balance can be adjusted against the duty payable but is not refunded. So, it is desirable to utilize this balance, at the earliest.

In other words under a CENVAT CREDIT scheme, exporter is totally freed from the burden of excise duty, at all the different stages, on inputs used, duty paid on final products and even duty paid on capital goods purchased. Under a CENVAT credit scheme, the intention of Government is to eliminate the burden of excise duty on exports totally, paid directly or indirectly, to make them globally competitive.

Taxable event of Excise duty

Manufacture or production of excisable goods in India is a taxable event. Central excise duty is charged on manufactured goods & not on the sale of goods that means even if goods are not sold, excise duty should be payable on it. Captive consumption, free sample, intermediary goods etc. are also liable to central excise duty even from these goods no revenue is generated. An ownership criterion is irrelevant in paying excise duty.

Effect of Budget 2017 Speech on Excise Duty Taxes

Commodity

Rate of Duty

 

From

To

I.

Public Health

A.

Tobacco and Tobacco Products
Cigar and cheroots

12.5% or Rs.3755 per thousand, whichever is higher

12.5% or Rs.4006 per thousand, whichever is higher

Cigarillos

12.5% or Rs.3755 per thousand, whichever is higher

12.5% or Rs.4006 per thousand, whichever is higher

Cigarettes of tobacco substitutes

Rs.3755 per thousand

Rs.4006 per thousand

Cigarillos of tobacco substitutes

12.5% or Rs.3755 per thousand, whichever is higher

12.5% or Rs.4006 per thousand, whichever is higher

Others of tobacco substitutes

12.5% or Rs.3755 per thousand, whichever is higher

12.5% or Rs.4006 per thousand, whichever is higher

Paper rolled biris – handmade

Rs.21 per thousand

Rs.28 per thousand

Paper rolled biris – machine made

Rs.21 per thousand

Rs.78 per thousand

II.

Incentivizing domestic value addition, ‘Make in India’

A.

Renewable Energy
All items of machinery required for balance of systems operating on biogas/ bio-methane/ by-product hydrogen

12.5%

6%

B.

Miscellaneous
Membrane Sheet and Tricot/Spacer for use in the manufacture of RO membrane element for household type filters, subject to actual user condition

12.5%

6%

All parts for use in the manufacture of LED lights or fixtures, including LED lamps, subject to actual user condition

Applicable duty

6%

    1. Waste and scrap of precious metals or metals clad with precious metals arising in course of manufacture of goods failing in Chapter 71
    2. Strips, wires, sheets, plates and foils of silver
    3. Articles of silver jewellery, other than those studded with diamond, ruby, emerald or sapphire
    4. Silver coin of purity 99.9% and above, bearing a brand name when manufactured from silver on which appropriate duty of customs or excise has been paid

Nil

Nil, subject to the condition that no credit of duty paid on inputs or input services or capital goods has been availed by manufacturer of such goods

III.

Promotion of cashless transactions and promote domestic manufacturing of devices used therefor
a)        Miniaturized POS card reader for m-POS (not including mobile phones or tablet computers),

b)       micro ATM as per standards version 1.5.1,

c)        Finger Print Reader / Scanner, and

d)       Iris Scanner

Applicable duty

Nil

Parts and components for manufacture of:

a)        Miniaturized POS card reader for m-POS (not including mobile phones or tablet computers),

b)       Micro ATM as per standards version 1.5.1,

c)        Finger Print Reader / Scanner, and

d)       Iris Scanner

Applicable duty

Nil

CHANGES IN RATE OF ADDITIONAL DUTY LEVIED UNDER SECTION 85 OF THE FINANCE ACT, 2005.

Commodity

Rate of duty

 

From

To

A.

Pan Masala
Pan Masala

6%

9%

B.

Tobacco and Tobacco Products
Unmanufactured tobacco

4.2%

8.3%

Non-filter Cigarettes of length not exceeding 65mm

Rs.215 per thousand

Rs.311 per thousand

Non-filter Cigarettes of length exceeding 65mm but not exceeding 70mm

Rs.370 per thousand

Rs.541 per thousand

Filter Cigarettes of length not exceeding 65mm

Rs.215 per thousand

Rs.311 per thousand

Filter Cigarettes of length exceeding 65mm but not exceeding 70mm

Rs.260 per thousand

Rs.386 per thousand

Filter Cigarettes of length exceeding 70mm but not exceeding 75mm

Rs.370 per thousand

Rs.541 per thousand

Other Cigarettes

Rs.560 per thousand

Rs.811 per thousand

Chewing tobacco (including filter khaini)

6%

12%

Jarda scented tobacco

6%

12%

Pan Masala containing Tobacco (Gutkha)

6%

12%

Source: Central Board for Excise and Customs