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Understanding Fundamentals of Excise Duty

The tax pattern in India is structured in such a way where taxpayers are required to pay taxes for many reasons that include Income Tax, Sales Tax, Entertainment Tax, Value Added Tax etc. Earning citizens are required to pay these taxes as they have a huge impact on the government’s fund which is used for the economic and social development of India. Excise Duty is one such tax that exists within the manufacturing industry.

Excise Tax can be explained as a type of indirect taxation, applicable for production and selling of goods that happens only within the territories of India. Excise Tax is completely different from Customs Duty, where taxes are levied on goods produced outside a country.

Excise Duty falls under the Excise Duty Act, 1944 which was initially proposed to help the government to generate revenue, however, Excise Duty has become a vital part of Fiscal Policy by taking a critical role in the growth of Indian economy.

Classification of Excise Taxes in India

Currently, in India, there are 7 types of Excise Duty in practice:

Basic Excise Duty

Basic Excise Duty is levied as per the First Schedule of the Central Excise Tariff Act, 1985, where taxes are charged on all goods except on salt under the Central Excises and Salt Act 1944.

National Calamity Contingent Duty

National Calamity Contingent Duty or NCCD is applicable as per Section 136 of the Finance Act, 2001. NCCD is an additional tax imposed upon certain types of specified goods.

Special Excise Duty

Special Excise Taxes are imposed on every excisable item upon which there is a Basic Excise Duty (BED), as per the Second Schedule of the Central Excise Tariff Act, 1985.

Excise Duties and Cess Leviable under Miscellaneous Act

These are additional duties levied on certain specified goods, where the prescribed rate of Excise Duty and Cess is also leviable.

Additional Duties of Excise (Textiles/Textile Articles)

Additional Duties of Excise is imposed as per the Section 3 of the Additional Duties of Excise (Textiles and Textiles Articles) Act, 1978. This tax is quoted as 15% rate of the Basic Excise Duty that is payable on Specified Textile Articles.

Education Cess

The Education Cess is implemented as per the existing law for Excise Taxes of the Central Excise Act 1944.

Additional Duties of Excise (Goods with Special Importance)

This tax is levied according to the First Schedule of the Additional Duties of Excise Act, 1957 for goods under special Importance. A decisive panel for excise taxes are made on a yearly basis, based on the Finance Act. Additional Duties of Excise under this category specifically deals with product manufacturing.

What are the categories of Excise Taxpayers?

Excise Duties are liabilities applicable to manufacturers and producers of goods.

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These manufacturers can be categorized as:

  • Manufacturers who fulfill the production themselves.
  • Manufacturers who get the goods produced by employing hired labour.
  • Manufacturers who have the goods produced by a second party.

For Excise Taxes, the duty is paid during removal of goods where the following transactions and activities are considered as removal:

  • Sale of goods.
  • Transfer of goods to a different unit.
  • Transfer of goods to warehouses.
  • Free distribution of goods.
  • Captive consumption.

Acts and Rules for the Collection of Excise Duty

As per the Central Excise Act Authority, 1944, taxes are imposed on manufacturer and producer of goods. All the tax rates under this act are stated under the Central Excise Tariff Act, 1985. Excise Duty is charged on certain textile products such as yarn, fiber, etc. An Additional Excise Duty under Additional Duties of Excise (Textiles and Textile Articles) Act, 1975, is also charged. The Additional Duties of Excise Act, 1957 and Miscellaneous Cess Acts allows and approves collection of Additional Excise Duty and Cess respectively on numerous items.

The category of items that are excisable for Excise Duties

Apart from alcohol and narcotics taxes imposed by one’s state government, the Central government charges Excise Duty on the following products:

  • Animals and Animal Products: Any type of live animal, meat, seafood, bird’s eggs, natural honey and any products derived from animals are liable for Excise Duty.
  • Vegetable Products: In this category, manufacturers who make products derived from any live trees, plants and parts of a plant like its bulb, roots etc. that can be utilized for ornamental purpose, edible oil etc. becomes eligible for Excise Tax.
  • Products Manufactured from non-renewable Sources: When products are manufactured from precious metals or any other form of natural metal which are not chemically produced then Excise Duty is levied on such items.
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The tax rates for all these excisable products are categorized under the Central Excise Tariff and Central Excise Duty of 2015.

What is the motive behind Excise Duty?

Like other taxes imposed on taxpayers, Excise Duty is also a part of the income that aids to government funds. The funds from Excise Duty and other Income Taxes are accumulated to ensure that a country has a smooth economic structure.

Excise Duty was proposed to make sure that the manufacturing industry is involved with every aspect of taxation, equally with the rest of taxpayers. Excise Taxes also help in controlling the sale of illegal goods as the prices for such goods increase due to its scarcity, preventing buyers from entertaining themselves with these segments.

While taxes collected by the government are generally used for building projects like roads, bridges, government buildings, healthcare system as well as sanitation maintenance, parks etc., these taxes also help in funding for proper maintenance of a country’s defense forces.

What are the ways to Evaluate Excisable Goods?

Evaluation of excisable goods is done based on any one of the two provisions manifested in the Central Excise Law of India. The two means of evaluation are estimated under section 4 of the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985. The process of valuation of goods is a crucial step in determining the excisable goods.

Documentation

Under the Central Excise Act, 2002, an assessee must follow the procedure below:

Registration: It is required that the assesse must apply for Central Excise Registration Certificate from the Assistant or Deputy Commissioner of one’s own area.

Returns: After self-assessment in ER-1 format, an assessee must file for Central Excise Returns within ten days from the closure of a month. The inspector or superintendent of Central Excise and Assessment will verify and finalize the returns.

Frequently Asked Questions

Q. Is it mandatory to pay Excise Duty on all goods that are manufactured?
Yes, it is crucial to pay Excise Duty on every product that has been manufactured, unless those taxes are exempted under special conditions. For instance, Excise Duty is not payable on the goods exported out of India.
Q. On what basis is an exemption of Excise Duty applicable?
Exemption from payment of Excise Duty is applicable on conditions related to the kind of raw materials used (if the raw material falls under exemption act), the value of yield in a financial year, type of process employed in manufacturing etc.
Q. What will happen on evading payment of Excise Duty?
As per the penalty stated in the Central Excise Act, the fines for evading Excise Tax can range between 25% and 50% of the total evaded tax amount.
Q. Can excisable good become non-excisable if the duty is exempted?
Even if the duty is exempted because of exemption notification, the goods do not become non-excisable goods.
Q. What does the term excisable goods mean?
The term excisable goods is referred to those goods that are mentioned in the first schedule and second schedule, under the Central Excise Tariff Act, 1985. These goods are subjected to exemption from duty of excise and items like salt is included in this category.
Q. What is the difference between Excise Duty and Customs Duty?
Excise duty is a type of indirect tax imposed by the government upon those goods which are manufactured within the country. Excise Duty is paid by the manufacturer after the final product is launched in the marketplaces for the consumers. Whereas, Customs Duty is the tax levied by the government when the goods are manufactured outside the country.
Q. Is the burden of Excise Duties shifted to the consumer?
Excise Duty is also known as manufacturing tax, where the consumers are not required to pay the duty. Excise Duty is generally categories as Basic Excise Duty, Additional Duty of Excise and Special Excise Duty.