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MANUFACTURE AND EXCISIBILITYSection 3 of Central Excise Act, 1944. Basis of Levy. What is Manufacture?. CE Law gives only a truncated definition for manufacture Includes Deemed Manufacture. Widest definition is available in Foreign Trade Policy but that is not applicable to CE Law. contd
The statutory definition of manufacture in central excise act(i)
Manufacture includes any process Incidental or ancillary to he 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 as amounting to manufacture
(iii) Which in relation to the goods specified in the Third Schedule involves packing or repacking of such goods in a unit container or labeling or re-labeling 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 labor in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.
cases Decisions of Supreme
Court.- Formation of a new Article Vide Hawkins Cookers Ltd Vs Collector [1997 (96) ELT 507 SC. - A new distinct and commercial commodity. Vide TISCO V.O.I[2004(164) ELT 372 SC.
The accepted wisdom about manufacture in central excise
Manufacture implies a change; but not every change is a manufacture. A new product should emerge from the raw material stage with a new name, new use and marketability.
2) Ingredients of excisablity Fact
of Manufacture. Entry availability in CE Tariff. Marketability.
Manufacture in central exciseTwo concepts Actual substantive manufacture & Deemed manufacture Actual substantive manufacture does it include mere processing? Deemed manufacture
What is deemed manufacture?Process or activity specified in section or chapter notes for example: Labeling or re labeling of containers Repacking from bulk packs to retail packs Adoption of any other treatment to render the product marketable to the consumer
Addition of chemicals and other ingredients to certain products of tariff heading 3808 In relation to products of heading no 3920 & 3921 process of metallization or lamination or lacquering In relation to some products of heading 7013 the process of printing , decorating or ornamenting
Continued.In relation to flat-rolled iron & steel products under chapter 72 the process of hardening or tempering In relation to articles of iron and steel under chapter 73 the process of galvanization
In relation to motor vehicles under chapter no 87 building a body or fabrication or mounting or fitting of structures or equipment on the chassis falling under 8706
3) Select Decided cases in Manufacture Affixing
Information stickers on goods imported does not amount to Manufacture. -CCE Vs Proctor & Gamble Home Products 2004  ELT 173 [TRI D]. Erection of imported Power Plant does not amount to manufacture. -Spectrum Power Generating Co. Ltd VCCE 2004(177)ELT 968 [Tri-D]. Conversion of old, diesel operated Buses into CNG Buses does not amount to Manufacture.contd
Technologies India (P) Ltd. VCCE [171 ELT 376 Tri-D]. Gold Plating of watch cases does not amount to Manufacture. -Commissioner Vs Divya cases 2004ELT225[Tri-D] Mixing of chocolate Powder with Sugar and Skimmed Milk to form drinking chocolate does not amount to Manufacture CCE Vs Fountain Consumer Appliances Ltd 2004  ELT 329 (Tri Chennai)
contdBranding, polishing and affixing MRP on locks acquired from artisans does not amount to Manufacture. Key locks (I) P Ltd Vs CCE 2004(165) ELT,74 (TriD). Printing of date of Manufacture is a Legal requirement and hence it is a Process of manufacture. - Surat Beverages (P) Ltd Vs Commissioner 2004 (165) ELT313 [Tri- Mumbai]. Rubber lining/ Painting/ Cutting/ Welding/of Iron and Steel pipes and Tanks does not amount to manufacture.- Tega (I) Ltd Vs CCE 2004(164)ELT390 [SC]
of Catalyst into spent Catalyst does not amount to Manufacture. -CCE Vs Deepak Fertilizers & Petro Corp.Ltd.2004 (178)ELT 686 [Tri-M]. The Test of Marketability is a Burden of Revenue. -FGP(I) Ltd Vs U.O.I 2004(168) ELT 289 [SC] Testing/ Gardening/ Certification of Helium gas cylinders before Sale is an activity amounting to manufacture. - Commissioner Vs Air liquide North (I) P. Ltd 2004ELT 201 [Tri - Del].
4]Valuation The Crux of the matterTending to become more like an opinion poll. Section 4 and 4A/ Valuation Rules 2000. What is Transaction value?. Requirements for acceptance of Transaction Price Sale of goods. For Delivery, at the time and place of removal Seller and Buyer not related. Price is the sole consideration for sale. The legal fiction created by the definition of time of removal let us note this
A tour of the valuation rules 2000
The official name for the rules is this Central Excise Valuation ( Determination of price of excisable goods) Rules, 2000 These rules apply when any of the ingredients of transaction value is missing The rules are used for ascertaining the normal transaction value at which the greatest aggregate quantity of goods are sold
The valuation rules.They are 11 rules in all Rule 1 name & entry into force from 1-72000 Rule 2 definitions Rule 3 exhortation to decide the value (when the transaction value is unavailable or unacceptable)
The valuation rules.Rule 4 ascertainable equivalent price of such goods nearest in time to the time of removal of goods from the factory margin adjustment on account of differences in dates of delivery allowed Rule 5 cases when the delivery of goods is at a place other than the factory
The valuation rules..Rule 6 when there is additional consideration to the sale not reflected in the transaction price charged solution: monetize the additional consideration and add it up to the tax value Rule 7 Depot / branch sales solution: adopt the nearest prevailing depot price
Valuation rules.Rule 8 captive /self consumption/use solution: tax value is 110% of the cost of production of the goods (as per CAS 4) Rule 9 sales to related persons solution: resale price of related person / 110% of the cost where the related person does not resell but consumes or uses for self
Valuation rules.Rule 10 sales to inter-connected undertakings /holding company /subsidiary company solution:: do as per rule 9 above. Rule 10A job work on behalf of a principal manufacturer solution: resale price of the principal manufacturer Rule 11 residual method
5) Exclusions From Value -By
Statute Excise Duty. Sales Tax. Other taxes such as Octroi, entry tax. -By Court / Tribunal Decisions Trade Discount. Cash Discount/ Prompt Payment discount. Turn over discount. Quantity discount. Year end/ Bonus discount. contd
and Freight insurance, including equalised Freight. Bought out items [not integral/ critical to Product]. Carry bags for Laptops. Syringe bought out and supplied with P & P medicines. Computer Software ( discuss with NCR case) Third party Inspection charges at the instance of and borne by the buyer. Excess of Freight collected over actual expenditure on freight. Interest on receivables contd
Commissioning charges if products emerge as immovable property. Free items supplied with products. Advertising charges borne by the client buyer on his own account. Additional warranty charges. Notional interest on Advances/ deposits from buyers not influencing the price. Straw supplied with Juice. Rental paid on durable and returnable container Liquidated damages received for non- lifting of molasses
6) Inclusions into Value -By
Statute Advertising. Publicity. Marketing/ Sales Promotion. Storage/ Outward handling. Servicing. Warranty. Commission. -By Tribunal/ Court Decisions Dharmada. Design/ Development/ Engineering.
Cost of tools/ dies/ moulds received from buyers. Interest on inventory. Value of waste retained by Jobworker. Packing. Cost of material supplied by Customer.
7) Valuation When goods are assembled at site Is
it a Composite/ turnkey/ works contract? Excise duty is not leviable on immovable property but on Parts / Components/ goods already manufactured. Case Studies Lifts/ Boiler Plants/ Industrial Furnaces.
8) Valuation in Jobwork When
does Jobwork amount to Manufacture?. Labor/ Jobwork charges + Raw material costs are includible in assessable value. Ujjagar Prints etc Vs U.O.I. Empire Industries Vs U.O.I. Pawan Biscuits Co. Vs CCE. Is buyers profit margin includible in Assessable Value in the hands of Jobworker?. Food Specialities Ltd Vs U.O.I.
Continued.The impact of new valuation rule 10A The Central Board of Excise & Customs circular no 902/22/2009 dated 20-10-09 in the case of vehicle body builders Job work exemption under notification no 214/86
9) MRP based Valuation Section
4A/ weights & Measurements Act. MRP minus prescribed abatement is the assessable value. Region wise MRP accepted If different MRPs are printed, the maximum MRP will be taken as the basis. Sale of phones with MRP fixed, to customer, by phone companies U/S 4A only. Multi Piece Packages.
10) Refunds & Rebates Section
11B/ Rule 1