INDIRECT AND DIRECTINDIRECT AND DIRECTINDIRECT AND DIRECTINDIRECT AND DIRECTINDIRECT AND DIRECT-----TTTTTAXAXAXAXAX

MANAGEMENTMANAGEMENTMANAGEMENTMANAGEMENTMANAGEMENT

FINAL

GROUP - III

PAPER - 14

STUDY NOTES

THE INSTITUTE OF

COST AND WORKS ACCOUNTANTS OF INDIA

12, SUDDER STREET, KOLKATA - 700016

Copyright of these Study Notes is reserved by the Institute of Cost andWorks Accountants of India and prior permission from the Institute is

necessary for reproduction of the whole or any part thereof.

First Edition : May 2008

First Revised Edition : December 2009 [as per Finance Act (2), 2009]

Second Revised Edition : April 2011 [as per Finance Act, 2010]

Revised Edition : May 2011 [as per Finance Act, 2010]

Published :

Directorate of Studies

The Institute of Cost and Works Accountants of India

12, Sudder Street, Kolkata-700 016

Printed at :

Repro India Limited

50/2 T.T.C. MIDC Industrial Area, Mahape, Navi Mumbai - 400710.

Paper 14

INDIRECT AND DIRECT TAX MANAGEMENT

Contents

StudyParticulars Page No.Note

1. Overview of Central Excise Act, 1944 1 - 73

2. Cenvat Credit 74 - 110

3. Overview of Customs Law 111 - 173

4. Basics of Service Tax 174 - 227

5. Overview of Foreign Trade Policy 228 - 235

6. Export Promotion Schemes 236 - 252

7. Central Sales Tax Act, 1956 253 - 284

8. State Level VAT 285 - 304

9. Overview of Income Tax 305 - 643

10. Wealth Tax 644 - 660

11. Different Aspects of Direct Tax Planning 661 - 720

1Indirect And Direct Tax Management

STUDY NOTE - 1

OVERVIEW OF CENTRAL EXCISE ACT, 1944

This Study Note includes

Constitutional Background

Laws relating to Central Exicse

Central Excise Act, 1944

Duties Leviable

Goods

Excisable Goods

Manufacture

Manufacturer

Classification of Goods

Harmonised System of Nomenclature

Interpretative Rules of CETA

Valuation of Goods

Duty on ad-valorem basis

Other Important Provisions

Procedures in Central Excise

Demands, Penalties and Appeals

Important Provisions of Central Excise Act, 1944

Important Provisions of Central Excise Rules, 2002

Important Rules of Central Excise Valuation Rules, 2000

Rules of Classification

Some Critical Issues in Central Excise

Illustrations

1.1 CONSTITUTIONAL BACKGROUND

Central Excise is a duty on excisable goods manufactured or produced in India, other than alcoholic liquor. Dutyliability is principally on manufacturer, except in a few cases. In majority of cases, duty rate w.e.f. 24.2.09 is 10%plus education cess of 2% and Secondary and Higher Education Cess of 1%. Thus, generally, duty is 10.30%. Thereare some exclusions, partial or full exemptions and higher duties in some cases. As per Appendix IV of CETA, therate of additional duty on Goods of special Importance is 8% in majority of the cases. (Section 3(1) of The AdditionalDuties of Excise (Goods of Special Importance) Act, 1957.

Power of Taxation under Constitution of India is as follows :

(a) The Central Government gets tax revenue form Income-tax (except on Agricultural Income), Excise (excepton alcoholic drinks) and Customs.

(b) The State Governments get tax revenue from sales tax, excise from liquor and alcoholic drinks, tax onagricultural income.

2 Indirect And Direct Tax Management

OVERVIEW OF CENTRAL EXCISE ACT, 1944

(c) The Local Self Governments e.g. municipalities, etc. get tax revenue from entry tax and house property tax.

Article 265 provides that no tax shall be levied or collected except by authority of Law. The authority for levy ofvarious taxes, as discussed above, has been provided for under Article 246 and the subject matters enumeratedunder the three lists set out in the Schedule-VII to the Constitution.

List I : Union List

Item No. 82 Tax on income other than agricultural income

Item No. 83 Duties of customs including export duties

Item No. 84 Duties of excise on tobacco and other goods manufactured or produced in India exceptalcoholic liquors for human consumption, opium narcotics, but including medical and toiletpreparations containing alcohol, opium or narcotics

Item No. 85 Corporation Tax

Item No. 92A Taxes on the sale or purchase of goods other than newspapers, where such sale or purchasetakes place in the course of interstate trade or commerce.

Item No. 92B Taxes on consignment of goods, where such consignment takes place during interstate trade orcommerce

Item No. 92C Taxation of Services

Item No. 97 Any other matter not included in the List II, List III and any tax not mentioned in List II orList III

List-II i.e. the State List, in respect of which the State Government has exclusive powers to levy taxes, are as follows :

Item No. 46 Taxes on agricultural income

Item No. 51 Excise duty on alcoholic liquors, opium and narcotics

Item No. 52 Tax on entry of goods into a local area for consumption, use or sale therein (usually called asOctroi)

Item No. 54 Tax on sale and purchase of goods other than newspapers except tax on interstate sale orpurchase

List-III : Concurrent List List III of Seventh Schedule, called concurrent list, includes matters where bothCentral Government and State Government can make laws.

1.1.1 Laws Relating to Central Excise

Central Excise Act, 1944(CEA) : The basic Act which provides the constitutional power for charging ofduty,valuation, powers of officers, provisions of arrests, penalty, etc.

Central Excise Tariff Act, 1985 (CETA) : This classifies the goods under 96 chapters with specific codes assigned.

Central Excise Rules, 2002 : The procedural aspects are laid herein. The rules are implemented after issue ofnotification.

Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 : The provisions regarding thevaluation of excisable goods are laid down in this rule.

Cenvat Credit Rules, 2004 : The provisions relating to Cenvat Credit available and its utilisation is mentioned.

1.1.2 Central Excise Act, 1944

The duty of Central Excise is levied if the following conditions are satisfied :

(1) The duty is on goods.

(2) The goods must be excisable.

(3) The goods must be manufactured or produced

(4) Such manufacture or production must be in India.

3Indirect And Direct Tax Management

In other words, Unless all of these conditions are satisfied, Central Excise Duty cannot be levied.Ownership of raw material isnot relevant for duty liability Ownership of raw material is not relevant for duty liability Hindustan GeneralIndustries v. CCE 2003 (155) ELT 65 (CEGAT)

* CCE v. Mahindra & Mahindra 2001(132) ELT 632 (CEGAT).

1.1.3 Duties Leviable

Basic Excise Duty is levied u/s 3(1) of Central Excise Act. The section is termed as charging section. Generalrate of duty of central excise on non-petroleum products is 10% w.e.f. 27-02-2010. (The duty rate was 14%during 1-3-2008 to 6-12-2008, which was reduced to 10% w.e.f. 7-12-2008 and to 8% w.e.f. 24-02-2009). Thisduty is applicable to majority of excisable goods. There is partial exemption to a few products.

Education Cess @ 2% of excise duty under section 93 of Finance (No. 2) Act (w.e.f. 9-7-2004).

Secondary and Higher Education Cess (S&H Education Cess) @ 1% of the total duties of excise vide section136 read with section 138 of Finance Act, 2007 w.e.f. 1-3-2007.

Thus, total excise duty is 10.30% in majority of the cases.

National Calamity Contingent Duty A National Calamity Contingent Duty (NCCD) has been imposedvide section 136 of Finance Act, 2001 on some products. NCCD of 1% has been imposed on mobile phonesw.e.f. 1-3-2008.In addition, cesses and duties have been imposed on some specified products.

1.1.4 Goods

It is obvious from section 3(1) that, to attract excise duty, the following conditions must be fulfilled :

There should be goods;

The goods must be excisable;

The goods must be manufactured or produced; and

The manufacture or production must be in India.

Goods manufactured or produced in SEZ are excluded excisable goods. This means, that the goods manufacturedor produced in SEZ are excisable goods but no duty is leviable, as charging section 3(1) excludes these goods.Thus, the goods manufactured in SEZ are not Exempted goods. They can be termed as excluded excisablegoods.

As per explanation to section 2(d), goods includes any article, material or substance which is capable of beingbought and sold for a consideration and such goods shall be deemed to be marketable.

Basic Ingredients

From the above definitions of goods, the two essential elements of goods are emanated:

(i) They should be movable, and(ii) They should be marketable.

1.1.4.1 Goods must be moveable

In order to be movable, an article must fulfill two conditions:

(i) It should come into existence (as a result of manufacture); and(ii) It should be capable of being moved to market to be bought and sold.

Thus, goods must exist. Where goods have not come into existence, they can not be moved as well. So long as thegoods have not come into existence, no question of levy of excise duty would arise. It has been observed that theword manufacture or production are associated with movables.

Marketability is to be decided on the basis of condition in which goods are manufactured or produced.

Everything that is sold is not necessarily marketable.

Waste and Scrap can be goods but