MANNER OF DUTY PAYMENT, ACCOUNT CURRENT, SCRUTINY
1. Assessment Defined
1.1 The expressions assessment and assessee have been defined in the Central Excise (No.2) Rules, 2001 (hereinafter referred to as the said Rules). "Assessment" includes self-assessment of duty made by the assessee and provisional assessment under rule 7 of the said Rules. "Assessee" means any person who is liable for payment of duty assessed or a producer or manufacturer of excisable goods or a registered person of a private warehouse in which excisable goods are stored and includes an authorized agent of such person.
1.2 Normally, duty is payable on removal of goods. Rule 4 of the said Rules provides that every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 of the said Rules or under any other law. No excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided.
1.3 An exception has been provided in the said rule 4 in respect of goods falling under Chapter 62 of the First Schedule to Central Excise Tariff Act, 1985 (5 of 1986) produced or manufactured by a job worker. Such goods may be removed without payment of duty leviable thereon and the duty of excise leviable on such goods shall be paid by person who gets such goods, produced or manufactured on his account on job work as if such goods have been produced or manufactured by him, on the date of removal of such goods from his premises registered under rule 9. The payment of such duty may be secured by bond or otherwise. However, where such person has authorised the job worker to pay the duty leviable on such goods, the job worker shall pay such duty on the date of removal of such goods from his registered premises.
1.4 There is also an exception with respect to duty payment on molasses. Where molasses are produced in a khandsari sugar factory, the person who procures such molasses, whether directly from such factory or otherwise, for use in the manufacture of any commodity, whether or not excisable, shall pay the duty leviable on such molasses, in the same manner as if such molasses have been produced by the procurer.
1.5 For the purposes of the said rule 4, excisable goods manufactured in a factory and utilised, as such or after subjecting to any process, for the manufacture of any other commodity, in such factory shall be deemed to have been removed from such factory immediately before such utilisation.
2. Major ingredients of assessment
2.1 Before each removal, whether outside the factory of manufacture or production or for captive consumption, duty has to be assessed on the excisable goods. The main ingredients of assessment are:
Classification and rate of duty: For determining the rate of duty, classification is prerequisite. Classification means the appropriate classification code which is applicable to the excisable goods in question under the First Schedule to Central Excise Tariff Act, 1985 (5 of 1986). There are Section Notes and Chapter Notes, in the Tariff which are helpful in determining the appropriate classification. In case of difficulties, there are "Interpretative Rules" in the said Act. There is large number of judicial pronouncements concerning classification, which have to be applied in relevant case. The said Tariff also prescribes the Tariff Rate of duty. Some commodities may be subject to special duty of excise prescribed under the Second Schedule to Central Excise Tariff Act, 1985. Thus, a reference to the Second Schedule to Central Excise Tariff Act, 1985 should also be made to see if the goods are covered there. However, duty chargeable is the effective rate. Thus, if any exemption is available to any commodity, the same may be ascertained and the applicable rate of duty should be determined. If such exemption is subject to certain conditions, it shall be necessary to follow those conditions. Certain goods may also be subject to duty under some other Acts such as Additional Duty of Excise (Goods of Special Importance) Act, 1957 or certain Cess. The manufacturer or owner of goods in a warehouse is liable to pay all such applicable duties on removal of excisable goods.
(ii) Valuation: Where rate of duty is dependent on value of the goods (ad valorem duty), value has to be determined in accordance with the provisions of Central Excise Act, 1944, as follows:
(iii) Quantity Removed: Where duty is on value, the total value is determined by multiplying unit value with the total quantity. The unit quantity of goods are also required in cases where duty is charged at specific rate.
3. Self Assessment
3.1 As per rule 6 of the said Rules a Central Excise assessee is himself (self-assessment) required to determine duty liability at the time of removal of excisable goods and discharge the same. In other words, the assessee should apply correct classification and value (where duty is ad valorem) on the quantities being removed by him and indicate the same in the invoice (except assessee manufacturing cigarettes, in which case the Superintendent or Inspector of Central Excise has to assess the duty payable before removal by the assessee).
3.2 Assessee is also required to assess his return for a month and submit to the Range Office having jurisdiction over his factory within ten days of the succeeding month. They are also requited to submit CENVAT Return for a month within five days of the succeeding month. A manufacturer availing exemption notification for Small Scale Industries is permitted to file his return of quarterly basis. Their returns have to be filed in the following frequency: -
4. Date for determination of rate of duty and tariff value
4.1 Date for determination of rate of duty and tariff value is prescribed in rule 5 of the Central Excise (No.2) Rules, 2001. The provision is, as follows:
4.2 If any excisable goods are used within the factory, the date of removal of such goods shall mean the date on which the goods are issued for such use.
4.3 The rate of duty in the case of goods falling under Chapter 62 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), produced or manufactured on job work, shall be the rate in force on the date of removal of such goods by the person referred to in sub-rule (3) of rule 4 from his premises registered under rule 9.
1.1 The Central Excise duty is chargeable at the rates specified in the schedule to the Central Excise Tariff Act, 1985. The said schedule is divided into 20 sections and 96 Chapters. There are no Chapters with numbers 1,6,10,12 and 77. As such there are effectively 91 Chapters. Each Chapter is further divided into headings and sub-headings. In order to determine the applicable rate of duty in respect of a particular item, the positioning of that item under a particular head or sub-head is essential. The positioning of an item in the appropriate heading/sub-heading is called classification. The classification of an item is generally decided in view of how it is described in commercial parlance. However a deviation from this principle is made when the trade meaning or commercial nomenclature does not fit into the scheme of the statute.
2. Interpretative Rules for classification.
2.1 The Central Excise Tariff Act, 1985 incorporates five Rules of interpretation, which together provide necessary guidelines for classification of various products under the schedule. As regards the Interpretative Rules, the classification is to be first tested in the light of Rule 1. Only when it is not possible to resolve the issue by applying this Rule, recourse is taken to Rules 2,3 & 4 in seriatim. The provision of the individual Rule is as follows:
3. Powers of the C.B.E.C. to issue orders of classification of goods.
Section 37B of the Central Excise Act, 1944 empowers the Central Board of Excise & Customs to issue orders, instructions and directions, for the purpose of uniformity in the classification of goods or with respect to the levy of excise duties on such goods.
1. Value under the Central Excise Act, 1944
1.1 Value of the excisable goods has to be necessarily determined when the rate of duty is on ad-valorem basis. Accordingly, under the Central Excise Act, 1944 the following values are relevant for assessment of duty. Transaction value is the most commonly adopted method.
2. Transaction Value
2.1 Section 4 of the Central Excise Act, as substituted by section 94 of the Finance Act, 2000(No.10 of 2000),has come into force from the 1st day of July 2000. This section contains the provision for determining the Transaction value of the goods for purpose of assessment of duty.
2.2 For applicability of transaction value in a given case, for assessment purposes, certain essential requirements should be satisfied. If any one of the said requirement is not satisfied, then the transaction value shall not be the assessable value and value in such case has to be arrived at under the valuation rules notified for the purpose. The essential ingredients of a Transaction value are:
2.3 The definition of "transaction value" needs to be carefully taken note of as there is fundamental departure from the erstwhile system of valuation that was essentially based on the concept of Normal Wholesale Price, even though sales were effected at varying prices to different buyers or class of buyers from factory gate or Depots etc. had to be determined.
2.4 The new section 4 essentially seeks to accept different transaction values which may be charged by the assessee to different customers, for assessment purposes so long as these are based upon purely commercial consideration where buyer and the seller have no relationship and price is the sole consideration for sale. Thus, it enables valuation of goods for excise purposes on value charged as per commercial practices rather than looking for a notionally determined value.
2.5 Transaction value would include any amount which is paid or payable by the buyer to or on behalf of the assessee, on account of the factum of sale of goods. In other words, if, for example, an assessee recovers advertising charges or publicity charges from his buyers, either at the time of sale of goods or even subsequently, the assessee cannot claim that such charges are not to be included in the transaction value. The law recognizes such payment to be part of the transaction value that is assessable value for those particular transactions. Certain other elements which are included in the Transaction value are, as follows:
2.6 Where the assessee includes all their costs incurred in relation to manufacture and marketing while fixing price payable for the goods and bills and collects an all inclusive price as happens in most cases where sales are to independent customers on commercial consideration - the transaction price will generally be the assessable value. Nevertheless, there could be situations where the amount charged by an assessee does not reflect the true intrinsic value of goods marketed and total value split up into various elements like special packing charges, warranty charges, service charges etc. These cases would require to be scrutinised carefully to ensure that duty is paid on correct value. The definition of "transaction value" makes it clear that all the elements of cost which the assessee incurred till the sale/marketing as aforesaid, continue to be included in the assessable value even under new section 4.
2.7 The term "place of removal" has been defined in the same manner as was defined in the erstwhile section 4 prior to its amendment in 1996. If, therefore, the transaction value is with reference to delivery at the time and place of removal, such transaction value will be the assessable value.
3. Valuation Rules
3.1 In those cases where any of the three requirements mentioned in para 2 above is missing, the assessable value shall be determined on the basis of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2001 notified under Section 4(1)(b) by notification No. 45/2000-CE (NT), dated 30.6.2000.
3.2 Salient features of the new valuation rules are mentioned below:
4. Valuation of Petroleum Products
4.1 The practice being followed is to assess the price administered petroleum products like motor spirit, HSD, SKO (domestic) and LPG to duty on the ex-storage sale prices that are fixed by the Oil Coordination Committee (OCC) from time to time. The assessable value is the same irrespective of whether the administered petroleum products are sold at the refineries or through the marketing companies.
5. Tariff Value
5.1 For certain items the Government may fix a tariff value as per provisions of Section 3(3) of the Central Excise Act, 1944. In such cases the assessment of duty shall be on the basis of the tariff value.
6. Value on basis of Maximum Retail Sales Price
6.1 The value is based on maximum retail sale price in terms of Section 4A of the Central Excise Act, 1944. This is applicable to notified commodities. The notification issued in this regard indicates the extent of abatement to be allowed for arriving at the assessable value for determination of amount of duty.
1.1 Provisional assessment is resorted to in the event the duty can not be determined at the point of clearance of the goods.
2. Guidelines and procedure for provisional assessment:
2.1 Wherever an assessee finds that final assessment is not possible, (in situations mentioned in rule 7 of the Central Excise (No.2) Rules, 2001 (hereinafter referred to as the said Rules) he will make a detailed request in writing to the Divisional Deputy/Assistant Commissioner of Central Excise, indicating:-
2.2 On receipt of the request, the Deputy/Assistant Commissioner of Central Excise will examine it, if necessary, in consultation with the concerned Range Officer, to ascertain whether provisional assessment is necessary at all. If the reasons/ grounds are not sufficient, he may ask the assessee to appear before him on an appointed day and time, and if he is satisfied that provisional assessment is not necessary, he may pass a reasoned order rejecting the same and also ordering the rate of duty or the value, to be applied by the assessee.
2.3 Where the Deputy/Assistant Commissioner of Central Excise is satisfied with the genuineness of the assessees request he will issue a specific order directing provisional assessment clearly stating:-
2.4 The assessee is required to mark the E.R.1 (monthly/quarterly return)and documents covered under Provisional Assessment as "PROVISIONALLY ASSESSED" vide Order No.......... dated .............." . There is a declaration in E.R.1 where assessee have to mention the goods under provisional assessment.
2.5 Notwithstanding self-assessment, all cases of provisional assessment has to be finalised by the Deputy/Assistant Commissioner of Central Excise, within a maximum period of 6 months. All the cases where provisional assessment cannot be finalised within 6 months must be submitted to Commissioner with the request letter of the assessee (through Deputy/Assistant Commissioner of Central Excise) indicating the reasons for non-finalisation and amount of differential duty for future clearances, before the expiry of the above-said period. If the Commissioner is satisfied with the reasons, he may extend the period, or otherwise direct the method to be adopted for finalisation of the assessment. For extending the period beyond one year from the date of provisional assessment, the request letter of the assessee should be put up to the Chief Commissioner in the same manner through Commissioner with his comments. The time limit of finalising the provisional assessment shall be applicable even to cases ordered for provisional assessment prior to 1st July, 2001.
2.6 Finalisation of provisional assessment means finalisation of an issue/ground and thereafter finalisation of each E.R.1s. The amount will be communicated to the assessee at the earliest. The amount of each differential duty shall be paid along with interest at the rate of twenty four percent per annum from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.
2.7 In the event the assessee will be in a position to ascertain the duty himself. He may, pay the duty on his own at the earliest and in that case he will not have to incur interest on account of time taken by the Department to finalise assessment and communicate the amount.
2.8 Where any refund becomes due to the assessee, order shall be passed for such refund, but disbursement shall be subject to further verification about incidence of such duty. The assessee will be required to submit proof to the Assistant/deputy Commissioner of Central Excise that the duty incidence was borne by him (assessee). If the assessee fails to produce such proof/evidence, the Assistant/deputy Commissioner of Central Excise will pass an order for depositing the amount in Consumer Welfare Fund in the prescribed manner. Otherwise, the refund shall be give along with interest at the rate of fifteen percent per annum from the first day of the month succeeding the month for which such refund is determined, till the date of refund.
2.9 Though it is incumbent upon the assessee to ensure that the bond amount and corresponding securities are sufficient, the Divisional as well as the Range Officer will also keep a strict vigil on such cases with the help of 'Provisional Assessment Register' .
2.10 The Assistant/deputy Commissioner of Central Excise will be held responsible to ensure that bonds for proper amount i.e., 3 times of the estimated differential duty are taken, in case of general bonds and that these are backed by proper (25%) security/ bank guarantee of the bond amount.
2.11 The format of bond for provisional assessment has been specified in Notification No. 56/2001-Central Excise (N.T.) dated 3.7.2001 (Annexure-7).
3. Initiation of Provisional Assessment by Department
3.1 Rule 7 of the said Rules does not provide for the Department, suo moto, issuing directions for resorting to provisional assessment. Therefore, when the Central Excise Officers, during scrutiny or otherwise, find that self-assessment in not in order the assessee may be asked for all necessary document, records or other information for issue of duty demand for differential duty, if any, after conducting inquiry. Where the assessee fails to provide the records or information and Department is unable to issue demand, Best Judgement method may be used to raise demand based on collateral evidences. The burden will be on the assessee to provide information for appropriate re-determination of duty, if any.
4. Application of new provisions
4.1 The provisions of Provisional Assessment relating to interest clause and statutory time limit are prospective. In other words, these provisions shall be applicable only to those cases of provisional assessment, which are ordered on or after 1st July, 2001.
1. Manner of payment of duty
1.1 Rule 8 of the said Rules provides that duty relating to removals during a fortnight of a month can be discharged within five days of the close of that fortnight, except that in the last fortnight of the month of March, the duty has to be discharged by the last day of the month. In case of a manufacturer availing an exemption based on value of clearances during a financial year, the duty for a month may be discharged by fifteenth day of the succeeding month.
1.2 An assessee may also exercise the option of payment of duty consignment-wise.
1.3 There is no specific provision in the new Rules for clearance of goods without payment of duty for storage outside the factory. However, considering that there may be genuine difficulties for sugar industry i.e. sugar has season production , but its off take is through out the year, and that large quantity of the off take (sale) sugar is controlled by government [levy sugar], the manufacturer may not be in a position to clear the goods on payment of duty. Storage of such huge quantities within the factory will be burdensome. Accordingly, it has been decided to allow storage of non-duty paid sugar outside the factory, under such bond and securities/sureties and such conditions and limitations as the Commissioner may specify for a manufacturer on case to case basis.
1.4 The duty can be discharged by debiting an account current (also referred to as Personal Ledger Account [PLA]) and debiting the CENVAT Credit Account maintained by the assessee under the provisions of CENVAT Credit Rules, 2001.
1.5 No format for CENVAT Credit Account has been specified. The assessee has to maintain this account in his own format. This account is a credit-debit account wherein the admissible credit in respect of inputs and capital goods received by the assessee in his factory is taken and debit is made for payment of any duty.
1.5 In account current [Personal Ledger Account], credit is taken by depositing money in the banks on T.R.6 Challans. The guidelines regarding account current are mentioned in subsequent paragraphs.
2. Account current and procedures relating thereto
2.1 In order to open a new Personal Ledger Account, the manufacturer, quoting his registration number, shall obtain the New Excise Control Code Number (New ECC Number), which is a Permanent Account Number (PAN)-based number. Once Department adopts common number for registration and accounts, separate ECC number shall not be required.
2.2 The manufacturer working under the procedure shall maintain an account current (Personal Ledger Account) in the Form specified in Annexure-8.
2.3 Each credit and debit entry should be made on separate lines and assigned a running serial number for the financial year.
2.4 The PLA must be prepared in triplicate by writing with indelible pencil and using double-sided carbon - original and duplicate copies of the PLA should be detached by the manufacturers and sent to the Central Excise Officer in charge along with the monthly/quarterly periodical return in form E.R.1.
3. Credit and debit in account current
3.1 The assessee may make credit in the PLA by making cash payment into the Treasury/or Authorised Bank. If allowed by the Commissioner, In exceptional cases, such as sudden strike in bank, natural calamity, riot etc., after sending by Registered A.D. post or by a messenger a cheque for the requisite amount to the Chief Accounts Officer of the Commissionerate, provided procedure specified in this regard are followed.
3.2 Deposit into the Treasury of the authorised bank should be made in a Challan in form TR 6 under the correct Head of Account. The Assessees ECC No. should also be indicated in the challans. A copy of each Treasury Challan bearing Treasury/Bank seal and the signature of the authorised officer of the Treasury/Bank which is received back from the Treasury/Bank in token of having made the deposit, should be sent by the assessee to the Central Excise Office along with the monthly periodical return in form E.R.1/E.R.2.
3.3 There is an Explanation to sub-rule (1) of rule 5 that the duty liability shall be deemed to have been discharged only if the amount payable is credited to the account of the Central Government by the specified date. It is being interpreted that it refers to deposit of duty amount by the focal point banks into the account of Government. This is not the intention. Once the assessee has deposited a cheque in bank and the same is honoured or pays in cash/drafts and the bank gives receipt stamp on TR-6 Challans, the same shall be treated as credited to the account of the Central Government.
3.4 No restriction exists with regard to any minimum amount, which should necessarily remain in balance to the credit of an assessee in his PLA. With the fortnightly/monthly payment system, there should be enough credit at the time of payment of duty for the fortnight.
3.5 Where an assessee is required/chooses to pay duty consignment wise (for the reasons of defaults earlier):
3.6 Mutilations or erasures of entries once made in the PLA are not allowed. If any correction becomes necessary, the original entry should be neatly scored out and attested by the assessee or his authorised agent.
4. Payment of rents, fines or penalties
4.1 In case where miscellaneous dues like rents, fines or penalties are to be paid by the holder of account current he may be advised to make payments of such accounts directly into the authorised bank under Challan in form T R 6 supported by order of demand, if any. Such challans need not be counter-signed by the Departmental Officer but should indicate the particulars of penalties, rent etc, deposited. If, however, the account holder desires that such miscellaneous dues should also be paid through an account current, he may be permitted to open a separate account current for this purpose under the group minor head "E-Miscellaneous-1 Miscellaneous".
5. Account Code Directory
5.1 Regarding the Account Code Directory for the purpose of computerisation, separate instructions have been issued by the Principal Chief Controller of Accounts C.B.E.C., which may be referred to.
6. Procedure for deposit of Central Excise duties during bank strikes, natural calamities etc.,
6.1 This procedure is to be followed only when all the banks nominated to collect revenues within a Commissionerate are unable to transact business, due to strike of banks or sudden closure of banks due to riots, imposition of curfew or natural calamities such as flood, cyclones, etc.
6.2 Normally in all cases of closure of bank business due to strike by bank employees, the Public gets advance intimation either through the press, or otherwise. In all such cases, the assessees should make advance arrangements to deposit money into the banks and keep sufficient amounts in their account current [PLA] so that they do not face any difficulty in the clearance of the goods during the period of the strike.
6.3 In cases, where the strike of bank employees is without notice, or where the strike called for after due notice is prolonged beyond a reasonable time (say over 3-4 days) or where there is sudden closure of banks due to riots, imposition of curfew or natural calamities such as flood, cyclones, etc., the Commissioner may adopt the procedure specified hereinafter in partial relaxation of the provisions contained in the "Manual for collection of Revenue and payment of refunds etc.(hereinafter referred to as Manual)" only for the duration of the strike or the sudden closures:
6.4 The Commissioners should issue a Trade Notice stating that during the days of the closure of bank business due to such strikes (specifying the dates wherever possible), the assessees can send their cheques by registered post, acknowledgement due (R.P.A.D.) or special messenger, with the TR-6 challans (in quadruplicate) duly filled in, to the Chief Accounts Officers of the Commissionerates, with a clear declaration that they have sufficient balance in their bank account.
7. Payment by cheque when not permitted
7.1 For removal of doubts and to ensure uniformity of application of the procedure it is clarified that the payment of duty/other dues through cheques should not be permitted in the following cases: -
1.1 In view of the self-assessment procedure wherein the assessee himself assesses the duty liability the responsibility of the departmental officers is to scrutinise the assessment made for verification of its correctness.
2. Scrutiny of Assessment
2.1 The Central Excise Officers having jurisdiction over the factory/premises of the assessee is responsible for the scrutiny of returns. For this purpose, the said officer(s) may require the relevant documents. Though the statutory records have been dispensed with, the assessee is required to maintain private records containing all requisite information as required by different rules and also provide a list of all records maintained by him to the Range Office. The Officer responsible for scrutiny of return may require the invoices issued by the assessee, Daily Stock Account, Cenvat Account, cash ledgers, Ledger of all receipts and payments and the source documents etc. It shall be compulsory for the assessee to provide the necessary records upon receiving the "Requisition Letter from the Range Officer or other superior officers. He shall hand over the records under proper acknowledgement and receive them back under proper acknowledgement too. The Officer scrutinizing return may require presence of the assessee or his authorised person at mutually convenient time, for seeking certain information relating to the records.
2.2 The Superintendent of Central Excise in-charge of the Range Office, with assistance of the Inspectors in-charge of the factory of an assessee, will scrutinise all the returns. They shall, in selected cases, call all connecting documents including invoices and the records and scrutinise the correctness of assessment.
2.3 The Deputy/Assistant Commissioner of Central Excise will scrutinise the returns of the units, which pay duty-exceeding rupees one crore but less than Rs.5 crores from PLA per annum every six months. They shall requisition all connecting documents including invoices and the records and scrutinise the correctness of assessment.
2.4 The Additional/Joint Commissioner of Central Excise will scrutinise the returns of the units which pay duty Rs. 5 crores or more from PLA per annum every six months. They shall requisition all connecting documents including invoices and the records and scrutinise the correctness of assessment.