Excise Duty – Overview, Meaning, Acts, Rules etc
Central Excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption. The taxable event is ‘manufacture’ and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers. In today’s World the relevance of taxes are a lot more than just financial aid to the Government. It is also, the money that goes in for building the future of a nation. India being a democratic country requires this aid through taxes. The Central Government levies taxes along with the state government to their respective states. There are a few taxes that are levied by the local Municipality as well. Excise Duty falls under the Central Government of India.
What is Excise Duty
This tax is levied on certain goods for their production or sale catering or on licenses on specific services and activities. Excise duty is an inland tax unlike custom duties is an inland tax. Also this duty charges are a form of indirect tax. Indirect taxes are generally collected by a retail store or an intermediary body from the person who ultimately bears the responsibility of paying the tax as a consumer. The producer of the goods then pays this tax to the government. This amount is excise of the VAT (Value Added Tax) and sales tax that is charged to the consumers when purchasing a good.
The excise duty falls under the Excise Duty Act, 1944. The State Government charges them on certain goods such as narcotics, alcohol or alcoholic products, the duty charges on other goods are collected by the Central Government, hence the term, ‘Central Excise Duty’. The tax is however, collected by the Government when the good are being removed from the factory and dispatch.
Acts and Rules For The Collection of Excise Duty
Under the authority of the Central Excise Act, 1944, the taxes are levied on manufacturing or production of goods. The rates for the taxes are specified under the Central Excise Tariff Act, 1985. This duty is chargeable on certain textile products such as yarn, fiber, etc. also excluding the Additional Excise Duty under Additional Duties of Excise (Textiles and Textile Articles) Act, 1975, which are also charged.. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Miscellaneous Cess Acts permits and mandates collection of Additional Excise Duty and Cess respectively on many products over Basic Excise Duty authoritated by the Central Excise Act, 1944.
Central Board of Excise and Customs
Established in 1855, by George Robinson, the British Governor General of India at the time, Central Board of Excise and Customs was intended to administer and manage customs laws in the country as well as the collection of import duties and land revenue. It is said to be one of the oldest government departments of India.
The Central Board of Excise and Customs (CBEC) is functions under the the Union Ministry of Finance’s Department of Revenue. The responsibility for administering the laws that govern laws under the following, and are not restricted to excise taxes alone:
- Policy making for levying and collecting central and customs and excise duties
- Management of Customs, Narcotics and Central Excise as per the prior set limits
- Prevention the goods smuggling
There are certain subsidiary organizations that function under the Central Board of Excise and Customs including:
- Custom Houses
- Central Excise Commission rates
- Central Revenues Control Laboratory
Products with Excise Duty Charges
Besides narcotics and alcohol, collected by the corresponding state Government, the Central Government charges excise duty on the following products:
- Live Animals and Animal Products:
This includes live animals, meat and edible meat offal, Fish and Crustaceans, Molluscs and other Aquatic Invertebrates, Birds’ Eggs, Natural Honey; Edible Products of Animal Origin, not elsewhere specified or included, Products of Animal Origin, not elsewhere specified or included.
- Vegetable Products:
This category includes Live trees and other Plants; Bulb, Roots and the like; Cut flowers and Ornamental Foliage, Edible Vegetables and Certain Roots and Tubers.
- Other Products
Edible Fruit and Nuts; Peel of Citrus Fruit or Melons, Coffee, Tea, Mate, Spices, Products of the Milling Industry; Malt; Starches; Inulin; Wheat Gluten, cereals, Products of the Milling Industry; Malt; Starches; Inulin; Wheat Gluten, Oil Seeds and Oleaginous Fruits; Miscellaneous Grains, Seeds and Fruit; Industrial or Medicinal Plants; Straw and Fodder, Gums, Resins and other Vegetable Saps and Extracts and Vegetable Plaiting Materials.
- Products Made Out of Non-renewable Sources: Products made from precious Metals and other Metals, other industrial chemicals.
Sales Tax/VAT V/S Excise Duty
The biggest difference between VAT/sales tax and excise duty is that the prior to be charged on consumption of goods, whereas excise is charged on the manufacture and production of goods. Excise duties are also chargeable on a narrower range of products, as compared to VAT and sales tax. For example, excise is not chargeable on fossil fuels unlike sales tax and VAT. The excise amount is generally accounts for a higher percentage of the maximum retail price of the products. Excise is chargeable on per unit basis, i.e. it is calculated on the costing of good for a specific amount in the form of volume, weight or units. VAT and sales tax amounts are calculated proportional to the maximum retail price of the product or services.
Excise Duty V/s Customs Duty
If you take a look at both of these taxes at first, both are taxes levied by the government of India but the most significant difference between the two is that customs duty is a tax levied upon goods imported into the country from foreign countries while excise duty is levied by the government on the goods manufactured in the country. It is important to note that many provisions are common to both customs and excise duty. Also, both taxes have similar procedures of administration, tribunal and settlement. At the same time the refund search, principles of valuation, confiscation and appeal are similar for both taxes.
Purpose of Excise Duty
There is a necessity of taxes in any country but it is important to know what the Government does with that money. Taxes are levied to ensure the smooth running of the public services in India. Excise duty is a part of it.
It makes sure that the manufacturing sector is involving themselves in the taxation to cover all aspects. Taxes can also be a tool to control the sale of a good, especially narcotic substances and alcohol. The increase in tax amount of such products may have eventually lead to reduction of purchase due to ill affordability.
Taxes in general, help Governments in infrastructure projects such as building roads, railway networks that are used by the public. It also helps to ensure that the defense forces i.e. navy, airforce and army are being maintained and the required arms are being funded, so that taxpayer or not, a citizen of India feels safe and secure at home. Other maintenance such as public parks, water treatment and cleanliness in public places are funded by such taxes. A lot of free public healthcare is funded through these taxes. Any Government or public building, organization, area or service is indeed funded by such taxes.
Also, under the Indian law system excise tax, unless exempted under the corresponding acts. If an individual or an organization is caught evading excise tax, the penance could be a fine of 20-50% of duty evaded. It also spoils the organization and the involved individual’s image. Hence, the importance of excise duty.
Evaluate Excisable the Goods
It is done in the basis any one of the 2 two provisions enshrined in the Central Excise law in India. These provisions are Valuation under section 4 of the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985, The earlier act is based on normal price where maximum retail price is not to the Central Government or where Tariff values have not been fixed for the articles. Under section 3(2) of the Central Excise Tariff Act, 1985 the valuation is simply based on maximum retail price (MRP) under section 4A of the Central Excise Act, 1944. Section 4A of the Central Excise Act of 1944 applies on the excisable goods that are notified by the Central Govt.