CENTRAL EXCISE

1. LEVY OF EXCISE DUTY The power to levy a duty of excise manufactured or produced in India derives its authority from entry 84 of the Union List (List I) of Seventh Schedule read with Article 246 of the Constitution of India. Thus, Central Excise is a tax on the act of manufacture or production. Section 3 of the Central Excise Act, 1944 (hereinafter referred to as "the Act") is the charging section, which specifies the conditions under which Excise Duty is leviable on all excisable goods which are manufactured or produced in India. Education Cess is a duty of excise which is to be levied @ 2% of the aggregate duty of excise ( vide Finance Act, 2004). As Education Cess and Higher Education Cess is a new levy it will not be payable on the opening stock of finished goods as on day 8-7-2004. The Secondary and Higher Education cess is payable at the rate of 1% on excise duty payable under section 3 of Central Excise Act with effect from 1-3-2007. 2. MEANING OF "MANUFACTURE" 2.1 The taxable event for Central Excise duty to be attracted is manufacture or production in India of excisable goods. Section 2(f) of the Act defines the term "manufacture" in an inclusive manner so as to include any process: (i) Incidental or ancillary to the completion of a manufactured product; and (ii) Which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; and (iii) Which in relation to goods specified in the Third Schedule to the Central Excise Tariff Act, 1985, involves packing or repacking of such goods in a unit, container or labelling or re-labelling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consumer. (The clauses (ii) and (iii) above are termed as deemed manufacture.) The aforesaid definition gives a wider content to the expression "manufacture" as several processes which would not ordinarily be understood as amounting to manufacture are specifically included therein. However, the most commonly used test for ascertaining "manufacture" for the purpose of attracting Central Excise duty has taken place was evolved by the Supreme Court in the case of Delhi Cloth and General Mills 1977 (1) ELT (J 199). In terms of this decision,

the activity or process in order to amount to "manufacture" must lead to emergence of a new commercial product, different from the one with which the process started. In other words, it must be an article with different name, character or use. Thus, a process which simply changes the form or size of the same article or substance would not ordinarily amount to manufacture and no excise duty would be payable unless it is deemed to be manufacture as follows: In a particular case by a section or Chapter note of the Tariff; or In relation to goods, which are specified under MRP based assessment under section 4A, packing or repacking of such goods, labelling or relabelling of containers including declaration or alteration of retail sales price shall amount to manufacture.

2.2. MEANING OF "GOODS" Central Excise duty is levied on goods which are manufactured or produced. The understanding of term goods is of vide importance in determining the leviability of Excise Duty. The Act does not define the term "goods". The judgment of the Supreme Court in the case of Delhi Cloth and General Mills (supra) is considered to be the landmark judgment in this regard, where it is held that an an article can be called "goods" if it is known to the market as such and can ordinarily come to the market for being bought and sold. Actual sale of the article is not important but it must be capable of being bought and sold. The marketability element of goods was enumerated in Union of India and Others, Appellants vs. Sonic Electro Chem (P) Ltd. 2002 (52) RLT 878 (SC) where the Supreme Court held that the essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold. Whether immovable things are goods or not, was clarified in the case of Triveni Engg. vs. CCE 2000 (120) ELT 273 by the Supreme Court where it was observed that immovable property or articles embedded to earth, erections, turnkey projects are not generally termed as "goods" because they cannot ordinarily come to the market to be bought and sold. The Explanation is added by Finance Act, 2008 under section 2(d) provides that goods includes any article, material or substance which is capable of being sold for consideration and such goods shall be deemed to be marketable. 2.3. MANUFACTURER DUTY LIABILITY The definition of manufacturer under the Act is an inclusive one and broadly specifies two categories of manufacturer; i.e., one who manufactures on his own

account or one gets the goods manufactured through hired labour. Thus we can construe the meaning of the word manufacturer as understood in common terminology. Manufacturer may be understood as any person who is the creator, initiator and architect of the activities and the processes, which bring in existence a new and identifiable product/goods in the market. Thus a manufacturer is the one who undertakes manufacturing activity in reality. A purchaser of goods does not become manufacturer, he can only be termed as a supplier of raw material, if applicable or a person who gets goods manufactured according to his specifications or with his brand name. Here, it is worthwhile to mention that such contracts are on a principal to principal basis. A person supplying the raw material cannot be considered as hiring the job worker if he does not supervise and control the activities of the job worker . However if the manufacturer is a dummy or fake unit, then the raw material supplier or the brand name owner is deemed to be the actual manufacturer. Section 3A incorporated in the Statute by Finance Act, 2008 provides power to the Central Government to charge excise duty on the basis of capacity to manufacture by manufacturer himself in respect of notified goods. Till today, the product under this sub-section has not been notified. Once the product has been notified, excise duty will be payable on the basis of capacity. 3. PRINCIPALS OF CLASSIFICATION 3.1 The charging section; i.e., section 3 specifies that the rates of Central Excise Duty shall be the rates as are specified in the Schedules to the Central Excise Tariff Act, 1985 (hereinafter referred to as "the Tariff"). The classification of goods in the Central Excise Tariff Act is comprised in two schedules; the First Schedule specifies the basic rate of excise duty and the Second Schedule specifies the special rate of excise duty. The first contains 96 Chapters grouped into 20 sections and has been selectively aligned with the Harmonised System of Nomenclature (The International Nomenclature adopted by more than 130 countries for international trade). The correct classification of goods is necessary to ascertain the rate of duty on it. Thus, it is essential to determine the right heading or sub-heading of the Tariff under which the goods fall. This process of determining the right place of the goods in the tariff is called classification of goods. The chapter description read along with the section and chapter give us the classification statutorily, and in absence thereof the classification has to be done on trade or commercial parlance. The schedule to the Central Excise Act provides the following rules for interpretation of the tariff to aid in the classification of goods: (i) A reference to a product includes an incomplete or unfinished product provided that the incomplete or unfinished product has the essential character of complete or finished goods.

(ii) A reference in heading to a material includes the reference to a mixture or combination of that product. The classification of goods consisting of more than one material shall be decided on the basis of the material which gives the essential character to the product. (iii) A specific heading should be preferred to the more general heading. (iv) In case the classification cannot be decided on the basis of above principle, the product shall be classified under a heading, which occurs last in the chapter/heading/sub-heading. 3.2 Importance of notification The rate of duty prescribed against each of sub-heading specified in schedule to the Central Excise Tariff Act is known as tariff rate. The effective rate of duty must be ascertained by considering the various notification issued from time to time. The tariff rate read with the rate prescribed in the notification determined the effective rate of duty payable on clearance of goods. 4. VALUATION 4.1 Introduction The levy of duty requires the valuation of the goods under consideration after establishing the duty liability and the classification of the goods. Except in cases where specific duty has been provided for on the basis of certain unit like weight, length, etc. as in case of goods like cigarettes (length basis), cement clinkers (per ton basis), for most of the goods the rates are specified on an ad valorem basis; i.e., expressed as a percentage of value of goods. Thus for calculating the amount of duty payable, first the assessable value of the goods has to be determined under the provisions. 4.2 The modes of valuation of goods under the Excise Act are: (A) Tariff value The Central Government is authorized under the provisions of section 3(2) of the Act, to fix the tariff value for any goods which may be different for different classes of goods. This is also termed as the notional value. The duty in such cases is the % of such tariff value and not the Assessable Value. (B) M.R.P. value

The Central Government under section 4A of the Act can notify goods on which excise duty will be payable on the MRP less % of abatement. Such value shall be deemed to be the assessable value in such cases. The provisions of this section are applicable to products which are statutorily required to put MRP under the Standards of Weight and Measures Act, 1976, or any other law and in respect of which specific notification has been issued. (C) Transaction value (i) In respect of all other goods which are not covered by the abovementioned provisions, their assessable value would be in terms of "transaction value" as provided in section 4 of the Act. The assessable value would be the transaction value when the goods are sold by an assessee for delivery at the time and place of removal, where the assessee and the buyer are not related and price is the sole consideration. In all other cases, which do not fulfil the aforesaid conditions, value shall be determined as per the Central Excise Valuation Rules, 2000. The definition of transaction value as per section 4(3)(d) means the price actually paid or payable for the goods when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to or on behalf of, the assessee by reason of or in connection with the sale, whether at the time of sale or any other time. The definition gives an inclusive but not exhaustive list of additions and deductions from the invoice price in respect of certain amounts. (ii) The valuation rules have to be followed when transaction value cannot be determined under section 4(1); which are enumerated below: (a) If goods are not sold at the time of removal, the value of excisable goods shall be value of goods sold by the manufacturer for delivery at any other time nearest to the time of removal of goods except in cases of stock /branch transfer, sale to related person, job work where specific provisions have been made. (Rule 4) (b) In case goods are sold for delivery at any other place other than the place of removal, the value will be the price less the actual cost of transportation from place of removal to the place of delivery. (Rule 5) (c) In case the price is not the sole consideration in respect of any transaction, the value of goods shall be the aggregate of such transaction value and the amount of money value of

additional consideration flowing directly or indirectly from buyer to the assessee. (Rule 6) (d) In case where goods are cleared to depot, consignment agent etc., transaction value shall be the normal transaction value of such goods sold from such other place at or about the same time. The normal transaction value is the price at which the greatest aggregate quantity of goods are sold. (Rule 7) (e) In case of consumption of goods captively; i.e., consumed by the assessee or on his behalf, the value shall be 110% of the cost of production. (Rule 8) (f) In case of sale of goods to a related person, the value shall be the price at which the related person has sold the goods to an unrelated person. In case a related person does not sell the goods but uses or consumes the goods in production or manufacture of the article, the value shall be 115% of the cost of production. (Rule 9) (iii) The following deduction can be made from the transaction value for determination of value under section 4 (a) Trade discount The Board has clarified as follows: "Discount of any type or description given on any normal price payable for any transaction will not form part of the transaction value for the goods; e.g., quantity discount for goods purchased or cash discount for the prompt payment etc. will therefore not form part of the transaction value. However, it is important to establish that the discount has actually been passed on to the buyer of the goods. The different type of discounts extended as per commercial considerations on different transactions to unrelated buyers if extended is also permissible and different actual prices paid or payable for various transactions are to be accepted." "The Larger Bench of Tribunal in the case of Arvind Mills Ltd. 2006 (204) ELT 570 (Tri LB) has held that even the new section 4 introduced w.e.f. 1-7-2000, quantum of cash discount offered to the customer should be allowed as deduction even if some of the customers has not availed the benefit of cash discount. Cash discount in such case will not be passed on to

the customers as the customers has not paid within the stipulated period". (b) Tax and duties The definition of transaction value stipulate that excise duty, sales tax and other taxes paid or payable shall be excluded from the transaction value. (c) Freight The cost of transportation can be excluded even when freight is averaged and also there is no condition that the cost of transportation should be shown separately in the invoice. The cost of transportation will include the cost of insurance during transportation of goods. (d) Interest for delayed payment Interest for delayed payments is a normal practice in industry. Interest under a financing arrangement entered between the assessee and the buyer relating to the purchase of excisable goods shall not be regarded as part of the assessable value provided that: The interest charges are clearly distinguished from the price actually paid or payable for the goods. The financing arrangement is made in writing; and Where required, assessee demonstrates that such goods are actually sold at the price declared as the price actually paid or payable. (e) Erection, installation and commissioning charges If the product after erection, installation and commissioning is not excisable the question of including these charges in the assessable value of the product does not arise. (iv) Inclusion in the price Some of the expenditures like packing charges, designing and engineering charges, handling charges incurred within the factory are required to be included in the price if they are not already included.

5. REGISTRATION Section 6 provides that any person who is engaged in the production or manufacture of specified goods or the wholesaler engaged in purchase or sale or the storage of any specified goods shall be liable to get himself registered with the proper officer as per provision contained in Rule 9 of the Central Excise Rules. Thus manufacturers or dealers who intend to issue cenvatable invoices should get registered themselves. Application for registration has to be made in Form A1 in the office of the jurisdictional AC/DC. The assessee will be issued a 15 digit registration number and a registration certificate on completion of the registration procedure. The notification No. 36/2001 (NT) provides exemption from registration to the following persons: (i) Person who manufactures those goods which are chargeable to NIL rate of duty or remains fully exempt from whole of duty. However if the exemption from payment of whole of duty is based on the value of clearance made in a financial year, the value of clearance shall not exceed Rs. 1.5 crore. Such manufacturer shall file the declaration in prescribed form with the jurisdictional AC/DC if his value of clearance in the previous financial year exceeds Rs. 90 lakhs. (ii) Person manufacturing excisable goods by following the warehousing procedure as provided in the Custom Act, 1962. (iii) Person engaged in the wholesale trade except first stage dealer and second stage dealer. (iv) Person who uses excisable goods in any purpose other than processing or manufacture of any goods availing benefit of exemption. 6. PROCEDURE FOR CLEARANCE OF GOODS FROM FACTORY As per Rules 8, 10, 11 & 12 of Central Excise Rules, 2002, registered person is required to follow the following procedure for clearance of goods:

(a) Maintain Daily Stock Account (DSA) indicating the opening balance, quantity produced, inventory of goods, quantity removed, assessable value, the amount of duty payable and duty paid on manufactured goods. (b) The goods should be removed under invoice. The invoice shall be prepared in triplicate. Original for buyer, duplicate for transporter and triplicate for assessee. It shall be serially numbered and shall contain the registration number, name of the consignee, description, classification, time and date of removal, mode of transportation, vehicle registration number, rate of duty, quantity and value of goods and duty payable thereon. (c) The excise duty on the goods removed shall be paid by 5th of the following month but the goods removed during the month of March the duty shall be paid by 31st March. However, in case of small scale manufacturer the duty is payable by 5th of the following month after end of the quarter. In this case also the duty for quarter Jan to March is payable by 31st March. (d) The ER-1 return shall be filed within 10 days from the close of the month to which the return relates. However where the assessee has availed the benefit of the notification providing exemption based on value of clearance in a financial year, he shall file the return within 10 days after the end of quarter. 7. RULE 7 Rule 7 of the Central Excise, 2002 provides that where assessee is unable to determine the value of excisable goods or the rate of duty he shall request the Assistant Commissioner or Deputy Commissioner for permitting him to make the assessment provisional. The Assistant Commissioner will ask the assessee to execute bond supported by Bank Guarantee to make the assessment provisional. 8. SMALL SCALE BENEFIT 8.1 This notification provides exemption from whole of duty leviable on goods specified in annexure to the notification up to the aggregate value of clearance of Rs. 1,50,00,000/- . In computing 1,50,00,000/- the following clearance shall not be taken in account: a) Clearances, which are exempt from the whole of the excise duty leviable thereon ( other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason; b) Clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4;

c) Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods; 8.2 The benefit is available to small scale manufacturer where: a) The value of clearance in the previous financial year shall not be exceeds Rs. 4 crore b) The goods have not been affixed with the brands name of other person. In computing the value of clearance of Rs. 4 crores. The following clearance shall not be considered : a) Clearance of excisable goods without payment of duty i) To a unit in a free trade zone or ii) To a unit in a special economic zone; or iii) To a hundred percent export oriented undertaking; or iv) To a unit in an Electronic Hardware Technology Park or Software Technology Park; or v) Supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification No. 108/95. b) Clearance bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4 of the notification. c) Clearance of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods. d) Clearance, which are exempt from the whole of the excise duty leviable thereon under notification No. 214/86-Central Excise or No. 83/94-Central Excise or 84/94- Central Excise.

8.3 If a manufacturer clears the specified goods from one or more factory the exemption shall applicable to the aggregate value of clearance of all the products cleared by the manufacturer from all the factories. 8.4 Where the specified goods are cleared by one or more manufacturer from the facto the exemption shall apply to aggregate value of clearance of specified goods by all the manufacturers. The exemption will not available separately to each manufacturer. 9. RECOVERY OF DUTY As per the provision of section 11A the show cause notice for recovery of duty short paid, short levied or not paid or not levied or refunded erroneously shall be served by the proper officer within a period of one year from the relevant date. In case the demand for duty arises on account of fraud, collusion, misstatement or suppression for facts or contravention of any of the provisions of the Act or rules with intent to evade payment of duty the period of one year will be extended to 5 years. The Central Excise Officer after considering the submission made in reply to show cause notice as well as during personal hearing shall pass the order called Order-In-Original either confirming the demand or dropping the demand or partly confirming the demand and levy of penalty and interest. An appeal can be filed by the aggrieved person against order-in-original. 9.1 Interest is also payable on the demand of duty under section 11AB of Central Excise Act. The interest on demand of duty is payable from the date of the month succeeding the month in which duty ought to have been paid under this Act or from the date of erroneous refund granted as the case may be. 10. APPELLATE PROCEDURE 10.1 Powers of Committee of Chief Commissioner of Central Excise or Commissioner of Central Excise The Committee of Chief Commissioner of Central Excise shall examine the records of any order passed by the Commissioner of Central Excise as Adjudicating Authority under this Act and if they are not satisfied as to the legality or proprietary of any such decision or order, they shall direct the Commissioner to file an appeal to the Appellate Tribunal for determination of such points arising out of the decision or order. The Committee of Commissioner of Central Excise shall examine the records of any proceedings in which officer subordinate to him has passed the adjudicating

order under this act for the purpose of satisfying as to the legality or proprietary of such decision. In case the Commissioner of Central Excise is not satisfied, he shall direct such authority or any Central Excise officer to appeal to the Commissioner of Central Excise (Appeal) for decision. 10.2 Time Limit and appellate authority The time limit for filing an appeal before Commissioner of Appeals will be sixty days against the order-in-original passed by an officer of Excise/Customs below the rank of Commissioner. In the case of an appealable order passed by the Commissioner (Additional Commissioner is not regarded as Commissioner for this purpose) or by Commissioner of Appeals, appeal can be filed before the CESTAT within three months. The Larger Bench of the Tribunal has held in Eicher Motors vs. Commissioner 2000 (116) ELT 306 that only one appeal to the Tribunal need be filed where the impugned order is one irrespective of the number of show cause notices or bills of entry it relates to. 10.3 Appeal to Customs, Excise and Service Tax Appellate Tribunal An appeal against the order passed by the Commissioner of Excise/Customs as an adjudicating authority or an order passed by the Commissioner (appeals) lies to the Customs, Excise and Service Tax Appellate Tribunal [earlier CEGAT (Customs Excise and Gold (Control) Appellate Tribunal)] which is formed under the provisions of the Act. However, under Excise in matters of loss of goods occurring in transit from factory to warehouse, rebate on duty of goods exported and goods exported without payment of duty, and similarly under the custom provisions in matters of order in relation to baggage, goods short-landed, or payment of duty drawback by the Commissioner (Appeals), the Tribunal is not empowered to admit the appeal. In such cases, a revision application has to be filed to the Government under the provisions of section 35EE of the Central Excise Act, 1944 (parallel section 129DD of the Customs Act). Section 35G of the Central Excise Act, 1944 (parallel section 130 of the Customs Act) is amended regarding appeals from the orders of the CESTAT. 10.3.2 Appeals against the orders of the Tribunal on matters other than relating to the determination of any question having a relation to the rate of duty of customs or to the value of goods shall be filed in the High Court. The High Court will formulate the question of law after satisfying itself that substantial question of law is involved. The new provision shall apply to the orders of the Tribunal on or after 1st of July, 2003. The appeal is to be filed within 180 days of the receipt of the order appealed against by the Commissioner or the other party. The amendment in the Central Excise Act empowers the High Court to condone the delay in filing of the appeal in cases where the appeal is filed beyond 180 days and there is sufficient cause for non filing of appeal within time.

10.3.3 An appeal shall lie to the Supreme Court from Any judgment of the High Court delivered (a) (i) In an appeal made under section 35G of the Central Excise Act, 1944 (parallel section 130 of the Customs Act); (ii) On a reference made under section 35G of the Central Excise Act, 1944 by the Tribunal before 1st July, 2003 (parallel section 130 of the Customs Act); (iii) On the reference made under section 35H of the Central Excise Act, 1944 (parallel section 130A of the Customs Act), In any other case, which on its own motion on an oral application made by or on behalf of the party aggrieved, immediately after passing of the judgement, the High Court certifies to be a fit one for appeal to the Supreme Court. (b) in an appeal against any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of Excise/ Customs or to the value of goods for purposes of assessment under either acts. 10.4 Procedure to be followed The Appellate Tribunal is required to hear and decide every appeal within a period of three years from the date on which the appeal is filed, where it is possible to do so (vide the Finance Act, 2002). But where the Appellate Tribunal has made an order of stay in any proceedings relating to an appeal, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days (six months approximately) from the date of the stay order. If the appeal is not so disposed of the stay order shall, on the expiry of the said period, stand vacated. However in the case of IPCL vs. CCE Vadodara, 2004 (63) RLT 1, the Honble CESTAT-LB has held that the Tribunal has the jurisdiction to grant stay even after the expiry of 180 days from the date of initial order of stay. 11. SETTLEMENT COMMISSION The procedure for settlement of any dispute with Settlement Commission under the Central Excise Act is as follows: (A) Application for settlement of case The assessee shall make full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer by filing the application form declaring the additional excise duty accepted to be payable by him. The application shall be admitted if the applicant has (a) filed return showing production, clearance of excise duty paid in the prescribed manner (b) Received Show cause notice for recovery of duty (c)

Additional amount of duty accepted is not less than Rs. 3 lakhs with effect from 1-6-2007, (d) Paid admitted duty liability and the amount of interest if the application is made after 1-6-2007. (e) Made payment of fee of Rs. 1,000/-. (B) Settlement Commission, issue notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with and after taking into consideration of the explanation, allow the application to be proceeded with or reject the application as the case may be. If no notice is issued within 7 days the application is deemed to have been accepted. (C) The Settlement Commission shall call for report within 7 days after the application has been accepted from the Commissioner of Central Excise/Customs having jurisdiction over the assessee. The Commissioner shall furnish the report within 30 days from the date of communication. In case no report is received the Settlement Commission shall proceed further in the matter without report. (D) After receipt of report, the Settlement Commission may after examining the report ask / direct the Commissioner (Investigation) to make further enquiry. The Settlement Commission shall issue direction within 15 days from the date of receiving the report from Jurisdictional Commissioner who then shall furnish the report within 90 days from the receipt of communication from Settlement Commission. (E) The Settlement Commission shall grant opportunity, to the applicant and the Commissioner, of personal hearing. (F) The Settlement Commission shall pass final order within 9 months from last date of the month in which the application is made failing which the settlement proceedings will abate and the adjudicating authority shall have the power to dispose of the show cause notice. (G) Every order of the Settlement Commission passed under rule 32F will be final. The Settlement Commission has power to grant immunity of prosecution and penalty under the Central Excise Act or Customs Act. 12. REFUND Section 11B of Central Excise Act provides that any person claiming refund of duty of excise shall make an application for such amount to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise in such form and manner as may be prescribed. The application shall be accompanied by the documentary evidence which evidences payment of duty and also other documents to substantiate that incidence of duty has been borne by the applicant. In case it is not substantiated that the incidence of duty has not

been borne by the applicant, the refund amount shall be credited to Consumer Welfare Fund. A refund application should be filed within one year firm the date of payment of Duty. By Finance Act, 2008 even interest paid by the manufacturer shall also refunded. The period of one year shall not apply where any duty has been paid under protest. 12.1 Interest on delay in granting fund In case the refund has not been granted within a period of 3 months from the date of application, the applicant shall be entitled to the interest @ 9% of the duty amount from the date immediately after the expiry of 3 months from the date of receipt of such application. 13. PENALTY 13.1 Section 11AC of the Act, provides for levy of penalty equal to the duty amount where the demand for duty has been confirmed by reason of fraud, collusion or any wilful missstatement or suppression of fact or contravention of any of the provision of Act. with intend to evade payment of duty. The Honble Supreme Court has in the case of Dhamendra Textile has held that the penalty in section 11AC shall be levied even if the duty and interest has been paid prior to issue of show cause notice. Where details of the transactions are available in the specified records, the maximum penalty amount under section 11AC shall be equal to 50% of the duty so determined. However, first proviso to section 11AC provides that if the duty/interest is paid within 30 days of the communication of the order, the amount of penalty shall be reduced to 25% of the duty determined provided penalty is also paid. 13.2 Rule 25 of the Central Excise Rules provides for levy of penalty on manufacturer, Registered person of warehouse or registered dealer where such person a) Removes any excisable goods in contravention of any of the provisions of these rules or the notification issued under these rules; or b) does not account for any excisable goods produced or manufactured or stored by him; or c) Engages in the manufacturer, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or

d) Contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, Then the goods in respect of which the contravention has been made shall also be confiscated and penalty not more than the duty amount or Rs. 2000/whichever is higher shall be levied. 13.3 Rule 26 of the Central Excise Rules, provides that any person who issues i) An excise duty invoice without delivery of goods specified therein or abets in making such invoice or ii) Any other document or abets in making such document, on the basis of which user of said invoice or document is likely to take of has taken any ineligible benefit under the Act or the rules made there under like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater. 13.3.1 Any person who acquires possession of, or is in any way concerned in transporting , removing , depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules. 13.4 In case, any other penalty is provided under the rule, the penalty shall not exceeded beyond Rs. 5000/- and goods shall be confiscated. 14. PROCEDURE RELATING TO SPECIAL AUDIT Section 14A of the Act empowers the Chief Commissioner of Central Excise to appoint the cost accountant (now also Chartered Accountant) for auditing the records of any manufacturer in order to determine the value of the goods manufactured by him. As per the provisions if at any stage of enquiry, investigation or other proceedings before any Assistant Commissioner or Deputy Commissioner, it is felt that the value has been correctly declared or determined, the Assistant Commissioner or Deputy Commissioner may send the proposal for audit of the records at factory, office, depot, distributor etc. Similarly, if the Commissioner has reason to believe that the credit of duty availed or utilized is not within any normal limits, having regard to the nature of exciseable goods produced, he may appoint Cost Accountant (now also Chartered Accountant) for verifying the availment and utilization of credit.

15. PROSECUTION If a person commits any of the following offence a) Possesses the goods in excess of the quantity prescribed for the notified goods or of any variety of such goods. b) Transport the goods which are prohibited absolutely or with such exceptions or conditions notified by central government. c) does not obtain registration under the Act d) evade payment of duty e) Removes any excisable goods in contravention of provision of any of the Act or concerns himself with removal. f) acquires possession of, or in any way concerns himself in transporting, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under this Act or any rule made thereunder; g) contravenes any of the provisions of this Act or the rules made there under in relation to credit of any duty allowed to be utilized towards payment of excise duty on final products. h) fails to supply any information which is required by rules or supplies false information i) attempts to commit or abet commission of any of the offence specified in (a) to (d) above. then the person shall be punishable 1) whether the duty exceeds Rs. 1 lac with imprisonment for a term which may extend to 7 years and with fine 2) in any other case for imprisonment which may extend to three years or with fine or both.

I PURPOSE/SCOPE (i) This Act is applicable to sales/purchases taking place in course of inter state trade and commerce. (ii) The inter state nature of transaction is to be determined as defined in Section 3(a)/(b). If sale/purchase occasions movement of goods from one State to another State, it is an interstate sale. A sale, effected by transfer of documents of title to goods when goods are in inter-state movement, is also an inter-state sale. (iii) Section 4 of the CST Act determines situs of sale: i.e. State in which the sale takes place. Accordingly the situs is to be decided on the location of the goods at the time of sale. (iv) Section 5 defines the sale/purchase taking place in course of import/export and such transactions are immune from levy of any tax by State Government or Central Government. [(Sections 5(1), 5(2) and 5(3)]. The sale of goods to any exporter for the purpose of complying with the preexisting order and covered by Section 5(3) is also exempt as deemed export. These sales are to be supported by Form H along with export order details and copy of bill of lading etc. as evidence of actual export. II EXEMPTIONS (i) Section 6 is charging Section. As per Section 6(2) subsequent inter-state sale transaction taking place by transfer of documents of title to goods, when the goods are in course of movement, are exempt. For this purpose the claimant dealer has to obtain Form E-1 from his vendor (if such vendor is first seller otherwise, E-II) and Form C from the buyer. (ii) Sale to notified foreign diplomat authorities is also exempt u/s. 6(3) against Form J. (iii) The inter state sale to units situated in Special Economic Zone (SEZ) or developers of SEZ against Form I are exempt as per Sections 8(6) read with Section 8(8). III BRANCH/CONSIGNMENT TRANSFER Under Section 6A, branch/consignment transfer is allowed only if Form F is produced, else it will be deemed to be a sale. Form F is required to be obtained from transferee branch/agent. One Form F can cover transfers effected in one calendar month.

CENTRAL SALES TAX ACT, 1956

IV RATES OF TAX As per Section 8 of CST Act, the rates of taxes are to be decided as per rates under Local Act. The rates can be as under: (Prior to 1-4-2007) Local Rate of Rate of Tax under C.S.T. Tax Act Supported Without C by Form C or D Form or D Declared goods Local rate of Twice the tax local rate of tax Exempt

under Local Act 1% 4% 12.5% 1% (C form not 1% required) 3% 3% 4% 12.5%

(From 1-6-2008 onwards) Local Rate of Tax Rate of Tax under C.S.T. Act Supported by C (Form D is abolished) Declared goods 2% Form Without C Form 4% Exempt 1% 4% 5% 12.5% C PURCHASES AND OTHER

If the goods are Exempt generally exempt under Local Act Less than 4%

If the goods are generally Exempt exempt under Local Act 1% 4% 5% 12.5% V. REGISTRATION, PROVISIONS 1. 1% (C form not required) 2% 2% 2% FORM

Local Rate of 10% tax 10% Local rate of tax

4% or more, up 4% to 10% More than 10% 4%

(From 1-4-2007 to 31-5-2008) Local Rate of Rate of Tax under C.S.T. Act Tax Supported by C Without C Form Form (Form D is abolished) Declared goods 3% 4% Exempt

There is no threshold limit for registration under CST Act and hence even on the basis of single transaction a dealer will be liable for registration under Section 7(1). The dealer can also obtain registration voluntarily along with registration under VAT Act as per Section 7(2) of CST Act. Application for registration should be in Form A. Registration certificate will be in Form B. As per Section 9(2), the interest/penalty/return/assessment provisions applicable under Local Act are also applicable to CST Act. In addition there are provisions for levy of penalty u/s. 10 like contravention of the conditions of declaration forms, wrong issue of form etc.

2.

If the goods are Exempt generally exempt

3.

Purchases to be effected against Form C are subject to conditions. The compliance is to be checked before using Form C. In nutshell, it can be mentioned that Form C can be used for effecting purchases which are meant for: a) Resale by him

7.

In addition, there are other provisions for declared goods, liability in case of companies, offences and prosecution, etc.

CUSTOMS ACT
1. LEVY OF CUSTOMS DUTY

b) Use in manufacturing/processing of goods for sale c) Use in mining d) Use in generation/distribution of power e) Use in packing of goods for sale/resale f) Use in telecommunication network. 4. One C form can be issued for one quarter of a financial year. Similarly EI/EII can also be issued on quarterly basis. The charging section of the Customs Act, 1962 is section 12 which provides for levy of duty on imports as well as on exports at the rates which are prescribed under the Customs Tariff Act, 1975 read along with the relevant exemption notification. The taxable event to attract customs duty is import into or export from India. The export duties are applicable to a handful of commodities. In the case of Apar India Ltd., the Honble Supreme Court has held that rate of duty will be the rate prevailing on the date of filing of bill of entry under section 46 or granting permission for entry inwards whichever is later." 2. TYPES OF DUTIES The various types of customs duties are: i. Basic duty It may be at the standard rate or in the case of import from some countries, at the preferential rate. The effective rate shall be determined after considering the notification, if any. ii. Additional customs duty This is equal to the Central Excise duty leviable on the product manufactured in India and if the said product is not manufactured in India then on like product manufactured in India. Proviso to section 3(2) of the Customs Tariff Act provides that (a) where the imported goods are notified under section 4A of Central Excise Act, and

The Central Government has substituted second and third proviso to Rule 12(1) vide Notification No. 588(E) dated 16th September, 2005. According to these provisos, with effect from 1st October, 2005, Form C will have to be collected separately for each quarter of the year. Form D was required to be obtained transaction wise. However, Form D has been abolished with effect from 1st April, 2007. Central Government has also substituted sub rule (7) to rule 12 with effect from 1st October, 2005. Form C or certificate in Form E-I or E-II will have to be submitted to sales tax department within three months from the end of the quarter in which sale is effected. In case of Form F, it is to be obtained on monthly basis and it is to be submitted to the sales tax department within three months from the end of the month in which goods are transferred to the interstate branch or agent. In Maharashtra State, the Commissioner of Sales Tax has exempted the dealer from submission of Form C, D, F, H, E-I or E-II. Instead of that, dealers are required to submit the list of missing forms on quarterly basis as per the format specified in Trade Circular No. 28T of 2005 dated 24.10.2005. 5. From 11-5-2002 the six deemed transactions of sale, including works contracts and leases are taxable under the CST Act if they are effected in the course of inter-state trade. Chapter VI-A provides for filing of appeals before Central Sales Tax Appellate Authority in case of disputes involving more than one state.

6.

(b) in relation to the goods on which the MRP is required to be printed either under the provisions of Standards of Weights & Measures Act, or the rules made thereunder, or under any other law then in such case the value of imported goods shall be deemed to be the retail price declared on the imported article less abatement allowed as per the notification issued under sub-section (2) of section 4A of Central Excise Act. As per the proviso to section 3(2) of the Custom Tariff Act in case of an article imported into India for which tariff value has been fixed under section 3(2) of the Central Excise Tariff Act, the value for the purpose of computing CVD would be deemed to be tariff value. iii. Additional duty of customs in lieu of sales tax This is leviable in order to provide a level playing field to indigenous goods, which have to bear sales tax, local tax and other charges. Notification No. 102/2007-Cus dated 14-9-2007 allows refund of said duty if the importer on subsequent sale of goods has paid appropriate amount of sales tax or VAT as the case may be. The importer shall have neither taken the credit of additional duty of customs nor shall not have passed on credit of such additional duty of customs to any person. The importer is also required to substantiate that the incidence of duty has been borne by him. iv. Antidumping/safeguard duty This is leviable with a view to protecting domestic manufacturer of certain goods from unfair injury out of international competitive rates. v. Education Cess

This is leviable at the rate of 2% on aggregate of basic customs duty and additional customs duty. (vide Finance (VI) Act, 2004) Secondary and Higher Education Cess. is leviable at the rate of 1% on aggregate of basic customs duty and additional customs duty w.e.f. 1-3-2007. (vide Finance Act, 2007). 3. PROCEDURE OF IMPORT-EXPORT Goods may be imported in or exported from India through sea, air, land, by post or as a baggage with passengers. The procedure to be followed would vary depending on the mode of import or export. Normally, import procedures have to be followed by both; i.e., the importer as well as by the person-incharge of conveyance. Import Manifest As per the provisions of section 30 of the Customs Act, the person-in-charge of a vessel or an aircraft or a vehicle carrying imported goods or any other person as specified by the Government shall deliver to the proper officer an Import Manifest or Import Report as per the following time limit: (i) in the case of a vessel or an aircraft prior to arrival of the vessel or the aircraft and (ii) in the case of a vehicle within 12 hours after its arrival in the customs station. In case of default, a penalty up to rupees fifty thousand can be levied on the person-in-charge if he does not deliver the manifest or report to the proper officer within the time period and does not show sufficient cause for the delay. Procedures for Import The importer is required to submit necessary details like the description of the product, name of the supplier, invoice number, bill of lading number, quantity of goods, classification,

rate per unit etc. in order to get the bill of entries prepared under EDI (Electronic Data Interchange system). However in case of custom house, where manual bills of entries are processed, the importer either himself or through agent is required to submit the bill of entry along with the documents mentioned above. The bill of entry can be for the purpose of warehousing of goods or for clearance for home consumption. The following steps are normally taken for the clearance of goods: (i) Filling of Bill of Entry for home consumption or warehouse or in case of EDI system submitting the details. (ii) Appraisement of Bill of Entry In case of first appraisement, inspection is done first then duty is assessed. In case of second appraisement, assessment is done first and duty is assessed. (iii) Payment of duty The duty assessed has to be paid. (iv) Inspection of cargo is done where second appraisement method is followed. (v) The cargo is then delivered. In case of exports instead of Bill of Entry the exporter has to submit Shipping Bill or submit the data, like description of export product, FOB value, quantity unit, invoice No., Bill of Lading, etc, to enable authorities to prepare shipping bill in EDI system. Section 17 as replaced by the Finance Act, 2011 has introduced the self assessment procedure. The importer is now along with the above information is required to give details of duty payment required to be made on importation of goods. The self assessment will be verified by the proper officer and if required he may tests imported goods. He may also ask for various records in addition to the documents already submitted. In case after examination of documents it is found that the duty is to be reassessed he will reassessed the duty. The proper officer shall pass an order with in 15 days from the date of reassessment of

the Bill of entry, in case importer or the exporter does not agree with the reassessment. Warehousing The importer of goods can file the warehouse Bill of Entry and may store such goods in an authorised warehouse upon execution of bond and clear the goods from such warehouse as and when needed as per the provisions of the Act. Goods other than capital goods intended for use in a 100% EOU can be warehoused for a period of three years and for capital goods to be used in a 100% EOU the time period is five years. In relation to any other goods, except those mentioned aforesaid the time limit is one year. The interest free period for which goods may remain warehoused is up to ninety days, for goods other than to be used by a 100% EOU. The owner of any warehoused goods can relinquish his title to the goods upon payment of rents, interests, other charges and penalties, before the proper officer has made an order for clearance of goods for home consumption. 4. CLASSIFICATION OF GOODS UNDER THE ACT Section 2 of the Customs Tariff Act, 1975 provides that the custom duty shall be levied at the rate specified in the schedules to the Act read with exemption notification if any. Thus the customs duty is leviable under the Customs Act, 1962 on the basis of value or quantity as specified in the Import Tariff to the Customs Tariff Act, 1975. Basic customs duty is charged in accordance with the First Schedule to the Customs Tariff Act, 1975 which is import Tariff. There are 21 sections in the Import Tariff, divided into 98 Chapters in all, with section notes and chapter notes. These notes are statutorily binding in nature. The interpretation of the Tariff schedule is strictly governed by six "Interpretative Rules" incorporated in First Schedule itself. Imported goods are to be classified under the appropriate headings, sub-headings, sub-division to sub-headings strictly, in accordance with section notes, chapter notes that are appearing in the Tariff. In the event when classification cannot be made as above and when more than one classification appear appropriate under the

Tariff and goods imported do not find appropriate classification, then a resort to, "Interpretative Rules" may be taken. 5. VALUATION OF GOODS The quantification of customs duty payable essentially requires the calculation of the value for customs purpose. As per the provisions, customs duty is payable as a percentage of value often called Assessable Value or Customs Value. The value may either be (a) Value as defined in section 14(1) of Customs Act, or (b) Tariff Value prescribed under section 14(2) of Customs Act. Tariff value Tariff value is the value that is fixed by Central Government for any class of imported goods or exported goods. Government takes into consideration trends of value of such or like goods while fixing tariff value. Once so fixed, duty is payable as percentage of this value. Customs value Customs value as calculated as per section 14(1) is the value normally used for calculating customs duty payable. As per section 14(1) value for the purpose of customs duty is the (a) Price at which such or like goods are ordinarily sold or offered for sale and the (b) Price is for delivery at the time and place of importation and such (c) Price is in course of international trade, where neither seller nor buyer has interest in the business of the other or one of them has no interest in the business of the other and the, (d) Price is the sole consideration for sale or offer for sale.

The price mentioned above has to be computed for customs duty purpose at the rate of exchange, as on date of submission of bill of entry, as fixed by the Central Government. As per the provisions contained in section 14(1A) of the Act, the price referred to above, in case of imported goods has to be determined in accordance of the Customs Valuation Rules, 1988. Subject to three conditions laid down in section 14(1) of Customs Act, 1962, of time, place and special circumstances, price of imported goods is to be determined in terms of provisions contained in section 14(1A) and in accordance with the provisions contained in Valuation (Determination of Price of Imported Goods) Rules, 1988. The Special Circumstances have been statutorily provided in Rule 4(2) and in the absence of these exceptions it is mandatory for customs authorities to accept the price actually paid or payable for the goods in a particular transaction. Valuation Rule 4(2) deals with the extraordinary or special circumstances under which the transaction value of the goods cannot be accepted. They are as follows: (a) The sale is not in the ordinary course of trade under fully competitive conditions. (b) The sale involves any abnormal discount or reduction from the ordinary competitive price. (c) The sale involves special discount limited to exclusive agents. (d) Non-existence of objective and quantifiable data with regard to the adjustments required to be made, under the provisions of rule 9, to the transaction value. (e) Restrictions of a non-statutory nature or noncommercial nature on the disposition or use of the goods after import, which substantially affect the value of the goods. (f) Sale or price being subject to some condition or consideration for which a value cannot be determined. (g) There exists an additional consideration, direct or indirect.

(h) Buyer and seller are related and the relationship has influenced the price. The assessable value has to be adjusted where the buyer has undertaken some valueadding activities in relation to the goods, and such activities fall under the adjustments provided under rule 9 of the valuation rules. If no such adjustment is provided in rule 9, and the activities of the buyer are on his own account; i.e., they do not result in an indirect payment to the seller even though they result in a benefit to the seller, then the assessable value need not be adjusted. Costs for construction, erection, assembly, maintenance or technical assistance undertaken after the import of goods like plant, machinery or equipment should be distinguished, in the contract or invoice, to ensure that these costs are not included in the assessable value. The onus is now on the customs department to prove that the invoice price is not genuine or that the price is unbelievably or ridiculously low. The department cannot plead that it has discharged the onus by merely producing the manufacturers price list or quotation or published prices or computer print outs of previous imports by other importers as evidence of the so called ordinary international price. The department must establish the existence of special circumstances mentioned in the law. If they (revenue authorities) do not establish this by leading adequate evidence, they will have to accept the transaction value under rule 4(1). The transaction value need not be uniform for all customers. It has been consistently held by the Honble Supreme Court that all customers have bargaining power and as long as the discount is based on commercial considerations, the same is permissible and the assessable shall be net of discount. According to Rule 5 of the Valuation Rules, the transaction value to be determined on the basis of identical goods imported into India at the same time. Rule 6 allows this on the basis of the value of similar goods imported into India at the same time. The CEGAT laid down in the Hydro Krimp case that comparable goods should be of same quality and specification and from same manufacturer and country of production. They should be roughly in the same quantity. The imports should belong to the same commercial world.

Rule 7 of the Valuation Rules allows the value to be determined on the basis of deductive method in cases where there are no contemporaneous imports. Here also the decision of the CEGAT is relevant. The deductive value is based on the unit price at which the imported goods or identical goods or similar imported goods are sold in the greatest aggregate quantity to unrelated persons in India. The following deductions are available: (i) the commission usually paid or agreed to be paid or the additions usually made for profits and general expenses in connection with sales in India of imported goods of the same class or kind. (ii) usual costs of transport and insurance and associated costs incurred within India. (iii) the customs duties and other taxes payable in India by reason of importation or sale of goods. Alternatively, transaction/assessable value may be determined under rule 7A. It consists of the following: (a) the cost or value of material and fabrication or other processing employed in producing the imported goods; (b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India; (c) the cost or value of all other relevant expenses. In a case, where the value cannot be determined by any of the aforesaid rules, then resort will be made to Rule 8, Residual Method, under which the value shall be determined using reasonable means consistent with the principles and the general provisions of the rule. 6. RATE OF DUTY AND VALUATION AND TIME OF LEVY/INCIDENCE

The rate of duty and tariff valuation shall be as applicable on (a) In the case of goods directly cleared for home consumption the date of the presentation of the bill of entry. (b) In case of goods cleared from warehouse, the date when bill of entry is presented for home clearance of such goods from the warehouse. In case, bill of entry is submitted prior to arrival of the vessel or the aircraft, the date would be the later of the date of submission of the bill of entry and the grant of entry inward to the vessel. 7. ADVANCE RULINGS The provisions relating to advance rulings are covered in Chapter VB of the Act. Advance rulings can be sought by a residents and/ or non-residents in case of joint ventures in India, and by wholly owned subsidiaries of foreign companies proposing to undertake business activity in India. The Advance Ruling can be sought on matters regarding classification and valuation of goods, notifications having a bearing on rate of duty and notifications issued under the Customs Tariff Act and any other duty chargeable in the manner as duty of customs, under any other law for the time being in force. The advance ruling authority created under section 245(O) of the Income-tax Act, 1961 will be considered as advance ruling authority under the Central Excise Act and the Customs Act also. 8. ASSESSMENT OF CUSTOMS DUTY Under the Customs Act there are basically two systems for assessment of duty. These are: (a) First appraisement: In case of First appraisement the assessment of goods is done only after the goods are examined first. This system is generally not resorted to except in cases where complete documents are not submitted by the importer, it is not possible for the appraiser to determine the value or classification of the

goods or for any other reasons, on the basis of the documents as produced by the importer, or the importer himself requests for the examination of goods before payment of goods. (b) Second appraisement: This type of system is normally followed practically. Second appraisement means making the assessment on the basis of the declaration and submission made by the importer; i.e., on the strength of documents such as invoice, catalogue, literature showing the composition and use, price lists etc. as produced by the importers. Under this system goods are examined after assessment and collection of duty. The goods are examined on a selective basis on the basis of risk assessment or on the basis of specific intelligence report. However, on importation of any goods capable of being easily identified, any duty has been paid on clearance of such goods for home consumption, such duty shall be refunded to the person if the goods are found defective or otherwise not in conformity with the specification agreed upon provided the goods have not been repaired or used after importation. The following conditions shall be satisfied :- (a) The goods are identified to the satisfaction of the Assistant Commissioner or Deputy Commissioner. (b) The importer does not claim drawback under any of the provisions of the Act. (c) The goods are exported or the importer relinguishes its title to the goods and abandons them to customs or such goods are destroyed. 9. DEMAND, RECOVERY AND REFUND OF DUTY A demand for duty arises in cases where duty on goods has not been levied though such goods are leviable to duty or duty has been short levied or refunded erroneously. The Act provides the provisions for the recovery of such duty.

Section 28 specifies the procedure to the department for recovery thereof by service of a show cause notice for demand within the specified time limits and thereafter by considering the representation, if any, made by the person on whom such demand notice is served. The notice must be issued within one year from relevant date. The above period of limitation is extended to five years in case the short levy or non-levy or refund was due to collusion, misstatement, suppression of facts or fraud by the Importer/ Exporter. Where the assessee notices the short levy or non-levy, he can pay it along with interest, without a show cause notice and inform the jurisdictional officer accordingly. If the assessee does not pay the short levy or non-levy in full, he will be liable to pay interest under sections 28AA and 28AB on the whole amount including the amount part paid. Refunds The refund of duty is subject to the principle of no unjust enrichment. Refund of duty is granted to the importer only when he is able to substantiate that the burden of the customs duty levied and paid under Customs Act claimed in refund has not been passed on to the customer. The Honble Supreme Court in the case of Solar Pesticides has held that, even in case of imported goods that have been consumed in the manufacture of final product, the importer is required to substantiate similarly. Application for refund must be made in the prescribed form in duplicate within one year from the relevant date one year as the case may be. If application is found complete in all respects, the applicant will be issued an acknowledgement in prescribed form within ten days. If application is found incomplete, it will be returned and a fresh application shall be filed removing the deficiencies. 10. CUSTOMS DUTY DRAWBACKS The term drawback refers to the amount of duties of Customs and Central Excise, whether in whole or in part, levied on the

inputs of goods exported, which is remitted or paid back by Government on export of commodities. The goods to be entitled for drawback, they must be exported to a foreign port. The object of the relief provided by the drawback provision is to enable the goods to be disposed of in a foreign market as if they had never been taxed on account of Customs and Central Excise duties. Drawback for Customs purposes means, the refund of duty of customs and duty of Central Excise that are chargeable on imported and indigenous materials used in the manufacture of exported goods. Drawback, as the name itself suggests, is procedure to relieve export goods of duties suffered by them at various stages of manufacture. Sections 74 to 76 and notifications issued thereunder provide for the quantification of the amounts of and the procedure to claim drawback. The drawback is in respect of duties paid on: (a) Imported goods which are exported as such (without use) (b) Imported goods which are exported after use (c) Imported materials used in the manufacture of goods exported. According to Finance Act, 2003, exporters may be able to claim refund of duty and interest paid by him, if he has not passed on the incidence of such duty and interest to any other person. Section 27 of the Customs Act is amended for the purpose. Section 75A of the Customs Act has been amended so as to reduce the period from two months to one month beyond which interest is payable to the claimant, after filing a drawback claim. 11. APPELLATE PROVISIONS AND PROCEDURES The Appellate provisions in Customs are almost the same as in Excise, which have already been covered under the respective article, which may please be referred to. 12. PENALTIES Penalty for improper importation of goods 12.1 For improper importation of goods

(i) any person who does or omits to do any act or abets doing or omission of such act on goods which are liable for confiscation or (ii) who acquires possession or in any way concerned with carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 11. shall be liable for penalty of the various amounts specified in section 112 12.2 For short levy or non levy of duty in certain cases As per section 114(A) where demand for duty arises on account of collusion, or any wilful misstatement or suppression of fact, the person is liable for penalty equal to the duty amount. As per first proviso if the duty, interest is paid within 30 days from the date of communication of the order, the penalty amount shall be reduced to 25% of the duty. However, the benefit of reduction in penalty is available only when the penalty amount is also paid. 12.3 For use of false and incorrect materials As per section 114(AA), if any person knowingly or intentionally makes, signs, or uses or causes to make any declaration, statement or document which falls or is incorrect in any material particular, he shall be liable for penalty not exceeding 5 times the value of goods. 12.4 For not expressly mentioned Any person who contravenes the provision of this Act or abets in such contravention and where no expressed penalty is provided elsewhere shall be liable for penalty up to Rs. 1 lakh under section 117. 13. PROSECUTION

Section 135 of the Customs Act provides that any person a) In respect of any goods knowingly concerned in mis declaration of value or any fraudulent evasion or attempt of evasion of any duty or any prohibition for the time being imposed under the Act or b) acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation or c) attempts to export any goods which he knows or has reason to believe are liable to confiscation or d) fraudulently avails of or attempts to avail of drawback or any exemption from duty provided under this Act in connection with export of goods. he shall be punishable with an offence (i) in case the offence relates to goods, market price of which exceeds Rs. 1 crore, evasion of duty exceeding Rs. 30 lakhs, such categories of prohibited goods notified by central government or fraudulently availing drawback exceeding Rs. 30 lakhs with an imprisonment for term which may extend to seven years or with fine. (ii) in any other case, for imprisonment which may extend to three years or fine or both.