Excise Basics Classification Valuation Cenvat

CONCEPTOFEXCISEDUTY
ExcisedutyisadutyonProductionorManufactureofexcisablegoodsinIndia.TheCentralGovernment
has power to levy excise duty since the subject matter is covered under Entry 84 of Union List which
reads as under "Duties of excise on tobacco and other goods manufactured or produced in India
except
(a) alcoholicliquorsforhumanconsumption;
(b) opium,Indianhempandothernarcoticdrugsandnarcotics,butincludingmedicinalandtoilet
preparationscontainingalcoholoranysubstanceincludedinsubparagraph(b)ofthisentry.
Thus, the power to levy excise duty on alcoholic liquors for human consumption opium, Indian hemp
and other narcotic drugs and narcotics, vests with the State Government as the subject matter is
coveredunderEntry51oftheStateList.
However, in case of medicinal and toilet preparations containing alcohol or opium, Indian hemp and
othernarcoticdrugs,theCentralGovernmenthasthepowertolevyexciseduty.
CONDITIONSFORLEVYOFDUTYunderSection3oftheCentralExciseAct
ThechargingSectioni.e.,SECTION 3 oftheCentralExciseAct,19M,containstheprovisionsforlevyof
excisedutydutiesspecifiedintheFirstScheduleandsecondscheduletotheCentralExciseTariffAct,
1985tobelevied/ChargingSection[Section3]:
Thereshallbeleviedandcollectedinsuchmannerasmaybeprescribed,
(a) adutyofexcisetobecalledastheCentralValueAddedTax(CENVAT),
onallexcisablegoods(excludingthegoodsproducedormanufacturedinSEZ)
whichareproducedormanufacturedinIndia
as,andattheratessetforthintheFirstScheduletotheCentralExciseTariffAct,1985.
(b) aSPECIALDUTYOFEXCISE,inadditiontothedutyofexcisespecifiedinclause(a)above,
onexcisablegoodsspecifiedintheSecondscheduletoCentralExciseTariffAct,1985;
which are produced or manufactured in India ( excluding the goods produced or
manufacturedinSEZ)as,andattheratessetforthintheSecondSchedule.
Basicconditionsforlevyofexciseduty:
(a)
(b)
(c)
(d)
Theremustbegoods.
Suchgoodsmustbeexcisable.
Suchgoodsmustresultoutofproductionormanufacture.
SuchproductionormanufacturemusttakeplaceinIndia(otherthanspecialeconomiczones).
ExtentandscopeofCentralExciseLaw
CentralExciselawextendstowholeofIndia:TheCentralExciseLawextendstothewholeofIndia
includingthestateofJammuandKashmir.IndiaincludestheterritorialwatersofIndia.
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NolevyongoodsmanufacturedinSEZAspersection3,thereisnolevyofexcisedutyonthegoods
producedormanufacturedinSpecialEconomicZones.
Rateofexciseduty:ThegeneralrateofCENVAT(BED)aspertheFirstScheduletoTariffActis16%,
however,byexemptionnotificationsitisl2%w.e.f.1732012.InadditionEducationCess@2%and
Secondary&HigherEducationCess@L%isalsoleviableonallexciseduties.
Hence,ifbasicexcisedutyis12%,then,effectiveratethereofwillbe12.36%(includingEC&SHEC).
PROVISIONSRELATINGTOTAXABLEEVENT
TAXABLEEVENT:TaxableEventisthatevent,whichonitsoccurrence,createsorattractstheliability
totax.ThetaxableeventinthecontextofCentralExciseisproductionormanufactureofexcisable
goodsinIndia.
Levy on manufacture and collection as per Rules: Thus, levy of excise duty is on manufacture of
excisablegoodsinIndia.LevyisgovernedbytheStatutei.e.theCentralExciseAct,1944.Collection
ofdutyisinaccordancewiththerules,aftermanufacturetakesplace.
Duty payable on removal: According to Rule 4 of Central Excise Rules, 2002, unless otherwise
provided,noexcisablegoodsonwhichdutyispayableshallberemovedwithoutpaymentofduty
fromanyplacewheretheyareproducedormanufactured.Thusexcisedutyispayableonremoval
ofexcisablegoodsfromfactoryorregisteredwarehouse.
Date for determination of rate of duty and tariff valuation:AccordingtoRule5ofCentralExcise
Rules,2002,therateofdutyortariffvalueapplicabletoanyexcisablegoods,shallbetherate or
value in force on the date when such goods are removedfromafactory orawarehouse,asthe
casemaybe.Thus,impositionison manufacture butdutyis payableattherateprevalenton the
datewhentheexcisablegoodsareremovedfromfactoryorregisteredwarehouse.
(Imposition=Dateofmanufacture;
Rateofduty=dateonwhichgoodsareremoved)
Goodstobeexcisablemustbemoveable,marketable
Movability:Thefirstaspectofgoodsisthattheyshouldbemoveable.lnUnionofIndiav.DelhiCloth
MillsandinSouthBiharSugarMillsv.UnionofIndia,theSupremeCourtenunciatedtheprinciplethatto
becalledgoods,thearticlesmustbesuchasarecapableofbeingboughtandsoldinthemarket.The
articlesmustbesomethingwhichcanordinarilycomeorcanbebroughttothemarkettobeboughtand
sold.Thus,incaseofimmovablepropertiesthatareattachedtoearth,noexcisedutycanbeleviedas
theylackmovability.
Marketability:Marketabilityisthecapabilityoftheproductofbeingboughtandsoldintothemarket.
The Supreme Court in, Bhor Industries v. CCEx. held that merely because an article is specified in the
Tariffscheduleitwillnotbeliabletodutyofexciseunlessitismarketableintheconditioninwhichthe
departmentwantstolevyexciseduty.
EXCISABLE GOODS,
GOODS
NON-EXCISABLE
GOODS,
NON-DUTIABLE
Excisablegoods[Section2(d)]:
"Excisablegoods"meansgoodsspecifiedintheFirstScheduleandtheSecondScheduletotheCentral
ExciseTariffAct,1985asbeingsubjecttoadutyofexciseandincludessalt.
Meaning of goods [Explanation] : For the purposes of section 2(d) of the Central Excise Act, "goods"
includeanyarticle,materialorsubstancewhichiscapableofbeingboughtandsoldforaconsideration
andsuchgoodsshallbedeemedtobemarketable.
Nonexcisablegoods
GoodswhicharenotlistedinTariffE.g.water(thereisnoentryinTariff),orgoodswhicharementioned
inTariffbutthecolumnofrateofdutyisblank,arenonexcisablegoods.Exciselawisnotapplicableon
nonexcisablegoods.
Nondutiablegoods
NondutiablegoodsareexcisablegoodslistedinExciseTariff.Exciselawisapplicabletothem,butthey
arenotliabletoexciseduty.Nondutiablegoodsmaybe
(i). Nildutygoods:Tariffrateforsuchgoodsisnil,and
(ii). Exemptedgoods:100%exemptionisavailableunderSection5AoftheCentralExciseAct,1944
forsuchgoods.
MANUFACTURE
[Section2(f)]:"Manufacture"includesanyprocess
(a) incidentalorancillarytothecompletionofamanufacturedproduct;
(b) whichisspecifiedinrelationtoanygoods,intheSectionorChapternotesoftheFirstSchedule
totheCentralExciseTariffAcf,1985,asamountingtomanufacture(DeemedManufacture);or
(c) whichinrelationtothegoodsspecifiedintheThirdSchedule,involvespackingorrepackingof
suchgoodsinaunitcontainerorlabellingorrelabellingofcontainersincludingthedeclaration
oralterationofretailsalepriceonitoradoptionofanyothertreatmentonthegoodstorender
theproductmarketabletotheconsumer(DeemedManufacture),
and the word "manufacfurer" shall be construed accordingly and shall include not only a person who
employs hired labour in the production or manufacture of excisable goods, but also any person who
engagesintheirproductionormanufactureonhisownaccount.
ManufactureVisaVisProcessing:
Wheretheoriginalcommoditylosesitsexistenceandanewcommoditycomesintoexistencehaving
separate name, character and use, it will amount to manufacture. Any process which is incidental or
ancillarytothecompletionofamanufacturedproductiscoveredwithinthedefinitionofmanufacture.
CAPTIVECONSUMPTION
MeaningofCaptiveconsumption:AsperCostAccountingStandard4issuedbytheInstituteofCost
Accountants of India "captive consumption" means consumption of goods manufactured by one
division or unit and consumed by another division or unit of same organisation or related
undertakingformanufacturinganotherproduct(s).
For example, Clinkers produced from lime stone is consumed within the factory of production for
productionofcement,suchtypeofconsumptionisknownascaptiveconsumption.
Intermediategoodsliabletodutyonlyifmoveableandmarketable:Intermediategoodswhichare
captivelyconsumedshallbeliabletoexcisedutyonlyifsuchgoodsaremoveableandmarketableor
deemedmarketableintheconditioninwhichthedepartmentwantstolevyexciseduty.
Therefore articles captively consumed shall be liable to excise duty when they have reached the
stagewheretheycanbeidentifiedasgoodsi.e.iftheyaremarketableandmoveable.
TheSupremeCourtinMotiLaminatesPvt.Ltdvo.CCEx.hasheldthatArticlesincrudeandelementary
formarenotdutiable,astheyaremerelyintermediateproducts,notmarketableinthatcondition.
Valuationincaseofintermediategoods:I{heretheexcisablegoodsarenotsoldbytheassesseebut
areusedforconsumptionbyhimoronhisbehalfintheproductionormanufactureofotherarticles,
thevalueshallbe110%ofthecostofproductionormanufactureofsuchgoods.
Datefordeterminationofrateofduty:Asperrule5oftheCentralExciseRules,2002theapplicable
rateofdutyisofthatdatewhentheexcisablegoodsareremovedfromafactoryorawarehouse,as
thecasemaybe.
Ifanyexcisablegoodsareusedwithinthefactory,thedateofremovalofsuchgoodsshallmeanthe
date on which the goods are issued for such use. Hence, captively consumed goods are liable to
excisedutyattherateinforceonthedateonwhichtheyareissuedforsuchconsumption.
Exemption notification in respect of intermediate goods: At present there are exemption

notifications in force exempting intermediate products from excise duty, if the final products are
chargeable to duty. If the final product is wholly exempt or chargeable to NIL rate of duty, the
intermediateproductsshallnotbeexemptthesameshallbechargeabletoduty.
Paymentofdutywheremorethanoneprocessinvolved:Wheremorethanoneprocessarecarried
outongoods,eachprocessindependentlyamountingtomanufacture,thedutymaybepaidafter
completion of the last stage of such processes i.e. at the final stage. CCEx. v. Textile Corpn.
MarathwailaLtd.
DUTIABTLITYOFWASTE&SCRAP
Dutiabilityofwaste&scrap
The issue relating to dutiability of waste and scrap was settled by the Supreme Court through its
decisioninKhandelwalMetal&Engineeringworksv.UOI,byholdingthatnotwithstandingthatprocess
wasteandscraparoseasintermediateproductsorbyproductsoutoffinalproducts,suchprocesswaste
and scrap, if marketable, would be chargeable to duty in view of the incorporation of the specific
subheadingsinvariouschaptersofthetariff.
TheApexcourthasheldthatprocesswasteandscrapisacommerciallydistinctandidentifiableproduct
andhascommercialvalue.Hence,suchwasteandscrapischargeabletodutyifcoveredintheTariff.
Conditionforlevyofdutyonwasteandscrap:Thus,ifprocesswasteandscrap
(a) arisesduringcourseofmanufacture;and
(b) itismoveable,marketable;and
(c) listedintariffthesameshallbeliabletoexciseduty.
Waste ofexemptedgoodsExempt[NotificationNo,88/9SCE,dated1851995]:Waste,paringsand
scrap arising in the course of manufacture of exempted goods is exempt from duty, if only exempted
goods(i.e.fullyexemptedor'NIL'ratedgoods)aremanufacturedinthatfactory.
WasteofcontainersNotexcisable:Containersinwhichinputsarereceivedcannotbetreatedtobea
wastearisingoutofmanufacturingprocessandtherefore,nodutyisleviableonsuchcontainersatthe
timeoftheirclearancefromfactory
MANUFACTURER?
AsperRule4,themanufacturerofexcisablegoodsorthepersonwhostoressuchgoodsinawarehouse
shallbeliabletopaythedutyleviableonsuchgoodsinthemannerprovidedunderRule8orunderany
otherlaw.
Thetermmanufacturerhasbeendefinedundersection2(f)toincludenotonlyapersonwhoemploys
hiredlabourintheproductionormanufactureofexcisablegoodsbutalsoapersonwhoengagesintheir
productionormanufactureonhisownaccounti.e.forhiscaptiveconsumption.
CHAPTER2
CLASSIFICATION
(1) Classification:choosingtherightheadingorsubheadingoftheTariffanddeterminingtheapplicablerate
for the particular goods is commonly referred to as classification of goods. Thus, classification of goods
consistsofdeterminingtheheadingsorsubheadingsoftheCentralExciseTariffunderwhichthesaidgoods
arecovered.
(2) Needforclassification:
(a) Determination of rate of duty : The actual amount of excise duty payable on excisable goods is, inter
alia,dependentupontherateofduty.Therateofdutyisdeterminableonthebasisofclassificationof
goods.
(b) Determinationofeligibilityofexemption:Theclassificationofgoodsisalsorequiredtobedecidedfor
the Purpose of determining eligibility to exemptions, most of which are with reference to the Tariff
headingsorsubheadings.
(c) Determination of deemed manufacture: Certain processes are specified in relation to goods falling
underaparticulartariffheadingasamountingtomanufacture.Forthatpurposeproperclassificationof
goodsinthetariffisnecessary.
(3) Relevanttimeforclassification:Classificationisdoneatthetimeofremovalofgoods.
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EmergencyPowerofCentralGovernmenttoincreasethedutyofexcise:section3oftheCentralExciseTariff
Act, 1985, empowers the Central Government to increase the duties of excise by amendment to the First
Schedule,bynotificationintheofficialgazette,inthefollowingmanner:
case
WheretherateofdutyspecifiedinFirstand
SecondScheduleasinforceimmediatelybefore
theissueofsuchnotificationisNIL
Inanyothercase
Increasedupto
A rate of duty not exceeding 50% ad Valorem
expressedinanyformormethod.
A rate of duty not exceeding twice the rate of duty
specified in respect of such goods in First Schedule
andSecond Scheduleasinforceimmediatelybefore
issueofthesaidnotification.
Nosecondincreaseunlessthefirstapproved:However,theCentralGovernmentshallnotissueanynotification
forsubstitutingtherateofdutyinrespectofanygoodsasspecifiedbyanearliernotification,beforesuchearlier
notificationhasnotbeenapprovedbytheparliamentwithorwithoutmodifications.
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MAINFEATURESOFTHECENTRALEXCISETARIFF
(a) Detailedandcomprehensive.
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(b) BasedonHSN:ItisbasedonHarmonisedCommodityDescriptionandCodingSystem(HarmonisedSystem
of Nomenclature), which is an internationally accepted product coding system formulated under the
auspicesoftheGeneralAgreementonTariffs&Trade(GATT).
(c) Sameclassofgoodsgroupedtogether:
(d) Section Notes/Chapter Notes: It contains Section/Chapter Notes and Chapter SubNotes giving detailed
explanation as to the scope and ambit of the respective chapter. These notes have been given statutory
backingandhavebeenincorporatedatthetopofeachChapter.
(e) Eightdigitcodingsystem:NeweightdigitcodeshavebeenintroducedatparwithCustomsTariffassigning
first four digits to the Chapter Heading, first six digits to the Chapter subheading and eight digits to the
TariffItemNo.tofacilitatemoreitemsinthechapter.
(f) No separate residuary Chapter: Residuary items have been provided separately for each class of goods
undereachChapter.
(g) Rules for interpretation: Interpretative rules have also been provided to serve as statutory guidelines for
interpretingtheTariffSchedule.
(h) ResiduaryEntries:Residuaryentrieshavebeenincorporatedundermostoftheheadingsandsubheadings.
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HARMONISEDCOMMODITYDESCRIPTIONANDCODINGSYSTEM(HSN)
(1) The term Harmonised Commodity Description and Coding System (HSN) is used with reference to
categorisationand classificationof commoditiesforthe purposeoffixation ofratesoftariffforlevyingof
duties of excise and customs. Harmonised System of Nomenclature (HSN) is an internationally accepted
product coding system formulated under the auspices of the General Agreement on Tariffs and Trade
(GATT).ItformsthebasisofthesystemofclassificationintheCentralExciseTariffAct,1985.
(2) ExplanatoryNotestotheHSN
(a) Official notes issued by the Customs Cooperation Council: The Explanatory Notes to the HSN are the
officialnotesissuedbytheCustomsCooperationCouncil,Brussels.
(b) ExplainandclarifythescopeofheadingsofHSN:Theyexplainandclarifythescopeandextentofeach
and every heading of the HSN, on the basis of which the present Central Excise Tariff has been
patterned.
(c) Donothavealegalbackingareonlyofpersuasivevalue:ItistoberememberedthattheExplanatory
Notes do not have legal backing, unlike the Chapter Notes and Section Notes contained in the Tariff.
Consequently, these Explanatory Notes are only of persuasive value and can be used as an aid to
classificationofgoodswhenthereisambiguityastothescopeoftheentry.
(d) CanberesortedtoonlyincaseofambiguityintariffitemsinCentralExciseTariff.
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RULESOFINTERPRETATION
SectionandChapterTitleshavenolegalvalidity[Rule1]
[RULE2(a)]:ClassificationofIncompleteorunfinishedarticlesClassificationasComplete/Finishedgoods
[RULE2(b)] ClassificationofMixture/CombinationsofaMaterial/SubstancewithotherMaterials/Substances
TobeclassifiedasthatMaterialorSubstance.
The classification of the goods consisting of more than one material or substance shall be according to the
principleofRule3.
[RULE3]:Classificationwhengoodsclassifiableundertwoormoreheadings
WhenbyapplicationofRule2(b),orforanyotherreason,goodsNeprimafacieclassifiableundertwoormore
headings,classificationshallbeeffectedasfollows:
(a) MostSpecificdescriptionshallprevailovergeneraldescription[Rule3(a)]:Theheading,whichprovides
themostspecificdescription,shallbepreferredtoheadingsprovidingamoregeneraldescription.
(b) Classification on basis of essential character [Rule 3(b)]: Mixtures, composite goods consisting of
differentmaterialsormadeupofdifferentcomponentsandgoodsputupinsetsforretailsale,which
cannot be classified by reference to (a), shall be classified as if they consisted of the material or
componentwhichgivesthemtheiressentialcharacter,sofarasthiscriterionisapplicable.ThisRulewill
beapplicableonlyonthefailureofRule3(a).
(c) Latterthebettermaxim[Rule3(c)]:Whengoodscannotbeclassifiedbyreferenceto(a)or(b)theyshall
beclassifiedundertheheading,whichoccurslastinnumericalorderamongthose,whichequallymerit
considerations.Thisruleisalsoknownaslatterthebettermaxim.
[RULE4] AKINRULE:Goods,whichcannotbeclassifiedinaccordancewiththeaboverules,shallbeclassified
undertheheadingappropriatetothegoodstowhichtheyaremostakin.
[RULE 5] ClassificationofPackingmaterials:Inadditiontotheforegoingprovisions,thefollowingrulesshall
applyinrespectofthegoodsreferredtotherein
(a) Classification of cases/containers used for packaging of goods: Camera cases, musical instrument
cases,guncases,drawinginstrumentcases,necklacecasesandsimilarcontainers,speciallyshapedor
fitted to contain a specific article or set of articles, suitable for longterm use and presented with the
articlesforwhichtheyareintended,shallbeclassifiedwithsucharticleswhenofakindnormallysold
therewith.Thisruledoesnot,however,applytocontainerswhichgivethewholeitsessentialcharacter.
(b) Classification of packing materials and packing containers: Subject to the provisions of (a) above,
packingmaterialsandpackingcontainerspresentedwiththegoodsthereinshallbeclassifiedwiththe
goodsiftheyareofakindnormallyusedforpackingsuchgoods.However,thisprovisiondoesnotapply
whensuchpackingmaterialsorpackingcontainersareclearlysuitableforrepetitiveuse.
RULE6
Onlysubheadingsatthesamelevelarecomparable[Rule6]:Forlegalpurposes,theclassificationofgoodsin
thesubheadingsofaheadingshallbedeterminedaccordingtothetermsofthosesubheadingandanyrelated
subheadingnotesand,mutatismutandis,totheaboveRules,ontheunderstandingthatonlysubheadingsat

thesamelevelerecomparable.Forthepurposesofthisrule,therelativeChapterandSectionNotesalsoapply,
unlessthecontextotherwiserequires.
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TRADEPARLANCETHEORY
According to the Trade Parlance theory, the goods are to be classified as they are known in trade and
commerce.IfaproductisneitherdefinedinScheduletoCentralExciseTariffAct,1985norintheCentralExcise
Act, 1944, then it should be classified according to its popular meaning or meaning attached to it by those
dealingwithiti.e.initscommercialsense.But,wheretheTariffheadingitselfuseshighlyscientificortechnical
terms,theyaretobeclassifiedinscientificortechnicalsense.
Trademeaningandthecommercialnomenclaturewouldbeapplicableifaparticularproductdescriptionoccurs
by itself in a Tariff entry and there is no conflict between the Tariff entry and any other entry requiring to
reconcileandharmonisethatTariffentrywithanyotherentry.
CHAPTER3
VALUATION
Basisonwhichexcisedutyispayable
AspertheCentralExciseTariffAct,L985,excisedutyispayableonthefollowingbasis
(1). SpecificDuty;
(2). Dutybasedonvalue(advaloremduty)i.e.fixedpercentageof_
(a) Tariffvaluefixedundersection3(2)oftheCentralExciseAct,1944.
(b) TransactionvaluedeterminedunderSection4oftheCentralExciseAct,1944.
(c) RetailSalePricedeterminedunderSection4A,oftheCentralExciseAct,1944.
(3). Dutybasedonannualcapacityofproduction(Section3AoftheCentralExciseAct,1944).
(4). CompoundedLevyscheme(Rule15ofthecentralExciseRules,2002).
(5). SpecificdutycumAdvaloremduty.
SPECIFIC DUTY: a Specific Duty is payable on the basis of length, area, volume, etc. The greatest
advantageofthismethodofvaluationofexcisablegoodsisitssimplicity.Thoughthisdutyissimple
to calculate but the government revenue doesn't change with the change in the price of goods.
Henceitdemandsfrequentrevisiontoincreasetherevenuewiththeincreaseinthesellingprice.
ADVALOREMDUTY:whendutyofcentralexciseorcustomsisleviedbyapplyingthegiven%ageof
the value of goods then, it is known as Ad valorem rate. Ad valorem rates are the rates based
uponthevalueofgoods.Theincidenceoflevyinthiscaseisdifferentfromproducttoproductand
frommanufacturertomanufacturer,withgoodsofhighervaluebeingsubjecttogreateramountof
dutyandsoon.Advaloremrateshaveinbuiltelasticityandchangewiththechangeinthevalueof
item. The quantum of duty levied automatically varies between superior varieties and inferior
varietiesofthesamegoods.
CONCEPTOFTARIFFVALUE
ProvisionsofCentralExciseAct,1944relatingtoTariffValue:
1. PowertofixtariffvaluesvestswithCentralGovernment[Section3(2)]:
The Central Government has power to fix tariff values of any article enumerated in the First
Schedule and the Second Schedule to the Central Excise Tariff Act, 1985. If tariff values are
fixed,thedutyshallbepayableonthebasisofsuchtariffvalues.TheCentralGovernmentmay
alterthetariffvaluesforthetimebeinginforce.
2. Differenttariffvaluesmaybefixedinrespectofexcisablegoods[Section3(3)]:
Differenttariffvaluesmaybefixed
(a) fordifferentclassesordescriptionsofthesameexcisablegoods;or
(b) forexcisablegoodsofthesameclassordescription
GOVINDMISHRA|9911613608www.goacademy.in 1
Producedormanufacturedbydifferentclassesofproducersormanufacturers;
Soldtodifferentclassesofbuyers.
3. Differenttariffvaluesmaybefixedhavingregardtosalepricesofsuchgoods:
In fixing different tariff values in respect of excisable goods, regard shall be given to the sale
priceschargedbythedifferentclassesofproducersormanufacturersor,asthecasemaybe,the
normalpracticeofthewholesaletradeinsuchgoods.
DUTYONBASISOFANNUALCAPACITYOFPRODUCTIONAND
COMPOUNDEDLEVYSCHEME
Power of Central Government to charge excise duty on the basis of capacity of
productioninrespectofnotifiedgoods[Section3A]
(1). Section3Ahasanoverridingeffectoversection3:
Section 3A is an independent codefor levy and collectionof excise duty in respect of notified
goods.Theexcisedutyinrespectofnotifiedgoodsshallbeleviedandcollectedonthebasisof
annual capacity of production as per the provision of this section. This section overrides the
charging Section 3 i.e. normal provisions of the Act will not apply for levying excise duty in
respectofnotifiedgoods.
(2). ExcisableGoodstobenotifiedhavingregardtonatureofmanufacturingprocess,evasionof
dutyandprotectinginterestofrevenue:
IftheCentralGovernment,afterhavingregardto
Thenatureoftheprocessofmanufactureorproductionofexcisablegoodsofantspecified
description;
Theextentofevasionofdutyinregardtosuchgoods;or
Suchotherfactorsasmayberelevant.
Isoftheopinionthatitisnecessarytosafeguardtheinterestofrevenuethen,itmayspecify,by
notificationintheOfficialGazette,suchgoodsasnotifiedgoods.
Levy and collection of duty: The duty of excise shall be levied and collected on such goods in
accordancewiththeprovisionsofthissection.
(3). Rulestobeframedfordeterminationofannualcapacityofproductionwhichshallbedeemed
annualproduction:
TheCentralGovernmentmay,byrules,
(a)(i) Providethemannerfordeterminationoftheannualcapacityofproductionofthefactory,
inwhichsuchgoodsareproduced.
(ii). TheannualcapacitysodeterminedshallbedeemedtobetheannualPRODUCTION.
(iii). The capacity will be determined by an officer not below the rank of Assistant
CommissionerofCentralExcise.
(b)(i) Specify the factor relevant to the production of such goods and the quantity that is
deemedtobeproducedbyuseofaunitofsuchfactor;
(ii). Provide for the determination of the annual CAPACITY of production of the factory in
whichsuchgoodsareproducedonthebasisofsuchfactor,byanofficernotbelowthe
rankofAssistantCommissionerofCentralExcise;and
(iii). Suchannualcapacityofproductionshallbedeemedtobetheannualproductionofsuch
goodsbysuchfactory.
(4). Annual production to be calculated on PROPORTIONATE BASIS if factory is in OPERATION
DURINGPARTOFYEAR:
Where a factory producing notified goods is in operation during a part of the year only, the
annualproductionthereofshallbecalculatedonproportionatebasisoftheannualcapacityof
production.
(5). REDETERMINATION of annual capacity of production on proportionate basis if RELEVANT
FACTORALTEREDORMODIFIED:
Incasewherethefactorrelevanttotheproductionisalteredormodifiedatanytimeduring
the year, the annual production shall be redetermined on a proportionate basis having
regardingsuchalterationormodification.
(6). Levyandcollectionofdutyasperrules:
Thedutyofexciseonnotifiedgoodsshallbe
(a) levied, at such rate, on the unit of production or, as the case may be, on such factor
relevanttotheproduction,astheCentralGovernmentmay,bynotificationintheOfficial
Gazette,specify,and
(b) Collectedinsuchmannerasmaybeprescribed.
(7). ABATEMENTOFDUTYincaseofcontinuousclosureforperiodof15daysormore:
Where a factory producing notified goods did not produce the notified goods during any
continuousperiodoffifteendaysormore,thedutycalculatedonaproportionatebasisshall
beabatedinrespectofsuchperiod,ifthemanufacturerofsuchgoodsfulfillssuchconditions
asmaybeprescribed.
(8). ProvisionnottoapplytoclearancesinIndiaby100%EOU:
Theprovisionsofthissectionshallnotapplytogoodsproducedormanufacturedbyahundred
percentexportorientedundertakingandbroughttoanyotherplaceinIndia.
(9). ADDITIONALDUTYOFCUSTOMS(ADC)tobecalculatedaspernormalprovisions:
The excise duty for the purpose of ADC in respect of notified goods shall be calculated in
accordancewithnormalprovisionsi.e.Section3ofCentralExciseAct,1944andnotSection3A
of the said Act. The duty of exciseleviable onthe notified goods shall be deemed to be the
duty of excise leviable on such goods under the 1st Schedule and the 2nd Schedule to the
CentralExciseTariffAct,1985,readwithanynotificationforthetimebeinginforce.
(10). PanMasala,Gutkha,Brandedunmanufacturedtobacco&Chewingtobacco,notifiedunderthis
section:PanMasalacontainingmorethan15%betelnutPanmasalacontainingtobacco(i.e.
gutkha);Unmanufacturedtobaccobearingabrandname;ChewingTobacco;and]ardascented
tobaccomanufacturedwiththeaidofpackingmachineandpackedinpouchesshallbeliable
todutybasedonproductioncapacity.Thedeclarationofretailsalepriceismandatoryincase
ofsuchnotifiedgoods.ThedutyisfixedPERMONTHPERPACKINGMACHINEbasedonretail
salepriceofthepouches.TheamountofdutyspecifiedinthenotificationisinclusiveoftheEC
andSHEC.
COMPOUNDEDLEVYSCHEME
(1). Compounded levy scheme is an optional scheme and is covered under Rule 15 of Central
ExciseRule,2002.Thisschemeismeantforsmallscaledecentralisedsectorsandatpresent,it
coversstainlesssteelpattis/pattasandaluminumcircles.Dutyisfixedonthebasisofnumber
andtypesofmachines.Paymentofsuchdutyabsolvesthemanufacturerfrommaintenanceof
daytodayexciserecordsandotherexciseformalities.
(2). Special procedure for payment of duty [Rule 15 of Central Excise Rules, 2002]: The Central
Governmentmay,bynotification,specifythegoodsinrespectofwhichanassesseeshallhave
the option to pay the duty of excise on the basis of such factors as may be relevant to
productionofsuchgoodsandatspecifiedratesubjecttospecifiedlimitationsandconditions,
includingthoserelatingtointerestorpenalty.TheCentralGovernmentmayalsospecifythe
mannerofmakinganapplicationforavailingofthespecialprocedureforpaymentofduty,the
abatement,ifany,thatmaybeallowedonaccountofclosureofafactoryduringanyperiod,
andanyothermatterincidentalthereto.
(3). Rate of excise duty:Therateofexcisedutyforthesectorscoveredunderthecompounded
levyschemehasbeenfixedasfollows,
(a) IncaseofStainlessSteelPattis/PattasRs.40,000(notificationno.5/2013)permachineper
month.(+EC&SHEC)
(b) In case of Aluminium Circles produced from sheets manufactured on cold rolling
machinesRs.12,000permachinepermonth.(+EC&SHEC)
(4). Abatement on closure of factory: The Central Government may also allow abatement on
accountofclosureoffactoryduringanyperiod.
(5). CenvatCreditnotadmissible:Nocreditofdutypaidonanyrawmaterial,componentpartor
machinery or finished products used for cold rolling of stainless steel pattis/pattas or
aluminiumcircles,isallowedundertheCENVATCreditRules,2004.
TRANSACTIONVALUESECTION4
The essential features of valuation of excisable goods under section 4 of the Central Excise Act,
1944areasunder
(1).
Applicability of Transaction ValueConditionstobesatisfied:Aspersectiona(f)(a)ofthe

CentralExciseAct,19M,wheredutiesofexciseisleviablewithreferencetovalue,thenon
eachremovalofsuchgoods,thevalueshallbetheTRANSACTIONVALUEifthefollowing
conditionsaresatisfied
(i). Thereshouldbesaleofexcisablegoodsbytheassessee;
(ii). Thegoodssoldshouldbefordeliveryatthetimeandplaceofremoval;
(iii). Theassesseeandthebuyerofthegoodsshouldnotberelatedpersons;and
(iv). Thepriceshouldbesoleconsiderationforthesale.
Theaboveconditionsmustbesatisfiedinrespectofeachremovalofexcisablegoods.
Valuation in accordance with Rules: As per section 4(1)(b), in case any of the above
conditionisnotsatisfiedthenvaluewillbedeterminedinaccordancewiththeCentralExcise
Valuation(DeterminationofPriceofExcisableGoods)Rules,2000.
(2).
ASSESSEE[Section4(3)(a)]:
AssesseemeansthepersonwhoisliabletopaythedutyofexciseunderthisActandincludeshis
agent.
RELATEDPERSON[section4(3)(b)]:
Personsshallbedeemedtoberelatedif
(i). theyareinterconnectedundertakings;or
(ii). theyarerelatives;or
(iii). amongstthemthebuyerisarelativeandadistributoroftheassessee,orasubdistributor
ofsuchdistributor;or
(iv). they are so associated that they have interest, directly or indirectly, in business of each
other.
Note:Relativeshallhavethemeaningassignedtoitinsection2(41)oftheCompaniesAct,L956.
PLACEOFREMOVAL[Section4(3)(c)]:
Placeofremovalmeans
(i).
A factory or any other place or premises of production or manufacture of the excisable

goods;
(ii). A warehouse or any other place or premises wherein the excisable goods have been
permittedtobedepositedwithoutpaymentofduty;
(iii). A depot, premises of a consignment agent or any other place or premises from where
excisablegoodsaretobesoldaftertheirclearancefromfactory,fromwheresuchgoods
areremoved.
TIMEOFREMOVAL[Section4(3)(cc)]:
Timeofremovalinrespectoftheexcisablegoodsremovedfromtheplaceofremovalreferredtoin
section 4(3)(c)(iii) above i.e. (depot, premises of consignment agent or any other place) shall be
deemedtobethetimeatwhichsuchgoodsareclearedfromthefactory.
TRANSACTIONVALUE[Section4(3)(d)]:
Transactionvaluehasfollowingingredients
(a) Transactionvalueisthepriceactuallypaidorpayableforthegoodswhensold.
(b) Itincludes,inadditiontotheamountchargedasprice,anyamountthatthebuyerisliableto
paytotheassesseeortoanyotherpersononbehalfoftheassessee.
(c) Suchamountispayablebyreasonoforinconnectionwithsale.
(d) Suchamountispayableatthetimeofsaleoratanyothertime.
(e) Itincludesanyamountchargedfor,ortomakeprovisionforthefollowing
(i). AdvertisingorPublicity;
(ii). Marketing,sellingandorganisationexpenses;
(iii). Storage;
(iv). Outwardhandling;
(v). Servicing;
(vi). Warranty;
(vii). Commission;
(viii). Anyothermatter.
(f) ItDOESNOTINCLUDEtheamountof
(i). Dutiesofexcise;
(ii). Salestax;
(iii). Anyothertaxes,
actuallypaidorpayableonsuchgoods.
CENTRALEXCISEVALUATION(DETERMINATIONOFPRICEOFEXCISABLEGOODS)
RULES,2000
RULE2(b)
NORMALTRANSACTIONVALUE
Normaltransactionvaluemeansthetransactionvalueatwhichthegreatestaggregatequantityof
goodsissold.
[RULE4]
ValueofgoodsinacasewheretheVALUEOFGOODSISNOTKNOWNatthetimeandplaceof
removal?
Thevalueoftheexcisablegoodsshallbebasedonthevalueofsuchgoodssoldbytheassesseefor
deliveryatanyothertimenearesttothetimeoftheremovalofgoodsunderassessmentsubjectto,
ifnecessary,suchadjustmentonaccountofthedifferenceinthedatesofdeliveryofsuchgoodsand
oftheexcisablegoodsunderassessment,asmayappearreasonabletotheproperofficer.
(Removaloffreesamplesorfreereplacementunderwarrantyclaimswillbecoveredunderthis
rule).
[RULE5]
ValuationincaseexcisablegoodsareSOLDFORDELIVERYATAPLACEOTHERTHANPLACEOF
REMOVAL:
Where any excisable goods are sold in the circumstances specified in Section 4(1)(a) of the Act,
exceptthecircumstancesinwhichtheexcisablegoodsaresoldfordeliveryataplaceotherthanthe
place of removal, then the value of such excisable goods shall be deemed to be the transaction
valueexcludingthecostoftransportationfromtheplaceofremovaluptotheplaceofdeliveryof
suchexcisablegoods.
Thus,Assessablevalueshallbearriveasunder
Transactionvalueofsuchgoods
Less:Costoftransportationfromplaceofremovaluptoplaceofdeliverythereof***
Assessablevalueofexcisablegoods
xxx
xxx
xxx
***Iffactoryisnottheplaceofremoval,then,costoftransportationfromthefactorytotheplace
ofremoval,shallnotbeexcluded.
1. COSTOFTRANSPORT:includes
(a) theactualcostoftransportationand
(b) incasewherefreightisaveraged,thecostoftransportationcalculatedinaccordancewith
generallyacceptedprinciplesofcosting.
Thus,exclusionshallbeavailablenotonly onaccountofactualcostoftransportationbutalsoon
averagefreightorequalisedfreightfromtheplaceofremovaltotheplaceofdelivery,providedthe
same is computed as per the principles of costing. Moreover, cost of transportation is excludible
fromthetransactionvalueirrespectiveofwhetherthesameisseparatelyshownintheinvoiceor
not.
2. COSTOFTRANSPORTFROMFACTORYTOPLACEOFREMOVALINCLUDIBLE:
Thecostoftransportationfromthefactorytotheplaceofremoval,wherethefactoryisnotthe
place of removal, shall not be excluded for the purposes of determining the value of the
excisablegoods.
Thus,wherethegoodsaretransferredfromfactorytoadepot,premisesofconsignmentagent
or any other place or premises from where the goods are sold after the clearance from the
factory, the cost of transportation from the factory to such depot, where the goods are sold,
shallbeincludedinthetransactionvalue.
3. TRANSPORTATIONBYASSESSEE'SVEHICLE:Incasetransportationisbyassessee'svehicle,the
cost of transportation can be calculated through costing method following the accepted
principles of costing. A cost certificate from a certified Cost Accountant/Chartered
Accountant/CompanySecretarymaybeaccepted.
4. TRANSIT INSURANCE Deductible/Not includible: Transit insurance is excludible in same
manner as cost of transport. The transit insurance should either be shown separately in the
invoiceorcanbeincludedinthetransportationcostshownseparately.
5. COSTOFRETURNFARENotincludible
Iftheassesseeisrecoveringanamountfromthebuyertowardsthecostofreturnfareofthe
empty vehicle from the place of delivery, this amount will also be excluded. When onward
freight is not includiblein the assessable valueof the excisable goods, there is no question of
return freight be included in the assessable value, whether or not the return freight is
mentionedintherelevantinvoices.
ILLUSTRATION
ComputationofassessableValueAverage/equalisedcostoftransport:
AmanufacturerhavingafactoryatJaipurhasuniformpriceofRs.1,000perunit(excludingtaxes)
forsaleanywhereinIndia.Duringthefinancialyear201314,hemadethefollowingsales:
(a)SaleatfactorygateinJaipur:1,000unitsnotransportcharges.
(b)SaletobuyersinDelhi:500piecesactualtransportchargesincurredt12,000.
(c)SaletobuyersinChennai:600piecesactualtransportchargesincurredT48,000.
(d)SaletobuyersinMumbai:900piecesactualtransportchargesincurredT30,000.
(Findassessablevalueperunitunderthecentralexcise.(CSJune2005)
SOLUTION
Inthisquestion/sincethegoodsaresoldatuniformpriceofRs.1000perunit(excludingtaxes)for
sale anywhere in India, hence the manufacturer will get deduction on account of cost of
transportationonaverageorequalisedbasisasperRule5ofCentralExciseValuationRules,2000.
The assessable value per unit shall be [Price per unit Cost of transport on average basis] i.e.
[Rs.1000Rs.30]=Rs.970.
Thecostoftransportationonaveragebasisshallbecomputedasunder,
Totalactualtransportchargesincurredduringtheyear(Nil+Rs.12,000+Rs.48,000+
Rs.30,000)
Totalnumberofunitssold(Rs.1,000+Rs.500+Rs.600+Rs.900)
AverageorEqualisedFreight(TransportCharges)perunit(Rs.90,000+Rs.3,000)
90,000
3,000
30
[RULE6]
valuewhenPRICEISNOTSOLECONSIDERATIONforsale
Thevalueofsuchgoodsshallbedeemedtobetheaggregateof
(a) Suchtransactionvalue;and
(b) the amount of money value of any additional consideration flowing directly or indirectly
fromthebuyertotheassessee.
Apportioned value of goods and services supplied by the buyer FREE OF CHARGE OR AT
REDUCED COST to be added to TV, to the extent such value has not been included in
transactionvalue
(a) valueofmaterials,components,partsandsimilaritemsrelatabletosuchgoods;
(b) valueoftools,dies,moulds,drawings,blueprints,technicalmapsandchartsandsimilar
itemsusedintheproductionofsuchgoods;
(c) value of material consumed, including packaging materials, in the production of such
goods;
(d) value of engineering, development, art work, design work and plans and sketches
undertakenelsewherethaninthefactoryofproductionandnecessaryfortheproduction
ofsuchgoods.
NOTIONALINTERESTonadvancenottobeaddedunlesspriceinfluenced
Where an assessee receives any advance payment from the buyer against delivery of any
excisablegoods,nonotionalinterestonsuchadvanceshallbeaddedtothevalueunlessthe
Central Excise Officer has evidence to the effect that the advance received has influenced
thefixationofthepriceofthegoods,
(a) bywayofchargingalesserpricefrom;or
(b) byofferingaspecialdiscounttothebuyerwhohasmadetheadvancedeposit.
[RULE7]
Valuing excisable goods that are to be SOLD FROM DEPOT/BRANCH or PREMISES OF a
CONSIGNMENTAGENT
1. AssessableValue=NormalTransactionValueofidenticalgoodsprevalentatdepot,etc.
2. Incase,the"normaltransactionvalue"fromthedepotorotherplaceisnotascertainableon
the day identical goods are being removed from the factory/ warehouse, the nearest day
whenclearancesofthegoodswereaffectedfromthedepotorotherplaceshouldbetaken
intoconsideration.
3. First time depot transfer Goods to be provisionally assessed: In case the goods are
transferredtodepotforthefirsttime,thereisnonormaltransactionvalueprevalentatthe
depot. Hence the manufacturer has to apply for provisional assessment under Rule 7 of
Central Excise Rules, 2002. On ascertainment of normal transaction value at depot, such
assessmentshallbefinalisedbyCentralExciseOfficer.
[RULE8]
ValuationincaseOFCAPTIVECONSUMPTION
Valueshallbe110%ofthecostofproductionormanufactureofsuchgoods.
CostofproductiontobecomputedasperCAS4issuedbyICWAI
Theamortization**costofmoulds,tools,dyes&patternsetc.receivedfreeofcostshallbe
included in the cost of production. ** (thereductionofthevalueofanassetbyproratingitscostovera
periodofyears).
Interestandfinancialchargesbeingafinancialchargeshallnotbeconsideredtobeapart
ofcostofproduction.
ThematerialcostshallbetakenasnetofexcisedutyifCenvatcreditisavailedofexcise
dutypaidonrawmaterial.
If goods are captively consumed, there is no requirement of declaration of RSP. Hence,
section4AshallnotapplyincaseofCaptivelyconsumedgoods.
[RULE9]
ValuationincaseofsaleofgoodstoorthroughRELATEDPERSON,OTHERTHANCONNECTED
UNDERTAKINGS
1. Thevalueofthegoodsshallbethenormaltransactionvalueatwhichthesearesoldbythe
relatedpersonatthetimeofremoval,
Tobuyers,i.e.,relatedpersontounrelatedbuyers;or
Wheresuchgoodsarenotsoldtosuchbuyers,relatedpersontorelatedretaildealer
2. Consumptionofgoodsbyrelated person:valueshallbeasperRule8i.e.110%ofcostof
productionofassessee.
[RULE10]
ValuationincaseifgoodssoldonlythroughINTERCONNECTEDUNDERTAKING
1. Meaning of Interconnected undertakings [Explanation to Section 4(3)(b)]: Two or more

undertakings which are interconnected with each other in any of the following manners,
namely:
(a) ifoneownsorcontrolstheother;
(b) wheretheundertakingsareownedbyFIRMS,ifsuchfirmshaveoneormorecommon
partners;
(c) wheretheundertakingsareownedbyBODIESCORPORATE
(i). ifonebodycorporatemanagestheotherbodycorporate;or
(ii). ifonebodycorporateisasubsidiaryoftheotherbodycorporate;or
(iii). ifthebodiescorporateareunderthesamemanagement;or
(iv). ifonebodycorporateexercisescontrolovertheotherbodycorporateinanyother
manner;
(d) whereoneundertakingisownedbyaBODYCORPORATEandtheotherisownedbya
FIRM,ifoneormorepartnersofthefirm,
(i). hold, directly or indirectly, not less than fifty per cent of the shares, whether
preferenceorequity,ofthebodycorporate;or
(ii). exercisecontrol,directlyorindirectly,whetherasdirectororotherwise,overthe
bodycorporate;
(e) ifoneisownedbyabodycorporateandtheotherisownedbyaFIRMHAVINGBODIES
CORPORATE AS ITS PARTNERS, if such bodies corporate are under the same
management
(f) if the undertakings are owned or controlled by the SAME PERSON OR BY THE SAME
GROUP;
(g) if one is connected with the other either DIRECTLY OR THROUGH any number of
undertakings which are interconnected undertakings within the meaning of one or
moreoftheforegoingsubclauses.
2. When the assessee sells the excisable goods only to or through an interconnected
undertaking,thevalueofgoodsshallbe
Case:
Valueshallbe:
When interconnected undertaking is related in DeterminedasperRule9.
termofsection4(3)(b)(ii)/(iii)/(iv)orbuyerisa
holdingorsubsidiarycompanyofassessee.
Inanyothercase
Determinedasiftheyarenotrelatedpersons.
[RULE10A]
ValuewhenthegoodsaremanufacturedonJOBWORKBASIS:
(i). GoodsSOLDbytheprincipalmanufacturerdirectlyFromTheJobWorkerPremises:
Inacasewherethegoodsaresoldbytheprincipalmanufacturerfordeliveryatthetimeof
removal of goods from the factory of jobworker, where the principal manufacturer and
thebuyerofthegoodsarenotrelatedandthepriceisthesoleconsiderationforthesale,
thevalueoftheexcisablegoodsshallbethe
transactionvalueofthesaidgoodssoldbytheprincipalmanufacturer;
(ii). Goods TRANSFERRED by principal manufacturer TO DEPOT/CONSIGNMENT AGENT, ETC.

FORSALE:
In a case where the goods are not sold by the principal manufacturer at the time of
removalofgoodsfromthefactoryofthejobworker,butaretransferred to some other
placefromwherethesaidgoodsaretobesoldaftertheirclearancefromthefactoryof
jobworkerandwheretheprincipalmanufacturerandbuyerofthegoodsarenotrelated
andthepriceisthesoleconsiderationforthesale,thevalueoftheexcisablegoodsshall
bethe
normaltransactionvalueofsuchgoodssoldfromsuchotherplaceatoraboutthe
sametimeand,
wheresuchgoodsarenotsoldatoraboutthesametime,atthetimenearesttothe
timeofremovalofsaidgoodsfromthefactoryofjobworker;
(iii). ANYOTHERCASE:
In a case not covered under (i) or (ii), the provisions of foregoing rules, wherever
applicable,shallmutatismutandis**applyfordeterminationofthevalueoftheexcisable
goods.
(**"changing[only]thosethingswhichneedtobechanged")
TransportationcostaftertheplaceofremovalNotincludible
(iv). ComputationofvalueofGOODSNOTIFIEDu/s4A
In case the excisable goods manufactured on job work are covered under MRP based
exciseduty,thenthevaluewillbedeterminedinaccordancewithSection4AoftheCentral
ExciseAct,1944.
(v). IfnoneoftheRules4to10apply,thenvaluetobedeterminedasperRules11readwith
Section(1)inaccordancewithUjagarPrintsv.UOI[7989]38ELT535(SC).
RETAILSALEPRICEBASEDVALUATIONSECTION4A
1. ThissectionappliesifthefollowingCONDITIONSarefulfilled:
(a) Thegoodsmustbeexcisablegoods.
(b) Thegoodsmustbechargeabletodutywithreferencetovalue.
(c) Thegoodsmustbesoldinpackage.
(d) Thedeclarationofretailsalepriceonthepackageofsuchgoodsismandatoryasperthe
provisionsoftheLegalMetrologyAct,2009ortherulesmadethereunderorunderany
otherlawforthetimebeinginforce.
(e) ThesaidgoodsarenotifiedbytheCentralGovernmentforthepurposeofthissection.
2. ProvisionsofSection4AhasoverridingeffectoverSection4
ThissectionhasoverridingeffectoverSection4,sinceitiswordedas"Notwithstandinganything
containedinSection4.But,thissectiondoesn'thaveoverridingeffectoversection3(2)tariff
value.
3. ValuationofgoodstowhichSection4Aapplies:Suchgoodsshallbevaluedasfollows
Retailsaleprice(RSP)declaredonsuchgoods
xxx
Less: Such amount of abatement, if any, from such retail sale price as the Central xxx
GovernmentmayallowbynotificationintheOfficialGazette.
AssessableValueforthepurposesoflevyofexciseduty
Xxx
4. Abatement to be given having regard to the amount of duty of excise, sales tax and other
taxes : The Central Government may, for the purpose of allowing any abatement, take into
account,theamountofdutyofexcise,salestaxandothertaxes,ifany,payableonsuchgoods.
5. ConfiscationofgoodsandRSPtobedeterminedinaccordancewithrules:Whereanynotified
goodsareexcisablegoodsandthemanufacturer
(a) removes such goods from the place of manufacture, without declaring the retail sale
priceofsuchgoodsonthepackagesordeclaresaretailsalepricewhichisnottheretail
salepriceasrequiredtobedeclaredundertheprovisionsoftheAct,rulesorotherlaw
asreferredabove;or
(b) tamperswith,obliteratesoralterstheretailsalepricedeclaredonthepackageofsuch
goodsaftertheirremovalfromtheplaceofmanufacture.
Then,suchgoodsshallbeliabletoconfiscationandtheretailsalepriceofsuchgoodsshallbe
ascertainedintheprescribedmannerandsuchpriceshallbedeemedtobetheretailsaleprice
forthepurposesofthissection.
6. RetailSalePrice(RSP):Forthepurposesofthissection,"retailsaleprice"meansthemaximum
priceatwhichtheexcisablegoodsinpackagedformmaybesoldtotheultimateconsumerand
includes all taxes, freight, transport charges, commission payable to dealers, and all charges
towards advertisement, delivery, packing, forwarding and the like and the price is the sole
considerationforsuchsale.
7. IncreaseofRSPatthetimeofclearancefromtheplaceofmanufactureSuchincreasedRSPto
beconsidered.
8. ValuationincasewhenmorethanoneRSPdeclaredMaximumRSPtobeconsidered.
9. Valuation when area wise different RSP declared on different packages Each RSP to be
considered.
VALUATIONINCASEOFMULTIPIECEPACKAGES
Thereisnouniformityinvaluationofmultipiecepackagesconsistingof2ormoreconsumeritems
of the same kind, with MRP printed on both the individual items and the multi pack. For valuing
suchmultipacks,itisclarifiedthat
(i).
Iftheindividualitemscomprisingthemultipackhaveclearmarkingsthattheyarenotto
besoldseparatelyorarepackedinsuchawaythattheycannotbesoldseparately,then
the MRP indicated on the multipack would be considered for payment of duty under
section4A.
(ii). If the individual items do not contain any such inscription (that they are not to be sold
separately)andarecapableofbeingsoldseparatelyattheMRPprintedontheindividual
pieces,thentheaggregateoftheMRPsofthepiecescomprisingthemultipackwouldbe
consideredforpaymentofdutyonthemultipackundersection4A.
(iii). If the individual items have MRPs printed on them but are scored out, then the MRP
printedonthemultipackwillbetakenforPurposesofvaluationundersection4A.
(iv). IfanindividualitemissuppliedfreeinthemultipackandhasnoMRPprintedonit,the
MRPprintedontheMultipackwillbetakenforpurposesofvaluationundersection4A.
VALUATIONAUDITSECTION14A
AudittobedirectedbyAssistantCommissionerorDeputyCommissionerifvalueisnotproperly
declaredbyassessee.
Nominated Cost/Chartered Accountant, to submit audit report to Central Excise officer, Total
periodcannotexceed180days.
Accountstobeauditedeveniftheyhavebeenalreadyauditedunderanyotherlaw.
Opportunitytotheassesseeofbeingheard
CHAPTER4
CENVAT
Value Added Tax as the name implies, is a tax on value addition Value addition means the value of the
outputasreducedbythevalueofboughtoutinputs.Inapurevalueaddedtaxsystem,alltaxespaidon
boughtoutinputsareallowedtobesetoffagainstthetaxespaidontheoutput,inordertosubjectonlythe
valueadditionateachstagetotaxation.
CENVATistheabbreviatedformofCentralValueAddedTax.UnderCENVATschemethecreditoftheexcise
duty/additionaldutyofcustomspaidontheinputsandcapitalgoodsandservicetaxpaidoninputservices
is allowed to be utilised for the payment of excise duty on the final products or service tax on output
servicesinordertoavoidcascadingeffectoftheduty/tax.
CONCEP OF CASCADING EFFECT: Cascading effect in simple terms means duty on duty. When a raw
materialpassesthroughvariousstagesofmanufacturebeforebeingavailabletotheultimateconsumeras
afinishedgood,ateverystagedutyisleviedandthisresultsincascadingeffectofdutyi.e.dutyonduty.
Theultimateburdenofsuchcascadingeffectofdutiesisontheconsumer.Therefore,inordertoavoid
thiscascadingeffectofdutyCENVATschemewasintroduced.Sincecreditisallowedofthedutiespaidon
inputsandcapitalgoodsandservicetaxpaidoninputservices,hencethesamedonotformthepartofthe
costofproductionandhenceitpreventscascadingeffect.
BasicfeaturesofCENVATscheme.
1. ObjectiveTopreventcascadingeffect:Itisintroducedwiththeobjecttopreventcascadingeffectof
dutyonfinalproductsandservicetaxonoutputservices.Forthispurpose,CenvatCreditRules,2004
havebeenframed.
2. Persons eligible Manufacturer as well as service providers: A manufacturer or producer of final
productortaxableserviceprovidercantakeCenvatcredit.Theschemeappliestoallexcisablegoods,
manufactured or produced from eligible inputs, or by using input service. Similarly the scheme also
appliestoalloutputservicesprovidedbyusingeligibleinputsorinputservice.
3. Credit is allowed of duties paid on inputs, capital goods and taxes paid on input services: Cenvat
schemeisdevisedtoallowcreditofdutiesofexciseandadditionaldutiesofcustomspaidoninputsand
capitalgoodsandservicetaxpaidoninputservices.Inputs,capitalgoodsandinputservicehavebeen
definedintheCenvatCreditRules,20O4.
4. Crosssectionalcreditisallowedamongstgoodsandservices:TheCenvatCreditisallowedofdutiesof
excisepaidoninputsandcapitalgoods.Thesaidcreditcanbeutilisednotonlyforpaymentofexcise
dutyonfinalProducts,butalsoforpaymentofservicetaxonoutputservices.Similarly,creditofservice
taxpaidoninputservicesisallowed,whichcanbeusednotonlyforpaymentofservicetaxonoutput
servicesbutalsoforpaymentofexcisedutyonfinalproducts.
GOVINDMISHRA|Error!Notextofspecifiedstyleindocument. 1
5. Credit only if final products are dutiable/services provided are taxable:TheCenvatcreditisallowed

only for payment of duties of excise on final products or payment of service tax on output services.
Thus,iffinalproductsareexemptedoroutputservicesareexempted,noCenvatcreditshallbeallowed.
6. TimelimitfortakingofCenvatcredit:TheCenvatcreditcanbetakenimmediatelyonreceiptofinputs.
Inrespectofcapitalgoods,creditcanbetakennotexceeding50%inthefinancialyearinwhichcapital
goodsarereceivedandbalancecreditcanbetakeninsubsequentyears.Inrespectoftaxpaidoninput
services, Cenvat credit can be taken on receipt of invoice provided payment of such invoice is made
within3monthsofthedateofinvoice.
7. Refund of Cenvat Credit: The Cenvat credit can be refunded to manufacturer/service provider if
inputs/inputservicesareusedformanufacturingfinalproductsorforprovisionoutputserviceswhich
areexported.
8. DocumentsandAccounts:TheCenvatcreditcanbetakenonlyonthebasisofspecifieddocumentsand
maintenanceofproperrecordsinrelationtosuchinputs,capitalgoodsandinputservices.
9. Burden of proof: The burden of proof regarding admissibility of Cenvat credit shall be on the
manufacturerorserviceprovider.
10. Penalty and confiscation: Penalty provisions have been made in case the manufacturer or seryice
providerviolatestheprovisionofsaidrules.
11. Applicability:TheCenvatcreditRules,20Mcameintoforcewitheffectfrom1092004.Theyextendto
the whole of India. However nothing contained in these rules relating to availment and utilization of
credit of service tax shall apply to the State of Jammu and Kashmir. Services provided in J&K are not
liabletoservicetax.
CAPITALGOODSRule2(a)
CapitalGoodsmeans:
(A) thefollowinggoods,namely:
(i) allgoodsfallingunderChapter82,Chapter84,Chapter85,Chapter90,headingNo.68.05grinding
wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the
ExciseTariffAct;
(ii) Pollutioncontrolequipment;
(iii) Components,sparesandaccessoriesofthegoodsspecifiedat(i)and(ii);
(iv) Mouldsanddies,jigsandfixtures;
(v) Refractoriesandrefractorymaterials;
(vi) Tubesandpipesandfittingsthereof;and
(vii) Storagetank,
(viii) Motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 & their
chassisbutincludingdumpersandtippers,
used:
(1)
INTHEFACTORYofthemanufacturerofthefinalproducts,butdoesnotincludeanyequipmentor
applianceUSEDINANOFFICE;or
(1A) outsidethefactoryofmanufactureroffinalproductsforgenerationofelectricityforCAPTIVEUSE
withinthefactory;or
(2) forprovidingoutputservice;
(B) MotorVehicledesignedforTRANSPORTATIONofgoodsincludingtheirchassisregisteredinthename
oftheserviceprovider,whenusedfor
(i)
providinganoutputserviceofrentingofsuchmotorvehicle;or
(ii)
transportationofinputsandcapitalgoodsusedforprovidinganoutputservice,or
(iii)
Providinganoutputserviceofcourieragency.
(C) Motor VehicledesignedtoCARRY PASSENGERSincludingtheirchassis,registeredinthenameofthe

providerofservice,whenusedforprovidingoutputserviceof
(i)
transportationofpassengers;or
(ii)
rentingofsuchmotorvehicle;or
(iii)
impartingmotordrivingskills.
(D) components,sparesandaccessoriesofmotorvehicleswhicharecapitalgoodsfortheassessee.
INPUTRule2(k)
Inputmeans
(i)
(ii)
allgoodsusedinthefactorybythemanufacturerofthefinalproductor
anygoodsincludingaccessories,clearedalongwiththefinalproductthevalueofwhichisincludedin
thevalueofthefinalproductandgoodsusedforprovidingfreewarrantyforfinalproducts;or
(iii) allgoodsusedforgenerationofelectricityorsteamforcaptiveuse;or
(iv) allgoodsusedforprovidinganyoutputservice;
BUTEXCLUDES
(A). lightDieseloilhighspeeddieseloilormotorspirit,commonlyknownasPetrol;
(B). anygoodsusedfor
(a) constructionorexecutionofWorksContractofabuildingoracivilstructureorapartthereof;or
(b) layingoffoundationormakingofstructuresforsupportofcapitalgoods,exceptfortheprovision
of service portion in the execution of a works contract or construction service as listed under
clause(b)ofsection66EoftheAct.
(C). CapitalGoodsexceptwhenusedaspartsorcomponentsinthemanufactureofafinalproduct;
(D). Motorvehicles;
(E). any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation
facility and clinical establishment when such Goods Are Used Primarily For Personal Use Or
ConsumptionOfAnyEmployee;and
(F). anygoodswhichhavenorelationshipwhatsoeverwiththemanufactureofafinalproduct.
***(Forthepurposeofthisclause,"freewarranty"meansawarrantyprovidedbythemanufacturer,the
value of which is included in the price of the final product and is not charged separately from the
customer).***
INPUTSERVICERule2(l)
meansanyservice,
(i)
(ii)
usedbyaproviderofoutputserviceforprovidinganoutputservice;or
used by a manufacturer, whether directly or indirectly in or in relation to the manufacture of final
productsandclearanceoffinalproductsuptotheplaceofremoval
andincludesservicesusedinrelation
to modernisation, renovation or repairs of a factory premises of provider of output service or an office
relatingtosuchfactoryorpremises,advertisementorsalespromotion,marketresearch,storageuptothe
place of removal, procurement of inputs, accounting auditing financing recruitment and quality control,
coaching and training, computer networking, credit rating, share registry, security, business exhibition,
legalservices,inwardtransportationofinputsorcapitalgoodsandoutwardtransportationuptotheplace
ofremoval
BUTEXCLUDES
(A). Service Portion in the Execution Of A Works Contract And Construction Services including service
listedunderclause(b)ofsection66EoftheFinanceAct(hereinafterreferredasspecifiedservices)in
sofarastheyareusedfor
(a) constructionorexecutionofworkscontractofabuildingoracivilstructureorapartthereof;or
(b) layingoffoundationormakingofstructuresforsupportofcapitalgoods,exceptfortheprovision
ofoneormoreofthespecifiedservices;or
(B). ServicesprovidedbywayofRenting Of A Motor Vehicleinsofarastheyrelatetoamotorvehicle
whichisnotacapitalgoods;or
(BA) ServiceofGeneralInsuranceBusiness,servicing,repairandmaintenance,insofarastheyrelatetoa
motorvehiclewhichisnotacapitalgoods,exceptwhenusedby
(a) amanufacturerofamotorvehicleinrespectofamotorvehiclemanufacturedbysuchperson;or
(b) aninsurancecompanyinrespectofamotorvehicleinsuredorreinsuredbysuchperson;or
(C). Such as those provided in relation to outdoor catering beauty treatment, health services, cosmetic
andplasticsurgery,membershipofaclubhealthandfitnesscentre,lifeinsurance,healthinsurance
and travel benefits extended to employees on vacation such as Leave or Home Travel Concession,
whensuchservicesareusedprimarilyforpersonaluseorconsumptionofanyemployee.
EXAMPLES
Assessee would not be entitled to CENVAT credit of duty paid on machinery purchased from other
manufacturerswhensuchmachineryhadnotevenbeenunpackedbyassesseeinhisownfactoryandit
had been transported in the exact condition along with the machinery manufactured by himself to
foreigncountry.KCPLTD.V.CCEX[2013]
Twodifferentunitsofamanufacturer,adjoiningeachother,setupwithinacommonboundarywall,
having a common PAN but separate Central Excise registration, shall be treated as two different
factories.Credit can be availed on eligible inputs utilised for the generation of electricity only to the
extentthesameisutilisedintheunitregisteredforthatpurposebutnottotheextentitwassupplied
totheotherunithavingseparateregistration.SINTEXINDUSTRIESLTDV.CCEX.[2013]
Structural components of Boiler are classified under Heading 8402 and eligible as inputs. Circular
No.9t5QX7/2072CX,dated242012andCircularNo.966/09/2012
Inputsusedfortestsorqualitycontrolcheck:haverelationshipwithmanufactureoffinalproductand
eligibleforCenvatcredit.Allowed
Inputscontainedinwasteetc.:Creditshallbeadmissible.
Inputsconsumedanddonotretainidentityinthefinalproduct:thesameshallbeeligibleforcredit.
Materials used for repairs of capital goods: All the goods used within the factory of manufacturer,
whichhaverelationwhatsoeverwithmanufactureoffinalproducts,shallbeeligibleforCenvatcredit.
Inputsarepilferedfromthestoreroom:Notallowedsincecreditoninputsisavailableonlyforinputs
usedinthefactoryofmanufactureroffinalproducts.
Finalproductisclearedindurableandreturnablepackingmaterial:Allowed,Thedefinitionofinput
covers all goods used in the factory of production by the manufacturer and such packing has
relationshipwiththemanufactureofthefinalproducts.
An input becomes a waste and is sold as scrap: In case the inputs have become waste during the
manufacturingprocess,thentheCENVATcreditshallbeallowedonsuchwaste,evenifsuchwasteis
exemptedorchargeablewithnilrateofduty.
Whetherthetoolkitsorthefirstaidkitsoldalongwiththetwowheelersareinputstobeeligiblefor
Cenvatcredit:CentralMotorVehicleRules,1989hasmadeitmandatorythateveryvehicleclearedby
themanufacturermustcarryasetoftoolkitandafirstaidkit.Thedefinitionof'Input'asgivenunder
Rule2(k)(ii)ofCenvatCreditRules,2004,includeswithinitsambitaccessoriesoffinalproductcleared
alongwiththefinalproduct.ELIGIBLE
OUTPUTSERVICE[Rule2(p)]
Output service means any service provided by a provider of service located in the taxable territory, but
shallnotinclude
(i) aservicespecifiedinSection66DoftheFinanceAct;or
(ii) aservicewherethewholeofservicetaxisliabletobepaidbytherecipientofservice.
NOTE:
(i) Theproviderofservicemustbelocatedinthetaxableterritory(i.e.IndiaexcludingStateofJammuand
Kashmir)forprovisionofanyservicetobeoutputservicethereforeifaproviderofservicelocatedin
jammuandKashmiroroutsideIndiaprovidesanyservices,suchserviceswillnotbeoutputservice.
(ii) UnderSection66DoftheFinanceAct,194,servicesspecifiedintheNegativelistarecoveredwhichare
notchargeabletoservicetax.Hence,suchservicesarenotoutputservice.
(iii) Ifunderreversechargemechanism,100%ofservicetaxispayablebyrecipient,suchservicewillnotbe
regarded as "output service" for service provider. Therefore, he will not be allowed to take CENVAT
creditofInputs,InputServicesandCapitalgoodsusedforprovisionofsuchservices.
JOBWORK[Rule2(n)]
Job work means processing or working upon raw material or semifinished goods supplied to the job
worker,soastocompleteaPartorwholeoftheprocess,resultinginthemanufactureorfinishingofan
articleoranyoperationwhichisessentialforaforesaidprocess,andtheexpression"jobworker"shallbe
construedaccordingly.
EXEMPTEDGOODS[Rule2(d)]
Exemptedgoods,means
Excisablegoodswhichareexemptfromthewholeofthedutyofexciseleviablethereon,and
includesgoodswhicharechargeabletoNILrateofduty;and
goods in respect of which the benefit of an exemption under Notification No. 1/2011CE or under
entriesatserialNumbers67and128ofNotificationNo.12/2012CE,isavailed.
NOTE:
(i)
(ii)
Notification 1/2011CE, those goods are listed which are chargeable with 2% duty of excise
subjecttoconditionthatCenvatcreditshouldnotbeavailed.
Notification12/2012CE,serial67isofcoal,serial128isoffertilizers.Thedutyis1%subjectto
conditionthatCenvatcreditshouldnotbeavailed.
EXEMPTEDSERVICES[Rule2(e)]
Exemptedservicesmeans
(i) taxableservicewhichisexemptfromthewholeoftheservicetaxleviablethereon;or
(ii) service,onwhichnoservicetaxisleviableundersection66BoftheFinanceAct;or
(iii) taxableservicewhosepartofvalueisexemptedontheconditionthatnocreditofinputsandinput
services,usedforprovidingsuchtaxableservice,shallbetaken;
butshallnotincludeaservicewhichisexportedintermsofRule6AoftheServiceTaxRules,1994.
NOTE:
(1) AservicewhichisexportedintermsofRule6AoftheServiceTaxRules,1994,shallnotberegardedas
exemptserviceandcreditwillbeavailableinrespectofinputs/inputservicesusedforprovisionofsuch
service.
(2) Serviceswhicharecoveredinthenegativelistundersection66DoftheFinanceAct,1994areexempted
servicessincenoservicetaxisleviableundersection66BoftheFinanceAct,1994onsuchservices.
(3) Services provided outside the taxable territory (i.e., services provided in J&K or outside India) are
exemptedservicessincenoservicetaxisleviableu/s66BoftheFinanceAct,1994onsuchservices.
CENVATCREDITRULE3
VariousTYPESOFDUTIES/TAXESonwhichCenvatcreditcanbetakenintermsofRule3(1)ofCenvatCredit
Rules,2004.
[RULE3(1)]
Amanufacturerorproduceroffinalproductsoraproviderofoutputserviceshallbeallowedtotakecredit
ofthefollowingdutiespaidonanyinputorcapitalgoodsreceivedinthefactoryofmanufactureroffinal
product or by the provider of output service or taxes paid on any input service received by the
manufactureroffinalproductorbytheproviderofoutputservices.
(i)
(ii)
(iii)
(iv)
(v)
ThedutyofexcisespecifiedintheFirstScheduletotheExciseTariffAct,leviableundertheExcise
Acti.e.BasicExciseDuty(BED);
However,CENVATcreditofsuchdutyofexciseshallnotbeallowedtobetakenwhenpaidonany
goods,
(a) InrespectofwhichthebenefitofanexemptionunderNotificationNo.1/2011CE,datedthe1st
March2011isavailed;or
(b) Specifiedinserialnumbers67and128inrespectofwhichthebenefitofanexemptionunder
NotificationNo.12/20L2C.E.,dated17thMarch,2012isavailed.
ThedutyofexcisespecifiedintheSecondScheduletotheExciseTariffAct,leviableundertheExcise
Acti.eSpecialExciseDuty[SED];
Theadditionaldutyofexciseleviableundersection3oftheAdditionalDutiesofExcise(Textileand
TextileArticles)Act,1978i.e.AED(TTA).
TherestrictionisthatthecreditofsuchdutycanbeutilizedonlyforpaymentofAED(TTA)leviable
onfinalproductsoroninputsremovedassuchoronpartiallyprocessedinputs.
Theadditionaldutyofexciseleviableundersection3oftheAdditionalDutiesofExcise(Goodsof
SpecialImportance)Act,1957i.e.AED(GOSI).
TherestrictionisthatthecreditofsuchdutycanbeutilizedonlyforPaymentofBEDorSED.
The National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 i.e.
NCCD.
TherestrictionisthatthecreditofsuchdutycanbeutilizedonlyforpaymentofNCCDleviableon
finalproductsoroninputsremovedassuchoronpartiallyprocessedinputs.
In case of mobile phones, credit of other duties cannot be utilized for payment of NCCD on such
mobilephones.
(vi)
TheEducationCessonexcisablegoodsleviableundersection93readwithSection93oftheFinance
(No.2)Act,2004.Therestrictionisthatthecreditofsuchcesscanbeutilizedonlyforpaymentof
EducationCessleviableonfinalproductsoroninputsremovedassuchoronpartiallyprocessed
inputsoranyoutputservice.
(via) TheSecondaryandHigherEducationCessonexcisablegoodsleviableundersection136readwith
section138oftheFinanceAct,2007.Therestrictionisthatthecreditofsuchcesscanbeutilized
only for payment of SHEC leviable on final products or on inputs removed as such or on partially
processedinputsoranyoutputservice.
(vii) The additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of
excisespecifiedunderclauses(i),(ii),(iii),(iv),(v),(vi)and(via).
(viia) Theadditionaldutyleviableundersection3(5)oftheCustomsTariffAct.However,aproviderof
outputserviceshallnotbeeligibletotakecreditofsuchadditionalduty.
(viii) Theadditionaldutyofexcise,leviableundersection157oftheFinanceAct,2003.Therestrictionis
that the credit of such duty can be utilized only for payment of Additional Duty of excise on final
productsoroninputsremovedassuchoronpartiallyprocessedinputs.
(ix)
Theservicetaxleviableundersection66oftheFinanceAct.
(ixa) Theservicetaxleviableundersection66AoftheFinanceAct.
(ixb) Theservicetaxleviableundersection66Bof.theFinanceAct.
(x)
TheEducationCessontaxableservicesleviableundersection91readwithSection95oftheFinance
(No.2)Act,20O4.
(xa) Secondary and Higher Education Cess on taxable services leviable under section 136 read with
Section140oftheFinanceAct,2007.
TherestrictionisthatthecreditofsuchcesscanbeutilizedonlyforpaymentofSHECleviableon
finalproductsoroninputsremovedassuchoronpartiallyprocessedinputsoranyoutputservice.
(xi)
Theadditionaldutyofexciseleviableundersection85oftheFinanceAct,2005.
RULE3(2)
ThemanufactureroffinalproductsshallbeallowedtotakeCENVATcreditofthedutypaidon
inputslyinginstockor
inprocessor
inputscontainedinthefinalproductslyinginstock
onthedateonwhichsuchfinalgoodsceasestobeexemptedgoods.
RULE3(3)
Inrelationtoaservicewhichceasestobeanexemptedservice,theprovideroftheoutputserviceshallbe
allowedtotakeCENVATcreditofthedutypaid ontheinputsreceivedandlyinginstock onthedateon
whichanyserviceceasestobeexemptedservicesandusedforprovidingsuchservice.
UTILISATIONOFCENVATCREDIT[RULE3(4)]
TheCENVATcreditmaybeutilizedforpaymentof,
(a) Anydutyofexciseonanyfinalproduct
(b) AnamountequaltoCENVATcredittakenoninputsifsuchinputsareremovedassuchorafterbeing
partiallyprocessed;
(c) AnamountequaltotheCENVATcredittakenoncapitalgoodsifsuchcapitalgoodsareremovedas
such
(d) AnamountunderRule15(2)ofCentralExciseRules,2002;
Note:
Rule 16 of Central Excise Rules, 2002 contains provision regarding sales return of duty paid goods.
Whensuchreturnedgoodsaresubsequentlyremovedfromfactory,themanufacturerisrequiredto
payanamountequaltoCenvatCreditavailedinrespectofdutypaidgoods(incasesuchgoodsare
notsubjectedtoprocessamountingtomanufacture)orpayexcisedutyontransactionvalue(incase
suchgoodsaresubjectedtoprocessamountingtomanufacture).Thus,forpaymentofsuchamount
underRule16,Cenvatcreditcanbeutilised.
(e) Servicetaxonanyoutputservice.
ServicetaxpayableunderreversechargeCenvatcannotbeusedforsuchpayment
CONDITION:
1. Whilepayingdutyofexciseorservicetax,asthecasemaybe,theCENVATcreditshallbeutilizedonly
totheextentsuchcreditisavailableonthelastdayofthemonthorquarter,asthecasemaybe,for
paymentofdutyortaxrelatingtothatmonthorthequarter,asthecasemaybe.
2. CENVATcreditshallnotbeutilisedforpaymentofanydutyofexciseongoodsinrespectofwhichthe
benefitofanexemptionundernotificationNo.1/2011CE,datedthe1stMarch,2011isavailed.
3. Nocreditoftheadditionaldutyleviableundersubsection(5)ofsection3oftheCustomsTariffAct
shallbeutilisedforpaymentofservicetaxonanyoutputservice.
4. CENVAT credit cannot be used for payment of service tax in respect of services where the person
liabletopaytaxistheservicerecipient.
RULE3(5)Removalofinputs/capitalgoodsassuchwithoutuse100%credittobe
paid
Wheninputsorcapitalgoods,onwhichCENVATcredithasbeentaken,
areremovedassuchfromthefactory,ofpremisesoftheproviderofoutputservice,
themanufacturerofthefinalproductsorproviderofoutputservice,asthecasemaybe,
shallpayanamountequaltothecreditavailedinrespectofsuchinputsorcapitalgoodsand
suchremovalshallbemadeunderthecoverofaninvoicereferredtoinrule9.
ProvidedthatsuchPayment shall not be requiredtobemadewhereanyinputsorcapitalgoodsare
removedoutsidethepremisesoftheproviderofoutputserviceforprovidingtheoutputservice.
ProvidedfurtherthatsuchPaymentshallnotberequiredtobemadewhereanyinputsareremoved
outsidethefactoryforprovidingfreewarrantyforfinalproducts.
ComputationofamountofCenvatcredittobereversedRule3(5);
PQRLtd.,Ghaziabadpurchasedplasticgranulesvaluedt1,15,000(inclusiveofcentralexciset10000)for
manufactureofplasticmouldedchairs.ItavailedCENVATcreditofexcisedutyoft16,000paidonthesaid
inputs.Itsubsequentlyclearedthesaidinputsassuchfromthefactoryinthefollowingmanner
(a)SalestoSansarLtd.(purchaseprice:Rs20,000)
Rs.40,000
(b)SalestoKrishnaTradingCo.(purchaseprice:Rs10,000)
Rs.10,000
(c)ClearancetoPQRLtd.'sownfactoryatKanpur(purchaseprice:Rs.70,000) Freeofcost
PQRLtd.hassoughtyouradviceontheexcisedutypayablebyitontheaboveclearances.
Giveyouradviceinthematter.(CSlune2006)
Solution;Rule3(5)oftheCENVATCreditRules,2004,wheninputsareremovedassuchfromthefactory,
theamountofdutypayableshallbeequivalenttothecreditavailedinrespectofsuchinputs.Thesaleprice
hasnobearingonthedutypayableiftheinputsareclearedassuchfromthefactory.
ComputationofexcisedutypayablebyPQRLtd.
(a)ExcisedutypayableonsalestoSansarLtd.[Rs20,000xRs16,000+Rs1,00000]
Rs.3200
(b)ExcisedutypayableonsalestoKrishnaTradingco.[Rs10,000xRs1.6,000+Rs1,00,000]
Rs.1600
(c) Excise duty payable on clearance to own factory at Kanpur [{Rs70,000 x Rs 15,000 + Rs Rs.11200
1,00,000]
[RULC3(5A)]
Rule3(5A)(a)REMOVALOFCAPITALGOODSAFTERUSE
Amended vide Notification No.12/2013CE (NT): As per Rule 3(5A)(a) of the Cenvat Credit Rules,2004,
whereamanufactureroffinalproductoraproviderofoutputserviceremovescapitalgoodsafterusefrom
his factory or premises, then he shall be liable to pay higher of the following two amounts i.e. (I) or (II),
whicheverishigher
Computers&computerperipherals
Othercapitalgoods
(I) AmountofCenvatcredittakenasreducedby (I)

the following percentage points calculated by
straightlinemethodforeachquarterofayear
or part thereof from the "date of taking the
Cenvatcredit''
foreachquarterinthe1styear:@10%;
foreachquarterinthe2ndyear:@80%;
(II)
foreachquarterinthe3rdyear:@50%;and
foreachquarterinthe4thand5thyear:@1%.
AmountofCenvatcredittakenasreduced
by the following percentage points
calculated by straight line method for
each quarter of a year or part thereof
fromthe"dateoftakingtheCenvatcredif
@2.5%foreachquarter.
Amount equal to the duty leviable
transactionalvalueofsuchcapitalgoods.
(II). Amount equal to the duty leviable on

transactionalvalueofsuchcapitalgoo{s.
[RULE3(5A)(b)]REMOVALOFCAPITALGOODSASWASTEANDSCRAP:
W.E.F. 27092013 in case the capital goods are removed as waste and scrap, the manufacturer or
serviceproviderwillbeliabletopaydutyleviableontransactionvalue.
Amount paid by the manufacturer or service provider eligible as Cenvat credit to the buyer of such
capitalgoods:Rule3(6)
Ifthemanufacturerofgoodsortheproviderofoutputservicefailstopaytheamountpayableunder
Rule3(5A),itshallberecovered,inthemannerasprovidedinrule14,forrecoveryofCENVATcredit
wronglytaken.[insertedbyCENVATCredit(Amendment)Rules,2013w.e.f.132013]
RULE3(5B)
Inputs/Capitalgoodswrittenoff100%credittobereversed:
Ifthevalueofany,
(i) input,or
(ii) capitalgoodsbeforebeingputtouse,
onwhichCENVATCredithasbeentakeniswrittenofffullyorpartiallyorwhereanyprovisiontowrite
offfullyorpartiallyhasbeenmadeinthebooksofaccountsthenthemanufacturerorserviceprovider,
asthecasemaybe,shallpayanamountequivalenttotheCENVATcredittakeninrespectofthesaid
inputorcapitalgoods.
Creditadmissibleifinputorcapitalgoodsissubsequentlyputtouse:
Providedthatifthesaidinputorcapitalgoodsissubsequentlyusedinthemanufactureoffinalproducts
ortheprovisionofoutputservices,themanufactureroroutputserviceprovider,asthecasemaybe,
shallbeentitledtotakethecreditoftheamountequivalenttotheCENVATCreditpaidearliersubjectto
theotherprovisionsoftheserules.
If the manufacturer of good or the provider of output service fails to pay the amount payable under
subrules (5)(3B), it shall be recovered in the manner as provided in rule ld for recovery of CENVAT
creditwronglytaken.[insertedbyCENVATCredit(Amendment)Rules,2013w.e.f.132013]
[RULE3(5C)]
Remission of duty on final products and CENVAT reversal on inputs [Rule 3(5C)]: Where, on any goods
manufacturedorproducedbyanassessee,thepaymentofdutyisorderedtoberemittedunderrule21of
the Central Excise Rules, 2002 the CENVAT credit taken on the inputs used in the manufacture or
productionofsaidgoodsshallbereversed.
Noreversalrequiredoninputserviceandcapitalgoods:ItmustbenotedthatprovisionsofRule3(5C)is
applicableincaseofinputsonlyi.e.dutycreditrelatedtoinputsisrequiredtobereversed.However,no
reversal is required in relation to input service and capital goods used for manufacture of final products
whichisdestroyedbyfire.
RULE3(7)
CENVATcreditoninputsandcapitalgoodsmanufacturedby100%EOUandsoldtoDTA:
CENVAT credit in respect of inputs or capital goods produced or manufactured by a hundred per cent
ExportOriented Undertaking or by a unit in an Electronic Hardware Technology Park or in a Software
TechnologyParkotherthanaunitwhichpaysexcisedutyleviedundersection3oftheExciseActreadwith
serialnumbers3,5,6and7ofnotificationNo.23/2003CentralExcise,datedthe
RULE4
CONDITIONSFORALLOIVINGCENVATCREDIT[RULE4(1)]
TheTIMELIMITforavailmentofCENVATcreditinrespectofINPUTSisasunder
(1) Cenvatcredittobeallowedimmediatelyonreceiptofinputbymanufacturerorproviderofoutput
service:
(2) Credit to Service provider on maintenance of documentary evidence of delivery of inputs and
locationofinputs.
TIMELIMITforavailmentofCENVATcreditinrespectofINPUTSERVICE[RULE4(7)]
(1)
(2)
(3)
(4)
(5)
(6)
Cenvat Credit on input service on receipt of invoice: The CENVAT credit in respect of input service
shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan
referredtoinRule9,isreceived.
REVERSALOFCENVATCREDITincasethepaymentinnotmadewithin3monthsandrecreditafter
payment: In case, the payment of the value of input service and the service tax paid or payable as
indicatedintheinvoice,billor,asthecasemaybe,challan,isnotmadewithinthreemonthsofthe
dateoftheinvoice,billor,asthecasemaybe,challan,themanufacturerortheserviceproviderwho
has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on
suchinputservice.
Subsequentlyifthepaymentismade,themanufactureroroutputserviceprovidershallbeentitledto
take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other
provisionsoftheserules.
DISCOUNTEDPAYMENTProportionatecreditadmissible:Eveniftheservicereceiverdoesn'tpaythe
fullinvoicevalueoftaxableservices,hecantakeproportionatecreditoftheservicetaxrelatableto
proportionatevalueofthetaxableservicespaid.
Cenvat credit only on payment of value and service tax thereon, where service tax is paid under
REVERSECHARGE:Incaseofaninputservice,wheretheservicetaxispaidonreversechargebythe
recipient of the service, the CENVAT credit in respect of such input service shall be allowed, on or
after the day on which payment is made, of the value of input service and the service tax paid or
payableasindicatedininvoice,billor,asthecasemaybe,challan,referredtoinRule9.
Reversal of credit when PAYMENT IS REFUNDED OR CREDIT NOTE IS GIVEN to manufacturer or
servicereceiver:IfanyPaymentorpartthereof,madetowardsaninputserviceisrefundedoracredit
note is received by the manufacturer or the service provider, who has taken credit on such input
service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so
refundedorcredited.
DUEDATEOFMAKINGABOVEPAYMENTS[ExplanationI]:
(i) Monthlypayments:Manufactureroroutputserviceprovidershallpaytheaboveamountsonor
before
(a) the5THDAYofthefollowingmonth(exceptforMarch)
(b) the31stMarch(forthemonthofMarch)
(ii) QuarterlyPayments:ManufactureravailingSSIexemptionsandanoutputserviceprovider,who
isanindividualorproprietaryfirmorpartnershipfirm,shallpaytheaboveamountsonorbefore
(a) the5THDAYofthemonthsucceedingthequarter(exceptforthequarterendingwiththe
monthofMarch)
(b) the31stMarch(forthequarterendingwithMarch)
ThepaymentcanbemadebydebitingtheCENVATcreditorotherwise.
(7)
RECOVERY as per Rule 14 [Explanation II]: If the manufacturer of goods or the provider of output
service fails to pay the amount payable under this subrule it shall be recovered, in the manner as
providedinRule14,forrecoveryofCENVATcreditwronglytaken.
*****************************
CENVATCreditinrespectofCAPITALGOODS:
(1)
Availment of credit not exceeding 50% in year of acquisition [Rule 4(2)(a)]: The CENVAT credit in
respectofcapitalgoodsreceived
inafactoryor
inthepremisesoftheproviderofoutputserviceor
outside the factory of the manufacturer of the final products for generation of electricity for
captiveusewithinthefactory,
atanypointoftimeinagivenfinancialyearshallbetakenonlyforanamountnotexceedingfiftyper
centofthedutypaidonsuchcapitalgoodsinthesamefinancialyear.
Ifcapitalgoodsnotreceivedinpremisesofserviceprovidercreditonmaintenanceofdocumentary
evidence of delivery and location; CENVAT credit in respect of capital goods may be taken by the
provider of output service when the capital goods are delivered to such provider, subject to
maintenance of documentary evidence of delivery and location of the capital goods, irrespective of
whetheritisreceivedinthepremisesornot.
(2)
(3)
(4)
(5)
Balance credit to be allowed in subsequent years, provided capital goods are in possession [RULE
4(2))(B)]
ThebalanceofCENVATcreditmaybetaken
inanyfinancialyearsubsequenttothefinancialyear
inwhichthecapitalgoodswerereceivedinthefactoryofthemanufacturer,orinthepremises
oftheproviderofoutputservice,
ifthecapital goods are in the possessionofthemanufactureroffinalproducts,orproviderof
outputserviceinsuchsubsequentyears.
However,Possessionrequirementnotnecessaryincaseofcomponents,sparesandaccessories,
refractories,moulds,
100%Creditshallbeallowedinyearofacquisition:
(a) ifcapitalgoodsareremovedassuchintheyearofacquisitionthencreditforthewholeamount
ofdutypaidonsuchgoodsshallbeallowedinthesamefinancialyear.
(b) 100% Credit of Additional duties of customs leviable under section 3(5) shall be allowed
immediatelyonreceiptofthecapitalgoodsinthefactoryofamanufacturer.
(c) 100%CredittounitsavailingSSIExemption,CENVATcreditinrespectofcapitalgoodsreceived
bysuchassesseeshallbeallowedforthewholeamountofthedutypaidonsuchcapitalgoodsin
thesamefinancialyear.
Creditavailableevenifcapitalgoodsacquiredonlease,hirepurchaseorloanagreement[Rule4(3)]
Creditnotadmissibleifdeprecationclaimedondutyelement[Rule4(4)]
(6)
(7)
IncaseofcapitalgoodsimportedunderProjectImportScheme,theadditionaldutyofcustomspaid
undersection3oftheCustomsTariffActwillbeeligibleforCENVATCredit.
NoCENVATcreditoncapitalgoodsshallbeallowedwhichareexclusivelyusedforthemanufactureof
exemptedgoods.
*******************************
TheprocedureforREMOVALOFINPUTS forJOBWORK toajobworkeronwhichCENVAThasbeen

availedundertheCentralExciseAct,1944isasunder
(1)
Cenvatcreditincaseofjobwork[Rule4(5)(a)]:TheCENVATcreditshallbeallowedevenifanyinputs
orpartiallyprocessedinputsorcapitalgoodsaresenttojobworker,
(a) forfurtherprocessing,testing,repairing,reconditioning;or
(b) forthemanufactureofintermediategoodsnecessaryforthemanufactureoffinalproducts;or
(c) anyotherpurpose.
Theremovalofsuchinputsorpartiallyprocessedinputsorcapitalgoodsshallbesenttojobworkerunder
coverofjobworkchallans.
(2)
(3)
(4)
Theprocessedinput/capitalgoodstobe
returnedwithin180daysbytheiobworkerundercoverofprescribedchallans.
If the inputs or the capital goods are not received back within 180 days, the manufacturer or
providerofoutputserviceshallpayanamountequivalenttotheCENVATcreditattributableto
theinputsorcapitalgoods,bydebitingtheCENVATcreditorotherwise.
Subsequently,themanufacturerorproviderofoutputservicecantaketheCENVATcreditagain
when the inputs or capital goods are received back in his factory or in the premises of the
providerofoutputservice.
Creditadmissibleonfigs,fixtures,moulds&diessentbyamanufactureroffinalproductstoanother
manufacturerorjobworker[RuIe4(5)(b)]
Removal of goods from job worker's premises on permission of Deputy Commissioner /Assistant
Commissioner,whichshallbevalidforonefinancialyear.[Rule4(6)]
**********************
[RULE5]
REFUNDOFCENVATCREDIT
(1)
Refund of Cenvat credit admissible to exporters of goods or services: A manufacturer who clears a
finalproductoranintermediateproductforexportwithoutpaymentofdutyunderbondorletterof
undertaking,oraserviceproviderwhoprovidesanoutputservicewhichisexportedwithoutpayment
ofservicetax,shallbeallowedrefundofCENVATcreditasdeterminedbythefollowingformula:
Exportsofgoods+Exportturnoverofservices
X NetCENVATcredit
Refundamount =
Totalturnover
Therefundshallbeadmissiblesubjecttoprocedure,safeguardsconditionsandlimitationsasspecifiedin
thenotification
(a) Refundamount:Refundamountmeansthemaximumrefundthatisadmissible;
(b) Net CENVAT credit: means total CENVAT Credit availed on inputs and input services by the
manufacturer or the output service provider, reduced by the amount reversed in terms of Rule
3(5C),duringtherelevantperiod;
(c) Export turnover of goods means the value of final products and intermediate products cleared
during the relevant period and exported without payment of Central Excise duty under bond or
letterofundertaking
(d) Export turnover of services: means the value of the export service calculated in the following
manner
Exportturnoverofservices=
Paymentsreceivedduringtherelevantperiodforexportservices
ADD:Exportserviceswhoseprovisionhasbeencompletedforwhichpaymenthadbeenreceivedin
advanceinanyperiodpriortotherelevantperiod
SUB:Advancesreceivedforexportservicesforwhichtheprovisionofservicehasnotbeen
completedduringtherelevantperiod.
(e) TotalTurnovermeanssumtotalofthevalueof
allexcisablegoodsclearedduringtherelevantperiodincludingexemptedgoods,dutiablegoods
andexcisablegoodsexported;
exportturnoverofservicesdeterminedintermsofclause(d)aboveandthevalueofallother
services,duringtherelevantperiod;and
allinputsremovedassuchunderrule3(5)againstaninvoice,duringtheperiodforwhichthe
claimisfiled.
(f) Exportservice:meansaservicewhichisprovidedasperRule6AoftheServiceTaxRules1994;
(g) Relevantperiod:meanstheperiodforwhichtheclaimisfiled.
(h) Value to be determined as per Rule 6(3A)/6(3):Thevalueofservices,shallbedeterminedinthe
samemannerasthevalueforthepurposesofRule6(3)and6(3A)isdetermined.
(2) Norefundifexporteravailsdutydrawback/rebateundertheCustoms,CentralExcise,ServicesTax.
(3) Refundclaimisfiledquarterly(AprilJune;JulySeptember;OctoberDecemberandJanuaryMarch;
(4) RefundclaimOtherConditions
(i) Amountofrefundclaimedshallnotbemorethantheamountlyinginbalance
attheendofthequarterforwhichrefundclaimisbeingmade;
atthetimeoffilingofrefundclaim;
whicheverisless.
(ii) Claimtobereversed:Theamountthatisclaimedasrefundunderrule5ofthesaidrulesshallbe
debitedbytheclaimantfromhisCENVATcreditaccountatthetimeofmakingtheclaim.However,
iftheamountofrefundsanctionedislessthantheamountofrefundclaimedthentheclaimant
maytakebackthecreditofthedifferencebetweentheamountclaimedandamountsanctioned.
[RULE5A]
REFUNDOFCENVATCREDITTOUNITSINSPECIFIEDAREAS
WhereamanufacturerhasclearedfinalproductsintermsofNotificationNo.20/2007CE(i.e.hascleared
goods from a unit located in States of Assam, Tripura, Meghalaya Mizoram, Manipur, Nagaland,
ArunachalPradesh,Sikkimclaimingexemptionunderthesaidnotification)
(a) and if he is unable to utilize the CENVAT credit of duty taken on inputs required for manufacture of
finalproductsspecifiedinthesaidnotification(otherthanfinalproductswhichareexemptorsubjectto
nilrateofduty)forpaymentofdutiesofexciseonsaidfinalproducts,
(b) Then, the Central Government may allow the refund of such credit, subject to such procedure,
conditionsandlimitations,asmaybespecifiedbynotification.
[RULE5B]
RefundofCENVATCredittoserviceprovidersprovidingservicestaxedonREVERSECHARGEBASIS
Aproviderofserviceprovidingservicesnotifiedundersection68(2)oftheFinanceAct(i.e.services
chargedonreversechargebasis);and
HeisunabletoutilisetheCENVATcreditavailedoninputsandinputservicesforpaymentofservice
taxonsuchoutputservices,
ThenshallbeallowedrefundofsuchunutilisedCENVATcredit
subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by
notificationintheOfficialGazette.
Note:Itmustbenotedthatincaseif100%reversechargeisapplicablei.e.entireservicetaxispaidbythe
receiver ofservice, in such a case for the service providerthe said service cannotbe regarded as output
service, hence he will not be entitled to take CENVAT credit of the taxes and duties paid used for the
provisionofthesaidservices.WhenheisnotentitledtotaketheCENVATcredit,thequestionofrefund
doesnotarises.
*************************
[RULE6]
OBLIGATIONOFAMANUFACTURERANDOUTPUTSERVICEPROVIDER
(I)
NoCENVATcreditiffinalproductoroutputserviceexempt[RULE6(1)]:TheCENVATcreditshallnot
beallowedon
(a) suchquantityofinputs
(i) usedinorinrelationtothemanufactureofexemptedgoods;or
(ii) forprovisionofexemptedservices,
(b) inputserviceused
(i) inorinrelationtothemanufactureofexemptedgoodsandtheirclearanceuptotheplaceof
removalor
(ii) forprovisionofexemptedservices.
(II) Methodtobeadoptedforcreditoninputsandinputservicesbymanufacturerofdutiable&exempt
goodsorprovideroftaxable&exemptservices[Rule6(2),6(3),6(3A)to(3D)]:Ifthemanufactureror
serviceproviderusestheinputs/inputservicesformanufactureofdutiableandexemptgoodsorfor
providingtaxableandexemptservices,thenhecanfollowtheundermentionedoptions:
(A)
Maintenance of separate accounts for inputs and input services [Rule 6(2)] : The manufacturer or
providerofoutputserviceshallmaintainseparateaccountsfor,
(a)Thereceipt,consumptionandinventoryof (b)Thereceiptandusesofinputservices
inputsused
(i). in or in relation to the manufacture of
(i). in or in relation to the manufacture of
exempted goods and their clearance
exemptedgoods;
uptotheplaceofremoval;
(ii). in or in relation to the manufacture of (ii). in or in relation to the manufacture of
dutiable find products excluding
dutiable final products, excluding
exemptedgoods;
exempted goods, and their clearance
(iii). fortheprovisionofexemptedservices;
uptotheplaceofremoval;
(iv). for the provision of output services (iii). for the provision of exempted services;
excludingexemptedservices.
and
(iv). for the provision of output services
excludingexemptedservices.
and shall take CENVAT credit only on inputs and input services under (ii) and (iv) of (a) and (b)
respectively.
(B)
NonMaintenanceofseparateaccountsforinputsandinputservices[Rule6(3)]:Themanufacturer
ortheproviderofoutputservice,optingnottomaintainseparateaccounts,shallfollowanyoneof
thefollowingconditions,asapplicabletohim,namely,
CONDITION 1 ADHOC REVERSAL [RULE 6(3)(i)]: Pay an amount equal to 6% of value of the
exemptedgoodsandexemptedservices.
However,followingpointshavetobeconsideredhere:
(a) Excise duty paid on exempted goods to be reduced: If any duty of excise is paid on the
exemptedgoods,thesameshallbereducedfromtheamountpayableasmentionedabove.
(b) If benefit of abatement is taken, then abatement value to be considered: if any part of the
valueofataxableservicehasbeenexemptedontheconditionthatnoCENVATcreditofinputs
and input services, used for providing such taxable service, shall be taken then the adhoc
reversalshallbeonsuchabatedvaluei.e.6%ofthevaluesoexempted.
Example:IfgrossamountchargedisRs.100,abatementis60%,thentheabatedvaluebeingRs.
60,theadhocreversalshallbe6%ofRs.60.
(c) Transportation of goods or passengers by rail service: In case of transportation of goods or

passengersbyrail,theamountrequiredtobepaidunderaboveshallbeanamountequalto2%
ofvalueoftheexemptedservices,insteadof6%ofvalueofexemptedservices.
Otherpointstobenoted:
(a) Option to be exercised for all exempted goods /exempted services [Explanation I]: If the
manufacturerofgoodsortheproviderofoutputservice,availsanyoftheoptionunderthissub
rule,heshallexercisesuchoptionforallexemptedgoodsmanufacturedbyhimor,asthecase
maybe,allexemptedservicesprovidedbyhim,andsuchoptionshallnotbewithdrawnduring
theremainingpartofthefinancialyear.
(b) No credit of input/Input services exclusively used in manufacture of exempted
good/exemptedservices[ExplanationII]:Creditshallnotbeallowedon
(i). inputsusedexclusively
inorinrelationtothemanufactureofexemptedgoodsor
forprovisionofexemptedservices
(ii) andoninputservicesusedexclusively
inorinrelationtothemanufactureofexemptedgoodsandtheirclearanceupto
theplaceofremovalor
forprovisionofexemptedservices.
(c) Creditnotallowedonineligibleinputs/inputservices[ExplanationIII]:NoCENVATcreditshall
betakenonthedutyortaxpaidonanygoodsandservicesthatarenotinputsorinputservices.
(d) PaymentofamountunderRule6(3)deemedtobenonavailmentofCenvatcredit[Rule6(3D)]:
Ifaspertheexemptionnotification,theexemptionsgrantedontheconditionthatnoCENVAT
creditoninputsandinputservicesshallbetaken,thenadhocreversalasmadeaboveshallbe
deemedtobeCENVATcreditnottakenforthepurposeofexemptionnotificationi.e.itshallbe
deemedtobenonavailmentofCENVATcredit.
CONDITION2FORMULABASED(PROPORTIONATE)REVERSALforinputsandinputservices
[RULE6(3A)]:
(i). Provisional payment: The manufacturer of goods or the provider of output service shall
determineandpay,provisionallyforeverymonth,
(a) Inputs used for exempted final products: The amount equivalent to CENVAT credit
attributabletoinputsusedinorinrelationtomanufactureofexemptedgoodsduringthe
month.IetusdenoteitasA,
Thishastobedoneonbasisofactuals(ifpossible)orinputoutputratiooronbasisof
somereasonabletechnicalestimate.
(b) Inputsusedforexemptedservices:TheamountofCENVATcreditattributabletoinputs
usedforprovisionofexemptedservicesistobecalculatedasfollows
B
Total value of exempted services provided during the preceding financial
year
C
Total value of dutiable goods manufactured and removed plus the total
valueofoutputservicesprovidedplusthetotalvalueofexemptedservices
D
(B/C)XD
providedduringtheprecedingfinancialyear
TotalCENVATcredittakenoninputsduringthemonthminusA
Amount to be reversed every month on provisional basis (as calculated
above)forinputsusedforexemptedservices
(c) Input servicesusedinorinrelationtomanufactureofexemptedgoodsorprovisionof

exempted services: The amount attributable to input services used in or in relation to
manufacture of exempted goods or provision of exempted services (provisional) is
calculatedasfollows,
E
Totalvalueofexemptedservicesprovidedplusthetotalvalueofexempted
goodsmanufacturedandremovedduringtheprecedingfinancialyear
F
G
(E/F)XG
Total value of output and exempted services provided, and total value of
dutiableandexemptedgoodsmanufacturedandremoved,duringthe
precedingfinancialyear
CENVATcredittakenoninputservicesduringthemonth
Amounttobereversedeverymonthonprovisionalbasisforinputservices
used in or in relation to manufacture of exempted goods or provision of
exemptedservices.
(ii) Calculation of 'final amount' after year end: The manufacturer of goods or the provider of
output service, shall determine finally the amount of CENVAT credit attributable to exempted
goodsandexemptedservicesforthewholefinancialyear,inthefollowingmanner,namely
(a) Inputsusedforexemptedfinalproducts:TheamountofCENVATcreditattributableto
inputs used in or in relation to manufacture of exempted goods, on the basis of total
quantityofinputsusedinorinrelationtomanufactureofsaidexemptedgoods,denoted
asH;
(b) Inputusedforexemptedservices:
J
Totalvalueofexemptedservicesprovidedduringthefinancialyear,
K
Thetotalvalueofdutiablegoodsmanufacturedandremovedplusthetotal
valueofoutputservicesprovidedplusthetotalvalueofexemptedservices
provided,duringthefinancialyear
L
TotalCENVATcredittakenoninputsduringthefinancialyearminusH
Amounttobereversedonactualbasis
(J/K)XL
(c)
Inputservicesusedforexemptedgoodsandexemptedservices:
M
Totalvalueofexemptedservicesprovidedplusthetotalvalueofexempted
goodsmanufacturedandremovedduringthefinancialyear,
N
Total value of output and exempted services provided and total value of
dutiable and exempted goods manufactured and removed, during the
financialYear,
P
TotalCENVATcredittakenoninputservicesduringthefinancialyear
(M/N)XP Amounttobereversedonactualbasis
(iii) PROCEDURALCOMPLIANCE:
(i). IntimationinwritingtotheSuperintendentbeforeexercisingtheoption:Whileexercising
this option, the manufacturer of goods or the provider of output service shall intimate in
writingtotheSuperintendentofCentralExcisegivingthefollowingparticulars,namely
(i). name, address and registration no. of the manufacturer of goods or provider of
outputservice;
(ii). date from which the option under this clause is exercised or proposed to be
exercised;
(iii). descriptionofdutiablegoodsoroutputservices;
(iv). descriptionofexemptedgoodsorexemptedservices;
(v). CENVAT credit of inputs and input services lying in balance as on the date of
exercisingtheoptionunderthiscondition.
(ii). Paymentofdifferentialamountby30thJuneofthefinancialyear:Incasetheamountof
actualCenvatcreditcomputedasaboveisgreaterthanaggregateof,amountprovisionally
reversed,thenthemanufacturerorserviceprovidershallpaythedifferentialamountonor
before30thJuneofthefinancialyear,otherwiseheshallbeliabletopay interest @ 24%
p.a.fromtheduedatei.e.30Juneofthefinancialyeartillthedateofpayment.
(iii). Recredit in case provisional amount of Cenvat credit reversed is greater than actual
amount to be reversed: Where the actual amount of credit as determined above is less
than the aggregate amount determined and paid on provisional basis, the said
manufacturerofgoodsortheproviderofoutputservicemayadjusttheexcessamounton
hisown,bytakingcreditofsuchamount
(iv). Intimation to the Superintendent : The manufacturer of goods or the provider of output
serviceshallintimatetotheJurisdictionalSuperintendentofCentralExcise,withinaperiod
of fifteen days from the date of payment or adjustment, respectively, the following
particulars,namely,
(i). details of CENVAT credit attributable to exempted goods and exempted services,
monthwise,forthewholefinancialyear,determinedprovisionally,
(ii). CENVATcreditattributabletoexemptedgoodsandexemptedservicesforthewhole
financialyear,onactualbasis,
(iii). amount short paid alongwith the date of payment of the shortpaid amoun! i.e. if
actualreversibleismorethanprovisionalreversal,
(iv). interestpayableandpaid,ifany,ontheamountshortpaidand
(v). credittakenonaccountofexcesspayment.
(v). In case provisional amount cannot be determined: Where the amount equivalent to
CENVATcreditattributabletoexemptedgoodsorexemptedservicescannotbedetermined
Provisionally, due to reasons that no dutiable goods were manufactured and no output
service was provided in the preceding financial year,thenthemanufacturerof goodsor
the provider of output service is not required to determine and pay such amount
provisionally for each month but shall determine the CENVAT credit attributable to
exempted goods or exempted services For The Whole Year and pay the amount so
calculated on or before 30th June of the succeeding financial year, otherwise he shall be
liabletopayinterestasdiscussedabove.
CONDITION 3Separateaccountsforinputsandformulabasedreversalforinputservices[Rule
6(3)(iii)]
ThisisacombinationofConditionIandIIasdiscussedabove.Accordingly,underthismethod,
(i). ForInputs:Separateaccountsaretobemaintainedforthereceipt,consumptionandinventory
ofinputsandCENVATcreditbeavailedonlyondutiablefinalproductsandprovisionoftaxable
outputservice.
(ii). For input services : The formula based reversal for input services (only with respect to input
services)mustbemade.
(C)
OthercommonpointsforRule6(3)/Rule6(3A)
MEANINGOFVALUE:"Value"forthepurposeofsubrules(3)and(3A),
(a) Incaseofservices:shallhavethesamemeaningasassignedtoitundersection67oftheFinance
Act,readwithrulesmadethereunderor,
(b) Incaseofexcisablegoods:shallbe,asthecasemaybe,thevaluedeterminedundersection3,4
or4AoftheExciseAct,readwithrulesmadethereunder.
(c) Incasecompositionschemeforpaymentofservicetaxisavailed:
value ServiceTaxpaidunderthecompositionscheme
Rateofservicetax
(d) Incaseoftradingofgoods:Incaseoftrading,valueshallbethedifferencebetweenthesaleprice
and the cost of goods sold (determined as per the generally accepted accounting principles
without including the expenses incurred towards their purchases) or 10% of the cost of goods
sold,whicheverismore.
(e) Incaseoftradingofsecurities:Incaseoftradingofsecurities,shallbethedifferencebetweenthe
sale price and the purchase price of the securities traded or1,% of the purchase price of the
securitiestrade4whicheverismore.
(f) Services by way of extending deposits, loans or advances: Value shall not include the
considerationasisrepresentedbywayofinterestordiscount.
(D)
Special provisions for reversal of CENVAT credit in case of banking company and a financial
institutionincludinganonbankingfinancialcompanyReversalof50%credittakeneachmonth
[RULE6(3B)]
Notwithstandinganythingcontainedinsubrules(1),(2)and(3),Abankingcompanyandafinancial
institution including a nonbanking financial company, engaged in providing services by way of
extending deposits, loans or advances, shall pay for every month an amount equal to 50% of the
CENVATcreditavailedoninputsandinputservicesinthatmonth.
(E)
OthercommonpointsrelatingtoRule6(3),(3A)and(3B):
(a) Amount to be paid by using Cenvat Credit or in cash:Theamountmentionedinsubrules(3),
(3A) and (3B), unless specified otherwise, shall be paid by the manufacturer of goods or the
providerofoutputservicebydebitingtheCENVATcreditorotherwise.
(b) Monthlypayments:Theabovepaymentsshallbemade:
Onorbeforethe5thdayofthefollowingmonth(exceptforthemonthofMarch);and
onorbefore31stMarch,forthemonthofMarch
(c) Quarterly payments in certain cases: In case of manufacturer availing SSI exemption and a
serviceproviderwhoisanindividualorproprietaryfirmorpartnershipfirm,theabovepayments
canbemade
(d) Recovery of the amount in accordance with Rule 14 : If the manufacturer of goods or the
provider of output service fails to pay the amount payable under subrule (3), (3A) and (38), it
shallberecovered,inthemannerasprovidedinRule74,forrecoveryofCENVATcreditwrongly
taken.
(III) NoCENVAToncapitalgoodsexclusivelyusedforexemptedgoods/services[RULE6(4)]:
NoCENVATcreditshallbeallowedoncapitalgoodswhichareusedexclusivelyinthemanufacture
ofexemptedgoodsorinprovidingexemptedservices.However,theunitsavailingexemptionunder
any notifications based upon the value or quantity of clearances made in a financial year (SSI
exemption),willbeentitledtoavailCENVATcreditoncapitalgoods.Thesaidcreditcanbeutilised
whensuchunitsstartpayingdutiesofexcise.
(IV) Non applicability of above provisions i.e entire CENVAT credit of duty/tax paid on inputs/input
services/capitalgoodswillbeallowedifgoodsclearedtoSEZ,EHTPetc.[Rule6(6)]:
Theprovisionsdiscussedabove[subrules(1),(2),(3)and(4)]shallnotbeapplicable,
(a) Incaseofmanufacturerofexcisablegoods:Iftheexcisablegoodsremovedwithoutpaymentof
dutyareeither,
(i). clearedtoaunitinaspecialeconomiczoneortoadeveloperofaspecialeconomiczone
fortheirauthorizedoperations;or
(ii). clearedtoa100%exportorientedundertakingor
(iii). cleared to a unit in an Electronic Hardware Technology Park or Software Technology
Park;or
(iv). supplied to the United Nations or an international organization for their official use or
suppliedtoprojectsfundedbythem,or
(iva)suppliedfortheuseofforeigndiplomaticmissionsorconsularmissionsorcareerconsular
officesordiplomaticagentsor
(v). cleared for export under bond in terms of the provisions of the Central Excise Rules,
2002;or
(vi). goldorsilverfallingwithinChapter71ofthesaidFirstSchedule,arisinginthecourseof
manufactureofcopperorzincbysmeltingor
(vii). allgoods,whichareexemptfromthedutiesofcustomsleviableundertheFirstSchedule
totheCustomsTariffAct,1975andtheadditionaldutyleviableundersection3(1)ofthe
saidCustomsTariffAct,whenimportedintoIndiaandaresupplied
(a) againstInternationalCompetitiveBiddingor
(b) toapowerprojectfromwhichpowersupplyhasbeentiedupthroughtariffbased
competitivebiddingor
(c) to a power project awarded to a developer through tariff based competitive
bidding,
(viii) suppliesmadeforsettingupofsolarpowergenerationprojectsorfacilities
(d) Incaseofprovideroftaxableservices:Ifthetaxableservicesareprovided,withoutpaymentof
servicetax,toaunitinaSpecialEconomicZoneortoadeveloperofaSpecialEconomicZonefor
theirauthorisedoperationsorwhenaserviceisexported.
For the Purpose of this rule, a service provided or agreed to be provided shall not be an
exemptedservicewhen,
(i). the service is exported as given under Rule 6A of the Service Tax Rules,1994 and the
paymentfortheserviceistobereceivedinconvertibleforeigncurrency;and
(ii). suchpaymenthasnotbeenreceivedforaperiodofsixmonthsorsuchextendedperiod
as may be allowed from timetotime by the Reserve Bank of India from the date of
provision.
*************************************
DISTRIBUTIONOFCENVATCREDIT
(1) InputServiceDistributorRule2(m)means
anofficeofthemanufacturerorproduceroffinalproductsorproviderofoutputservice,
which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of
inputservicesand
issuesinvoice,billor,asthecasemaybe,challan
forthepurposesofdistributingthecreditofservicetaxpaidonthesaidservices
tosuchmanufacturerorproducerorprovider,asthecasemaybe;
(2) Mannerofdistributionofcreditbyinputservicedistributor[Rule7ofCENVATCreditRules,2004]:
TheinputservicedistributormaydistributetheCENVATcreditinrespectoftheservicetaxpaidonthe
input service to its manufacturing units or units providing output service, subject to the following
conditions,namely,
(a) the credit distributed against a document referred to in Rule 9 does not exceed the amount of
servicetaxpaidthereon;
(b) credit of service tax, attributable to service used in a unit exclusively engaged in manufacture of
exemptedgoodsorprovidingofexemptedservices,shallnotbedistributed;
(c) creditofservicetax,attributabletoserviceusedwhollyinaunit,shallbedistributedonlytothat
unitand
(d) creditofservicetaxattributabletoserviceusedinmorethanoneunitshallbedistributedprorata
onthebasisoftheturnoverduringtherelevantperiodoftheconcernedunittothesumtotalofthe
turnoverofalltheunitstowhichtheservicerelatesduringthesameperiod.
(3) Filingofreturn:Theinputservicedistributor,shallfurnishahalfyearlyreturninsuchformasmaybe
specified by notification by the Board, giving the details of credit received and distributed during the
saidhalfyeartotheJurisdictionalSuperintendentofCentralExcise,notlaterthanthelastdayofthe
monthfollowingthehalfyearperiod.
Submission of revised return: The input service distributor may submit a revised return to correct a
mistakeoromissionwithinaperiodofsixtydaysfromthedateofsubmissionoftheoriginalreturn.
(4) InputServiceDistributor(ISD)andApplicabilityofRule6:
AsISDdoesnotprovideanyservice,andislikeatrader,therefore,thequestionofapplicabilityofRule6
oftheCENVATCreditRules,2004andconsequentavailmentofeitheroftheoptionscontainedtherein
byISDwouldnotarise.
RULE7A
Distributionofcreditoninputsbytheofficeoranyotherpremisesofoutputserviceprovider:
Wheretheproviderofoutputservicereceivesinput/capitalgoodsinonepremises
Butpurchaseinvoiceisissuedinthenameofanotherpremisesofsuchserviceprovider;
Thenthelatterofficecanissueaninvoice/bill/challanwithrespecttosuchinputs/capitalgoodsonbasisof
whichsuchproviderofoutputservicecanavailtheCENVATcredit.
ProvisionsofFirstStageDealer/SecondStageDealertobeapplicable:Theprovisionsoffirststagedealer
orsecondstagedealershallapplytosuchofficeorpremisesissuingsuchinvoices.
******************************
FIRSTSTAGEDEALER[Rule2(ij):meansadealerwhopurchasesthegoodsdirectlyfrom,
(i). ThemanufacturerunderthecoverofaninvoiceissuedintermsoftheprovisionsofCentralExcise
Rules,2002orfromthedepotofthesaidmanufacturer,orfrompremisesoftheconsignmentagent
ofthesaidmanufacturerorfromanyotherpremisesfromwherethegoodsaresoldbyoronbehalf
ofthesaidmanufacturer,undercoverofaninvoice;or
(ii). Animporterorfromthedepotofanimporterorfromthepremisesoftheconsignmentagentofthe
importer,undercoverofaninvoice.
SECONDSTAGEDEALER[Rule2(e):meansadealerwhopurchasesgoodsfromafirststagedealer.
PROCEDURAL REQUIREMENTS TO BE FOLLOWED BY FSD, SSD: The first stage dealer and second stage
dealerareeligibletopassontheCenvatcreditonlyiftheycomplythefollowingproceduralrequirements
(a) Registrationformalities:Thefirststagedealerorsecondstagedealerarerequiredtogetregistered
themselveswiththeexciseauthorities.
(b) Stock register to be maintained: The first stage dealer or second stage dealer are required to
maintainregisterforreceiptsandissueofinputsondailybasis.
(c) IssueofInvoice:AsperRule9(4)oftheCENVATCreditRules,20M,theCenvatcreditinrespectof
inputorcapitalgoodspurchasedfromafirststagedealerorsecondstagedealershallbeallowed
onlyifsuchfirststagedealerorsecondstagedealer,asthecasemaybe,hasmaintainedrecords
indicatingthefactthattheinputorcapitalgoodswassuppliedfromthestockonwhichdutywas
paidbytheproducerofsuchinputorcapitalgoodsandonlyanamountofsuchdutyonprorata
basishasbeenindicatedintheinvoiceissuedbyhim.
(d) Return to be Filed: As per Rule 9(8) of the CENVAT Credit Rules, 2004, the first stage dealer or a
secondstagedealer,asthecasemaybe,shallelectronicallysubmitwithin15daysfromthecloseof
each quarter of a year to the Superintendent of Central Excise, a return in the form specified, by
notification,bytheBoard.
*********************************
RULE8
Storageofinputoutsidethefactoryofthemanufacturer
(1) PowervestswithAC/DC:TheDeputyCommissionerofCentralExciseortheAssistantCommissionerof
CentralExcise,asthecasemaybe,havingjurisdictionoverthefactoryofamanufacturerofthefinal
products,maypermitsuchmanufacturertostoretheinputinrespectofwhichCENVATcredithasbeen
taken,outsidesuchfactory.
(2) Circumstances when inputs can be stored outside: Such permission shall be granted in exceptional
circumstanceshavingregardtonatureofgoodsandshortageofstoragespaceatthepremisesofsuch
manufacturersubjecttosuchconditionsorlimitationsasmaybespecifiedbyhim.
(3) Reversalofcreditwheninputnotused:Wheresuchinputisnotusedinthemannerspecifiedinthese
rulesforanyreasonwhatsoever,themanufacturerofthefinalproductsshallpayanamountequalto
thecreditavailedinrespectofsuchinput.
*************************
RULE9
DOCUMENTSANDACCOUNTS
TheCENVATcreditshallbetakenbythemanufacturerortheproviderofoutputserviceorinputservice
distributor,asthecasemaybe,onthebasisofanyofthefollowingdocuments,namely:
(1). INVOICE:
(a) Aninvoiceissuedbyamanufacturerforclearanceof,
Inputsorcapitalgoodsfromhis
(i). factory;or
(ii). depot;or
(iii). fromthepremisesofhisconsignmentagent;
(b) Aninvoiceissuedbyanimporterfrom,
(i). depot;or
(ii). fromthepremisesofhisconsignmentagent;
Providedthesaiddepotorthepremises,asthecasemaybe,isregisteredintermsoftheprovisions
ofCentralExciseRules,2002;
(c) An invoice issued by the First stage dealer or Second stage dealer in terms of the provisions of
CentralExciseRules,2002;
(2). SUPPLEMENTARYTNVOTCE:
(a) IssuedbyamanufacturerorimporterofinputsorcapitalgoodsintermsofCentralExciseRules
In case of additional amount of excise duty leviable u/s 3 of the Customs Tariff Act has been
paidbythemanufacturerorimporterofinputsorcapitalgoods;and
asupplementaryinvoiceisissuedbythesaidmanufacturerorimporterfrom:
(i). hisdepot
(ii). premisesofhisconsignmentagentor
(iii). anyotherpremisesfromwheregoodsaresoldbyoronbehalfofhim.
(b) IssuedbyaProviderofoutputserviceintermsofServiceTaxRule,1994.
Exception:Nocreditofadditionalduty/servicetaxwhereintentionwastodefraudtherevenue
(3)
(4)
(5)
(6)
(7)
Billofentry(incaseofimportofgoods);
Certificate issued by an appraiser of customs in respect of goods imported through a Foreign post
Office;
Challanevidencingpaymentofservicetax,servicerecipientasthepersonliabletopayservicetax.
Invoice,BillorChallanissuedbyaproviderofinputserviceissuedonorafter10thSeptember2004.
Invoice,BillorChallanissuedbyaninputservicedistributorunderRule4oftheServiceTaxRule1994.
[RULE12A]
CENVATSCHEMEFORLARGETAXPAYERS
(1) Largetaxpayersmeansapersonwho,
(a) hasoneormoreregisteredpremisesundertheCentralExciseorServiceTaxlaw;and
(b) isanassesseeunderIncometax,whoholdsaPermanentAccountNumber(PAN);and
(c) beingamanufacturerofexcisablegoodsorprovideroftaxableserviceshaspaidduringthefinancial
yearprecedingtheyearinwhichapplicationismade
(i).
dutiesofexciseofmorethanRs.5croresincashorthroughaccountcurrentor
(ii). servicetaxofmorethanRs.5croresincashorthroughaccountcurrentor
(iii). advancetax(underIncometaxlaw)ofmorethanRs.10crores.
However,manufacturersofgoodsfallingunderChapter24(tobacco,etc.)orpanmasalaunderChapter21
ofCentralExciseTariffhavebeenkeptoutofthescheme.
(2) [Rule12A]:Alargemayremove
(a) inputsassuchor,capitalgoodsassuch(exceptmotorspirit,commonlyknownaspetrol,highspeed
dieselandlightdieseloil),
(b) withoutpaymentamountrequiredtobepaidunderCENVATRule3(5)CenvatCreditRules,2004,
(c) undercoverofatransferchallan/invoice,fromanyofhisregisteredpremises('senderunit')
(d) tohisotherregisteredpremises,otherthanpremisesofafirst/secondstagedealer('recipientunit,)
(e) forfurtheruseinmanufacture/productionoffinishedexcisablegoodsinrecipientpremises,subject
totheconditionthatthefinishedgoodsare
(i). manufacturedorproducedusingthesaidinputs;and
(ii). withinaperiodof6months,fromthedateofreceiptsofinputsintherecipientpremises
(a) clearedonpaymentofappropriatedutiesofexciseleviablethereon;or
(b) exportedoutoflndia,underbondorletterofundertaking.
(iii) anyotherconditionprescribedbytheCommissionerofCentralExcise,LTUaresatisfied.
Liability to pay interest under section 11AA if finished goods not cleared/exported within 6 months as
aforesaid:If
(i). finishedgoodsarenotclearedorexportedwithintheperiodofsixmonths,asaforesaidor
(ii). inputsareclearedassuchfromtherecipientpremises,
then
(a) CENVATcredittakenoninputsbythesenderpremisesshallbepaidbytherecipientpremiseswith
interestinthemannerandratespecifiedundersection11AAoftheAct;and
(b) in case of payment of CENVAT Credit in respect of inputs by the recipient premises, as per Rule
12A(2), the first recipient premises may take Cenvat credit of the amount paid as if it was a duty
paidbythesenderpremiseswhoremovedsuchgoodsonthebasisofadocumentshowingpayment
ofsuchduties.
Capitalgoodsusedforexemptedgoods/clearedassuchCreditreversible:Ifsuchcapitalgoods
(a) areusedexclusivelyinthemanufactureofexemptedgoods,or
(b) areclearedassuchfromtherecipientpremises,
anamountequaltothecredittakeninrespectofsuchcapitalgoodsbythesenderpremisesshallbepaidby
therecipientpremiseswithinterestinthemannerandratespecifiedunderrule14oftheCENVATCredit
Rules,20O4.
Failuretopayamountrequiredtobepayasaforesaid;Ifalargetaxpayerfailstopayanyamountduein
termsoftheaforesaidprovisions,itshallberecoveredalongwithinterestinthesamemannerasprovided
u/s11Aand11AAoftheAct.
Contents of transfer challan/invoice: The transfer challan or invoice shall be serially numbered and shall
containtheregistrationnumber,name,addressofthelargetaxpayer,description,classification,timeand
dateofremovalmodeoftransportandvehicleregistrationnumber,quantityofthegoodsandregistration
numberandnameoftheconsignee.
Aforesaid provisions of RuIe 12A(1) not to apply: The aforesaid provisions of subrule (1) of the said rule
shallnotbeapplicable
(a) toaexportorientedunitoraunitlocatedinanElectronicHardwareTechnologyParkorSoftware
TechnologyPark.
(b) iftherecipientpremisesisavailingareabasedexemptionnotification.
(3) Creditofsenderpremisesnottobevaried/denied[Rule12A(3)l:Cenvatcreditofthespecifiedduties
takenbyasenderpremisesshallnotbedeniedorvariedinrespectofanyinputsorcapitalgoods,
(a) removed as such, on the ground that the said inputs or the capital goods have been removed
withoutpaymentofanamountspecifiedinRule3(5)oftheCENVATCreditRules,2004;or
(b) on the ground that the said inputs or capital goods have been used in the manufacture of any
intermediategoodsremovedwithoutpaymentofdutyunderRule12BB.
(4) Interunit transfer of CENVAT Credit [Rule 12A(4)]: A large taxpayer may transfer, Cenvat credit
availablewithoneofhisregisteredmanufacturingpremisesorpremisesprovidingtaxableservicetohis
othersuchregisteredpremisesby,
(a) makinganentryforsuchtransferinrecordmaintainedunderrule9ofCENVATRules,and
(b) issuing a transfer challan containing registration number, name and address of the registered
premises transferring the credit as well as receiving such credit, the amount of credit transferred
andtheparticularsofsuchentrymadeinrecordmaintainedundersaidRule9,
andsuchrecipientpremisescantakeCenvatcreditonthebasisofsuchtransferchallan.
Such transfer or utilisation of Cenvat credit shall be subject to limitations given under Rule 3(7)(b) (i.e.
restrictionrelatingtoutilizationofcredit,E.g.,educationcessmaybeusedagainsteducationcess,etc.).
[RULE15]
CONFISCATIONANDPENALTY
(1) If any Person takes or utilises CENVAT credit in respect of input or capital goods or input services,
wronglyorincontraventionoftheoftheprovisionsoftheserules,then,allsuchgoods,shallbeliableto
confiscationandsuchperson,shallbeliabletoapenalty,
notexceedingthedutyorservicetaxonsuchgoodsorservices,asthecasemaybe,
ortwothousandrupees,whicheverisgreater.
(2) themanufacturershallalsobeliabletopaypenaltyintermsoftheprovisionsofSection11ACofthe
ExciseAct.
(3) GeneralPenalty:IfanyPersoncontravenesanyprovisionsofCENVATCreditRules,2004forwhichno
specificpenaltyhasbeenprovidedtherein,heshallbeliabletoapenaltyofuptoRs.5,000.
CENVATAUDIT
(1) CenvatAudittobeorderedbyCommissioner:creditofdutyavailedoforutilised
(a) is not within the normal limits having regard to the nature of the excisable goods produced or
manufactured,thetypeofinputsusedandotherrelevantfactors,ashemaydeemappropriate;or
(b) has been availed of or utilised by reason of fraud, collusion or any willful misstatement or
suppression,offacts,
Hemaydirectsuchmanufacturertogettheaccountsofhisfactory,officedepotdistributororanyother
place,asmaybespecifiedbyhimauditedbyacostaccountantorcharteredaccountantnominatedby
him.
(2) Nominated Cost/Chartered Accountant, to submit duly signed and certified audit report to Central
Exciseofficerwithintheperiodspecified.
(3) Accountstobeauditedeveniftheyhavebeenalreadybeenaudited.
(4) Opportunitytotheasseseeeofbeingheard.
(5) Expensestobebornebydepartment.

Excise Basics Classification Valuation Cenvat

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CONCEPTOFEXCISEDUTY

Exemption notification in respect of intermediate goods: At present there are exemption

Applicability of Transaction ValueConditionstobesatisfied:Aspersectiona(f)(a)ofthe

A factory or any other place or premises of production or manufacture of the excisable

1. Meaning of Interconnected undertakings [Explanation to Section 4(3)(b)]: Two or more

(ii). Goods TRANSFERRED by principal manufacturer TO DEPOT/CONSIGNMENT AGENT, ETC.

5. Credit only if final products are dutiable/services provided are taxable:TheCenvatcreditisallowed

(C) Motor VehicledesignedtoCARRY PASSENGERSincludingtheirchassis,registeredinthenameofthe

(I) AmountofCenvatcredittakenasreducedby (I)

(II). Amount equal to the duty leviable on

TheprocedureforREMOVALOFINPUTS forJOBWORK toajobworkeronwhichCENVAThasbeen

(c) Transportation of goods or passengers by rail service: In case of transportation of goods or

(c) Input servicesusedinorinrelationtomanufactureofexemptedgoodsorprovisionof

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