Page 27 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes an indirect tax. This duty is now termed as “Cenvat”. There are three types of parties who can be
considered as manufacturers-

 Those who personally manufacture the goods in question
 Those who get the goods manufactured by employing hired labour
 Those who get the goods manufactured by other parties
For example, excise duty on the production of sugar is an indirect tax because the manufacturers
of sugar include the excise duty in the price and pass it on to buyers. Ultimately it is the
consumers on whom the incidence of excise duty on sugar falls, as they will pay higher price for
sugar than before the imposition of the tax.
In order to attract Excise duty liability, following four conditions must be fulfilled:
(a) The duty is on “goods”.
(b) The goods must be “excisable”.

(c) The goods must be “manufactured” or produced.
(d) Such manufacture or production must be “in India”.
Goods: These are the entities, which can be weighted, measured and marketed, e.g. steel, cloth,
computer software, gas, etc. Those commodities having very short life are not goods, if not
marketable in that short period, even if there is a specific entry in the tariff. Excise duty can only
be levied on those items, which are manufactured in India but excluding goods produced or
manufactured in Special Economic Zones (SEZ). Thus, excise levy cannot be imposed on imported
goods.
Payment of Excise Duty: In case of Non-SSI (Small Scale Industries) i.e., normal assessees the
excise duty is payable monthly, and for SSI (availing exemption based on turnover) it is payable
quarterly. The duty on the goods removed from the factory or the warehouse during the month
shall be paid by the 5th of the following month in case of Non-SSI and by 15th for SSI.

In case of delayed payment, interest should also be deposited at the rate of 13% p.m or 1,000 per
day for the period of delay after 5th or 15th whichever is applicable, whichever is higher, along
with the duty.
Payment by debit in Cenvat credit account: Under the Cenvat credit scheme, the assessee is
allowed credit of duty paid on inputs or capital goods, which are used in or in relation to
manufacture of the final products, and the credit can be utilized towards payment of duty on the
final products. Credit is allowed on inputs and capital goods except LDO (light diesel oil), HSD
(high speed diesel) and motor spirit. Also, instant credit is allowed immediately on the inputs
being received into the factory. However credit is not allowed if final products are exempted
from duty.
Following Example will illustrate the credit method of Cenvat.
Let the price of the commodity be 100, when the transaction takes place without cenvat, B
purchases from A at 110, (10% as excise duty). After addition a value of 40, the subtotal is
150. He pays 10% tax on it (i.e 15) then total is 165. As against this, in the second case, when
transaction takes place with Cenvat, B purchases from A at 100 because he got credit on that
amount. After adding the same value of 40, the sub total is 140, He has to pay 10% of excise on
140, i.e., 14, then total becomes 154.
Here you can observe easily that transaction with Cenvat is clearly beneficial. The details are
exhibited in the following tabular form:

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