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Excise Duty: All you need to know

The Government of India levies taxes on its citizens either directly or indirectly. While direct taxes are charged to the taxpayer in the most direct fashion, the burden of indirect taxes passes smoothly to the end consumer via a retailer or merchant. One such tax is the excise tax or excise duty. Read on to understand all about the tax.

What is Excise Duty?

About Excise Duty

An excise duty is a type of indirect tax that is levied on the sales of particular goods. This tax is not paid directly by the customer but is passed on to the consumer by a merchant or producer of goods as a part of the price of the product. The excise tax is the indirect tax that is charged as per the Excise Duty Act, 1944. This inland tax is collected by the retail store or by the intermediary body from the end consumer who finally ends up giving the tax.

The Sin Tax

It is also levied by the State Government on certain items including alcohol and tobacco related products like cigarettes, bidis, narcotics, etc. duty charges on certain goods etc. thereby also referred to as Central Excise Duty. Since the excise duty is levied on such products the overall cost of these products increases and thus, it helps in reducing the amount of consumption. Therefore, they are also referred to as sin taxes.

Types of Excise Duty

Excise Duty can easily be classified into two types:

  • Ad Valorem Excise Taxes: Ad valorem literally means as per value. In this case, it simply means that the excise duty will be applicable as per the value of the product.

  • Specific Excise Taxes: On the other hand, there are taxes like the specific excise taxes that are set on a particular product.

Rules for Collecting Excise Duty

Excise duty, as an indirect tax, is levied on the production and manufacturing of goods. This is done under the authority of the Central Excise Act, 1944. The exact rates of the tax, however, are specified under the act – Central Excise Tariff Act, 1985.

Where exactly is this duty taxable?

In order to understand this tax better, it is important to understand the products and stages the excise duty is applicable on. The excise duty is charged to some textile products like fibre, yarn and the likes. There are, of course, exclusions to the same.

About the Central Board of Excise and Customs

The CBEC or the Central Board of Excise and Customs was established by George Robinson in the year 1855. It is believed to be one among the oldest government departments of India and functions under the Union Ministry of Finance’s Department of Revenue. Some of the subsidiary organizations that function under the CBEC are as follows:

  • Custom Houses

  • Central Revenues Control Laboratory

  • Central Excise Commission Rates

Goods on which Excise Duty is Charged

The Central Government imposes excise duty on a number of products, not just on alcohol and narcotics. Some of them have been listed below:

  • Animal products: Live animals, meat, fish, molluscs, crustaceans, aquatic invertebrates, eggs, honey, other edible animal products. Vegetable products: Plants, trees, roots, flowers, leaves, tubers, edible parts of vegetables.

  • Miscellaneous products: Spices, citrus fruit peels, starch, malt, cereals, gluten, seeds, fodder, resins, gum, vegetable soaps, vegetable extracts.

  • Non-renewable sources: Products that are made out of non-renewable sources of energy such as metals and industrial chemicals.

Excise Duty Vs Custom Duty

Excise Duty is a form of indirect tax that is levied on goods that have been manufactured in the country. It is levied by the government. It ideally has to be paid by the manufacturer of goods at the time of introduction of goods in to the market. Thus, it is commonly referred to as manufacturing tax. Custom Duty, however, is an indirect tax that is levied on goods that are being sold in the country but have been manufactured outside India. Thus, it is applicable on goods sourced from other countries.

Excise Duty Vs Sales Tax or VAT

Sales TAX and VAT or Value Added Tax is the tax that is charged on the consumption of the goods while Excise Duty is the tax that is charged on the production as well as manufacturing of goods. VAT and Sales Tax are charged to a certain range of products, while the Excise Duty is charged on a relatively narrower product range. On the other hand, Sales Tax and VAT are calculated as per the maximum retail price of products and services, but Excise Duty is calculated on a per-unit basis.

Why is Excise Duty Implemented?

The government imposes taxes on its citizens to ensure smooth running of the nation. Some taxes are imposed directly to the taxpayer, while the others are levied on an indirect basis. By charging excise duty, the government ensures that the entire manufacturing section is involved in the taxation. These taxes that are charged can then be used as a means of controlling the sales of goods including alcohol and narcotic substances.

If the manufacturer, liable to pay tax, does not end up paying the required excise duty, he could be charged a penalty in the form of a fine. Moreover, he would cause a disruption of the flow in the organization plus mar the image of the organization.

How are Excisable Goods Evaluated?

Excisable goods are valuated as per the provisions of Valuation under the specific section, Section 4, of the Central Excise Act, 1944 as well as the Central Excise Tariff Act, 1985. The former act is based on the normal pricing wherein the maximum retail price is not fixed as per the Central Government or in cases where the tariff values are not fixed for these articles. As per Section 3(2) of the Central Excise Tariff Act, 1985, the valuation is based on the MRP that falls under Section 4A of the central Excise Act of 1944. This section applies on the excisable goods which are notified by the Central Government.

Chapter-wise Changes in Excise Duty

According to Budget 2017, unveiled by Arun Jaitley, a lot of changes were introduced to the Central Excise Duty Rates across goods. Some of these have been listed below:

  • Chapters 1 to 20, 22, 23: There have been no changes on these chapters

  • Chapters 21 and 24: The excise duty has seen a rise in case of tobacco and its products such as cheroots, bidis, cigarettes, scented tobacco, gutka, pan masala and the likes. Additionally, based on the compounded levy scheme introduced by the government earlier, the duty per machine per month has seen a change under the compounded levy scheme.

  • Chapters 25 to 30: There has been no change in this.

  • Chapter 31: There are goods that come under 3101 of Central Excise Tariff. In these cases, central excise duty need not be paid. But, a concessional tax of 1% could be liable in some cases.

  • Chapters 32 to 37: These chapters have recorded no change.

  • Chapters 38 and 39: There are some exemptions on catalysts and resins as well as on membrane sheets and tricot.

  • Chapters 40 to 69: These chapters have witnessed no change.

  • Chapter 70: Excise duty is exempted in certain cases such as solar-tempered glasses and related solar photovoltaic cells, equipment used in generating solar power, solar panels used for water pumping etc. Here, a minor percentage, i.e. 6% concessional excise duty is definitely imposed on solar tempered glass. Besides this, there is a reduction of excise duty from the 12.5% benchmark to 6% in case of raw materials and parts used in manufacturing solar tempering glass that is generally used in solar modules or photovoltaic cells, flat plate solar collectors and many other applications.

  • Chapter 71: This chapter deals with nil excise duty on wires, strips, plates, fibres, sheets and silver foils. Not just this, but it also includes silver jewellery besides the diamond and stone-studded ones, silver coins that are 99.9% (or above) pure. Chapters 72 to 83: This set of chapters has incorporated no changes at all.

  • Chapters 84 and 85: In this case, excise duty is not charged on micro ATMS with specifications in sync with version 1.5.1, i.e. fingerprint scanner as well as iris scanner. The duty is also exempted on various components and parts used in the manufacturing of these devices. These exemptions were to be valid till the date decided, i.e. June 30th, 2017. Besides this, holding the same date into consideration, miniaturised card readers for mPOS are exempted as well. This, however, does not include tablet computer or mobile phones. It is subject to user condition. All POS or point of sale devices as well as goods that are used in the manufacture of POS devices, subject to actual user condition, are exempted from central excise duty as well. These exemptions that were initially valid till the 31st of March, 2017 had then been further extended to 30th of June, 2017.

  • Chapter 86: This chapter has not witnessed any change.

  • Chapter 87: With effect from 1st January, 2017, excise duty on motor vehicles has reduced from 27% to as low as 12.5%. This is only applicable for those falling under tariff items 8702 90 21 as well as 8702 90 22, 8702 90 28 plus 8702 90 29.

  • Chapters 88 to 96: These chapters have not noticed any change at all.

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