Legislative changes

Amendments to Central Excise Act

Presumptive tax – amendment to production capacity-based excise duty

Section 3A(3) of the Central Excise Act – which empowers the central government to charge excise duty on the basis of capacity of production in respect of notified goods – is proposed to be amended by way of an explanation specifying relevant factors for the production of notified goods.

Recovery of unpaid or short-paid duty

Under Section 11A(5) of the Central Excise Act, if during the course of an audit, investigation or verification any duty is found to be unpaid, short levied, short paid or erroneously refunded due to fraud, collusion, wilful misstatement or suppression of facts – but the details of the same are available in the specified records – central excise officers can serve notice within five years of the relevant date, demanding the remaining duty, along with interest and a penalty equivalent to 50% of the duty. The proposed amendment seeks to omit this provision. Accordingly, Sections 11A(6) and 11A(7) are also proposed to be omitted.

An addition to Section 11A has been proposed to provide that where non-payment or short payment of duty is self-assessed and reflected in the periodic returns filed by an assessee as payable, Section 11A will not apply. Further, according to this addition, the recovery of duty will be made in the manner prescribed in the Central Excise Rules.

Penalty provisions

A proposal has been made to overhaul Section 11AC, which provides for the imposition of penalties in certain cases of non-payment or short payment of duty.

Where non-payment or short payment is for a reason other than fraud or suppression, penalties will be applied as follows:

  • The mandatory penalty will be capped at 10% of the duty demanded or Rs5,000, whichever is higher.
  • The penalty will not be imposed if the duty and interest demanded are paid before the issuance of a show cause notice or within 30 days of issuance thereof.
  • Where an adjudication order is issued, the penalty will be at a rate of 25%, as long as the duty, interest and reduced penalty are paid within 30 days of the communication of the order.

Where non-payment or short payment is due to fraud or suppression, penalties will be applied as follows:

  • The mandatory penalty will be 100% of the duty demanded.
  • If the details relating to the transactions (for transactions between April 8 2011 and the date on which the Finance Bill 2015 receives assent) are available in specific records, a penalty of 50% of the duty demanded will be imposed.
  • If the duty and interest are paid within 30 days of receipt of a show cause notice, the penalty will be 15% of the duty demanded, provided the same has also been paid within 30 days.
  • If the amount is paid within 30 days of receipt of an order confirming demand, the penalty will be capped at 25%, provided that it is paid within 30 days.

An explanation has been provided to clarify the different transition scenarios where the amended Section 11AC of the Central Excise Act will apply.

The amendments to Section 11AC of the Central Excise Act seek to encourage assessees to come forward and make payment either:

  • before the issuance of the show cause notice;
  • within 30 days of the issuance of the show cause notice; or
  • within 30 days of communication of the adjudication order.

This is a step towards reducing litigation and concluding matters earlier.

Customs and Central Excise Settlement Commission

Amendments have been proposed in respect of the Settlement Commission. Section 33B of the Central Excise Act has been proposed to be amended to enable one vice chair or member to officiate as chair in the latter's absence.

The following provisions have been omitted, as they are redundant:

  • Section 32E(1A) – provided for the payment of Settlement Commission fees in respect of applications made before June 1 2007, within 30 days of June 1 2007;
  • Section 32F(6) – provided a time limit (February 29 2008) for the disposal of applications which were filed before May 31 2007;
  • Section 32H – provided for the reopening of completed proceedings in respect of applications filed on or after June 1 2007; and
  • Explanation to Section 32K(1) – provided for the disposal of applications filed on or before May 31 2007 by February 29 2008.

Section 32(O) – which imposed limitations on subsequent applications for settlement in certain cases – has been proposed to be amended in order to delete redundant provisions.

No significant changes have been proposed to the Settlement Commission's settlement procedures, except to delete certain provisions which have become redundant.

Notifications

Non-tariff Notification 3/2015 of Central Excise

Notification 49/2008 – which outlines the percentages of abatements in relation to products covered under retail sale price valuation – has been amended as follows:

  • Goods falling under Central Excise Tariff Heading (CETH) 0402 91 10 (ie, condensed milk in unit containers) and CETH 2101 20 (ie, extracts, essences and concentrates of tea or mate and preparations using these extracts) will be included. On approval, an abatement of 30% will be available.
  • Goods falling under CETH 2202 (ie, all goods except mineral waters and aerated waters) will be included. On approval, an abatement of 35% will be available.
  • The rate of abatement on goods falling under CETH 64 (ie, all footwear) will be reduced from 35% to 25%.
  • Goods falling under CETH 85 and 94 (ie, all goods falling under CETH 8539 (except lamps for automobiles) and light-emitting diode (LED) lights or fixtures including LED lights falling under Chapter 85 or CETH 9405) will be included. On approval, an abatement of 35% will be available.
  • Serial Numbers 121 (ie, all goods falling under CETH 2202 9010), 122 (ie, all goods falling under CETH 2202 90 20), 123 (ie, flavoured milk of animal origin falling under CETH 2202 90 30) and 124 (ie, tender coconut water falling under CETH 2202 90 90) will be deleted.

Non-tariff Notifications 4/2015 and 5/2015 of Central Excise

The Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 2008 and the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 have been amended to determine annual production capacity from March 1 2015 onwards.

The maximum speed of packing machines for notified goods of various retail sale prices is now specified as a relevant factor when determining the amount of excise duty payable under Section 3A. Thus, the production and payable duty per machine per month notified in respect of pan masala and chewing tobacco – with reference to the maximum speed of packing machines for packages of various retail sale prices – has been reduced.

Non-tariff Notification 7/2015 of Central Excise

The registration process under the Central Excise Act has been simplified to ensure that registration is granted within two working days of receipt of a completed application form. The verification of documents and premises will be carried out after registration has been granted.

Non-tariff Notification 8/2015 of Central Excise

The following amendments are proposed to Notification 8/2015:

  • Assessee rebate and refund claims pending with the authorities can now be adjusted against penalties imposed on assessees in addition to the amount of duty and interest liability of the assessee.
  • Manufacturers can issue digitally signed invoices and preserve records in electronic form.

The following provisos to Rule 11(2) have been proposed:

  • If goods are directly dispatched to the registered dealer's customer under the registered dealer's direction, the invoice should specify the name of the registered dealer.
  • If goods are directly dispatched to a worker under the direction of the manufacturer or output service provider, the invoice should specify the name of the manufacturer or output service provider.
  • If goods imported under a bill of entry are directly dispatched to the buyer's premises, the invoice should mention that the goods are being dispatched from the place or port of import to the buyer's premises.

The provisions of Rule 11(7), Rule 12CCC, Rule 22 and Rule 25(1) – which apply to registered dealers – have been extended to registered importers.

Rule 12(6) and Rule 17(6) have been inserted to provide for the payment of Rs100 per day, subject to a maximum fine of Rs20,000 for failing to submit any return or statement applicable under Rules 12 and 17.

An explanation to Rule 18 has been substituted to define the term 'export' for the purposes of the rule to mean taking goods out of India to a location outside India. This includes the shipment of goods as provisions or stores for use on board a ship travelling to a foreign port or supplied to a foreign-bound aircraft.

Non-tariff Notification 9/2015 of Central Excise

Manufacturers can file a letter of undertaking instead of executing a general bond with surety or security (as provided under Rule 3(3) of the Central Excise Removal Rules), as long as no show cause notice has been issued under Section 11A of the Central Excise Act and no action is proposed under any notification issued in pursuance of Rule 12CCC of Central Excise Rules or Rule 12AAA of the Central Value Added Tax (CENVAT) Credit Rules.

Non-tariff Notification 10/2015 of Central Excise

The restrictions imposed under Notification 16/2014 with regard to the withdrawal of facilities due to non-compliance with certain provisions now applies to registered importers.

Non-tariff Notification 11/2015 of Central Excise In exercise of the powers conferred by Section 23A(c)(iii) of the Central Excise Act, 'resident firm' has been defined as a class of persons that can make an application to the authority for advance rulings. The term 'firm' has been defined to have the same meaning as that under Section 4 of the Indian Partnership Act 1932 and includes:

  • limited liability partnerships, as defined in Section 2(1)(n) of Limited Liability Partnership Act 2002;
  • limited liability partnerships which have no company as their partner;
  • sole proprietorships; and
  • one-person companies.

Circular 999/6/2015-CX

A demand was raised to clarify that in the case of exports – for the purposes of receiving CENVAT credit on input services – the place of removal should be the port or airport where the goods are finally exported. The Central Board of Excise and Customs clarified that in the case of clearance of goods for export by a manufacturer-exporter, the transfer of property takes place at the port where the shipping bill is filed by the manufacturer-exporter and the place of removal is the port.

In the case of export through merchant-exporters, the place of removal will be the property where the goods pass from the manufacturer to the merchant-exporter. In most cases, this will be the factory gate, since this is where goods are unconditionally appropriated to the contract in cases where the goods are sealed in the factory.

Changes to excise duty rates

The maximum rate of excise duty has been increased to 12.5% (this subsumes education cess and secondary higher education cess levies).

The excise duty rate on goods covered by the Medicinal and Toilet Preparation (Excise Duties) Act 1955 has been increased to 12.5%.

Increase in rates Duty on cigarettes has been increased by 29% for cigarettes under 65 millimetres (mm) in length and between 17% and 29% for cigarettes of other lengths. This also includes other tobacco products and tobacco substitutes (eg, cheroots, cigarillos and cigars). Below is the summary of changes in rates of excise duty:

Click here to view table.  

The duty on waters (including mineral water and aerated water) containing added sugar or other sweeteners or flavours falling under CETH 220210 has been increased from 12% to 18%. Simultaneously, the levy of additional excise duty of 5% has been omitted.Duty on cut tobacco has been increased from Rs60 per kilogram to Rs70 per kilogram.

Duty on goods falling under CETH 252329 (ie, ordinary Portland cement and dry and coloured Portland pozzolana cement) has been increased from Rs900 per tonne to Rs1,000 per tonne.

Clean energy cess levied on coal, lignite and peat has been increased from Rs100 per tonne to Rs200 per tonne.

The duty on sacks and bags (including cones) of polymers of ethylene (other than for industrial use) and other plastics including polyvinyl chloride has been increased to 15% and 12.5%, respectively.

Excise duty of 1% (without CENVAT credit) and 6% (with CENVAT credit) is leviable on mobile handsets, including cellular phones. These goods are still subject to national calamity contingent duty at 1%.

Full exemption from excise duty

The following goods are fully exempt from excise duty:

  • those which are consumed within a factory while manufacturing incenses;
  • standard grade pig iron and ferrosilicon used for the manufacture of cast components of wind-operated electricity generators;
  • round copper wire and tin alloys used for the manufacture of Photovoltaic (PV) ribbon, tinned copper interconnect for the manufacture of solar PV cells and modules subject to Department of Electronics and Information Technology certification;
  • railway or tramway track construction materials (eg, iron and steel), as long as excise duty has been paid and no corresponding credit of duty is availed;
  • parts, components and accessories used for the manufacture of tablet computer and sub-parts thereof; and
  • specified raw materials used for the manufacture of pacemakers.

Reduction in rates

The duty on footwear with leather uppers (made from leather classified under specific headings) with a retail sale price exceeding Rs1,000 per pair has been reduced from 12% to 6%. The abatement applicable for all footwear has been reduced to 25%.

A reduced duty (from 12% to 6%) will apply for wafers used in the manufacture of integrated circuit modules for smartcards and inputs used in the manufacture of LED drivers and the thermal management of high-power LED lights, fixtures and LED lamps.

Further, the duty on chassis for ambulances has been reduced from 24% to 12.5%.

Withdrawal of exemption and optional excise duty payment facilitated

An optional excise duty of 2% (without CENVAT credit) and 6% (with CENVAT credit) will be extended to condensed milk in unit containers (condensed milk not in unit containers will continue to be exempt) and peanut butter.

An optional excise duty of 0% (without CENVAT credit) and 12.5% (with CENVAT credit) will be provided for solar water heaters and systems.

An optional excise duty of 2% (without CENVAT credit) and 12.5% (with CENVAT credit) will be provided for tablet computers.

Click here to view table. 

Thus, the total amount of excise duty on petrol and diesel remains unchanged.

Clarifications

The validity period of the 6% concessional excise duty granted to specified goods used in the manufacture of electrically operated vehicles and hybrid vehicles has been extended by one year.

Goods manufactured domestically and supplied against international competitive bidding are eligible for full excise duty exemption, provided that when they are imported, they do not attract basic customs duty or countervailing duty (Serial Number 336 of Notification 12/2012-CE). This provision is being amended to include goods which are manufactured domestically and supplied against international competitive bidding and attract basic customs duty or countervailing duty.

Goods used to establish ultra-mega power projects specified in List 10 (Serial Number 337 of Notification 12/2012-CE) are exempt from excise duty. Goods used in projects for which obtaining a certificate of ultra-mega power project status is provisional will be exempt from excise duty, provided that the chief executive officer (CEO) of the project furnishes a bank guarantee or fixed deposit receipt for 36 months or more. This provision is being amended to prescribe that bank guarantees or fixed deposit receipts must be furnished for 42 months.

Finally, goods used to establish mega-power projects specified in List 11 (Serial Number 338 of Notification 12/2012-CE) are exempt from excise duty. Goods used during a project for which obtaining a certificate of mega-power project status is provisional will be exempt under the condition that the CEO of the project furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more. This condition is being amended to prescribe that bank guarantees or fixed deposit receipts must be furnished for 66 months.

For further information on this topic please contact Rohan Shah, Aqeel Sheerazi or Santosh Maurya at Economic Laws Practice by telephone (+91 22 6636 7000) or email (rohanshah@elp-in.com, aqeelsheerazi@elp-in.com or santoshmaurya@elp-in.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.